Pre-Effective Amendment to Registration Statement (General Form) — Form S-1
Filing Table of Contents
Document/Exhibit Description Pages Size
1: S-1/A Pre-Effective Amendment to Registration Statement 168 857K
(General Form)
2: EX-5.1 Opinion re: Legality 2 14K
3: EX-10.1 Material Contract 134 483K
5: EX-10.20 Material Contract 29 113K
6: EX-10.21 Material Contract 6 19K
7: EX-10.24 Material Contract 22 99K
8: EX-10.28 Material Contract 9 24K
9: EX-10.29 Material Contract 25 97K
10: EX-10.30 Material Contract 2 17K
11: EX-10.31 Material Contract 9 33K
12: EX-10.33 Material Contract 21 47K
13: EX-10.37 Material Contract 3 13K
14: EX-10.38 Material Contract 24 100K
4: EX-10.9 Material Contract 32 79K
15: EX-21 Xhibit 21 1 9K
16: EX-23.2 Consent of Experts or Counsel 1 7K
17: EX-23.3 Consent of Experts or Counsel 1 7K
S-1/A — Pre-Effective Amendment to Registration Statement (General Form)
Document Table of Contents
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 29, 2001.
REGISTRATION NO. 333-69362
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
WEIGHT WATCHERS INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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VIRGINIA 7299 11-6040273
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
175 CROSSWAYS PARK WEST
WOODBURY, NEW YORK 11797-2055
(516) 390-1400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------------------
ROBERT HOLLWEG, ESQ.
WEIGHT WATCHERS INTERNATIONAL, INC.
175 CROSSWAYS PARK WEST
WOODBURY, NEW YORK 11797-2055
(516) 390-1400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------------------
WITH COPIES TO:
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RISE B. NORMAN, ESQ. KRIS F. HEINZELMAN, ESQ.
SIMPSON THACHER & BARTLETT CRAVATH, SWAINE & MOORE
425 LEXINGTON AVENUE 825 EIGHTH AVENUE
NEW YORK, NEW YORK 10017 NEW YORK, NEW YORK 10019
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _______________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER UNIT PRICE(2) FEE(3)
Common stock, no par value................... 20,010,000 shares $23.00 $460,230,000 $90,058
Preferred stock purchase rights(4)........... -- -- -- --
Total.................................... 20,010,000 shares $23.00 $460,230,000 $90,058
(1) Includes 2,610,000 shares subject to the underwriters' over-allotment
option.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o).
(3) $25,000 of the total registration fee of $115,058 was paid on September 13,
2001, prior to the initial filing of the registration statement. Therefore,
the total registration fee payable upon the filing of this Amendment No. 1,
calculated in accordance with Rule 457(a), is $90,058.
(4) The preferred stock purchase rights initially will trade together with the
common stock. The value attributable to the preferred stock purchase rights,
if any, is reflected in the offering price of the common stock.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 29, 2001
17,400,000 Shares
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Common Stock
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The shares of common stock are being sold by the selling shareholders named
in this prospectus. We will not receive any of the proceeds from the shares of
common stock sold by the selling shareholders.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price of the common stock is expected to be
between $21.00 and $23.00 per share. We will apply to list our common stock on
the New York Stock Exchange under the symbol "WTW".
The underwriters have an option to purchase a maximum of 2,610,000
additional shares from the selling shareholders to cover over-allotments of
shares.
Investing in our common stock involves risks. See "Risk Factors" beginning
on page 8.
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Underwriting Proceeds to
Price to Discounts and Selling
Public Commissions Shareholders
----------------- ----------------- -----------------
Per
Share... $ $ $
Total... $ $ $
Delivery of the shares of common stock will be made on or about ,
2001.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Credit Suisse First Boston Goldman, Sachs & Co.
Merrill Lynch & Co.
Salomon Smith Barney
UBS Warburg
The date of this prospectus is .
Picture of Weight Watchers Magazine Cover
Picture of Classroom Meeting
Weight Watchers Logo
Picture of Program Materials
Picture of Program Materials
Picture of Woman Measuring Weight Loss
Picture of Woman Measuring Weight Loss
Picture of Spokeswoman at a press conference
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TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY.................... 1
RISK FACTORS.......................... 8
CAUTIONARY NOTICE REGARDING
FORWARD-LOOKING STATEMENTS.......... 13
USE OF PROCEEDS....................... 14
DIVIDEND POLICY....................... 14
CAPITALIZATION........................ 15
PRO FORMA COMBINED FINANCIAL
INFORMATION......................... 16
SELECTED HISTORICAL FINANCIAL AND
OTHER INFORMATION................... 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 25
INDUSTRY.............................. 36
BUSINESS.............................. 38
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PAGE
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MANAGEMENT............................ 49
RELATED PARTY TRANSACTIONS............ 57
PRINCIPAL AND SELLING SHAREHOLDERS.... 64
DESCRIPTION OF INDEBTEDNESS........... 65
DESCRIPTION OF CAPITAL STOCK.......... 67
SHARES ELIGIBLE FOR FUTURE SALE....... 74
CERTAIN U.S. FEDERAL INCOME TAX
CONSEQUENCES........................ 76
UNDERWRITING.......................... 78
NOTICE TO CANADIAN RESIDENTS.......... 82
LEGAL MATTERS......................... 83
EXPERTS............................... 83
WHERE YOU CAN FIND ADDITIONAL
INFORMATION......................... 83
INDEX TO FINANCIAL STATEMENTS......... F-1
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY BE USED ONLY WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT IS ACCURATE ONLY ON
THE DATE OF THIS DOCUMENT.
In this prospectus, "Weight Watchers," "we," "us" and "our" refer to Weight
Watchers International, Inc. and its subsidiaries, unless the context otherwise
requires. We refer to our classroom operations that are run directly by us as
company-owned and those run by our franchisees as franchised. Unless otherwise
indicated, the information in this prospectus assumes the completion of the
4.70536-for-one split of our common stock that we anticipate will occur prior to
the completion of this offering.
In January 2001, we acquired the business of one of our two largest
franchisees, Weighco Enterprises, Inc. and its subsidiaries, which we
collectively refer to as Weighco. When we state that information is presented on
a pro forma basis, we have taken into account the Weighco acquisition on the pro
forma basis described under "Pro Forma Combined Financial Information."
UNTIL , 2001 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
i
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
IT IS NOT COMPLETE AND MAY NOT CONTAIN ALL THE INFORMATION THAT MAY BE IMPORTANT
TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS BEFORE MAKING AN INVESTMENT
DECISION, ESPECIALLY THE INFORMATION PRESENTED UNDER THE HEADING "RISK FACTORS."
WEIGHT WATCHERS
We are a leading global branded consumer company and the leading provider of
weight-loss services in 27 countries around the world. Our programs help people
lose weight and maintain their weight loss and, as a result, improve their
health, enhance their lifestyles and build self-confidence. At the core of our
business are weekly meetings, which promote weight loss through education and
group support in conjunction with a flexible, healthy diet. Each week more than
one million members attend approximately 37,000 Weight Watchers meetings, which
are run by over 13,000 classroom leaders. Our classroom leaders teach, inspire,
motivate and act as role models for our members. Our members typically enroll to
attend consecutive weekly meetings and have historically demonstrated a
consistent re-enrollment pattern across many years.
We have experienced strong growth in sales and profits over the last five
years since we made the strategic decision to re-focus our meetings exclusively
on our group education approach. We discontinued the in-meeting sale of
pre-packaged meals, added in 1990 in our North America company-owned operations
by our previous owner, Heinz. We also modernized our diet to adapt it to
contemporary lifestyles. Through these initiatives, combined with our
strengthened management and strategic focus since our acquisition by Artal
Luxembourg, we have grown our attendance at a compound annual rate of
approximately 13% from fiscal 1997 through 2000 and our operating profit margin
improved from 6.7% (before a restructuring charge) to 25.9% over the same
period. Our pro forma revenues for the twelve months ended December 30, 2000
were $488.2 million. For the first six months of 2001, our pro forma revenues
grew more than 28% over the comparable period in the prior year.
The number of overweight and obese people worldwide has been increasing due
to improving living standards and changing eating patterns, as well as
increasingly sedentary lifestyles. The proportion of U.S. adults who are
overweight has grown from 47% to 61% over the last 20 years, and the number of
overweight people worldwide now exceeds one billion. A growing number of
overweight people are dieting not only because of a desire to improve their
appearance but also due to a greater awareness of the health risks associated
with being overweight.
Throughout our 40-year history, we have maintained that long-term behavior
modification is the only effective way to achieve sustainable weight loss.
