SEC Info - WW International, Inc. - ‘10-K’ for 1/2/21

2019

2018

(53 weeks)

(52 weeks)

Subscription revenues, net

i 1,186,489

i 1,207,266

i 1,273,196

Product sales and other, net

i 191,635

i 206,071

i 240,925

Revenues, net

i 1,378,124

i 1,413,337

i 1,514,121

Cost of subscription revenues

i 452,882

i 502,907

i 508,477

Cost of product sales and other

i 147,401

i 123,748

i 139,234

Cost of revenues

i 600,283

i 626,655

i 647,711

Gross profit

i 777,841

i 786,682

i 866,410

Marketing expenses

i 260,727

i 243,998

i 226,319

Selling, general and administrative expenses

i 297,287

i 254,699

i 251,106

Goodwill impairment

i 3,665

i 0

Operating income

i 216,162

i 287,985

i 388,985

Interest expense

i 123,310

i 135,267

i 142,346

Other expense, net

i 349

i 1,758

i 2,578

Income before income taxes

i 92,503

i 150,960

i 244,061

Provision for income taxes

i 17,462

i 31,513

i 20,493

Net income

i 75,041

i 119,447

i 223,568

Net loss attributable to the noncontrolling interest

i 38

i 169

i 181

Net income attributable to WW International, Inc.

i 75,079

i 119,616

i 223,749

Earnings per share attributable to WW International, Inc.

Basic

i 1.11

i 1.78

i 3.38

Diluted

i 1.07

i 1.72

i 3.19

Weighted average common shares outstanding

Basic

i 67,849

i 67,188

i 66,280

Diluted

i 70,020

i 69,550

i 70,115

The accompanying notes are an integral part of the consolidated financial statements.

F-6

WW INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE FISCAL YEARS ENDED

(IN THOUSANDS)

January 2,

December 28,

2019

2018

(53 weeks)

(52 weeks)

Net income

i 75,041

i 119,447

i 223,568

Other comprehensive gain (loss):

Foreign currency translation gain (loss)

i 10,088

i 3,676

( i 11,462

)

Income tax (expense) benefit on foreign currency

translation gain (loss)

( i 2,533

)

( i 939

)

i 2,906

Foreign currency translation gain (loss), net of taxes

i 7,555

i 2,737

( i 8,556

)

(Loss) gain on derivatives

( i 7,305

)

( i 19,222

)

i 7,205

Income tax benefit (expense) on (loss) gain on

derivatives

i 1,855

i 4,868

( i 1,827

)

(Loss) gain on derivatives, net of taxes

( i 5,450

)

( i 14,354

)

i 5,378

Total other comprehensive gain (loss)

i 2,105

( i 11,617

)

( i 3,178

)

Comprehensive income

i 77,146

i 107,830

i 220,390

Net loss attributable to the noncontrolling interest

i 38

i 169

i 181

Foreign currency translation loss, net of taxes

attributable to the noncontrolling interest

i 98

i 22

i 373

Comprehensive loss attributable to the noncontrolling

interest

i 136

i 191

i 554

Comprehensive income attributable to

WW International, Inc.

i 77,282

i 108,021

i 220,944

The accompanying notes are an integral part of the consolidated financial statements.

F-7

WW INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL DEFICIT

(IN THOUSANDS)

WW International, Inc.

Accumulated

Redeemable

Other

Noncontrolling

Common Stock

Treasury Stock

Comprehensive

Retained

Interest

Amount

Loss

Earnings

Total

Balance at December 30,

2017

i 4,467

i 118,947

i 0

i 54,258

( i 3,208,836

)

( i 10,467

)

i 2,203,317

( i 1,015,986

)

Comprehensive income

(loss)

( i 554

)

( i 2,805

)

i 223,749

i 220,944

Issuance of treasury stock

under stock plans

( i 862

)

i 33,212

( i 30,618

)

i 2,594

Compensation expense on

share-based awards

i 20,188

Issuance of common stock

i 1,405

i 9,796

Cumulative effect of

revenue accounting

change

i 2,933

Cumulative effect of tax

accounting change

( i 2,485

)

( i 46,927

)

( i 49,412

)

Balance at December 29,

2018

i 3,913

i 120,352

i 0

i 53,396

( i 3,175,624

)

( i 15,757

)

i 2,382,438

( i 808,943

)

Comprehensive income

(loss)

( i 191

)

( i 11,595

)

i 119,616

i 108,021

Issuance of treasury stock

under stock plans

( i 463

)

i 17,350

( i 22,442

)

( i 5,092

)

Compensation expense on

share-based awards

i 20,471

Balance at December 28,

2019

i 3,722

i 120,352

i 0

i 52,933

( i 3,158,274

)

( i 27,352

)

i 2,500,083

( i 685,543

)

Comprehensive income

(loss)

( i 136

)

i 2,203

i 75,079

i 77,282

Issuance of treasury stock

under stock plans

( i 436

)

i 17,371

( i 23,181

)

( i 5,810

)

Compensation expense on

share-based awards

i 55,013

Issuance of common stock

i 1,118

i 7,793

Acquisition of minority interest

( i 3,586

)

i 3,054

Balance at January 2,

—

i 121,470

i 0

i 52,497

( i 3,140,903

)

( i 25,149

)

i 2,617,841

( i 548,211

)

The accompanying notes are an integral part of the consolidated financial statements.

F-8

WW INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE FISCAL YEARS ENDED

(IN THOUSANDS)

January 2,

December 28,

2019

2018

(53 weeks)

(52 weeks)

Operating activities:

Net income

i 75,041

i 119,447

i 223,568

Adjustments to reconcile net income to cash provided by operating activities:

Depreciation and amortization

i 50,677

i 45,017

i 44,061

Amortization of deferred financing costs and debt discount

i 8,845

i 9,318

i 8,539

Goodwill impairment

i 3,665

i 0

Impairment of intangible and long-lived assets

i 1,372

i 307

i 27

Share-based compensation expense

i 55,013

i 20,471

i 20,188

Deferred tax benefit

( i 1,440

)

( i 9,424

)

( i 13,673

)

Allowance for doubtful accounts

i 411

( i 123

)

i 130

Reserve for inventory obsolescence

i 16,425

i 8,710

i 7,906

Foreign currency exchange rate loss

i 719

i 1,235

i 2,036

Changes in cash due to:

Receivables

( i 3,600

)

i 1,331

( i 7,999

)

Inventories

( i 25,940

)

( i 9,127

)

( i 1,148

)

Prepaid expenses

( i 5,081

)

i 13,619

( i 3,991

)

Accounts payable

( i 4,045

)

i 1,347

i 2,224

Accrued liabilities

( i 29,421

)

( i 6,968

)

i 16,600

Deferred revenue

( i 11,583

)

i 6,199

( i 17,198

)

Other long term assets and liabilities, net

i 1,859

( i 878

)

( i 13,001

)

Income taxes

i 3,023

( i 18,098

)

i 27,323

Cash provided by operating activities

i 135,940

i 182,383

i 295,592

Investing activities:

Capital expenditures

( i 21,490

)

( i 17,159

)

( i 19,050

)

Capitalized software expenditures

( i 28,941

)

( i 30,824

)

( i 27,763

)

Cash paid for acquisitions

( i 10,037

)

( i 4,060

)

( i 7,100

)

Other items, net

( i 5,123

)

( i 580

)

( i 10,045

)

Cash used for investing activities

( i 65,591

)

( i 52,623

)

( i 63,958

)

Financing activities:

Net (payments) borrowings on revolver

i 0

( i 25,000

)

Payments on long-term debt

( i 96,250

)

( i 177,000

)

( i 57,750

)

Taxes paid related to net share settlement of equity awards

( i 6,798

)

( i 6,582

)

( i 25,020

)

Proceeds from stock options exercised

i 8,176

i 1,076

i 33,417

Other items, net

( i 667

)

( i 487

)

i 0

Cash used for financing activities

( i 95,539

)

( i 182,993

)

( i 74,353

)

Effect of exchange rate changes on cash and cash equivalents

i 8,341

( i 1,005

)

( i 3,361

)

Net (decrease) increase in cash and cash equivalents

( i 16,849

)

( i 54,238

)

i 153,920

Cash and cash equivalents, beginning of period

i 182,736

i 236,974

i 83,054

Cash and cash equivalents, end of period

i 165,887

i 182,736

i 236,974

The accompanying notes are an integral part of the consolidated financial statements.

F-9

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

1.	Basis of Presentation

The accompanying consolidated financial statements include the accounts of WW International, Inc. and all of its subsidiaries. The terms “Company” and “WW” as used throughout these notes are used to indicate WW International, Inc. and all of its operations consolidated for purposes of its financial statements. The Company’s “Digital” business refers to providing subscriptions to the Company’s digital product offerings, including Digital 360 and Personal Coaching + Digital. The Company’s “Workshops + Digital” (formerly known as “Studio + Digital”) business refers to providing unlimited access to the Company’s workshops combined with the Company’s digital subscription product offerings to commitment plan subscribers. It also includes the provision of access to workshops for members who do not subscribe to commitment plans, including the Company’s “pay-as-you-go” members.

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) and include all of the Company’s majority-owned subsidiaries. All entities acquired, and any entity of which a majority interest was acquired, are included in the consolidated financial statements from the date of acquisition. In the fourth quarter of fiscal 2020, the remaining i 20% interest in Vigilantes do Peso Marketing Ltda. was transferred to the Company in a cashless exchange, resulting in the reclassification of the redeemable noncontrolling interest to equity. All intercompany accounts and transactions have been eliminated in consolidation.

In fiscal 2020, the Company identified and recorded out-of-period adjustments related to income tax errors resulting from income tax receivables that should have been adjusted in prior fiscal years. The impact of correcting these errors, which were immaterial to prior period financial statements and corrected in the fourth quarter of fiscal 2020, increased provision for income taxes by $ i 2,279 and decreased net income attributable to the Company by $ i 2,279.

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2.	Summary of Significant Accounting Policies

Fiscal Year

The Company’s fiscal year ends on the Saturday closest to December 31^st and consists of either 52 or 53-week periods. Fiscal 2020 contained 53 weeks, and fiscal 2019 and fiscal 2018 each contained 52 weeks.

F-10

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

Use of Estimates

The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates and judgments, including those related to inventories, the impairment analysis for goodwill and other indefinite-lived intangible assets, revenue, share-based compensation, income taxes, tax contingencies and litigation. The Company bases its estimates on historical experience and on various other factors and assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. While all available information has been considered, actual amounts could differ from these estimates. For example, the global outbreak of the coronavirus (COVID-19) has had and will continue to have a significant adverse impact on the Company’s business as well as on the business environment and the markets in which it operates. This global health crisis has also had a significant adverse effect on overall economic conditions and the Company expects consumer demand to continue to be negatively impacted due to changes in consumer behavior and confidence and health concerns. The situation remains dynamic and subject to rapid and possibly significant change, with the United States and other countries continuing to struggle with rolling outbreaks of the virus. Accordingly, the full extent of the magnitude and duration of the negative impact to the Company’s business from the COVID-19 pandemic cannot be predicted with certainty. The Company considered the impact of COVID-19 on the assumptions and estimates used when preparing this Annual Report on Form 10-K and the accompanying consolidated financial statements. These assumptions and estimates may change, as new events occur and additional information is obtained, and such future changes may have an adverse impact on the Company's results of operations, financial position and liquidity.

Translation of Foreign Currencies

For all foreign operations, the functional currency is the local currency. Assets and liabilities of these operations are translated into US dollars using the exchange rate in effect at the end of each reporting period. Income statement accounts are translated at the average rate of exchange prevailing during each reporting period. Translation adjustments arising from the use of differing exchange rates from period to period are included in accumulated other comprehensive loss.

Foreign currency gains and losses arising from the translation of intercompany receivables and intercompany payables with the Company’s international subsidiaries are recorded as a component of other expense, net, unless the receivable or payable is considered long-term in nature, in which case the foreign currency gains and losses are recorded as a component of accumulated other comprehensive loss.

Cash Equivalents

Cash and cash equivalents are defined as highly liquid investments with original maturities of three months or less. Cash balances may, at times, exceed insurable amounts. The Company believes it mitigates this risk by investing in or through major financial institutions. Cash includes balances due from third-party credit card companies.

Inventories

Inventories, which consist of finished goods, are stated at the lower of cost or net realizable value on a first-in, first-out basis, net of reserves for obsolescence and shrinkage.