Although approximately 70% of U.S. dieters try to lose weight by themselves,
clinical studies have shown that people who attend Weight Watchers meetings are
much more likely to lose weight than people who diet on their own. In contrast
to our group education approach to long-term behavior modification, most
weight-loss companies have focused on quick-fix methods, such as fad diets, meal
replacements and diet drugs, and have typically experienced limited or
short-lived success. We believe that our approach will continue to achieve
success and that we will capture an increasing share of the growing worldwide
market for weight-loss services.
OUR STRENGTHS
- BILLION DOLLAR GLOBAL BRAND. Our proven 40-year track record of safe and
sensible weight loss has established WEIGHT WATCHERS as the leading global
weight-loss brand. We believe that our brand conveys an image of effective,
healthy and flexible weight loss in a supportive environment. Our brand is
widely recognized throughout the world with retail sales of over $1.5 billion
in 2000,
1
including sales by licensees and franchisees. Currently, over 97% of U.S.
women recognize the WEIGHT WATCHERS brand. In addition, our program is the
most widely recommended weight-loss program by U.S. doctors. Our credibility
is further enhanced by the endorsement of the U.S. government.
- LEADING MARKET POSITION. We are the market leader in weight-loss services in
every country in which we operate, other than Denmark, Poland and South
Africa. In addition, we face no significant group education-based competition
in any of our major markets except the United Kingdom, where we have faced
group education-based competition for 30 years. Even there, we have a 50%
market share and approximately twice the revenues of our largest competitor.
The combination of our strong brand and our unparalleled network of over
13,000 classroom leaders, who have achieved their weight-loss goals on our
program, provides us with a formidable competitive advantage.
- LOYAL MEMBER BASE. For many of our members, our classroom program is an
inspirational experience that helps them address their life-long challenge of
weight control. Our members have historically demonstrated a consistent
pattern of repeat enrollment over a number of years. On average, in our North
America company-owned, or NACO, operations, our members have enrolled in four
separate program cycles.
- ATTRACTIVE VALUE TO MEMBERS. Our low meeting fees ($10 in our NACO operations)
offer members an attractive value as compared to other alternatives. For their
fee, our members gain access to our scientifically developed diet, detailed
program materials and class instruction by one of our trained leaders, as well
as group support where members contribute to each other's weight-loss success.
- UNIQUE BUSINESS MODEL. Our business model features high margins, a variable
cost structure and low capital requirements.
- HIGH CONTRIBUTION MARGINS. During 2000, our meetings generated a
contribution margin of approximately 50%. In that period, for example, our
NACO meetings averaged attendance of 34 members and generated average
revenues of over $440 per class, including product sales, while our cost
of sales is primarily the compensation of two to three part-time
employees, the hourly rental of the meeting location and the cost of
products sold.
- VARIABLE COST STRUCTURE. Our staff is usually paid on a commission basis
and space is typically rented as needed. Moreover, we adjust the number of
meetings according to demand, including seasonal fluctuations. This
variable cost structure enables us to maintain high margins across varying
levels of demand.
- LOW MARKETING COSTS. Our marketing expenditures were less than 15% of our
revenues in 2000. Our strong brand, together with the effectiveness of our
program and our loyal member base, enable us to attract new and returning
members efficiently through both word-of-mouth referrals and mass
marketing programs.
- STRONG FREE CASH FLOW. In 2000, our operating income margin was over 25%,
while our capital expenditures were less than 1% of revenues. Because we
can add additional meetings with little or no capital expenditures and our
members typically pay cash at each meeting or prepay for a series of
meetings, we require little new capital to grow.
OUR GROWTH STRATEGY
The large and growing global weight-loss market provides us with significant
growth potential. In addition, we believe we can increase our share of this
market by:
- INCREASING PENETRATION IN EXISTING MAJOR MARKETS. In the United Kingdom, the
penetration rate of our target demographic group, overweight women ages 25 to
64, by all group education-based commercial weight-loss programs now exceeds
20%. We believe that this demonstrates the potential for significant increases
in penetration in our other major markets. Because we do not face
2
significant group education-based competition outside the United Kingdom, we
believe that we are best positioned to capture this growth. In fact, we have
reached a market penetration of 13% and 10% in Sweden and Finland,
respectively. In our largest market, the United States, our market penetration
was still only 7% in 2000.
- DEVELOPING LESS PENETRATED MARKETS AND ENTERING NEW MARKETS. We believe that
we have significant long-term growth opportunities in countries where we have
established a meeting infrastructure but where our penetration rates are
relatively low. For example, in Germany, we have grown attendance by over 60%
in the twelve months ended June 30, 2001, while still penetrating less than 2%
of our target market. We have recently expanded into Spain and Denmark and
believe we have the ability to enter other new markets as our program has
proven adaptable in 27 countries.
- GROWING PRODUCT SALES. In 2000, sales of our proprietary products represented
26% of our revenues, up from 11% in fiscal 1997. We have grown our product
sales per attendance by focusing on a core group of products that complement
our program. We currently sell snack bars, books, CD-ROMs, POINTS calculators
and other items primarily through classroom operations. We will continue to
optimize our classroom product offerings by updating existing products and
selectively introducing new products.
- GROWING LICENSING ROYALTIES. We currently license the WEIGHT WATCHERS brand in
certain categories of food, apparel, books and other products. We derived less
than 2% of our 2000 revenues from licensing and royalties but believe there
are opportunities to take fuller advantage of the strength of our brand
through additional licensing agreements. We also expect to generate royalties
from our affiliate and licensee, WeightWatchers.com, Inc., which has recently
developed two Internet-based paid subscription products.
- ADDRESSING NEW CUSTOMER SEGMENTS. We believe there are significant
opportunities to expand our customer base by developing products and services
designed to meet the needs of a broader audience. For example, while
approximately 95% of our current members are women, we are actively
researching and developing new products and services that are intended to have
a greater appeal to men.
RECENT DEVELOPMENTS
On October 29, 2001, we reported net revenues for the three months and nine
months ended September 29, 2001 of $144.1 million and $478.3 million,
respectively. Our net revenues for the three months and nine months ended
September 29, 2001 increased 19.5% and 25.2% compared with pro forma net
revenues for the comparable prior year periods. Our operating income for the
three months and nine months ended September 29, 2001 was $51.0 million and
$160.1 million, respectively. Our operating income for the three months and nine
months ended September 29, 2001 increased 63.5% and 46.5% compared with pro
forma operating income for the comparable prior year periods.
The increases in our revenues and profitability reflect the continuing
strong growth in attendance and product sales across our major markets.
Attendance was 10.8 million for the third quarter of 2001, an increase from pro
forma attendance of 9.1 million for the three months ended September 30, 2000.
While our attendance growth was impacted negatively by the September 11
terrorist attacks, our business had largely returned to pre-September 11 trends
by the end of our third quarter of 2001.
------------------------
We are a Virginia corporation incorporated in 1974. Our principal executive
offices are located at 175 Crossways Park West, Woodbury, New York 11797-2055.
Our telephone number at that address is (516) 390-1400.
3
THE OFFERING
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Common stock offered by the selling
shareholders............................... 17,400,000 shares (or 20,010,000 shares if
the underwriters exercise the over-allotment
option in full)
Total common stock outstanding after this
offering................................... 105,407,142 shares
Use of proceeds.............................. We will not receive any of the proceeds from
the sale of shares by the selling
shareholders. The selling shareholders will
receive all net proceeds from the sale of
shares of our common stock offered in this
prospectus.
Dividend policy.............................. We do not expect to pay any dividends on our
common stock for the foreseeable future.
Proposed New York Stock Exchange symbol...... WTW
The number of shares of common stock shown to be outstanding after this
offering is based on the number of shares outstanding as of September 29, 2001.
This number excludes:
- 5,763,692 shares of our common stock issuable upon exercise of outstanding
stock options and
- 1,294,348 shares of our common stock reserved for future issuance under
our existing stock option plan.
4
SUMMARY PRO FORMA COMBINED FINANCIAL INFORMATION
The summary pro forma combined financial information has been derived from
the unaudited pro forma combined statements of operations and the related notes
included elsewhere in this prospectus, which give effect to our acquisition on
January 16, 2001 of the franchised territories and certain business assets of
Weighco for $83.8 million and the related financing of the acquisition. We
financed the acquisition with available cash of $23.8 million and additional
borrowings of $60.0 million under our senior credit facilities.
The unaudited pro forma combined statements of operations give effect to the
Weighco acquisition and the related financing as if each had occurred on
April 25, 1999. Our pro forma results are for informational purposes only and do
not purport to represent what actually would have occurred if the acquisition
and the related financing had been consummated on April 25, 1999, nor are they
necessarily indicative of our future operating results.