Property and Equipment

Property and equipment are recorded at cost. For financial reporting purposes, equipment is depreciated on the straight-line method over the estimated useful lives of the assets ( i 3 to i 10 years). Leasehold improvements are amortized on the straight-line method over the shorter of the term of the lease or the useful life of the related assets. Expenditures for new facilities and improvements that substantially extend the useful life of an asset are capitalized. Ordinary repairs and maintenance are expensed as incurred. When assets are retired or otherwise disposed of, the cost and related depreciation are removed from the accounts and any related gains or losses are included in income.

F-11

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

Impairment of Long Lived Assets

The Company reviews long-lived assets, including amortizable intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable.

In fiscal 2020, fiscal 2019 and fiscal 2018, the Company recorded impairment charges of $ i 62, $ i 307 and $ i 0, respectively, related to internal-use computer software that was not expected to provide substantive service potential.

In fiscal 2020, fiscal 2019 and fiscal 2018, the Company recorded impairment charges of $ i 1,310, $ i 0 and $ i 27, respectively, related to property, plant and equipment that were expected to be disposed of before the end of their estimated useful lives.

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Franchise Rights Acquired

Finite-lived franchise rights acquired are amortized over the remaining contractual period, which is generally less than i one year. Indefinite-lived franchise rights acquired are tested on an annual basis for impairment.

In performing the impairment analysis for indefinite-lived franchise rights acquired, the fair value for franchise rights acquired is estimated using a discounted cash flow approach referred to as the hypothetical start-up approach for franchise rights related to the Company’s Workshops + Digital business and a relief from royalty methodology for franchise rights related to the Company’s Digital business. The aggregate estimated fair value for these rights is then compared to the carrying value of the unit of account for those franchise rights. The Company has determined the appropriate unit of account for purposes of assessing impairment to be the combination of the rights in both the Workshops + Digital business and the Digital business in the country in which the applicable acquisition occurred. The net book values of these franchise rights in the United States, Canada, United Kingdom, Australia, and New Zealand as of the January 2, 2021 balance sheet date were $ i 681,497, $ i 56,694, $ i 12,318, $ i 6,907 and $ i 5,084, respectively, totaling $ i 762,500 and the net book values as of the December 28, 2019 balance sheet date were $ i 671,914, $ i 55,171, $ i 11,784, $ i 6,273 and $ i 4,742, respectively, totaling $ i 749,884.

In its hypothetical start-up approach analysis for fiscal 2020, the Company assumed that the year of maturity was reached after i 7 years. Subsequent to the year of maturity, the Company estimated future cash flows for the Workshops + Digital business in each country based on assumptions regarding revenue growth and operating income margins. The cash flows associated with the Digital business in each country were based on the expected Digital revenue for such country and the application of a royalty rate based on current market terms. The cash flows for the Workshops + Digital and Digital businesses were discounted utilizing rates which were calculated using the weighted-average cost of capital, which included the cost of equity and the cost of debt.

Goodwill

In performing the impairment analysis for goodwill, the fair value for the Company’s reporting units is estimated using a discounted cash flow approach. This approach involves projecting future cash flows attributable to the reporting unit and discounting those estimated cash flows using an appropriate discount rate. The estimated fair value is then compared to the carrying value of the reporting unit. The Company has determined the appropriate reporting unit for purposes of assessing annual impairment to be the country for all reporting units. The net book values of goodwill in the United States, Canada and other countries as of the January 2, 2021 balance sheet date were $ i 102,968, $ i 42,103 and $ i 10,546, respectively, totaling $ i 155,617. The net book values of goodwill in the United States, Canada, Brazil and other countries as of the December 28, 2019 balance sheet date were $ i 102,968, $ i 40,972, $ i 4,399 and $ i 9,577, respectively, totaling $ i 157,916.

F-12

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

For all of the Company’s reporting units tested as of May 3, 2020, the Company estimated future cash flows by utilizing the historical debt-free cash flows (cash flows provided by operations less capital expenditures) attributable to that country and then applied expected future operating income growth rates for such country. The Company utilized operating income as the basis for measuring its potential growth because it believes it is the best indicator of the performance of its business. The Company then discounted the estimated future cash flows utilizing a discount rate which was calculated using the weighted-average cost of capital, which included the cost of equity and the cost of debt.

Indefinite-Lived Franchise Rights Acquired and Goodwill Annual Impairment Test

The Company reviews indefinite-lived intangible assets, including franchise rights acquired with indefinite lives, and goodwill for potential impairment on at least an annual basis or more often if events so require. The Company performed fair value impairment testing as of May 3, 2020 and May 5, 2019, each the first day of fiscal May, on its indefinite-lived intangible assets and goodwill.

In performing its annual impairment analysis as of May 3, 2020 and May 5, 2019, the Company determined that the carrying amounts of its franchise rights acquired with indefinite lives units of account and goodwill reporting units did not exceed their respective fair values and, therefore, i i no / impairment existed.

When determining fair value, the Company utilizes various assumptions, including projections of future cash flows, growth rates and discount rates. A change in these underlying assumptions could cause a change in the results of the impairment assessments and, as such, could cause fair value to be less than the carrying amounts and result in an impairment of those assets. In the event such a result occurred, the Company would be required to record a corresponding charge, which would impact earnings. The Company would also be required to reduce the carrying amounts of the related assets on its balance sheet.

Based on the results of the Company’s May 3, 2020 annual franchise rights acquired impairment analysis performed for all of its units of account, except for Canada and New Zealand, as of the January 2, 2021 balance sheet date, those units had an estimated fair value at least i 35% higher than the respective unit’s carrying amount. Collectively, these units of account represent i 91.9% of the Company’s total franchise rights acquired. Based on the results of the Company’s annual franchise rights acquired impairment test performed for its Canada unit of account, which holds i 7.4% of the Company’s franchise rights acquired as of the January 2, 2021 balance sheet date, the estimated fair value of this unit of account exceeded its carrying value by approximately i 16.5%. Based on the results of the Company’s annual franchise rights acquired impairment test performed for its New Zealand unit of account, which holds i 0.7% of the Company’s franchise rights acquired as of the January 2, 2021 balance sheet date, the estimated fair value of this unit of account exceeded its carrying value by approximately i 9.8%. Accordingly, a change in the underlying assumptions for New Zealand may change the results of the impairment assessment and, as such, could result in an impairment of the franchise rights acquired related to New Zealand, for which the net book value was $ i 5,084 as of January 2, 2021.

Based on the results of the Company’s May 3, 2020 annual goodwill impairment test performed for all of its reporting units as of the January 2, 2021 balance sheet date, there was significant headroom in the goodwill impairment analysis for those units, with the difference between the carrying value and the fair value exceeding i 100%.

Brazil Goodwill Impairment

With respect to its Brazil reporting unit, during the first quarter of fiscal 2020, the Company made a strategic decision to shift to an exclusively Digital business in that country. The Company determined that this decision, together with the negative impact of COVID-19, the ongoing challenging economic environment in Brazil and its reduced expectations regarding the reporting unit’s future operating cash flows, required the Company to perform an interim goodwill impairment analysis. In performing this discounted cash flow analysis, the Company determined that the carrying amount of this reporting unit exceeded its fair value and as a result recorded an impairment charge of $ i 3,665, which comprises the remaining balance of goodwill for this reporting unit.

F-13

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

As it relates to its goodwill impairment analysis for Brazil, the Company estimated future debt-free cash flows in contemplation of its growth strategies for that market. In developing these projections, the Company considered the growth strategies under the current market conditions in Brazil. The Company then discounted the estimated future cash flows utilizing a discount rate which was calculated using the weighted-average cost of capital, which included the cost of equity and the cost of debt.

Other Intangible Assets

Other finite-lived intangible assets are amortized using the straight-line method over their estimated useful lives of i 3 to i 20 years. The Company expenses all software costs (including website development costs) incurred during the preliminary project stage and capitalizes all internal and external direct costs of materials and services consumed in developing software (including website development costs) once the development has reached the application development stage. Application development stage costs generally include software configuration, coding, installation to hardware and testing. These costs are amortized over their estimated useful life of i 3 years for website development costs and from i 3 to i 5 years for all other software costs. All costs incurred for upgrades, maintenance and enhancements, including the cost of website content, which do not result in additional functionality, are expensed as incurred.

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Revenue Recognition

Revenues are recognized when control of the promised services or goods is transferred to the Company’s customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those services or goods.

The Company earns revenue from subscriptions for its digital products and by conducting workshops, for which it charges a fee, predominantly through commitment plans, as well as prepayment plans or the “pay-as-you-go” arrangement. The Company also earns revenue by selling consumer products online through its e-commerce platforms, at its studios and through its trusted partners; collecting royalties from franchisees; collecting royalties related to licensing agreements; and publishing.

Commitment plan revenues and prepaid workshop fees are recorded to revenue on a straight-line basis as control is transferred since these performance obligations are satisfied over time. “Digital Subscription Revenues,” consisting of the fees associated with subscriptions for the Company’s Digital products, including Digital 360 and Personal Coaching + Digital, are recognized on a straight-line basis as control is transferred since these performance obligations are satisfied over time. One-time Digital sign-up fees are considered immaterial in the context of the contract and the related revenue is amortized into revenue over the commitment period. “Workshops + Digital Fees” (formerly known as “Studio + Digital Fees”), consisting of the fees associated with subscription plans for combined workshops and digital offerings and other payment arrangements for access to workshops, are recognized on a straight-line basis as control is transferred since these performance obligations are satisfied over time. In the Workshops + Digital business, the Company generally charges non-refundable registration and starter fees in exchange for access to the Company’s digital subscription products, an introductory information session and materials it provides to new members. Revenue from these registration and starter fees is considered immaterial in the context of the contract and is amortized into revenue over the commitment period. Revenue from consumer product sales online through e-commerce platforms and at studios, royalties and commissions, and “pay-as-you-go” workshop fees is recognized at the point in time control is transferred, which is when products are shipped to customers and partners and title and risk of loss passes to them, royalties and commissions are earned, and services are rendered, respectively. For revenue transactions that involve multiple performance obligations, the amount of revenue recognized is determined using the relative fair value approach, which is generally based on each performance obligation’s stand-alone selling price. Discounts to customers, including free registration offers, are recorded as a deduction from gross revenue in the period such revenue was recognized.

The Company grants refunds in aggregate amounts that historically have not been material. Because the period of payment of the refund generally approximates the period revenue was originally recognized, refunds are recorded as a reduction of revenue over the same period.

F-14

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

Advertising Costs

Advertising costs consist primarily of broadcast and digital media. All costs related to advertising are expensed in the period incurred, except for media production-related costs, which are expensed the first time the advertising takes place. Total advertising expenses for the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018 were $ i 248,473, $ i 235,826 and $ i 218,062, respectively.

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Income Taxes

Deferred income tax assets and liabilities result primarily from temporary differences between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which differences are expected to reverse. If it is more-likely-than-not that some portion of a deferred tax asset will not be realized, a valuation allowance is recognized. The Company considers historic levels of income, estimates of future taxable income and feasible tax planning strategies in assessing the need for a tax valuation allowance.

The Company recognizes a benefit for uncertain tax positions when a tax position taken or expected to be taken in a tax return is more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company recognizes accrued interest and penalties associated with uncertain tax positions as part of the provision for income taxes on its consolidated statements of net income.

In addition, assets and liabilities acquired in purchase business combinations are assigned their fair values and deferred taxes are provided for lower or higher tax bases.

Derivative Instruments and Hedging

The Company is exposed to certain risks related to its ongoing business operations, primarily interest rate risk and foreign currency risk. Interest rate swaps were entered into to hedge a portion of the cash flow exposure associated with the Company’s variable-rate borrowings. The Company does not use any derivative instruments for trading or speculative purposes.

The Company recognizes the fair value of all derivative instruments as either assets or liabilities on the balance sheet. The Company has designated and accounted for interest rate swaps as cash flow hedges of its variable-rate borrowings. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive loss and reclassified into earnings in the periods during which the hedged transactions affect earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.

The fair value of the Company’s interest rate swaps are reported as a component of accumulated other comprehensive loss on its balance sheet. See Note 18 for a further discussion regarding the fair value of the Company’s interest rate swaps. The net effect of the interest payable and receivable under the Company’s effective interest rate swap is included in interest expense on the consolidated statements of net income.