Effective April 30, 2000, we changed our fiscal year end from the last
Saturday in April to the Saturday closest to December 31. As a result of this
change in our reporting period, the significant growth in our business since the
fiscal year ended April 29, 2000 and the Weighco acquisition, we have included
unaudited pro forma combined results of operations for the twelve months ended
December 30, 2000. Given these events, we believe the pro forma results of
operations for the twelve months ended December 30, 2000 are more indicative of
our current operations. Our results of operations for the twelve months ended
December 30, 2000 have been derived from our historical results for the eight
months ended December 30, 2000, plus our results for the four months ended
April 29, 2000, which are derived from our results for the historical fiscal
year ended April 29, 2000. We have included a comparison of the six months ended
June 30, 2001 to the six months ended July 29, 2000, which, in the opinion of
our management, is the available period most comparable to the six months ended
June 30, 2001.
5
SUMMARY PRO FORMA COMBINED FINANCIAL INFORMATION
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SIX MONTHS ENDED
FISCAL YEAR TWELVE MONTHS -----------------------------
ENDED APRIL 29, ENDED DECEMBER 30, JULY 29, JUNE 30,
2000 2000 2000 2001
---------------- ------------------- ------------- -------------
(53 weeks) (54 weeks) (27 weeks) (26 weeks)
(in millions, except per share amounts)
STATEMENT OF OPERATIONS INFORMATION:
Revenues, net......................... $436.4 $488.2 $261.5 $336.1
Cost of revenues...................... 216.8 237.5 121.5 149.6
------ ------ ------ ------
Gross profit........................ 219.6 250.7 140.0 186.5
Marketing expenses.................... 55.0 58.9 27.5 40.9
Selling, general and administrative
expenses............................ 60.3 62.7 34.4 35.7
Transaction costs..................... 8.3 -- -- --
------ ------ ------ ------
Operating income.................... 96.0 129.1 78.1 109.9
Interest expense, net................. 40.1 66.8 33.6 27.7
Other (income) expense, net........... (10.5) 7.6 (6.5) 3.9
------ ------ ------ ------
Income before income taxes and
minority interest................. 66.4 54.7 51.0 78.3
Provision for income taxes............ 28.1 20.1 17.9 28.6
------ ------ ------ ------
Income before minority interest..... 38.3 34.6 33.1 49.7
Minority interest..................... 0.8 0.3 0.2 0.1
------ ------ ------ ------
Net income.......................... $ 37.5 $ 34.3 $ 32.9 $ 49.6
====== ====== ====== ======
Preferred stock dividends............. $ 0.9 $ 1.5 $ 0.8 $ 0.8
------ ------ ------ ------
Net income available to common
shareholders...................... $ 36.6 $ 32.8 $ 32.1 $ 48.8
====== ====== ====== ======
PER SHARE INFORMATION:
Basic earnings per share.............. $ 0.20 $ 0.29 $ 0.29 $ 0.44
====== ====== ====== ======
Diluted earnings per share............ $ 0.20 $ 0.29 $ 0.29 $ 0.44
====== ====== ====== ======
Basic weighted average number of
shares*............................. 182.1 112.0 112.0 111.0
====== ====== ====== ======
Diluted weighted average number of
shares*............................. 182.1 112.0 112.0 112.0
====== ====== ====== ======
OTHER FINANCIAL INFORMATION:
Depreciation and amortization......... $ 18.1 $ 14.0 $ 7.7 $ 7.5
Capital expenditures.................. 2.7 4.3 1.7 1.2
--------------------------
* Prior to our acquisition by Artal Luxembourg on September 29, 1999, there
were 4,705 shares of our common stock outstanding. In connection with the
transactions related to our acquisition, we declared a stock split that
resulted in 276,428,607 outstanding shares of our common stock. We have
adjusted our historical statements to reflect the stock split. We then
repurchased 164,441,039 shares in connection with the transactions so that
upon completion of our acquisition, there were 111,987,568 shares of our
common stock outstanding.
6
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth certain of our historical financial
information. The summary historical consolidated financial information as of and
for the fiscal years ended April 25, 1998, April 24, 1999 and April 29, 2000 and
the eight months ended December 30, 2000 have been derived from, and should be
read in conjunction with, our audited consolidated financial statements and the
related notes, included elsewhere in this prospectus. The summary historical
consolidated financial information as of and for the six months ended July 29,
2000 and June 30, 2001 have been derived from, and should be read in conjunction
with, our unaudited consolidated financial statements and the related notes
included elsewhere in this prospectus. Interim results for the six months ended
June 30, 2001 are not necessarily indicative of, and are not projections for,
the results to be expected for the full fiscal year.
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FISCAL YEAR ENDED EIGHT MONTHS SIX MONTHS ENDED
------------------------------------ ENDED -----------------------
APRIL 25, APRIL 24, APRIL 29, DECEMBER 30, JULY 29, JUNE 30,
1998 1999 2000 2000 2000 2001
---------- ---------- ---------- ------------ ---------- ----------
(52 weeks) (52 weeks) (53 weeks) (35 weeks) (27 weeks) (26 weeks)
(in millions, except per share amounts)
STATEMENT OF OPERATIONS INFORMATION:
Revenues, net................................. $297.2 $364.6 $399.5 $273.2 $235.9 $334.3
Cost of revenues.............................. 160.0 178.9 201.4 139.3 111.1 149.1
------ ------ ------ ------ ------ ------
Gross profit................................ 137.2 185.7 198.1 133.9 124.8 185.2
Marketing expenses............................ 49.2 52.9 51.5 27.0 25.3 40.6
Selling, general and administrative
expenses.................................... 44.1 48.9 50.7 32.2 28.7 35.5
Transaction costs............................. -- -- 8.3 -- -- --
------ ------ ------ ------ ------ ------
Operating income............................ 43.9 83.9 87.6 74.7 70.8 109.1
Interest (income) expense, net................ (4.9) (7.1) 31.1 37.1 29.0 27.4
Other expense (income), net................... 4.3 5.2 (10.4) 16.5 (6.5) 3.9
------ ------ ------ ------ ------ ------
Income before income taxes and minority
interest.................................. 44.5 85.8 66.9 21.1 48.3 77.8
Provision for income taxes.................... 19.9 36.4 28.3 5.9 16.9 28.4
------ ------ ------ ------ ------ ------
Income before minority interest............. 24.6 49.4 38.6 15.2 31.4 49.4
Minority interest............................. 0.8 1.5 0.8 0.2 0.2 0.1
------ ------ ------ ------ ------ ------
Net income.................................. $ 23.8 $ 47.9 $ 37.8 $ 15.0 $ 31.2 $ 49.3
====== ====== ====== ====== ====== ======
Preferred stock dividends..................... -- -- $ 0.9 $ 1.0 $ 0.8 $ 0.8
------ ------ ------ ------ ------ ------
Net income available to common
shareholders.............................. $ 23.8 $ 47.9 $ 36.9 $ 14.0 $ 30.4 $ 48.5
====== ====== ====== ====== ====== ======
PER SHARE INFORMATION:
Basic earnings per share...................... $ 0.09 $ 0.17 $ 0.20 $ 0.13 $ 0.27 $ 0.44
====== ====== ====== ====== ====== ======
Diluted earnings per share.................... $ 0.09 $ 0.17 $ 0.20 $ 0.13 $ 0.27 $ 0.43
====== ====== ====== ====== ====== ======
Basic weighted average number of shares*...... 276.2 276.2 182.1 112.0 112.0 111.0
====== ====== ====== ====== ====== ======
Diluted weighted average number of shares*.... 276.2 276.2 182.1 112.0 112.0 112.0
====== ====== ====== ====== ====== ======
OTHER FINANCIAL INFORMATION:
Net cash provided by (used in):
Operating activities........................ $ 36.4 $ 57.9 $ 49.9 $ 28.9 $ 39.6 $ 92.9
Investing activities........................ (4.9) (3.0) (19.6) (21.6) (8.9) (94.9)
Financing activities........................ (30.6) (47.7) 8.1 (8.0) (6.3) 4.7
Depreciation and amortization................. 8.8 9.6 10.4 7.9 5.7 7.4
Capital expenditures.......................... 3.4 2.5 1.9 3.6 1.3 1.2
BALANCE SHEET INFORMATION (AT END OF PERIOD):
Working capital (deficit)..................... $ 65.8 $ 91.2 $ (0.9) $ 10.2 $ 9.3 $(26.9)
Total assets.................................. 370.8 371.4 334.2 346.2 342.4 412.6
Total debt.................................... 41.1 39.6 476.1 472.4 474.0 478.7
Redeemable securities:
Preferred stock............................. -- -- 25.9 26.0 26.2 26.7
Common stock................................ -- -- -- -- -- 14.4
------------------------------
* Prior to our acquisition by Artal Luxembourg on September 29, 1999, there
were 4,705 shares of our common stock outstanding. In connection with the
transactions related to our acquisition, we declared a stock split that
resulted in 276,428,607 outstanding shares of our common stock. We have
adjusted our historical statements to reflect the stock split. We then
repurchased 164,441,039 shares in connection with the transactions so that
upon completion of our acquisition, there were 111,987,568 shares of our
common stock outstanding.
7
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES RISKS. YOU SHOULD CONSIDER
CAREFULLY, IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS,
THE FOLLOWING RISK FACTORS BEFORE DECIDING TO PURCHASE ANY SHARES OF OUR COMMON
STOCK.
RISKS RELATING TO OUR COMPANY
COMPETITION FROM A VARIETY OF OTHER WEIGHT-LOSS METHODS COULD RESULT IN
DECREASED DEMAND FOR OUR SERVICES.
The weight-loss business is highly competitive and we compete against a
large number of alternative providers of various sizes, some of which may have
greater financial resources than we. We compete against self-administered
weight-loss regimens, other commercial weight-loss programs, Internet-based
weight-loss programs, nutritionists, dietitians, the pharmaceutical industry,
dietary supplements and certain government agencies and non-profit groups that
offer weight control help by means of diets, exercise and weight-loss drugs. We
also compete against food manufacturers and distributors that are developing and
marketing meal replacement and diet products to weight-conscious consumers. In
addition, new or different products or methods of weight control are continually
being introduced. This competition and any increase in competition, including
new pharmaceuticals and other technological and scientific developments in
weight control, may result in decreased demand for our services.
OUR OPERATING RESULTS ARE DEPENDENT UPON THE EFFECTIVENESS OF OUR MARKETING AND
ADVERTISING PROGRAMS.
Our business success depends upon our ability to attract new members to our
classes and retain existing members. The effectiveness of our marketing
practices, in particular our advertising campaigns, is important to our
financial performance. If our marketing and advertising campaigns for classes do
not generate a sufficient number of members, our results of operations will be
adversely affected.
IF WE DO NOT CONTINUE TO DEVELOP NEW PRODUCTS AND SERVICES AND ENHANCE OUR
EXISTING PRODUCTS AND SERVICES, OUR BUSINESS MAY SUFFER.
Our future success depends on our ability to continue to develop and market
new products and services and to enhance our existing products and services on a
timely basis to respond to new and evolving customer demands, achieve market
acceptance and keep pace with new nutritional and weight-loss developments. We
may not be successful in developing, introducing on a timely basis or marketing
any new or enhanced products and services, and we cannot assure you that any new
or enhanced products or services will be accepted by the market. The failure of
our products and services to be accepted by the market would have an adverse
impact on us.
OUR DEBT SERVICE OBLIGATIONS COULD IMPEDE OUR OPERATIONS AND FLEXIBILITY.
Our financial performance could be affected by our level of debt. As of
June 30, 2001, we had total debt, redeemable preferred stock and common stock
which is subject to a repurchase right of $519.8 million. We also had additional
availability under our revolving credit facility as of that date of
$45.0 million. Our net interest expense for the eight months ended December 30,
2000 and for the six months ended June 30, 2001 was $37.1 million and
$27.4 million, respectively.
Our level of debt could have important consequences for you, including the
following:
- we will need to use a large portion of the money we earn to pay principal
and interest on outstanding amounts due under our senior credit
facilities, senior subordinated notes and other
8
debt, which will reduce the amount of money available to us for financing
our operations and other business activities,
- we may have a much higher level of debt than certain of our competitors,
which may put us at a competitive disadvantage,
- we may have difficulty borrowing money in the future, and
- our debt level makes us more vulnerable to economic downturns and adverse
developments in our business.
We expect to obtain the money to pay our expenses and to pay the principal
and interest on our outstanding debt from our operations. Our ability to meet
our expenses and debt service obligations thus depends on our future
performance, which will be affected by financial, business, economic,
demographic and other factors, such as attitudes toward weight loss and pressure
from our competitors. If we do not have enough money to pay our debt service
obligations, we may be required to refinance all or part of our existing debt,
sell assets, borrow more money or raise equity. In that event, we may not be
able to refinance our debt, sell assets, borrow more money or raise equity on
terms acceptable to us or at all.
WE ARE SUBJECT TO RESTRICTIVE DEBT COVENANTS, WHICH MAY RESTRICT OUR OPERATIONAL
FLEXIBILITY.
Our senior credit facilities contain covenants that restrict our ability to
incur additional indebtedness, pay dividends on and redeem capital stock and
make other restricted payments, including investments, sell our assets and enter
into consolidations, mergers and transfers of all or substantially all of our
assets. Our senior credit facilities also require us to maintain specified
financial ratios and satisfy financial condition tests. These tests and
financial ratios become more restrictive over the life of the credit facilities.
Our ability to meet those financial ratios and tests can be affected by events
beyond our control and we cannot assure you that we will meet those ratios and
tests. A breach of any of these covenants, ratios, tests or restrictions could
result in an event of default under the credit facilities. If an event of
default exists under the credit facilities, the lenders could elect to declare
all amounts outstanding thereunder to be immediately due and payable. If the
lenders under the credit facilities accelerate the payment of the indebtedness,
we cannot assure you that our assets would be sufficient to repay in full that
indebtedness and our other indebtedness that would become due as a result of any
acceleration.
In addition, we have entered into indentures in connection with the issuance
of our senior subordinated notes that contain covenants with respect to us and
our subsidiaries. Those covenants restrict our ability to incur additional
indebtedness and issue preferred stock, pay dividends on and redeem capital
stock and make other restricted payments, including investments, sell our assets
and enter into consolidations, mergers and transfers of all or substantially all
of our assets.
ACTIONS TAKEN BY OUR FRANCHISEES AND LICENSEES MAY HARM OUR BRAND OR REPUTATION.
We believe that the WEIGHT WATCHERS brand is one of our most valuable assets
and that our reputation provides us with a competitive advantage. Our
franchisees operate their businesses under our brand. In addition, we license
our brand to third-party manufacturers of a variety of goods, including food
products. Further, when we were acquired from Heinz, Heinz retained a perpetual,
royalty-free license to continue using the WEIGHT WATCHERS brand in its core
food categories, including frozen dinners, frozen breakfasts, frozen desserts
and frozen pizza. Because our franchisees and licensees are independent third
parties with their own financial objectives, actions taken by them, including
breaches of their contractual obligations, such as not following our diets or
not maintaining our quality standards, could harm our brand or reputation. Also,
the products we license to third parties may be subject to product recalls or
other deficiencies. Any negative publicity associated with
9
these actions or recalls may adversely affect our reputation and thereby result
in decreased classroom attendance and lower revenues.
DISPUTES WITH OUR FRANCHISE OPERATORS COULD DIVERT OUR MANAGEMENT'S ATTENTION.
In the past, we have had disputes with our franchisees regarding operations
and revenue sharing. We continue to have disputes with a few of our franchisees
regarding the interpretation of franchisee rights as they relate to the Internet
and mail-order products. These disputes and any future disputes could divert the
attention of our management from their ordinary responsibilities.
OUR INTERNATIONAL OPERATIONS EXPOSE US TO ECONOMIC, POLITICAL AND SOCIAL RISKS
IN THE COUNTRIES IN WHICH WE OPERATE.
The international nature of our existing and planned operations involves a
number of risks, including changes in U.S. and foreign government regulations,
tariffs, taxes and exchange controls, economic downturns, inflation and
political and social instability in the countries in which we operate and our
dependence on foreign personnel. Foreign governmental regulations may also
restrict our ability to own or operate subsidiaries in those countries, acquire
new businesses or repatriate dividends from foreign subsidiaries back to the
United States. We cannot be certain that we will be able to enter and
successfully compete in additional foreign markets or that we will be able to
continue to compete in the foreign markets in which we currently operate.
WE ARE EXPOSED TO FOREIGN CURRENCY RISKS FROM OUR INTERNATIONAL OPERATIONS THAT
COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS.
A significant portion of our revenues and operating costs are, and a portion
of our indebtedness is, denominated in foreign currencies. We are therefore
exposed to fluctuations in the exchange rates between the U.S. dollar and the
currencies in which our foreign operations receive revenues and pay expenses,
including debt service. Our consolidated financial results are denominated in
U.S. dollars and therefore, during times of a strengthening U.S. dollar, our
reported international revenues and earnings will be reduced because the local
currency will translate into fewer U.S. dollars. In addition, the assets and
liabilities of our non-U.S. subsidiaries are translated into U.S. dollars at the
exchange rates in effect at the balance sheet date. Revenues and expenses are
translated into U.S. dollars at the weighted average exchange rate for the
period. The resulting translation adjustments are recorded in shareholders'
equity as accumulated other comprehensive income (loss). Furthermore, we revalue
our outstanding senior subordinated euro notes at the end of each period, and
the resulting change in value is reflected in the income statement of the
corresponding period. Accordingly, changes in currency exchange rates will cause
our net income and shareholders' equity to fluctuate.