Deferred Financing Costs

Deferred financing costs consist of fees paid by the Company as part of the establishment, exchange and/or modification of the Company’s long-term debt. Amortization expense for the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018 was $ i 8,845, $ i 9,318 and $ i 8,539, respectively.

/ i

Accumulated Other Comprehensive Loss

The Company’s accumulated other comprehensive loss includes changes in the fair value of derivative instruments and the effects of foreign currency translations. At January 2, 2021, December 28, 2019 and December 29, 2018, the cumulative balance of changes in fair value of derivative instruments, net of taxes, was $ i 20,979, $ i 15,529 and $ i 1,175, respectively. At January 2, 2021, December 28, 2019 and December 29, 2018, the cumulative balance of the effects of foreign currency translations, net of taxes, was $ i 4,170, $ i 11,823 and $ i 14,582, respectively.

F-15

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

3.	Accounting Standards Adopted in Current Year

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued updated guidance replacing the incurred loss impairment method with a method that reflects expected credit losses. The effective date of the new guidance for public companies is for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. On i December 29, 2019, the Company adopted the updated credit loss guidance on a prospective basis, which did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued updated guidance addressing customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract, which requires customers to apply internal-use software guidance to determine the implementation costs that are able to be capitalized. Capitalized implementation costs are required to be amortized over the term of the arrangement, beginning when the cloud computing arrangement is ready for its intended use. The effective date of the new guidance for public companies is for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. On i December 29, 2019, the Company adopted the updated guidance on a prospective basis to all software implementation costs incurred after the date of adoption. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

/ i

Leases

Adoption of Lease Standard

On December 30, 2018, the Company adopted the updated guidance on leases using the modified retrospective transition method. Results for reporting periods beginning on or after December 30, 2018 are presented under the updated guidance, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historical lease accounting.

The adoption of the standard had a material impact on the Company’s consolidated balance sheets but did not have a material impact on its consolidated statements of net income. The Company recorded $ i 155,178 as a right of use asset, $ i 163,486 of lease liabilities and $ i 0 for retained earnings for operating leases upon adoption of the updated guidance. The standard did not have a material impact on the Company’s finance lease contracts.

A lease is defined as an arrangement that contractually specifies the right to use and control an identified asset for a specific period of time in exchange for consideration. Operating leases are included in operating lease assets, portion of operating lease liabilities due within one year, and long-term operating lease liabilities in the Company’s consolidated balance sheets. Finance leases are included in property and equipment, net, other accrued liabilities, and other long-term liabilities in the Company’s consolidated balance sheets. Lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term, using the Company’s incremental borrowing rate commensurate with the lease term, since the Company’s lessors do not provide an implicit rate, nor is one readily available. The incremental borrowing rate is calculated based on the Company’s credit yield curve and adjusted for collateralization, credit quality and economic environment impact, all where applicable. The lease asset includes scheduled lease payments and excludes lease incentives, such as free rent periods and tenant improvement allowances. The Company has certain leases that may include an option to renew and when it is reasonably probable to exercise such option, the Company will include the renewal option terms in determining the lease asset and lease liability. The Company does not have any renewal options that would have a material impact on the terms of the leases and that are also reasonably expected to be exercised as of January 2, 2021. A lease may contain both fixed and variable payments. Variable lease payments that are linked to an index or rate are measured based on the current index or rate at the implementation of the lease accounting standard, or lease commencement date for new leases, with the impact of future changes in the index or rate being recorded as a period expense. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

The Company’s operating and finance leases are primarily for its studios, corporate offices, data centers and certain equipment, including automobiles.

i /

F-16

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

At January 2, 2021 and December 28, 2019, the Company’s lease assets and lease liabilities were as follows:

	January 2, 2021		December 28, 2019
Assets:
Operating lease assets	$	i 119,102	$	i 151,983
Finance lease assets		i 207		i 259
Total leased assets	$	i 119,309	$	i 152,242

Liabilities:
Current
Operating	$	i 28,551	$	i 33,236
Finance		i 88		i 126
Noncurrent
Operating	$	i 101,561	$	i 128,464
Finance		i 93		i 96
Total lease liabilities	$	i 130,293	$	i 161,922

For the fiscal years ended January 2, 2021 and December 28, 2019, the components of the Company’s lease expense were as follows:

	Fiscal Year Ended
	January 2,			December 28,
	2021			2019
Operating lease cost:
Fixed lease cost	$	i 48,674		$	i 51,246
Lease termination cost		i 6,109			i 10
Variable lease cost		( i 30	)		i 0
Total operating lease cost	$	i 54,753		$	i 51,256
Finance lease cost:
Amortization of leased assets		i 192			i 487
Interest on lease liabilities		i 12			i 20
Total finance lease cost	$	i 204		$	i 507
Total lease cost	$	i 54,957		$	i 51,763

Total rent expense charged to operations for office and rental facilities operating leases for the fiscal year ended December 29, 2018 was $ i 44,130.

At January 2, 2021 and December 28, 2019, the Company’s weighted average remaining lease term and weighted average discount rates were as follows:

	January 2, 2021		December 28, 2019
Weighted Average Remaining Lease Term (years)
Operating leases		7.08		7.06
Finance leases		2.35		2.43

Weighted Average Discount Rate
Operating leases		i 6.95		i 7.02
Finance leases		i 5.51		i 5.97

The Company’s leases have remaining lease terms of 0 to i 12 years with a weighted average lease term of i 7.07 years as of January 2, 2021.

F-17

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

At January 2, 2021, the maturity of the Company’s lease liabilities in each of the next five fiscal years and thereafter were as follows:

	Operating Leases		Finance Leases		Total
2021	$	i 36,503	$	i 95	$	i 36,598
2022		i 28,880		i 65		i 28,945
2023		i 21,224		i 27		i 21,251
2024		i 16,043		i 6		i 16,049
2025		i 11,604		—		i 11,604
Thereafter		i 54,505		—		i 54,505
Total lease payments	$	i 168,759	$	i 193	$	i 168,952
Less imputed interest		i 38,647		i 12		i 38,659
Present value of lease liabilities	$	i 130,112	$	i 181	$	i 130,293

Supplemental cash flow information related to leases for the fiscal years ended January 2, 2021 and December 28, 2019 were as follows:

	Fiscal Year Ended
	January 2,		December 28,
	2021		2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	i 49,043	$	i 51,326
Operating cash flows from finance leases	$	i 12	$	i 20
Financing cash flows from finance leases	$	i 192	$	i 487

Leased assets obtained in exchange for new operating lease liabilities	$	i 5,113	$	i 41,693
Leased assets obtained in exchange for new finance lease liabilities	$	i 132	$	i 105

Practical Expedients and Accounting Policy Elections

The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed the Company not to reassess whether any expired or existing contracts contained leases, to carry forward existing lease classifications and not to reassess initial direct costs for existing leases. In addition, the Company elected the benefit of hindsight practical expedient in determining the lease term for existing leases upon adoption of the updated guidance.

The Company has lease agreements with lease and non-lease components and has elected the practical expedient not to separate non-lease components from lease components and instead to account for each separate lease component and non-lease component as a single lease component.

The Company has elected the short-term lease exception accounting policy, whereby the recognition requirements of the updated guidance is not applied and lease expense is recorded on a straight-line basis with respect to leases with an initial term of 12 months or less.

Revenue

Revenue Recognition

F-18

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

The following table presents the Company’s revenues disaggregated by revenue source:

	Fiscal Year Ended
	January 2,		December 28,		December 29,
	2021		2019		2018
Digital Subscription Revenues	$	i 743,060	$	i 609,996	$	i 567,767
Workshops + Digital Fees		i 443,429		i 597,270		i 705,429
Subscription Revenues, net	$	i 1,186,489	$	i 1,207,266	$	i 1,273,196
Product sales and other, net		i 191,635		i 206,071		i 240,925
Revenues, net	$	i 1,378,124	$	i 1,413,337	$	i 1,514,121

The following tables present the Company’s revenues disaggregated by revenue source and segment:

Fiscal Year Ended January 2, 2021

North

Continental

United

America

Europe

Kingdom

Other

Total

Digital Subscription Revenues

i 484,471

i 207,978

i 33,919

i 16,692

i 743,060

Workshops + Digital Fees

i 329,885

i 67,201

i 33,283

i 13,060

i 443,429

Subscription Revenues, net

i 814,356

i 275,179

i 67,202

i 29,752

i 1,186,489

Product sales and other, net

i 127,744

i 38,201

i 17,185

i 8,505

i 191,635

Revenues, net

i 942,100

i 313,380

i 84,387

i 38,257

i 1,378,124

Fiscal Year Ended December 28, 2019

North

Continental

United

America

Europe

Kingdom

Other

Total

Digital Subscription Revenues

i 401,890

i 167,008

i 26,898

i 14,200

i 609,996

Workshops + Digital Fees

i 446,576

i 87,962

i 44,145

i 18,587

i 597,270

Subscription Revenues, net

i 848,466

i 254,970

i 71,043

i 32,787

i 1,207,266

Product sales and other, net

i 130,836

i 38,263

i 23,514

i 13,458

i 206,071

Revenues, net

i 979,302

i 293,233

i 94,557

i 46,245

i 1,413,337

Fiscal Year Ended December 29, 2018

North

Continental

United

America

Europe

Kingdom

Other

Total

Digital Subscription Revenues

i 378,678

i 149,571

i 25,557

i 13,961

i 567,767

Workshops + Digital Fees

i 522,372

i 107,528

i 52,676

i 22,853

i 705,429

Subscription Revenues, net

i 901,050

i 257,099

i 78,233

i 36,814

i 1,273,196

Product sales and other, net

i 146,201

i 47,226

i 28,839

i 18,659

i 240,925

Revenues, net

i 1,047,251

i 304,325

i 107,072

i 55,473

i 1,514,121

Information about Contract Balances

For Subscription Revenues, the Company typically collects payment in advance of providing services. Any amounts collected in advance of services being provided are recorded in deferred revenue. In the case where amounts are not collected, but the service has been provided and the revenue has been recognized, the amounts are recorded in accounts receivable. i The opening and ending balances of the Company’s deferred revenues are as follows:

	Deferred			Deferred
	Revenue			Revenue-Long Term
Balance as of December 28, 2019	$	i 60,613		$	i 54
Net decrease during the period		( i 10,138	)		( i 10	)
Balance as of January 2, 2021	$	i 50,475		$	i 44

F-19

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

Revenue recognized from amounts included in current deferred revenue as of December 28, 2019 was $ i 60,555 for the fiscal year ended January 2, 2021. The Company’s long-term deferred revenue, which is included in other liabilities on the Company’s consolidated balance sheet, had a balance of $ i 44 and $ i 54 at January 2, 2021 and December 28, 2019, respectively, for revenue that will not be recognized during the next fiscal year and is generally related to upfront payments received as an inducement for entering into certain sales-based royalty agreements with third party licensees. This revenue is amortized on a straight-line basis over the term of the applicable agreement.

Accounting Policy Elections

The Company does not disclose the value of unsatisfied performance obligations for i contracts with an original expected length of one year or less. The Company expenses sales commissions when incurred (amortization period would have been one year or less) and these expenses are recorded within selling, general and administrative expenses. The Company treats shipping and handling fees as fulfillment costs and not as a separate performance obligation, and as a result, any fees received from customers are included in the transaction price allocated to the performance obligation of providing goods with a corresponding amount accrued within cost of product sales and other for amounts paid to applicable carriers. Sales tax, value-added tax, and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue.

6.	Acquisitions

Acquisition of Kurbo Health, Inc.

On August 10, 2018, the Company acquired substantially all of the assets of Kurbo Health, Inc. (“Kurbo”), a family-based healthy lifestyle coaching program, for a net purchase price of $ i 3,063. Payment was in the form of cash. The total purchase price of Kurbo has been allocated to goodwill ($ i 1,101), website development ($ i 1,916), prepaid expenses ($ i 78) and other assets ($ i 32) partially offset by deferred revenue ($ i 57) and other liabilities ($ i 7). The acquisition of Kurbo has been accounted for under the purchase method of accounting and, accordingly, earnings of Kurbo have been included in the consolidated operating results of the Company since the date of acquisition. The goodwill will be deductible annually for tax purposes.

Acquisition of Franchisees

On October 26, 2020, the Company acquired substantially all of the assets of its franchisees for certain territories in Arizona and California, Weight Watchers of Arizona, Inc. and Weight Watchers of Imperial County, Inc., respectively, for an aggregate purchase price of $ i 10,000. Payment was in the form of cash ($ i 10,037) and assumed net assets ($ i 37). The total purchase price has been allocated to franchise rights acquired ($ i 9,546), customer relationship value ($ i 227), property and equipment, net ($ i 131), inventories ($ i 84) and other assets ($ i 12). The acquisition of the franchisees has been accounted for under the purchase method of accounting and, accordingly, earnings of the acquired franchisees have been included in the consolidated operating results of the Company since the date of acquisition.

On October 21, 2019, the Company acquired substantially all of the assets of its franchisee for certain territories in Nevada and Utah, Weight Watchers of Las Vegas, Inc., for a purchase price of $ i 4,500 (the “Las Vegas Acquisition”). Payment was in the form of cash ($ i 4,060) plus cash in reserves ($ i 385) and assumed net liabilities ($ i 55). The total purchase price has been allocated to goodwill ($ i 4,111), customer relationship value ($ i 271) and franchise rights acquired ($ i 118). The acquisition of the franchisee has been accounted for under the purchase method of accounting and, accordingly, earnings of the acquired franchisee have been included in the consolidated operating results of the Company since the date of acquisition. The goodwill will be deductible for tax purposes.

F-20

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

On December 10, 2018, the Company acquired substantially all of the assets of its franchisee for certain territories in South Carolina, At Goal, Inc., for a purchase price of $ i 4,000 (the “South Carolina Acquisition”). Payment was in the form of cash ($ i 4,000) and assumed net liabilities ($ i 37). The total purchase price has been allocated to franchise rights acquired ($ i 3,791) and customer relationship value ($ i 209). The acquisition of the franchisee has been accounted for under the purchase method of accounting and, accordingly, earnings of the acquired franchisee have been included in the consolidated operating results of the Company since the date of acquisition. The goodwill will be deductible for tax purposes.

7.	Franchise Rights Acquired, Goodwill and Other Intangible Assets

The Company performed its annual impairment review of indefinite-lived intangible assets, including franchise rights acquired with indefinite lives, and goodwill for fiscal 2020 and fiscal 2019 on May 3, 2020 and May 5, 2019, respectively.

With respect to the Company’s Brazil reporting unit, during the first quarter of fiscal 2020, the Company made a strategic decision to shift to an exclusively Digital business in that country. The Company determined that this decision, together with the negative impact of COVID-19, the ongoing challenging economic environment in Brazil and the Company’s reduced expectations regarding the reporting unit’s future operating cash flows, required the Company to perform an interim goodwill impairment analysis. In performing this discounted cash flow analysis, the Company determined that the carrying amount of this reporting unit exceeded its fair value and as a result recorded an impairment charge of $ i 3,665, which comprises the remaining balance of goodwill for this reporting unit.

Franchise rights acquired are due to acquisitions of the Company’s franchised territories as well as the acquisition of franchise promotion agreements and other factors associated with the acquired franchise territories. For the fiscal year ended January 2, 2021, the change in the carrying value of franchise rights acquired is due to the franchisee acquisition as described in Note 6 and the effect of exchange rate changes.

Goodwill primarily relates to the acquisition of the Company by The Kraft Heinz Company (successor to H.J. Heinz Company) in 1978 and the Company’s acquisitions of WW.com, Inc. (formerly known as WeightWatchers.com, Inc.) in 2005 and the Company’s franchised territories. See Note 6 for additional information about acquisitions by the Company. i For the fiscal year ended January 2, 2021, the change in the carrying amount of goodwill was due to the impairment charge of the Company’s Brazil reporting unit and the effect of exchange rate changes as follows:

North

Continental

United

America

Europe

Kingdom

Other

Total

Balance as of December 28, 2019

i 143,940

i 7,015

i 1,213

i 5,748

i 157,916

Goodwill impairment

i 0

( i 3,665

)

( i 3,665

)

Effect of exchange rate changes

i 1,131

i 777

i 55

( i 597

)

i 1,366

Balance as of January 2, 2021

i 145,071

i 7,792

i 1,268

i 1,486

i 155,617

F-21

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

Finite-lived Intangible Assets

The below table reflects the carrying values of finite-lived intangible assets as of January 2, 2021 and December 28, 2019:

Gross

Carrying

Accumulated

Carrying

Accumulated

Amount

Amortization

Amount

Amortization

Capitalized software costs

i 131,420

i 109,170

i 119,537

i 97,588

Website development costs

i 95,718

i 67,656

i 77,823

i 50,748

Trademarks

i 11,999

i 11,457

i 11,869

i 11,228

Other

i 14,093

i 5,238

i 14,003

i 4,637

Trademarks and other intangible assets

i 253,230

i 193,521

i 223,232

i 164,201

Franchise rights acquired

i 7,925

i 4,575

i 8,180

i 4,618

Total finite-lived intangible assets

i 261,155

i 198,096

i 231,412

i 168,819

Aggregate amortization expense for finite-lived intangible assets was recorded in the amounts of $ i 29,828, $ i 29,330 and $ i 28,995, for the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018, respectively. The franchise rights acquired related to the South Carolina Acquisition will be amortized ratably over an i 18 year period. The franchise rights acquired related to the Las Vegas Acquisition were fully amortized in fiscal 2019.

Estimated amortization expense of existing finite-lived intangible assets for the next five fiscal years and thereafter is as follows:

Fiscal 2021	$	i 27,543
Fiscal 2022	$	i 17,548
Fiscal 2023	$	i 7,395
Fiscal 2024	$	i 1,240
Fiscal 2025 and thereafter	$	i 9,333

/ i

8.	Property and Equipment

The below table reflects the carrying values of property and equipment as of January 2, 2021 and December 28, 2019:

	January 2,			December 28,
	2021			2019
Equipment	$	i 88,261		$	i 83,288
Leasehold improvements		i 90,161			i 84,079
		i 178,422			i 167,367
Less: Accumulated depreciation and amortization		( i 126,487	)		( i 113,301	)
	$	i 51,935		$	i 54,066

Depreciation and amortization expense of property and equipment for the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018 was $ i 20,849, $ i 15,687 and $ i 15,066, respectively.

F-22

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

9.	Long-Term Debt

The components of the Company’s long-term debt were as follows:

Principal

Balance

Unamortized

Deferred

Financing

Costs

Unamortized

Debt Discount

Effective

Rate ⁽¹⁾

Principal

Balance

Unamortized

Deferred

Financing

Costs

Unamortized

Debt Discount

Effective

Rate ⁽¹⁾

Revolving Credit Facility due

November 29, 2022

i 0

i 3.03

i 0

i 0.00

Term Loan Facility due

November 29, 2024

i 1,209,000

i 5,113

i 17,233

i 6.60

i 1,305,250

i 6,418

i 21,634

i 7.93

Notes due December 1, 2025

i 300,000

i 854

i 0

i 8.71

i 300,000

i 1,028

i 0

i 8.72

Total

i 1,509,000

i 5,967

i 17,233

i 6.94

i 1,605,250

i 7,446

i 21,634

i 8.07

Less: Current portion

i 77,000

i 96,250

Unamortized deferred financing costs

i 5,967

i 7,446

Unamortized debt discount

i 17,233

i 21,634

Total long-term debt

i 1,408,800

i 1,479,920

(1)	Includes amortization of deferred financing costs and debt discount.

On November 29, 2017, the Company refinanced its then-existing credit facilities (hereinafter referred to as “the November 2017 debt refinancing”) with proceeds received from $ i 1,565,000 in an aggregate principal amount of borrowings under its new credit facilities, consisting of a $ i 1,540,000 term loan facility and a $ i 150,000 revolving credit facility (of which $ i 25,000 was drawn upon at the time of the November 2017 debt refinancing) (collectively, as amended from time to time, the “Credit Facilities”) and proceeds received from the issuance of $ i 300,000 in aggregate principal amount of i 8.625% Senior Notes due 2025 (the “Notes”).

Senior Secured Credit Facilities

The Credit Facilities were issued under a new credit agreement, dated November 29, 2017 (as amended from time to time, the “Credit Agreement”), among the Company, as borrower, the lenders party thereto, JPMorgan Chase Bank, N.A. (“JPMorgan Chase”), as administrative agent and an issuing bank, Bank of America, N.A., as an issuing bank, and Citibank, N.A., as an issuing bank. The Credit Facilities initially consisted of (1) $ i 1,540,000 in aggregate principal amount of senior secured tranche B term loans due in i 2024 (the “Term Loan Facility”) and (2) a $ i 150,000 in an aggregate principal amount of commitments under a senior secured revolving credit facility (which included borrowing capacity available for letters of credit) due in i 2022 (the “Revolving Credit Facility”).

On June 14, 2020, the Company entered into an amendment to the Credit Agreement (the “Credit Agreement Amendment”) that provided for an increase in the aggregate principal amount of commitments under the Company’s Revolving Credit Facility by $ i 25,000, providing the Company with $ i 175,000 in aggregate principal amount of commitments under the Revolving Credit Facility, and that included certain other amendments to the Credit Agreement, which among other things, relaxed the requirements of the financial maintenance covenant under the Credit Agreement until the end of the second fiscal quarter of 2022, as further detailed below.

On both May 31, 2019 and October 10, 2019, the Company made a voluntary prepayment at par of $ i i 50,000 / in an aggregate amount of its outstanding term loans under the Term Loan Facility. As a result of these prepayments, the Company wrote off deferred financing fees of $ i 526 in the aggregate in fiscal 2019.

As previously disclosed, on March 23, 2020, as a precautionary measure in light of the COVID-19 outbreak, the Company drew down $ i 148,000 in an aggregate principal amount under the Revolving Credit Facility in order to enhance its cash position and to provide additional financial flexibility. The revolver borrowing was classified as a short-term liability in connection with the Company’s monthly interest elections. The Company repaid $ i 148,000 in aggregate principal amount of borrowings under the Revolving Credit Facility on June 5, 2020.

As of January 2, 2021, the Company had $ i 1,209,000 in an aggregate principal amount of loans outstanding under its Credit Facilities, with $ i 173,846 of availability and $ i 1,154 in issued but undrawn letters of credit outstanding under the Revolving Credit Facility. There were i no outstanding borrowings under the Revolving Credit Facility as of January 2, 2021.

F-23

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

All obligations under the Credit Agreement are guaranteed by, subject to certain exceptions, each of the Company’s current and future wholly-owned material domestic restricted subsidiaries. All obligations under the Credit Agreement, and the guarantees of those obligations, are secured by substantially all of the assets of the Company and each guarantor, subject to customary exceptions, including:

•

a pledge of i 100% of the equity interests directly held by the Company and each guarantor in any wholly-owned domestic material subsidiary of the Company or any guarantor (which pledge, in the case of any non-U.S. subsidiary of a U.S. subsidiary, will not include more than i 65% of the voting stock of such first-tier non-U.S. subsidiary), subject to certain exceptions; and

•

a security interest in substantially all other tangible and intangible assets of the Company and each guarantor, subject to certain exceptions.

Under the terms of the Credit Agreement, depending on the Company’s Consolidated First Lien Leverage Ratio (as defined in the Credit Agreement), on an annual basis on or about the time the Company is required to deliver its financial statements for any fiscal year, the Company is obligated to offer to prepay a portion of the outstanding principal amount of the Term Loan Facility in an aggregate amount determined by a percentage of its annual excess cash flow (as defined in the Credit Agreement) (said payment, a “Cash Flow Sweep”).

Borrowings under the Term Loan Facility and, after giving effect to the Credit Agreement Amendment, the Revolving Credit Facility, in each case, bear interest at a rate per annum equal to, at the Company’s option, either (1) an applicable margin plus a base rate determined by reference to the highest of (a) i 0.50% per annum plus the higher of (i) the Federal Funds Effective Rate and (ii) the Overnight Bank Funding Rate as determined by the Federal Reserve Bank of New York, (b) the prime rate of JPMorgan Chase and (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus i 1.00%; provided that such rate is not lower than a floor of i 1.75% or (2) an applicable margin plus a LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, provided that LIBOR is not lower than a floor of i 0.75%. Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to an applicable margin based upon a leverage-based pricing grid (except as otherwise described below), plus, at the Company’s option, either (1) a base rate determined by reference to the highest of (a) i 0.50% per annum plus the higher of (i) the Federal Funds Effective Rate and (ii) the Overnight Bank Funding Rate as determined by the Federal Reserve Bank of New York, (b) the prime rate of JPMorgan Chase and (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus i 1.00% or (2) a LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs. Under the terms of the Credit Agreement Amendment, a new level in the leverage based pricing grid was added providing for an applicable margin for extensions of credit under the Revolving Credit Facility of i 3.00% when the Consolidated First Lien Leverage Ratio discussed below is greater than or equal to i 3.75:1.00. As of January 2, 2021, the applicable margins for the LIBOR rate borrowings under the Term Loan Facility and the Revolving Credit Facility were i 4.75% and i 2.25%, respectively. In the event that LIBOR is phased out as is currently expected, the Credit Agreement provides that the Company and the administrative agent may amend the Credit Agreement to replace the LIBOR definition therein with a successor rate subject to notifying the lending syndicate of such change and not receiving within five business days of such notification objections to such replacement rate from lenders holding at least a majority of the aggregate principal amount of loans and commitments then outstanding under the Credit Agreement. If the Company fails to do so, its borrowings will be based off of the alternative base rate plus a margin.