OUR RESULTS OF OPERATIONS MAY DECLINE AS A RESULT OF A DOWNTURN IN GENERAL
ECONOMIC CONDITIONS.
Our results of operations are highly dependent upon the meeting fees we
receive in our classroom operations and our product sales. A downturn in general
economic conditions or consumer confidence and spending in any of our major
markets caused by the recent terrorist attacks or other events outside of our
control could result in people curtailing their discretionary spending, which,
in turn, could reduce attendance at our meetings. Reduced meeting attendance
would cause the meeting fees we receive and our product sales to decline, which
would adversely affect our results of operations.
THE SEASONAL NATURE OF OUR BUSINESS COULD CAUSE OUR OPERATING RESULTS TO
FLUCTUATE.
We have experienced and expect to continue to experience fluctuations in our
quarterly results of operations. Our business is seasonal with revenues
generally decreasing at year end and during the summer months. This seasonality
could cause our share price to fluctuate as the results of an interim
10
financial period may not be indicative of our full year results. In addition,
our classroom operations are subject to local conditions beyond our control,
including the weather, natural disasters and other extraordinary events, that
may prevent current or prospective members from attending or joining classes.
The inability of prospective members to join our classes at the beginning of a
diet season could adversely affect our results of operations throughout the
entire diet season.
OUR ADVERTISING AND FRANCHISE OPERATIONS ARE SUBJECT TO LEGISLATIVE AND
REGULATORY RESTRICTIONS.
A number of laws and regulations govern our advertising, franchise
operations and relations with consumers. The Federal Trade Commission, or FTC,
and certain states regulate advertising, disclosures to consumers and
franchisees and other consumer matters. Our customers may file actions on their
own behalf, as a class or otherwise, and may file complaints with the FTC or
state or local consumer affairs offices and these agencies may take action on
their own initiative or on a referral from consumers or others.
During the mid-1990s, the FTC filed complaints against a number of
commercial weight-loss providers alleging violations of the Federal Trade
Commission Act by the use and content of advertisements for weight-loss programs
that featured testimonials, claims for program success and safety and statements
as to program costs to participants. In 1997, we entered into a consent order
with the FTC settling all contested issues raised in the complaint filed against
us. The consent order requires us to comply with certain procedures and
disclosures in connection with our advertisements of products and services but
does not contain any admission of guilt nor require us to pay any civil
penalties or damages.
Our foreign operations and franchises are also generally subject to
regulations of the applicable country regarding the offer and sale of
franchises, the content of advertising and promotion of diet products and
programs. Future legislation or regulations, including legislation or
regulations affecting our marketing and advertising practices, relations with
consumers or franchisees or our food products, could have an adverse impact on
us.
RISKS RELATED TO THIS OFFERING
THERE IS NO EXISTING MARKET FOR OUR COMMON STOCK, AND WE DO NOT KNOW IF ONE WILL
DEVELOP TO PROVIDE YOU WITH ADEQUATE LIQUIDITY.
There has not been a public market for our common stock. We cannot predict
the extent to which investor interest in our company will lead to the
development of a trading market on the New York Stock Exchange or otherwise or
how liquid that market might become. The initial public offering price for the
shares will be determined by negotiations between the selling shareholders and
the representatives of the underwriters and may not be indicative of prices that
will prevail in the open market following this offering.
ARTAL LUXEMBOURG CONTROLS US AND MAY HAVE CONFLICTS OF INTEREST WITH OTHER
SHAREHOLDERS IN THE FUTURE.
Artal Luxembourg S.A. controls us. After the offering, Artal Luxembourg will
beneficially own 78.8% of our common stock or 76.5% if the underwriters exercise
their over-allotment option in full. As a result, Artal Luxembourg will continue
to be able to control the election and removal of our directors and determine
our corporate and management policies, including potential mergers or
acquisitions, payment of dividends, asset sales and other significant corporate
transactions. We cannot assure you that the interests of Artal Luxembourg will
coincide with the interests of other holders of our common stock. In addition,
Artal Luxembourg also owns 72.3% of the common stock, or 48.1% on a fully
diluted basis, of our licensee, WeightWatchers.com. Artal Luxembourg's interests
with respect to WeightWatchers.com may differ from the interests of our other
shareholders.
11
FUTURE SALES OF OUR SHARES COULD DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.
The market price of our common stock could decline as a result of sales of a
large number of shares of our common stock in the market after this offering or
the perception that these sales could occur. These sales, or the possibility
that these sales may occur, also might make it more difficult for us to sell
equity securities in the future at a time and at a price that we deem
appropriate.
There are 105,407,142 shares of our common stock outstanding. The
17,400,000 shares of common stock sold in this offering (20,010,000 shares if
the underwriters exercise their over-allotment option in full) will be freely
tradeable without restriction or further registration under the Securities Act
of 1933, as amended, by persons other than our affiliates within the meaning of
Rule 144 under the Securities Act.
Following this offering, Artal Luxembourg will own 83,062,423 shares of our
common stock or 80,655,296 shares if the underwriters exercise their
over-allotment option in full. Artal Luxembourg will be able to sell its shares
in the public market from time to time, subject to certain limitations on the
timing, amount and method of those sales imposed by SEC regulations. Artal
Luxembourg and the underwriters have agreed to a "lock-up" period, meaning that
Artal Luxembourg may not sell any of its shares without the prior consent of
Credit Suisse First Boston Corporation for 180 days after the date of this
prospectus. Artal Luxembourg has the right to cause us to register the sale of
shares of common stock owned by it and to include its shares in future
registration statements relating to our securities. If Artal Luxembourg were to
sell a large number of its shares, the market price of our stock could decline
significantly. In addition, the perception in the public markets that sales by
Artal Luxembourg might occur could also adversely affect the market price of our
common stock.
In addition to Artal Luxembourg's lock-up period, sales of our common stock
are also restricted by lock-up agreements that our directors, executive officers
and the selling shareholders have entered into with the underwriters. The
lock-up agreements restrict our directors, executive officers and the selling
shareholders, subject to specified exceptions, from selling or otherwise
disposing of any shares for a period of 180 days after the date of this
prospectus without the prior consent of Credit Suisse First Boston Corporation.
Credit Suisse First Boston Corporation may, however, in its sole discretion and
without notice, release all or any portion of the shares from the restrictions
in the lock-up agreements.
In the future, we may issue our securities in connection with investments.
The amount of our common stock issued in connection with an investment could
constitute a material portion of our then outstanding common stock.
OUR ARTICLES OF INCORPORATION AND BYLAWS AND VIRGINIA CORPORATE LAW CONTAIN
PROVISIONS THAT MAY DISCOURAGE A TAKEOVER ATTEMPT.
Provisions contained in our articles of incorporation and bylaws and the
laws of Virginia, the state in which we are organized, could make it more
difficult for a third party to acquire us, even if doing so might be beneficial
to our shareholders. Provisions of our articles of incorporation and bylaws
impose various procedural and other requirements, which could make it more
difficult for shareholders to effect certain corporate actions. For example, our
articles of incorporation authorize our board of directors to determine the
rights, preferences, privileges and restrictions of unissued series of preferred
stock, without any vote or action by our shareholders. Thus, our board of
directors can authorize and issue shares of preferred stock with voting or
conversion rights that could adversely affect the voting or other rights of
holders of our common stock. These rights may have the effect of delaying or
deterring a change of control of our company. In addition, a change of control
of our company may be delayed or deterred as a result of our having three
classes of directors or as a result of the shareholders' rights plan adopted by
our board of directors. These provisions could limit the price that certain
investors might be willing to pay in the future for shares of our common stock.
12
THE MARKET PRICE OF OUR COMMON STOCK MAY BE VOLATILE, WHICH COULD CAUSE THE
VALUE OF YOUR INVESTMENT TO DECLINE.
Securities markets worldwide experience significant price and volume
fluctuations. This market volatility, as well as general economic, market or
political conditions, could reduce the market price of our common stock in spite
of our operating performance. In addition, our operating results could be below
the expectations of public market analysts and investors, and in response, the
market price of our common stock could decrease significantly. You may be unable
to resell your shares of our common stock at or above the initial public
offering price.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements including, in
particular, the statements about our plans, strategies and prospects under the
headings "Prospectus Summary," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Industry" and "Business." We
have used the words "may," "will," "expect," "anticipate," "believe,"
"estimate," "plan," "intend" and similar expressions in this prospectus to
identify forward-looking statements. We have based these forward-looking
statements on our current views with respect to future events and financial
performance. Actual results could differ materially from those projected in the
forward-looking statements. These forward-looking statements are subject to
risks, uncertainties and assumptions, including, among other things:
- competition, including price competition and competition with self-help,
medical and other weight-loss programs and products;
- risks associated with the relative success of our marketing and
advertising;
- risks associated with the continued attractiveness of our programs;
- risks associated with our ability to meet our obligations related to our
outstanding indebtedness;
- risks associated with general economic conditions;
- adverse results in litigation and regulatory matters, the adoption of
adverse legislation or regulations, more aggressive enforcement of
existing legislation or regulations or a change in the interpretation of
existing legislation or regulations; and
- the other factors referenced under the heading "Risk Factors."
You should not put undue reliance on any forward-looking statements. You
should understand that many important factors, including those discussed under
the headings "Risk Factors" and "Management's Discussion and Analysis of
Financial Conditions and Results of Operations," could cause our results to
differ materially from those expressed or suggested in any forward-looking
statements.
13
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares by the
selling shareholders. The selling shareholders will receive all net proceeds
from the sale of the shares of our common stock in this offering.
DIVIDEND POLICY
We do not intend to pay any dividends on our common stock in the foreseeable
future. Any decision to declare and pay dividends in the future will be made at
the discretion of our board of directors, after taking into account our
financial results, capital requirements and other factors they may deem
relevant. Our debt instruments impose restrictions on our ability to pay
dividends.
14
CAPITALIZATION
The following table sets forth our cash and our capitalization as of
June 30, 2001. You should read this table in conjunction with our consolidated
financial statements and the related notes included elsewhere in this prospectus
and "Selected Historical Financial and Other Information" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
[Download Table]
JUNE 30,
2001
--------------
(in millions)
Cash........................................................ $ 45.6
=======
Long-term debt (including current maturities):
Senior credit facilities(1)............................... $ 243.7
Senior subordinated notes due 2009(2)..................... 235.0
-------
Total long-term debt.................................... 478.7
-------
Redeemable preferred stock(3)............................... 26.7
-------
Common stock subject to mandatory repurchase(4)............. 14.4
-------
Shareholders' deficit:
Common stock, no par value (1,000,000,000 authorized,
111,987,568 issued and 108,950,278 outstanding)......... --
Treasury stock, at cost, 3,037,290 shares................. (12.2)
Accumulated (deficit)..................................... (182.4)
Accumulated other comprehensive (loss).................... (15.7)
-------
Total shareholders' (deficit)........................... (210.3)
-------
Total capitalization.................................. $ 309.5
=======
------------------------------
(1) The senior credit facilities consist of a $70.8 million term loan
A facility, a $71.2 million term loan B facility, an $82.5 million
transferable loan certificate facility, a $19.2 million term loan
D facility and a $45.0 million revolving credit facility. As of June 30,
2001, $45.0 million was available under the revolving credit facility for
additional borrowings.
(2) The senior subordinated notes due 2009 consist of two series of notes in
aggregate principal amounts of $150.0 million and E100.0 million,
respectively.
(3) The redeemable preferred stock is redeemable under certain conditions at the
option of the holder thereof upon the completion of this offering.
(4) Pursuant to a Put/Call Agreement with Heinz, Heinz has the right to sell to
us and we have an option to purchase all of our common stock held by Heinz.
As of June 30, 2001, Heinz owned 3,566,663 shares of our common stock.
The above table does not reflect:
- 5,763,692 shares of our common stock issuable upon exercise of outstanding
stock options as of September 29, 2001;
- 1,294,348 shares of our common stock available for future issuance under
our existing stock option plan;
- our purchase of 3,566,663 shares of our common stock held by Heinz for
$14.4 million; and
- 23,527 shares of our common stock sold to one of our employees.
15
PRO FORMA COMBINED FINANCIAL INFORMATION
On January 16, 2001, we acquired the franchised territories and certain
business assets, including inventory, property and equipment, of Weighco for
$83.8 million. We financed the acquisition with available cash of $23.8 million
and additional borrowings of $60.0 million under our senior credit facilities.
The acquisition has been accounted for under the purchase method of accounting
and, accordingly, the results of operations of Weighco are included from the
date of acquisition.
The unaudited pro forma combined statements of operations of Weight Watchers
are based on the historical consolidated statements of operations of Weight
Watchers, included elsewhere in this prospectus, adjusted to give effect to the
Weighco acquisition and the related financing of the acquisition.
The unaudited pro forma combined statements of operations give effect to the
Weighco acquisition and the related financing as if each had occurred on
April 25, 1999. Our pro forma results are for informational purposes only and do
not purport to represent what actually would have occurred if the acquisition
and the related financing had been consummated on April 25, 1999, nor are they
necessarily indicative of our future operating results.
Effective April 30, 2000, we changed our fiscal year end from the last
Saturday in April to the Saturday closest to December 31. As a result of this
change in our reporting period, the significant growth in our business since the
fiscal year ended April 29, 2000 and the Weighco acquisition, we have included
unaudited pro forma combined results of operations for the twelve months ended
December 30, 2000. Given these events, we believe the pro forma results of
operations for the twelve months ended December 30, 2000 are more indicative of
our current operations. We have included a comparison of the six months ended
June 30, 2001 to the six months ended July 29, 2000, which, in the opinion of
our management, is the available period most comparable to the six months ended
June 30, 2001.
The following pro forma adjustments are based upon available information and
upon certain assumptions which we believe are reasonable. You should read the
following unaudited pro forma combined statements of operations in conjunction
with "Selected Historical Financial and Other Information," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," our
historical consolidated financial statements and related notes and the
historical consolidated financial statements of Weighco and related notes
included elsewhere in this prospectus.
16
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 30, 2000
(UNAUDITED)
[Enlarge/Download Table]
WEIGHT WATCHERS
INTERNATIONAL, PRO FORMA
INC.* WEIGHCO ADJUSTMENTS PRO FORMA
--------------- ---------- ----------- ---------
(54 weeks) (53 weeks)
(in millions, except per share amounts)
Revenues, net................................. $439.4 $59.7 $(10.9)(A) $488.2
Cost of revenues.............................. 218.0 30.4 (10.9)(A) 237.5
------ ----- ------ ------
Gross profit................................ 221.4 29.3 250.7
Marketing expenses............................ 54.8 4.1 58.9
Selling, general and administrative
expenses.................................... 52.8 13.0 4.0 (B) 62.7
(7.1)(C)
------ ----- ------ ------
Operating income............................ 113.8 12.2 3.1 129.1
Interest expense, net......................... 57.6 2.2 7.0 (D,E) 66.8
Other expense, net............................ 7.0 9.2 (8.6)(C) 7.6
------ ----- ------ ------
Income before income taxes and minority
interest.................................. 49.2 0.8 4.7 54.7
Provision for income taxes.................... 18.1 -- 2.0 (F) 20.1
------ ----- ------ ------
Income before minority interest............. 31.1 0.8 2.7 34.6
Minority interest............................. 0.3 -- 0.3
------ ----- ------ ------
Net income.................................. $ 30.8 $ 0.8 $ 2.7 $ 34.3
====== ===== ====== ======
Preferred stock dividends..................... $ 1.5 $ 1.5
------ ------
Net income available to common
shareholders.............................. $ 29.3 $ 32.8
====== ======
PER SHARE INFORMATION:
Basic and diluted earnings per share.......... $ 0.26 $ 0.29
====== ======
Weighted average number of shares............. 112.0 112.0
====== ======
--------------------------
* The results of operations for Weight Watchers for the twelve months ended
December 30, 2000 have been derived from Weight Watchers' historical results
of operations for the eight months ended December 30, 2000, plus Weight
Watchers' results of operations for the four months ended April 29, 2000,
which are derived from the results of operations for the historical fiscal
year ended April 29, 2000.
See accompanying notes to this unaudited statement.
17
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(UNAUDITED)
[Enlarge/Download Table]
HISTORICAL
WEIGHT WATCHERS PRO FORMA
INTERNATIONAL, INC. ADJUSTMENTS PRO FORMA
------------------- ----------- ---------
(26 weeks)
(in millions, except per share amounts)
Revenues, net.......................................... $334.3 $ 1.8 (G) $336.1
Cost of revenues....................................... 149.1 0.5 (G) 149.6
------ ----- ------
Gross profit......................................... 185.2 1.3 186.5
Marketing expenses..................................... 40.6 0.3 (G) 40.9
Selling, general and administrative expenses........... 35.5 0.2 (B) 35.7
(0.2)(C)
0.2 (G)
------ ----- ------
Operating income..................................... 109.1 0.8 109.9
Interest expense, net.................................. 27.4 0.3 (D,E) 27.7
Other expense, net..................................... 3.9 3.9
------ ----- ------
Income before income taxes and minority interest..... 77.8 0.5 78.3
Provision for income taxes............................. 28.4 0.2 (F) 28.6
------ ----- ------
Income before minority interest...................... 49.4 0.3 49.7
Minority interest...................................... 0.1 0.1
------ ----- ------
Net income........................................... $ 49.3 $ 0.3 $ 49.6
====== ===== ======
Preferred stock dividends.............................. $ 0.8 $ 0.8
------ ------
Net income available to common shareholders.......... $ 48.5 $ 48.8
====== ======
PER SHARE INFORMATION:
Basic earnings per share............................... $ 0.44 $ 0.44
====== ======
Diluted earnings per share............................. $ 0.43 $ 0.44
====== ======
Basic weighted average number of shares................ 111.0 111.0
====== ======
Diluted weighted average number of shares.............. 112.0 112.0
====== ======
See accompanying notes to this unaudited statement.