On a quarterly basis, the Company pays a commitment fee to the lenders under the Revolving Credit Facility in respect of unutilized commitments thereunder, which commitment fee fluctuates depending upon the Company’s Consolidated First Lien Leverage Ratio. Under the terms of the Credit Agreement Amendment, a new level in the leverage based pricing grid was added providing for a commitment fee of i 0.625% when the Consolidated First Lien Leverage Ratio discussed below is greater than or equal to i 3.75:1.00. Based on the Company’s Consolidated First Lien Leverage Ratio as of January 2, 2021, the commitment fee was i 0.35% per annum. The Company’s Consolidated First Lien Leverage Ratio as of January 2, 2021 was i 2.75:1.00.

F-24

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

The availability of certain baskets and the ability to enter into certain transactions are also subject to compliance with certain financial ratios. In addition, if the aggregate principal amount of extensions of credit outstanding under the Revolving Credit Facility as of any fiscal quarter end exceeds 33 1/3% of the amount of the aggregate commitments under the Revolving Credit Facility in effect on such date, the Company must be in compliance with a Consolidated First Lien Leverage Ratio of i 3.75:1.00, provided, however, that the Credit Agreement Amendment increased the required Consolidated First Lien Leverage Ratio to i 4.50:1.00, commencing with the second fiscal quarter of 2020 through the end of fiscal 2020, with a further step up to i 5.00:1.00 for fiscal 2021, before stepping down to i 4.50:1.00 for the first fiscal quarter of 2022, and again to i 3.75:1.00, commencing with the second fiscal quarter of 2022 (such increases in the Consolidated First Lien Leverage Ratio and the timing applicable thereto, collectively, the “Financial Covenant Relief Period”). The Financial Covenant Relief Period is subject to the Company’s continued compliance with certain conditions, which include meeting a Consolidated First Lien Leverage Ratio of 3.75:1.00 with respect to certain types of investments, restricted payments and prepayments of junior debt during the Financial Covenant Relief Period. If at any time the Company expects that it will not be in compliance with the conditions of the Financial Covenant Relief Period, the Company expects it will reduce its extensions of credit under the Revolving Credit Facility to $ i 58,333 or less prior to the last day of such fiscal quarter so that it is not required to comply with the conditions of the Financial Covenant Relief Period. In any such event, the Company would be able to reborrow the full amount under the Revolving Credit Facility subsequent to such fiscal quarter end given that the applicable Consolidated First Lien Leverage Ratio to be tested during the Financial Covenant Relief Period is only tested as of the last day of each fiscal quarter.

As of January 2, 2021, the Company was in compliance with all applicable financial covenants and the applicable Consolidated First Lien Leverage Ratio in the Credit Agreement governing the Revolving Credit Facility though it was not required to comply at such time.

Senior Notes

The Notes were issued pursuant to an Indenture, dated as of i November 29, 2017 (the “Indenture”), among the Company, the guarantors named therein and The Bank of New York Mellon, as trustee. The Indenture contains customary covenants, events of default and other provisions for an issuer of non-investment grade debt securities. These covenants include limitations on indebtedness, liens, mergers, acquisitions, asset sales, investments, distributions, prepayments of subordinated debt and transactions with affiliates, in each case subject to baskets, thresholds and other exceptions.

The Notes accrue interest at a rate per annum equal to i 8.625% and are due on i December 1, 2025. i Interest on the Notes is payable semi-annually on June 1 and December 1 of each year, beginning on June 1, 2018. i On or after i December 1, 2020, the Company may on any one or more occasions redeem some or all of the Notes at a purchase price equal to i 104.313% of the principal amount of the Notes, plus accrued and unpaid interest, if any, to, but not including, the redemption date, such optional redemption price decreasing to i 102.156% on or after i December 1, 2021 and to i 100.000% on or after i December 1, 2022. / If a change of control occurs, the Company must offer to purchase for cash the Notes at a purchase price equal to i 101% of the principal amount of the Notes, plus accrued and unpaid interest, if any, to, but not including, the purchase date. Following the sale of certain assets and subject to certain conditions, the Company must offer to purchase for cash the Notes at a purchase price equal to i 100% of the principal amount of the Notes, plus accrued and unpaid interest, if any, to, but not including, the purchase date. The Notes are guaranteed on a senior unsecured basis by the Company’s subsidiaries that guarantee the Credit Facilities.

Outstanding Debt

At January 2, 2021, the Company had $ i 1,509,000 outstanding under the Credit Facilities and the Notes, consisting of borrowings under the Term Loan Facility of $ i 1,209,000, $ i 0 drawn down on the Revolving Credit Facility and $ i 300,000 in aggregate principal amount of Notes issued and outstanding.

F-25

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

At January 2, 2021 and December 28, 2019, the Company’s debt consisted of both fixed and variable-rate instruments. Interest rate swaps were entered into to hedge a portion of the cash flow exposure associated with the Company’s variable-rate borrowings. See Note 19 for information on the Company’s interest rate swaps. The weighted average interest rate (which includes amortization of deferred financing costs and debt discount) on the Company’s outstanding debt, exclusive of the impact of the swaps then in effect, was approximately i 7.03% and i 8.08% per annum at January 2, 2021 and December 28, 2019, respectively, based on interest rates on these dates. The weighted average interest rate (which includes amortization of deferred financing costs and debt discount) on the Company’s outstanding debt, including the impact of the swaps then in effect, was approximately i 7.41% and i 7.59% per annum at January 2, 2021 and December 28, 2019, respectively, based on interest rates on these dates.

Maturities

At January 2, 2021, the aggregate amounts of the Company’s existing long-term debt maturing in each of the next five fiscal years and thereafter were as follows:

2021	$	i 77,000
2022		i 77,000
2023		i 77,000
2024		i 978,000
2025		i 300,000
2026 and thereafter		—
	$	i 1,509,000

10.	Treasury Stock

On October 9, 2003, the Company’s Board of Directors authorized, and the Company announced, a program to repurchase up to $ i 250,000 of the Company’s outstanding common stock. On each of June 13, 2005, May 25, 2006 and October 21, 2010, the Company’s Board of Directors authorized, and the Company announced, the addition of $ i i i 250,000 / / to the program. The repurchase program allows for shares to be purchased from time to time in the open market or through privately negotiated transactions. i No shares will be purchased from Artal Holdings Sp. z o.o., Succursale de Luxembourg and its parents and subsidiaries under this program. The repurchase program currently has no expiration date.

During the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018, the Company repurchased i i i no / / shares of its common stock under this program or otherwise. As of the end of fiscal 2020, $ i 208,933 remained available to purchase shares of the Company’s common stock under the repurchase program.

/ i

11.	Earnings Per Share

Basic earnings per share (“EPS”) are calculated utilizing the weighted average number of common shares outstanding during the periods presented. Diluted EPS is calculated utilizing the weighted average number of common shares outstanding during the periods presented adjusted for the effect of dilutive common stock equivalents.

i /

F-26

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

The following table sets forth the computation of basic and diluted EPS for the fiscal years ended:

January 2,

December 28,

2019

2018

Numerator:

Net income attributable to

WW International, Inc.

i 75,079

i 119,616

i 223,749

Denominator:

Weighted average shares of common

stock outstanding

i 67,849

i 67,188

i 66,280

Effect of dilutive common stock equivalents

i 2,171

i 2,362

i 3,835

Weighted average diluted common

shares outstanding

i 70,020

i 69,550

i 70,115

Earnings per share attributable to

WW International, Inc.

Basic

i 1.11

i 1.78

i 3.38

Diluted

i 1.07

i 1.72

i 3.19

The number of anti-dilutive common stock equivalents excluded from the calculation of the weighted average number of common shares for diluted EPS was i 4,052, i 1,705 and i 419 for the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018, respectively.

12.	Stock Plans

Incentive Compensation Plans and Winfrey Amendment Option

On May 6, 2008, the Company’s shareholders approved the 2008 Stock Incentive Plan (the “2008 Plan”). On May 6, 2014, the Company’s shareholders approved the 2014 Stock Incentive Plan (as amended and restated, the “2014 Plan”, and together with the 2008 Plan, the “Stock Plans”), which replaced the 2008 Plan for all equity-based awards granted on or after May 6, 2014. The 2014 Plan is designed to promote the long-term financial interests and growth of the Company by attracting, motivating and retaining employees with the ability to contribute to the success of the business and to align compensation for the Company’s employees over a multi-year period directly with the interests of the shareholders of the Company. The Company’s long-term equity incentive compensation program has historically included time-vesting non-qualified stock option and/or restricted stock unit (“RSUs”) (including performance-based stock unit with both time- and performance-vesting criteria (“PSUs”)) awards. From time to time, the Company has granted fully-vested shares of its common stock to individuals in connection with special circumstances. The Company’s Board of Directors or a committee thereof administers the 2014 Plan.

Under the 2014 Plan, grants may take the following forms at the Company’s Board of Directors’ Compensation and Benefit Committee’s (the “Compensation Committee”) discretion: non-qualified stock options, incentive stock options, stock appreciation rights, RSUs, restricted stock and other stock-based awards. As of January 2, 2021, the maximum number of shares of common stock available for grant under the 2014 Plan was i 8,500, subject to increase and adjustment as set forth in the 2014 Plan.

Under the 2014 Plan, the Company also grants fully-vested shares of its common stock to certain members of its Board of Directors. While these shares are fully vested, the directors are restricted from selling these shares while they are still serving on the Company’s Board of Directors subject to limited exceptions. During the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018, the Company granted to members of the Company’s Board of Directors an aggregate of i 31, i 29 and i 11 fully-vested shares, respectively, and recognized compensation expense of $ i 688, $ i 756 and $ i 754, respectively.

Under the Winfrey Amendment Option (as defined below), in fiscal 2020 the Company granted Ms. Winfrey a fully vested option to purchase i 3,276 shares of the Company’s common stock as more fully described in Note 22.

F-27

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

The Company issues common stock for share-based compensation awards from treasury stock. The total compensation cost that has been charged against income for share-based compensation awards and the Winfrey Amendment Option, as applicable, was $ i 55,013, $ i 20,471 and $ i 20,188 for the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018, respectively. Such amounts have been included as a component of selling, general and administrative expenses. The total income tax benefit recognized in the income statement for all share-based compensation awards was $ i 10,915, $ i 2,141 and $ i 4,007 for the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018, respectively. The tax benefits realized from options exercised and RSUs and PSUs vested totaled $ i 8,426, $ i 2,840 and $ i 30,268 for the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018, respectively. i No compensation costs were capitalized. As of January 2, 2021, there was $ i 34,462 of total unrecognized compensation cost related to the stock options, RSUs and PSUs granted under the Stock Plans. That cost is expected to be recognized over a weighted-average period of approximately i 1.4 years.

Stock Option Awards Under Stock Plans and the Winfrey Amendment Option

Stock Option Awards with Time-Vesting Criteria

Stock options with time-vesting criteria (“Time-Vesting Options”) are exercisable based on the terms and conditions outlined in the applicable award agreement. Time-Vesting Options outstanding at January 2, 2021, December 28, 2019 and December 29, 2018 vest over a period of two to i i i four years / / and the expiration term is seven to i ten years. Time-Vesting Options outstanding at January 2, 2021, December 28, 2019 and December 29, 2018 have an exercise price between $ i i i 3.97 / / and $ i i i 63.59 / / per share. The Company did i i no / t grant Time-Vesting Options in fiscal 2019 and fiscal 2018.