18
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 29, 2000
(UNAUDITED)
[Enlarge/Download Table]
HISTORICAL
WEIGHT WATCHERS PRO FORMA
INTERNATIONAL, INC. WEIGHCO ADJUSTMENTS PRO FORMA
------------------- ---------- ----------- ---------
(27 weeks) (26 weeks)
(in millions, except per share amounts)
Revenues, net..................................... $235.9 $30.5 $(4.9)(A) $261.5
Cost of revenues.................................. 111.1 15.3 (4.9)(A) 121.5
------ ----- ----- ------
Gross profit.................................... 124.8 15.2 140.0
Marketing expenses................................ 25.3 2.2 27.5
Selling, general and administrative expenses...... 28.7 7.2 2.0(B) 34.4
(3.5)(C)
------ ----- ----- ------
Operating income................................ 70.8 5.8 1.5 78.1
Interest expense, net............................. 29.0 1.2 3.4 (D,E) 33.6
Other (income) expense, net....................... (6.5) -- (6.5)
------ ----- ----- ------
Income before income taxes and minority 48.3 4.6 (1.9) 51.0
interest......................................
Provision for income taxes........................ 16.9 -- 1.0 (F) 17.9
------ ----- ----- ------
Income before minority interest................. 31.4 4.6 (2.9) 33.1
Minority interest................................. 0.2 -- 0.2
------ ----- ----- ------
Net income...................................... $ 31.2 $ 4.6 $(2.9) $ 32.9
====== ===== ===== ======
Preferred stock dividends......................... $ 0.8 $ 0.8
------ ------
Net income available to common shareholders..... $ 30.4 $ 32.1
====== ======
PER SHARE INFORMATION:
Basic and diluted earnings per share.............. $ 0.27 $ 0.29
====== ======
Weighted average number of shares................. 112.0 112.0
====== ======
See accompanying notes to this unaudited statement.
19
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED APRIL 29, 2000
(UNAUDITED)
[Enlarge/Download Table]
HISTORICAL
WEIGHT WATCHERS PRO FORMA
INTERNATIONAL, INC. WEIGHCO(1) ADJUSTMENTS PRO FORMA
------------------- ---------- ----------- ---------
(53 weeks) (53 weeks)
(in millions, except per share amounts)
Revenues, net.............................. $399.5 $ 44.9 $(8.0)(A) $436.4
Cost of revenues........................... 201.4 23.4 (8.0)(A) 216.8
------ ------ ----- ------
Gross profit............................. 198.1 21.5 219.6
Marketing expenses......................... 51.5 3.5 55.0
Selling, general and administrative 50.7 11.2 4.0 (B) 60.3
expenses................................. (5.6)(C)
Transaction costs.......................... 8.3 -- 8.3
------ ------ ----- ------
Operating income......................... 87.6 6.8 1.6 96.0
Interest expense, net...................... 31.1 2.0 7.0 (D,E) 40.1
Other income, net.......................... (10.4) (0.1) (10.5)
------ ------ ----- ------
Income before income taxes and minority 66.9 4.9 (5.4) 66.4
interest...............................
Provision for income taxes................. 28.3 -- (0.2)(F) 28.1
------ ------ ----- ------
Income before minority interest.......... 38.6 4.9 (5.2) 38.3
Minority interest.......................... 0.8 -- 0.8
------ ------ ----- ------
Net income............................... $ 37.8 $ 4.9 $(5.2) $ 37.5
====== ====== ===== ======
Preferred stock dividends.................. $ 0.09 $ 0.9
------ ------
Net income available to common
shareholders........................... $ 36.9 $ 36.6
====== ======
PER SHARE INFORMATION:
Basic and diluted earnings per share....... $ 0.20 $ 0.20
====== ======
Weighted average shares outstanding(2)..... 182.1 182.1
====== ======
------------------------
(1) The results of operations for Weighco for the year ended April 29, 2000 have
been derived from the four months ended April 29, 2000, which are derived
from the historical results of operations of Weighco for the year ended
December 30, 2000, plus the eight months ended December 25, 1999, which have
been derived from the historical results of operations of Weighco for the
year ended December 25, 1999.
(2) Prior to our acquisition by Artal Luxembourg on September 29, 1999, there
were 4,705 shares of our common stock outstanding. In connection with our
acquisition, we declared a stock split that resulted in 276,428,607
outstanding shares of our common stock. We have adjusted our historical
statements to reflect the stock split. We then repurchased 164,441,039
shares in connection with the transactions so that upon completion of our
acquisition, there were 111,987,568 shares of our common stock outstanding.
See accompanying notes to this unaudited statement.
20
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE EIGHT MONTHS ENDED DECEMBER 30, 2000
(UNAUDITED)
[Enlarge/Download Table]
HISTORICAL
WEIGHT WATCHERS PRO FORMA
INTERNATIONAL, INC. WEIGHCO* ADJUSTMENTS PRO FORMA
------------------- ---------- ----------- ---------
(35 weeks) (35 weeks)
(in millions, except per share amounts)
Revenues, net................................ $273.2 $39.9 $(6.6)(A) $306.5
Cost of revenues............................. 139.3 21.0 (6.6)(A) 153.7
------ ----- ----- ------
Gross profit............................... 133.9 18.9 152.8
Marketing expenses........................... 27.0 2.0 29.0
Selling, general and administrative
expenses................................... 32.2 9.6 2.8 (B) 39.8
(4.8)(C)
------ ----- ----- ------
Operating income........................... 74.7 7.3 2.0 84.0
4.7 (D,
Interest expense, net........................ 37.1 1.6 E) 43.4
Other expense, net........................... 16.5 9.0 (8.6)(C) 16.9
------ ----- ----- ------
Income (loss) before income taxes and
minority interest........................ 21.1 (3.3) 5.9 23.7
Provision for (benefit from) income taxes.... 5.9 -- 0.7 (F) 6.6
------ ----- ----- ------
Income (loss) before minority interest..... 15.2 (3.3) 5.2 17.1
Minority interest............................ 0.2 -- 0.2
------ ----- ----- ------
Net income (loss).......................... $ 15.0 $(3.3) $ 5.2 $ 16.9
====== ===== ===== ======
Preferred stock dividends.................... $ 1.0 $ 1.0
------ ------
Net income available to common
shareholders............................... $ 14.0 $ 15.9
====== ======
PER SHARE INFORMATION:
Basic and diluted earnings per share......... $ 0.13 $ 0.15
====== ======
Weighted average shares outstanding.......... 112.0 112.0
====== ======
--------------------------
* The historical results of operations for Weighco for the eight months ended
December 30, 2000 have been derived from the historical results of
operations of Weighco for the year ended December 30, 2000.
See accompanying notes to this unaudited statement.
21
NOTES TO PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
The following is a summary of the estimated pro forma adjustments, based
upon available information and upon certain assumptions we believe are
reasonable, that are reflected in our unaudited pro forma condensed combined
statements of operations:
[Enlarge/Download Table]
TWELVE EIGHT
MONTHS MONTHS
ENDED SIX MONTHS SIX MONTHS FISCAL YEAR ENDED
DECEMBER 30, ENDED JUNE 30, ENDED JULY 29, ENDED APRIL 29, DECEMBER 30,
2000 2001 2000 2000 2000
------------- --------------- -------------- --------------- -------------
(in millions)
(A) Represents the elimination of
royalty revenues and expense and
product sales to Weighco......... $10.9 $4.9 $8.0 $6.6
(B) Represents the amortization of
acquisition goodwill of $80.8
million over 20 years utilizing
the straight-line method......... $ 4.0 $0.2 $2.0 $4.0 $2.8
(C) Represents the elimination of
non-recurring costs and charges
incurred by Weighco relating to
the sale to Weight Watchers:
Selling, general and
administrative expenses(1)... $ 7.1 $0.2 $3.5 $5.6 $4.8
Other expenses(2)................ $ 8.6 $8.6
(D) Represents a reduction of
interest income relating to
$23.8 million of cash used to
fund the acquisition at an
assumed interest rate of 5.5%.... $ 1.3 $0.1 $0.6 $1.3 $0.9
(E) Represents interest expense
related to acquisition borrowings
of $60.0 million at an assumed
interest rate of 9.5%............ $ 5.7 $0.2 $2.8 $5.7 $3.8
(F) Represents adjustment to
recognize income taxes at 37% for
the twelve months ended December
30, 2000, and the six months
ended June 30, 2001 and July 29,
2000, 42% for the fiscal year
ended April 29, 2000 and 28% for
the eight months ended December
30, 2000......................... $ 2.0 $0.2 $1.0 $0.2 $0.7
(G) Represents operating results for
Weighco during the first 15 days
of January 2001 as follows:
Revenues, net.................... $1.8
Cost of revenues................. $0.5
Marketing expense................ $0.3
Selling, general and
administrative expense..... $0.2
----------------------------------
(1) Adjustments to selling, general and administrative expenses include the
following:
[Download Table]
Amortization of pre-existing
goodwill......................... $ 3.3 $0.2 $1.7 $2.4 $2.3
Management and incentive
compensation paid by Weighco
before acquisition............... $ 3.8 -- $1.8 $3.2 $2.5
----- ---- ---- ---- ----
Total selling, general and
administrative expenses.......... $ 7.1 $0.2 $3.5 $5.6 $4.8
===== ==== ==== ==== ====
(2) Adjustments to other expenses consist of costs incurred in connection with
the Weighco acquisition, principally transaction-related incentive
compensation of $5.4 million paid to Weighco management and the write-off of
certain non-compete agreements of $3.4 million.