The fair value of each of these option awards is estimated on the date of grant using the Black-Scholes option pricing model with the weighted average assumptions noted in the following table. Expected volatility is based on the historical volatility of the Company’s common stock. Since the Company’s option exercise history is limited, it has estimated the expected term of these options (other than the options with a seven-year term) to be the midpoint between the vesting period and the contractual term of each option. For options with a seven-year contractual term, the expected term is equal to i 7 years. The risk-free interest rate is based on the U.S. Treasury yield curve in effect on the date of grant which most closely corresponds to the expected term of the Time-Vesting Options. The dividend yield is based on the Company’s historic average dividend yield.

			January 2,
			2021
Dividend yield			i 0.0%
Volatility			56.5% - 56.7%
Risk-free interest rate			0.45% - 0.52%
Expected term (years)			5.9 - 6.5

Option Activity

A summary of all option activity under the Stock Plans and the Winfrey Amendment Option for the fiscal year ended January 2, 2021 is presented below:

Weighted-

Average

Remaining

Aggregate

Exercise

Contractual

Intrinsic

Price

Life (Yrs.)

Value

Outstanding at December 28, 2019

i 3,700

i 21.77

Granted

i 3,874

i 35.96

Exercised

( i 1,162

)

i 6.95

Cancelled

( i 52

)

i 25.51

Outstanding at January 2, 2021

i 6,360

i 33.09

4.9

i 22,386

Exercisable at January 2, 2021

i 5,481

i 33.63

4.6

i 20,016

F-28

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

The weighted-average grant-date fair value of all options granted (including the Winfrey Amendment Option) was $ i 9.98, $ i 0.00 and $ i 0.00 for the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018, respectively. The total intrinsic value of Time-Vesting Options exercised was $ i 24,841, $ i 1,105 and $ i 105,647 for the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018, respectively.

Cash received from Time-Vesting Options exercised during the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018 was $ i 8,176, $ i 1,076 and $ i 33,385, respectively.

Restricted Stock Unit Awards with Time-Vesting Criteria

RSUs are exercisable based on the terms outlined in the applicable award agreement. The RSUs generally vest over a period of i two to i four years. The fair value of RSUs is determined using the closing market price of the Company’s common stock on the date of grant. i A summary of RSU activity under the Stock Plans for the fiscal year ended January 2, 2021 is presented below:

				Weighted-Average
				Grant-Date Fair
	Shares			Value
Outstanding at December 28, 2019		i 1,153		$	i 27.46
Granted		i 1,223		$	i 19.40
Vested		( i 495	)	$	i 30.39
Forfeited		( i 182	)	$	i 22.61
Outstanding at January 2, 2021		i 1,699		$	i 21.32

The weighted-average grant-date fair value of RSUs granted was $ i 19.40, $ i 19.09 and $ i 63.91 for the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018, respectively. The total fair value of RSUs vested during the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018 was $ i 15,015, $ i 12,268 and $ i 8,484, respectively.

Performance-Based Stock Unit Awards with Time- and Performance-Vesting Criteria

In fiscal 2019, the Company granted i 280.1 PSUs having both time- and performance-vesting criteria. The time-vesting criteria for these PSUs will be satisfied upon continued employment (with limited exceptions) on the third anniversary of the grant date. The performance-vesting criteria for these PSUs will be satisfied if the Company has achieved a certain annual operating income objective for the performance period of fiscal 2021. Pursuant to these awards, the number of PSUs that become vested, if any, upon the satisfaction of both vesting criteria, shall be equal to (x) the target number of PSUs granted multiplied by (y) the applicable achievement percentage, rounded down to avoid the issuance of fractional shares. The Company is currently accruing compensation expense to what it believes is the probable outcome upon vesting.

In fiscal 2018, the Company granted i 81.3 PSUs having both time- and performance-vesting criteria. The time-vesting criteria for these PSUs will be satisfied upon continued employment (with limited exceptions) on the third anniversary of the grant date. The performance-vesting criteria for these PSUs will be satisfied if the Company has achieved a certain annual operating income objective for the performance period of fiscal 2020. Pursuant to these awards, the number of PSUs that become vested, if any, upon the satisfaction of both vesting criteria, shall be equal to (x) the target number of PSUs granted multiplied by (y) the applicable achievement percentage, rounded down to avoid the issuance of fractional shares. The applicable achievement percentage shall increase in the event the Company has achieved a certain revenue target during such performance period. The Company is currently accruing compensation expense to what it believes is the probable outcome upon vesting.

F-29

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

In fiscal 2017, the Company granted i 98.5 PSUs in May 2017 and i 47.9 PSUs in July 2017, all having both time- and performance-vesting criteria (the “2017 PSUs”). The time-vesting criteria for these PSUs was satisfied upon continued employment (with limited exceptions) on May 15, 2020. The performance-vesting criteria for two-thirds of these PSUs was satisfied when the Company achieved, in the case of the May 2017 awards, certain annual operating income objectives and, in the case of the July 2017 award, certain net income or operating income objectives, as applicable for each of the fiscal 2017 and fiscal 2018 performance years. The performance-vesting criteria for the fiscal 2019 performance year was not satisfied. When the performance measure was met, if at all, for a particular 2017 Award Performance Year (i.e., each fiscal year over a three-year period, fiscal 2017 through fiscal 2019), that portion of units was “banked” for potential issuance following the satisfaction of the time-vesting criteria. Such portion of units “banked” was equal to (x) the target number of PSUs granted for the applicable 2017 Award Performance Year multiplied by (y) the applicable achievement percentage ( i i 166.67 / % in the case of fiscal 2017 and fiscal 2018), rounded down to avoid the issuance of fractional shares. Pursuant to these awards, the number of PSUs that became vested in fiscal 2020 upon the satisfaction of the time-vesting criteria was i 122.6. The Company accrued compensation expense in an amount equal to the outcome upon vesting.

In fiscal 2016, the Company granted i 289.9 PSUs having both time- and performance-vesting criteria. The time-vesting criteria for these PSUs was satisfied upon continued employment (with limited exceptions) on the third anniversary of the grant date. The performance-vesting criteria for these PSUs was satisfied when the Company achieved a Debt Ratio (as defined in the applicable term sheet for these PSU awards and based on a Debt to EBITDAS ratio (each, as defined therein)) at levels at or below i 4.5x over the performance period from December 31, 2017 to December 29, 2018. Pursuant to these awards, the number of PSUs that became vested in fiscal 2019 upon the satisfaction of the time-vesting criteria of i 219.3 was calculated as (x) the target number of PSUs granted multiplied by (y) i 166.67%, the applicable Debt Ratio achievement percentage, rounded down to avoid the issuance of fractional shares. The Company accrued compensation expense in an amount equal to the outcome upon vesting.

The fair value of PSUs is determined using the closing market price of the Company’s common stock on the date of grant. A summary of PSU activity under the 2014 Plan for the fiscal year ended January 2, 2021 is presented below:

				Weighted-Average
				Grant-Date Fair
	Shares			Value
Outstanding at December 28, 2019		i 437		$	i 30.35
Granted (a)		i 49		$	i 28.09
Vested		( i 123	)	$	i 28.09
Forfeited		( i 68	)	$	i 26.05
Outstanding at January 2, 2021		i 295		$	i 31.46

(a)	Represents incremental shares vested with respect to the Company satisfying certain applicable performance vesting criteria for the 2017 PSUs.

The weighted-average grant-date fair value of PSUs granted and/or incremental shares vested was $ i i 28.09 / , $ i i 17.51 / and $ i i 80.18 / during the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018, respectively. The total fair value of PSUs vested during the fiscal years ended January 2, 2021 and December 28, 2019 was $ i 3,443 and $ i 2,891, respectively. i No PSUs vested during the fiscal year ended December 29, 2018.

13.	Income Taxes

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act (the “CARES Act”) was signed into law. The CARES Act includes provisions relating to modifications to the net interest deduction limitation, net operating loss carryforward rules, refundable payroll tax credits and deferment of the employer portion of certain payroll taxes.

F-30

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

On July 20, 2020, the U.S. Treasury Department released final regulations under Internal Revenue Code Section 951A (TD 9902) permitting a taxpayer to elect to exclude from its global intangible low-taxed income (“GILTI”) inclusion items of income subject to a high effective rate of foreign tax. As a result of the final regulations, the Company recorded a $ i 7,566 tax benefit in fiscal 2020 related to the 2018 and 2019 taxes previously accrued attributable to GILTI.

The following tables summarize the Company’s consolidated provision for U.S. federal, state and foreign taxes on income:

	January 2,			December 28,			December 29,
	2021			2019			2018
Current:
U.S. federal	$	( i 14,052	)	$	i 20,900		$	i 1,235
State		i 4,421			i 1,873			i 5,918
Foreign		i 28,533			i 18,164			i 27,013
	$	i 18,902		$	i 40,937		$	i 34,166
Deferred:
U.S. federal	$	i 94		$	( i 9,137	)	$	( i 10,367	)
State		( i 2,835	)		( i 2,434	)		( i 2,566	)
Foreign		i 1,301			i 2,147			( i 740	)
	$	( i 1,440	)	$	( i 9,424	)	$	( i 13,673	)
Total tax provision	$	i 17,462		$	i 31,513		$	i 20,493

The components of the Company’s consolidated income before income taxes consist of the following:

	January 2,			December 28,		December 29,
	2021			2019		2018
Domestic	$	( i 10,467	)	$	i 75,932	$	i 126,171
Foreign		i 102,970			i 75,028		i 117,890
	$	i 92,503		$	i 150,960	$	i 244,061

The effective tax rates for the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018 were i 18.9%, i 20.9% and i 8.4%, respectively. i The difference between the U.S. federal statutory tax rate and the Company’s consolidated effective tax rate is as follows:

The Company’s effective tax rate for the fiscal year ended January 2, 2021 was impacted by the following items: (i) a $ i 7,566 tax benefit related to the reversal of the tax impact of GILTI, (ii) a $ i 4,714 tax benefit related to tax windfalls from stock compensation and (iii) a $ i 1,401 tax benefit related to foreign-derived intangible income (“FDII”). These benefits were partially offset by (i) a $ i 8,056 tax expense related to income earned in foreign jurisdictions at rates higher than the U.S. and (ii) a $ i 2,278 tax expense for out-of-period income tax adjustments.

The Company’s effective tax rate for the fiscal year ended December 28, 2019 was impacted by the following items: (i) a $ i 5,148 tax expense related to income earned in foreign jurisdictions and (ii) a $ i 3,524 tax expense related to GILTI. In addition, the effective tax rate for fiscal 2019 was impacted by the following: (i) a $ i 5,650 tax benefit related to FDII, (ii) a $ i 1,375 tax benefit related to the reversal of tax reserves no longer needed, and (iii) a $ i 746 tax benefit related to the cessation of certain publishing operations.

The Company’s effective tax rate for the fiscal year ended December 29, 2018 was affected by the following items: (i) a $ i 25,353 tax benefit related to tax windfalls from stock compensation, (ii) a $ i 8,535 tax benefit due to the reversal of a valuation allowance on foreign tax credit carryforwards that have been fully utilized, (iii) a $ i 3,435 tax benefit due to the reversal of a valuation allowance on certain net operating losses that are now expected to be realized, (iv) a $ i 3,430 tax benefit primarily related to the reversal of tax reserves resulting from the closure of various tax audits, (v) a $ i 2,678 tax benefit related to favorable tax return adjustments due to the Tax Cuts and Jobs Act (the “2017 Tax Act”) and (vi) a $ i 1,858 tax benefit related to the cessation of operations of the Company’s Mexican subsidiary.

F-31

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

	January 2,			December 28,			December 29,
	2021			2019			2018
U.S. federal statutory tax rate		i 21.0	%		i 21.0	%		i 21.0	%
State income taxes (net of federal benefit)		i 1.0	%		( i 0.3	%)		i 1.1	%
Cessation of operations		i 0.0	%		( i 0.5	%)		( i 0.8	%)
Research and development credit		( i 2.2	%)		( i 1.2	%)		( i 0.5	%)
Tax windfall on share-based awards		( i 4.3	%)		( i 0.1	%)		( i 8.6	%)
Reserves for uncertain tax positions		i 0.9	%		( i 0.9	%)		( i 1.4	%)
Tax rate changes		( i 1.2	%)		i 0.0	%		i 0.3	%
Decrease in valuation adjustment related to foreign tax credits		i 0.0	%		i 0.0	%		( i 3.5	%)
Executive compensation limitation		i 1.2	%		i 0.5	%		i 0.3	%
GILTI		( i 8.2	%)		i 2.3	%		i 1.5	%
FDII		( i 1.5	%)		( i 3.7	%)		( i 1.9	%)
Increase (decrease) in valuation allowance due to net operating loss		i 0.0	%		i 0.4	%		( i 0.7	%)
Out-of-period adjustments		i 2.5	%		i 0.0	%		i 0.0	%
Tax return adjustments related to the 2017 Tax Act		i 0.0	%		( i 0.7	%)		( i 1.1	%)
Impact of foreign operations		i 8.7	%		i 3.4	%		i 3.2	%
Other		i 1.0	%		i 0.7	%		( i 0.5	%)
Total effective tax rate		i 18.9	%		i 20.9	%		i 8.4	%

The deferred tax assets and liabilities recorded on the Company’s consolidated balance sheets are as follows:

	January 2,			December 28,
	2021			2019
Interest expense disallowance	$	i 32,971		$	i 38,396
Operating lease liabilities		i 31,108			i 39,095
Operating loss carryforwards		i 8,780			i 9,375
Provision for estimated expenses		i 1,643			i 2,578
Salaries and wages		i 3,875			i 2,037
Share-based compensation		i 14,747			i 7,533
Other comprehensive income		i 8,525			i 9,816
Other		i 6,320			i 4,125
Less: valuation allowance		( i 7,190	)		( i 6,760	)
Total deferred tax assets	$	i 100,779		$	i 106,195
Goodwill and intangible assets	$	( i 227,198	)	$	( i 228,048	)
Operating lease assets		( i 28,378	)		( i 36,670	)
Depreciation		( i 3,912	)		( i 1,082	)
Prepaid expenses		( i 1,379	)		( i 1,311	)
Total deferred tax liabilities	$	( i 260,867	)	$	( i 267,111	)
Net deferred tax liabilities	$	( i 160,088	)	$	( i 160,916	)

F-32

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

Certain foreign operations of the Company have generated net operating loss carryforwards. If it has been determined that it is more-likely-than-not that the deferred tax assets associated with these net operating loss carryforwards will not be utilized, a valuation allowance has been recorded. As of January 2, 2021 and December 28, 2019, various foreign subsidiaries had net operating loss carryforwards of approximately $ i 32,265 and $ i 35,534, respectively, some of which have an unlimited carryforward period, while others will begin to expire in fiscal 2021.

As a result of the 2017 Tax Act changing the U.S. to a modified territorial tax system, the Company will no longer assert its $ i 86,133 of undistributed foreign earnings as of January 2, 2021 are permanently reinvested. The Company has considered whether there would be any potential future costs of not asserting indefinite reinvestment and does not expect such costs to be significant.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

January 2,

December 28,

2019

2018

Balance at beginning of year

i 206

i 3,665

i 15,173

Increases related to tax positions taken in current year

i 0

i 60

Increases related to tax positions taken in prior years

i 605

i 264

i 1,207

Reductions related to tax positions taken in prior years

i 0

( i 2,731

)

( i 10,560

)

Reductions related to settlements with tax authorities

i 0

( i 992

)

( i 2,215

)

Effects of foreign currency translation

i 40

i 0

Balance at end of year

i 851

i 206

i 3,665

At January 2, 2021, the total amount of unrecognized tax benefits that, if recognized, would affect the Company’s effective tax rate is $ i 808. Given the potential outcome of current examinations, it is reasonably possible that the balance of unrecognized tax benefits could significantly change within the next twelve months. If the taxing authorities prevail in the existing German audit, the assessed tax (including interest) impacting our financial statements could be $ i 835.

In fiscal 2020, the Company reached a favorable settlement with the IRS for the 2017 tax year, which resulted in i no adjustment. The Company files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. At January 2, 2021, with few exceptions, the Company was no longer subject to U.S. federal, state or local income tax examinations by tax authorities for years prior to 2018, or non-U.S. income tax examinations by tax authorities for years prior to 2015. The Company is subject to audits in certain non-U.S. jurisdictions for tax years i 2013 to i 2016. The resolution of these audits is not expected to be material.

The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The Company had $ i 196 and $ i 6 of accrued interest and penalties at January 2, 2021 and December 28, 2019, respectively. The Company recognized $ i 190, $( i 257) and $( i 65) of an income tax expense (benefit) in interest and penalties during the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018, respectively.

14.	Employee Benefit Plans

The Company sponsors the Third Amended and Restated Weight Watchers Savings Plan (the “Savings Plan”) for salaried and certain hourly US employees of the Company. The Savings Plan is a defined contribution plan that provides for employer matching contributions of i i i 50 / / % of the employee’s tax deferred contributions up to i i i 6 / / % of an employee’s eligible compensation for the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018. Effective as of May 30, 2020, the Company temporarily suspended employer matching contributions through December 31, 2020. Expense related to these contributions for the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018 was $ i 1,655, $ i 2,901 and $ i 3,405, respectively.

During fiscal 2014, the Company received a favorable determination letter from the IRS that qualifies the Savings Plan under Section 401(a) of the Internal Revenue Code.

F-33

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

Pursuant to the Savings Plan, the Company also makes profit sharing contributions for all full-time salaried US employees who are eligible to participate in the Savings Plan (except for certain personnel above a determined compensation level). The profit sharing contribution is a guaranteed monthly employer contribution on behalf of each participant based on the participant’s age and a percentage of the participant’s eligible compensation. The Savings Plan also has a discretionary supplemental profit sharing employer contribution component that is determined annually by the Compensation Committee. Effective as of May 30, 2020, the Company temporarily suspended profit sharing contributions through December 31, 2020. Expense related to these contributions for the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018 was $ i 914, $ i 1,313 and $ i 1,317, respectively.

For certain US personnel above a determined compensation level, the Company sponsors the Second Amended and Restated Weight Watchers Executive Profit Sharing Plan (“EPSP”). Under the IRS definition, the EPSP is considered a Nonqualified Deferred Compensation Plan. There is a promise of payment by the Company made on the employees’ behalf instead of an individual account with a cash balance. The EPSP provides for a guaranteed employer contribution on behalf of each participant based on the participant’s age and a percentage of the participant’s eligible compensation. The EPSP has a discretionary supplemental employer contribution component that is determined annually by the Compensation Committee.

The EPSP is valued at the end of each fiscal month, based on an annualized interest rate of prime plus i 2%, with an annualized cap of i 15%. Effective as of May 30, 2020, the Company temporarily suspended EPSP contributions through December 31, 2020. Expense related to this commitment for the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018 was $ i 1,761, $ i 3,691 and $ i 2,913, respectively.

15.	Cash Flow Information

	January 2,			December 28,		December 29,
	2021			2019		2018
Net cash paid during the year for:
Interest expense	$	i 137,163		$	i 130,081	$	i 119,866
Income taxes^(a)	$	i 24,609		$	i 34,268	$	i 12,095
Noncash investing and financing activities were as follows:
Fair value of net assets acquired in connection with acquisitions	$	i 9,677		$	i 118	$	i 6,026
Change in Capital expenditures and Capitalized software included in accounts payable and accrued expenses	$	( i 347	)	$	i 583	$	( i 844	)

(a)	Fiscal 2020 and Fiscal 2019 include tax refunds received of $ i 6,936 and $ i 13,309, respectively.

See Note 4 for disclosures on supplemental cash flow information related to leases.

/ /

F-34

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

16.Commitments and Contingencies

Securities Class Action and Derivative Matters

In March 2019, two substantially identical class action complaints alleging violations of the federal securities laws were filed by individual shareholders against the Company, certain of the Company’s current officers and the Company’s former controlling shareholder, Artal Group S.A. (“Artal”), in the United States District Court for the Southern District of New York. The actions were consolidated and lead plaintiffs were appointed in June 2019. A consolidated amended complaint was filed on July 29, 2019, naming as defendants the Company, certain of the Company’s current officers and directors, and Artal and certain of its affiliates. A second consolidated amended complaint was filed on September 27, 2019. The operative complaint asserts claims on behalf of all purchasers of the Company’s common stock between May 4, 2018 and February 26, 2019, inclusive (the “Class Period”), including purchasers of the Company’s common stock traceable to the May 2018 secondary offering of the Company’s common stock by certain of its shareholders. The complaint alleges that, during the Class Period, the defendants disseminated materially false and misleading statements and/or concealed or recklessly disregarded material adverse facts. The complaint alleges claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 thereunder, and with respect to the secondary offering, under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as amended. The plaintiffs sought to recover unspecified damages on behalf of the class members. The Company filed a motion to dismiss the complaint on October 31, 2019. On November 30, 2020, the Court granted the Company’s motion to dismiss in full and dismissed the complaint. The plaintiffs did not appeal.

Between March and July 2019, the Company received shareholder litigation demands alleging breaches of fiduciary duties by certain current and former Company directors and executive officers, to the alleged injury of the Company. The allegations in the demands relate to those contained in the dismissed securities class action litigation. In response to the demands, pursuant to Virginia law, the Board of Directors has created a special committee to investigate and evaluate the claims made in the demands. In addition, four derivative complaints were filed, each making allegations against certain of the Company’s officers and directors and/or Artal and certain of its affiliates. First, on June 13, 2019, a shareholder derivative complaint was filed in the Southern District of New York against certain of the Company’s officers and directors alleging, among other things, that the defendants breached fiduciary duties to the alleged injury of the Company. The plaintiff voluntarily dismissed the complaint on July 8, 2019 and the Company agreed to treat the complaint as a litigation demand. Second, on July 23, 2019, another shareholder derivative complaint was filed in the Southern District of New York against certain of the Company’s officers and directors alleging, among other things, that the defendants breached fiduciary duties to the alleged injury of the Company. The plaintiff voluntarily dismissed the complaint the same day. Third, on October 25, 2019, another shareholder derivative complaint was filed in the Southern District of New York against certain of the Company’s officers and directors alleging, among other things, that the defendants breached fiduciary duties to the alleged injury of the Company. Finally, on December 16, 2019, a shareholder derivative complaint was filed in New York Supreme Court against certain of the Company’s officers and directors, and Artal and certain of its affiliates, alleging, among other things, that the defendants breached fiduciary duties to the alleged injury of the Company. This action and the derivative action filed October 25, 2019 were initially stayed pending a decision on the defendants’ motion to dismiss the securities class action and all parties agreed to an additional stay until February 25, 2021. The Company believes that these actions are without merit and intends to vigorously defend them.

Member Class Action Matter

In June 2020, a Workshops + Digital (then known as Studio + Digital) member filed a class action complaint against the Company in the Superior Court of California in Ventura County. The complaint was filed on behalf of all Workshops + Digital members nationwide and regards the fees charged for Workshops + Digital memberships since the replacement of in-person workshops with virtual workshops in March 2020 in response to the COVID-19 pandemic. The complaint alleged, among other things, that the Company’s decision to charge its members the full Workshops + Digital membership fee while only providing a virtual workshop experience violated California state consumer protection laws and gave rise to claims for breach of contract, fraud, and other tort causes of action based on the same factual allegations that are the basis for the breach of contract claim. The plaintiff seeks to recover damages plus injunctive relief to enjoin the Company from engaging in similar conduct in the future on behalf of the class members.

F-35

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

On July 30, 2020, the Company filed a notice to remove the matter to the United States District Court for the Central District of California, and per the parties’ stipulation, on August 7, 2020, the case was transferred to the United States District Court for the Southern District of New York. On September 23, 2020, the Company filed a motion to dismiss all of the plaintiff’s claims with prejudice. At the parties’ September 29, 2020 preliminary conference, the court issued an order permitting the plaintiff to either submit her opposition to the motion to dismiss or file an amended complaint by October 14, 2020. On October 14, 2020, the plaintiff filed an amended complaint with predominantly the same claims. The Company filed another motion to dismiss the matter on November 4, 2020. The plaintiff filed her opposition brief on November 19, 2020, and the Company filed its reply brief on November 25, 2020. The Company believes that this matter is without merit and intends to vigorously defend it.

Other Litigation Matters

Due to the nature of the Company’s activities, it is also, at times, subject to other pending and threatened legal actions that arise out of the ordinary course of business. In the opinion of management, the disposition of any such matters is not expected, individually or in the aggregate, to have a material adverse effect on the Company’s results of operations, financial condition or cash flows. However, the results of legal actions cannot be predicted with certainty. Therefore, it is possible that the Company’s results of operations, financial condition or cash flows could be materially adversely affected in any particular period by the unfavorable resolution of one or more legal actions.

Commitments

Minimum commitments under non-cancelable purchase obligations at January 2, 2021 was $ i 28,239, of which $ i 9,378 is due in fiscal 2021, $ i 9,378 is due in fiscal 2022, $ i 7,544 is due in fiscal 2023 and the remaining $ i 1,939 is due in fiscal 2024. See Note 4 for disclosures related to minimum commitments under non-cancelable lease obligations, primarily for office and rental facilities operating leases.

17.	Segment and Geographic Data

The Company has i four reportable segments based on an integrated geographical structure as follows: North America, Continental Europe (CE), United Kingdom and Other. Other consists of Australia, New Zealand and emerging markets operations and franchise revenues and related costs, all of which have been grouped together as if they were a single reportable segment because they do not meet any of the quantitative thresholds and are immaterial for separate disclosure. To be consistent with the information that is presented to the chief operating decision maker, the Company does not include intercompany activity in the segment results.

Information about the Company’s reportable segments is as follows:

Total Revenue, net

for the Fiscal Year Ended

North America

i 942,100

i 979,302

i 1,047,251

Continental Europe

i 313,380

i 293,233

i 304,325

United Kingdom

i 84,387

i 94,557

i 107,072

Other

i 38,257

i 46,245

i 55,473

Total revenue, net

i 1,378,124

i 1,413,337

i 1,514,121

/ /

F-36

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

Net Income

for the Fiscal Year Ended

Segment operating income:

North America

i 269,580

i 281,937

i 351,599

Continental Europe

i 124,891

i 95,201

i 114,708

United Kingdom

i 10,648

i 9,543

i 18,814

Other

i 2,341

i 4,374

i 9,604

Total segment operating income

i 407,460

i 391,055

i 494,725

General corporate expenses

i 191,298

i 103,070

i 105,740

Interest expense

i 123,310

i 135,267

i 142,346

Other expense, net

i 349

i 1,758

i 2,578

Provision for income taxes

i 17,462

i 31,513

i 20,493

Net income

i 75,041

i 119,447

i 223,568

Net loss attributable to the noncontrolling interest

i 38

i 169

i 181

Net income attributable to WW International, Inc.

i 75,079

i 119,616

i 223,749

Depreciation and Amortization

for the Fiscal Year Ended

North America

i 39,740

i 36,643

i 37,137

Continental Europe

i 1,615

i 1,709

i 1,347

United Kingdom

i 1,017

i 802

i 1,487

Other

i 370

i 443

i 597

Total segment depreciation and amortization

i 42,742

i 39,597

i 40,568

General corporate depreciation and amortization

i 16,780

i 14,738

i 12,032

Depreciation and amortization

i 59,522

i 54,335

i 52,600

The following tables present information about the Company’s sources of revenue and other information by geographic area. There were no material amounts of sales or transfers among geographic areas and no material amounts of US export sales.

Total Revenue, net

for the Fiscal Year Ended

Digital Subscription Revenues

i 743,060

i 609,996

i 567,767

Workshops + Digital Fees

i 443,429

i 597,270

i 705,429

In-studio product sales

i 40,352

i 118,493

i 148,856

E-commerce, licensing, franchise royalties and other

i 151,283

i 87,578

i 92,069

i 1,378,124

i 1,413,337

i 1,514,121

F-37

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

Total Revenue, net

for the Fiscal Year Ended

United States

i 880,945

i 913,930

i 974,843

Canada

i 61,155

i 65,372

i 72,408

Continental Europe

i 313,380

i 293,233

i 304,325

United Kingdom

i 84,387

i 94,557

i 107,072

Other

i 38,257

i 46,245

i 55,473

i 1,378,124

i 1,413,337

i 1,514,121

Long-Lived Assets

for the Fiscal Year Ended

January 2, 2021 (a)

December 28, 2019 (a)

United States

i 43,651

i 43,909

i 43,772

Canada

i 4,508

i 4,997

i 4,825

Continental Europe

i 1,471

i 2,374

i 1,257

United Kingdom

i 1,751

i 2,068

i 1,924

Other

i 554

i 718

i 424

i 51,935

i 54,066

i 52,202

(a)	Amounts include finance lease assets

	Operating Lease Assets for the Fiscal Year Ended
	January 2, 2021		December 28, 2019
United States	$	i 107,023	$	i 134,623
Canada		i 6,136		i 9,270
Continental Europe		i 3,038		i 4,490
United Kingdom		i 2,217		i 2,533
Other		i 688		i 1,067
	$	i 119,102	$	i 151,983

18.	Fair Value Measurements

Accounting guidance on fair value measurements for certain financial assets and liabilities requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

•

Level 1 — Quoted prices in active markets for identical assets or liabilities.

•

Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

When measuring fair value, the Company is required to maximize the use of observable inputs and minimize the use of unobservable inputs.

F-38

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

Fair Value of Financial Instruments

The Company’s significant financial instruments include long-term debt and interest rate swap agreements as of January 2, 2021 and December 28, 2019. The fair value of the Company’s borrowings under the Revolving Credit Facility approximated a carrying value of $ i i 0 / at both January 2, 2021 and December 28, 2019.

The fair value of the Company’s Credit Facilities is determined by utilizing average bid prices on or near the end of each fiscal quarter (Level 2 input). As of January 2, 2021 and December 28, 2019, the fair value of the Company’s long-term debt was approximately $ i 1,501,148 and $ i 1,597,852, respectively, as compared to the carrying value (net of deferred financing costs and debt discount) of $ i 1,485,800 and $ i 1,576,170, respectively.

Derivative Financial Instruments

The fair values for the Company’s derivative financial instruments are determined using observable current market information such as the prevailing LIBOR interest rate and LIBOR yield curve rates and include consideration of counterparty credit risk. See Note 19 for disclosures related to derivative financial instruments.

The following table presents the aggregate fair value of the Company’s derivative financial instruments:

Fair Value Measurements Using:

Total

Fair

Value

Quoted Prices in

Active Markets

for Identical Assets

(Level 1)

Significant Other

Observable Inputs

(Level 2)

Significant

Unobservable

Inputs

(Level 3)

Interest rate swap liability at January 2, 2021

i 28,283

i 0

i 28,283

i 0

Interest rate swap liability at December 28, 2019

i 21,597

i 0

i 21,597

i 0

The Company did i i i i i i i i no / / / / / / / t have any transfers into or out of Levels 1 and 2 and did not maintain any assets or liabilities classified as Level 3 during the fiscal years ended January 2, 2021 and December 28, 2019.

19.	Derivative Instruments and Hedging

As of January 2, 2021, the Company had in effect interest rate swaps with an aggregate notional amount totaling $ i 750,000. As of December 28, 2019, the Company had in effect an interest rate swap with a notional amount totaling $ i 1,000,000, which expired by its terms on i April 2, 2020.

On July 26, 2013, in order to hedge a portion of its variable rate debt, the Company entered into a forward-starting interest rate swap with an effective date of i March 31, 2014 and a termination date of i April 2, 2020. The initial notional amount of this swap was $ i 1,500,000. During the term of this swap, the notional amount decreased from $ i 1,500,000 effective i March 31, 2014 to $ i 1,250,000 on i April 3, 2017 and to $ i 1,000,000 on i April 1, 2019. This interest rate swap effectively fixed the variable interest rate on the notional amount of this swap at i 2.41%. This swap qualified for hedge accounting and, therefore, changes in the fair value of this swap were recorded in accumulated other comprehensive loss.

On June 11, 2018, in order to hedge a portion of its variable rate debt, the Company entered into a forward-starting interest rate swap (the “2018 swap”) with an effective date of i April 2, 2020 and a termination date of i March 31, 2024. The initial notional amount of this swap is $ i 500,000. During the term of this swap, the notional amount will decrease from $ i 500,000 effective i April 2, 2020 to $ i 250,000 on i March 31, 2021. This interest rate swap effectively fixed the variable interest rate on the notional amount of this swap at i 3.1005%. On June 7, 2019, in order to hedge a portion of its variable rate debt, the Company entered into a forward-starting interest rate swap (together with the 2018 swap, the “current swaps”) with an effective date of i April 2, 2020 and a termination date of i March 31, 2024. The notional amount of this swap is $ i 250,000. This interest rate swap effectively fixed the variable interest rate on the notional amount of this swap at i 1.901%. The current swaps qualify for hedge accounting and, therefore, changes in the fair value of the current swaps have been recorded in accumulated other comprehensive loss.

F-39

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

As of January 2, 2021 and December 28, 2019, cumulative unrealized losses for qualifying hedges were reported as a component of accumulated other comprehensive loss in the amounts of $ i 20,979 ($ i 28,161 before taxes) and $ i 15,529 ($ i 20,856 before taxes), respectively. As of January 2, 2021, the aggregate fair value of the Company’s current swaps was a liability of $ i 28,283, which is included in derivative payable in the consolidated balance sheet. As of December 28, 2019, the fair value of the Company’s then-effective swap was a liability of $ i 1,881, which is included in derivative payable in the consolidated balance sheet. As of December 28, 2019, the aggregate fair value of the Company’s current swaps was a liability of $ i 19,716, which is included in derivative payable in the consolidated balance sheet.

The Company is hedging forecasted transactions for periods not exceeding the next i four years. The Company expects approximately $ i 4,658 ($ i 6,227 before taxes) of derivative losses included in accumulated other comprehensive loss at January 2, 2021, based on current market rates, will be reclassified into earnings within the next 12 months.

20.	Accumulated Other Comprehensive Loss

Amounts reclassified out of accumulated other comprehensive loss are as follows:

Changes in Accumulated Other Comprehensive Loss by Component^(a)

Fiscal Year Ended January 2, 2021

Loss on

Qualifying

Hedges

Loss on

Foreign

Currency

Translation

Total

Beginning balance at December 28, 2019

( i 15,529

)

( i 11,823

)

( i 27,352

)

Other comprehensive (loss) income before

reclassifications, net of tax

( i 14,590

)

i 7,555

( i 7,035

)

Amounts reclassified from accumulated other

comprehensive loss, net of tax^(b)

i 9,140

i 0

i 9,140

Net current period other comprehensive (loss)

income including noncontrolling interest

( i 5,450

)

i 7,555

i 2,105

Less: Net current period other comprehensive

loss attributable to the noncontrolling interest

i 0

i 98

Ending balance at January 2, 2021

( i 20,979

)

( i 4,170

)

( i 25,149

)

(a)	Amounts in parentheses indicate debits

(b)	See separate table below for details about these reclassifications

Fiscal Year Ended December 28, 2019

Loss on

Qualifying

Hedges

Loss on

Foreign

Currency

Translation

Total

Beginning balance at December 29, 2018

( i 1,175

)

( i 14,582

)

( i 15,757

)

Other comprehensive (loss) income before

reclassifications, net of tax

( i 13,752

)

i 2,737

( i 11,015

)

Amounts reclassified from accumulated other

comprehensive loss, net of tax^(b)

( i 602

)

i 0

( i 602

)

Net current period other comprehensive (loss)

income including noncontrolling interest

( i 14,354

)

i 2,737

( i 11,617

)

Less: Net current period other comprehensive

loss attributable to the noncontrolling interest

i 0

i 22

Ending balance at December 28, 2019

( i 15,529

)

( i 11,823

)

( i 27,352

)

(a)	Amounts in parentheses indicate debits

(b)	See separate table below for details about these reclassifications

/ /

F-40

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

Fiscal Year Ended December 29, 2018

Loss on

Qualifying

Hedges

Loss on

Foreign

Currency

Translation

Total

Beginning balance at December 30, 2017

( i 5,392

)

( i 5,075

)

( i 10,467

)

Other comprehensive income (loss) before

reclassifications, net of tax

i 3,263

( i 8,556

)

( i 5,293

)

Amounts reclassified from accumulated other

comprehensive loss, net of tax^(b)

i 2,115

i 0

i 2,115

Adoption of accounting standard

( i 1,161

)

( i 1,324

)

( i 2,485

)

Net current period other comprehensive income

(loss) including noncontrolling interest

i 4,217

( i 9,880

)

( i 5,663

)

Less: Net current period other comprehensive

loss attributable to the noncontrolling interest

i 0

i 373

Ending balance at December 29, 2018

( i 1,175

)

( i 14,582

)

( i 15,757

)

(a)	Amounts in parentheses indicate debits

(b)	See separate table below for details about these reclassifications

Reclassifications out of Accumulated Other Comprehensive Loss^(a)

Fiscal Year Ended

January 2,

December 28,