22
SELECTED HISTORICAL FINANCIAL AND OTHER INFORMATION
The following table sets forth our selected historical financial and other
information and the related notes. The selected historical financial information
as of and for the fiscal year ended April 27, 1996 has been derived from our
unaudited combined financial statements, which are not included in this
prospectus. The selected historical financial information as of and for the
fiscal year ended April 26, 1997 has been derived from our audited combined
financial statements, which are not included in this prospectus. The selected
historical financial information as of and for the fiscal years ended April 25,
1998, April 24, 1999 and April 29, 2000 and the eight months ended December 30,
2000 has been derived from our audited financial statements and the related
notes, included elsewhere in this prospectus. The selected historical financial
information as of and for six months ended July 29, 2000 and June 30, 2001 has
been derived from our unaudited consolidated financial statements included
elsewhere in this prospectus. In our opinion, all adjustments (which consist
only of normal recurring entries) considered necessary for a fair presentation
have been included in our unaudited financial statements. Interim results for
the six months ended June 30, 2001 are not necessarily indicative of, and are
not projections for, the results to be expected for the full fiscal year. You
should read the following selected historical financial and other information in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and the
related notes included elsewhere in this prospectus.
[Enlarge/Download Table]
EIGHT
FISCAL YEAR ENDED MONTHS SIX MONTHS ENDED
-------------------------------------------------------------- ENDED -----------------------
APRIL 27, APRIL 26, APRIL 25, APRIL 24, APRIL 29, DECEMBER 30, JULY 29, JUNE 30,
1996 1997 1998 1999 2000 2000 2000 2001
---------- ---------- ---------- ---------- ---------- ------------ ---------- ----------
(52 weeks) (52 weeks) (52 weeks) (52 weeks) (53 weeks) (35 weeks) (27 weeks) (26 weeks)
(in millions, except per share amounts)
STATEMENT OF OPERATIONS
INFORMATION:
Revenues, net............. $323.3 $292.8 $297.2 $364.6 $399.5 $273.2 $235.9 $334.3
Cost of revenues.......... 190.9 230.4(1) 160.0 178.9 201.4 139.3 111.1 149.1
------ ------ ------ ------ ------ ------ ------ ------
Gross profit............ 132.4 62.4 137.2 185.7 198.1 133.9 124.8 185.2
Marketing expenses........ 53.9 48.9 49.2 52.9 51.5 27.0 25.3 40.6
Selling, general and
administrative
expenses................ 51.9 45.5(1) 44.1 48.9 50.7 32.2 28.7 35.5
Transaction costs......... -- -- -- -- 8.3 -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Operating income
(loss)................ 26.6 (32.0) 43.9 83.9 87.6 74.7 70.8 109.1
Interest expense (income),
net..................... 3.3 1.0 (4.9) (7.1) 31.1 37.1 29.0 27.4
Other expense (income),
net..................... 4.8 3.3 4.3 5.2 (10.4) 16.5 (6.5) 3.9
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes and
minority interests.... 18.5 (36.3) 44.5 85.8 66.9 21.1 48.3 77.8
(Benefit from) provision
for income taxes........ (3.6) (12.9) 19.9 36.4 28.3 5.9 16.9 28.4
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
minority interests.... 22.1 (23.4) 24.6 49.4 38.6 15.2 31.4 49.4
Minority interest......... 0.6 0.6 0.8 1.5 0.8 0.2 0.2 0.1
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)....... $ 21.5 $(24.0) $ 23.8 $ 47.9 $ 37.8 $ 15.0 $ 31.2 $ 49.3
====== ====== ====== ====== ====== ====== ====== ======
Preferred stock
dividends............... -- -- -- -- $ 0.9 $ 1.0 $ 0.8 $ 0.8
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)
available to common
shareholders.......... $ 21.5 $(24.0) $ 23.8 $ 47.9 $ 36.9 $ 14.0 $ 30.4 $ 48.5
====== ====== ====== ====== ====== ====== ====== ======
23
[Enlarge/Download Table]
EIGHT
FISCAL YEAR ENDED MONTHS SIX MONTHS ENDED
-------------------------------------------------------------- ENDED -----------------------
APRIL 27, APRIL 26, APRIL 25, APRIL 24, APRIL 29, DECEMBER 30, JULY 29, JUNE 30,
1996 1997 1998 1999 2000 2000 2000 2001
---------- ---------- ---------- ---------- ---------- ------------ ---------- ----------
(52 weeks) (52 weeks) (52 weeks) (52 weeks) (53 weeks) (35 weeks) (27 weeks) (26 weeks)
(in millions, except per share amounts)
PER SHARE INFORMATION:
Basic earnings (loss) per
share................... $ 0.08 $(0.09) $ 0.09 $ 0.17 $ 0.20 $ 0.13 $ 0.27 $ 0.44
====== ====== ====== ====== ====== ====== ====== ======
Diluted earnings (loss)
per share............... $ 0.08 $(0.09) $ 0.09 $ 0.17 $ 0.20 $ 0.13 $ 0.27 $ 0.43
====== ====== ====== ====== ====== ====== ====== ======
Basic weighted average
number of shares(2)..... 276.2 276.2 276.2 276.2 182.1 112.0 112.0 111.0
====== ====== ====== ====== ====== ====== ====== ======
Diluted weighted average
number of shares(2)..... 276.2 276.2 276.2 276.2 182.1 112.0 112.0 112.0
====== ====== ====== ====== ====== ====== ====== ======
OTHER FINANCIAL
INFORMATION:
Net cash provided by (used
in):
Operating activities.... $ 9.7 $ 36.4 $ 57.9 $ 49.9 $ 28.9 $ 39.6 $ 92.9
Investing activities.... (1.4) (4.9) (3.0) (19.6) (21.6) (8.9) (94.9)
Financing activities.... (4.4) (30.6) (47.7) 8.1 (8.0) (6.3) 4.7
Depreciation and
amortization............ $ 10.4 14.2 8.8 9.6 10.4 7.9 5.7 7.4
Capital expenditures...... 5.3 2.7 3.4 2.5 1.9 3.6 1.3 1.2
BALANCE SHEET INFORMATION
(AT END OF PERIOD):
Working capital
(deficit)............... $ 83.6 $ 64.9 $ 65.8 $ 91.2 $ (0.9) $ 10.2 $ 9.3 $(26.9)
Total assets.............. 393.4 373.0 370.8 371.4 334.2 346.2 342.4 412.6
Total debt................ 97.2 97.0 41.1 39.6 476.1 472.4 474.0 478.7
Redeemable securities:
Preferred stock......... -- -- -- -- 25.9 26.0 26.2 26.7
Common stock............ -- -- -- -- -- -- -- 14.4
--------------------------
(1) In connection with a restructuring and reorganization announced during
fiscal 1997, we recorded a restructuring charge of $51.7 million, of which
$49.6 million is included in costs of revenues and $2.1 million is included
in selling, general and administrative expenses.
(2) Prior to our acquisition by Artal Luxembourg on September 29, 1999, there
were 4,705 shares of our common stock outstanding. In connection with the
transactions related to our acquisition, we declared a stock split that
resulted in 276,428,607 outstanding shares of our common stock. We have
adjusted our historical statements to reflect the stock split. We then
repurchased 164,441,039 shares in connection with the transactions so that
upon completion of our acquisition, there were 111,987,568 shares of our
common stock outstanding.
24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH "SELECTED
HISTORICAL FINANCIAL AND OTHER INFORMATION" AND OUR CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS. UNLESS
OTHERWISE NOTED, REFERENCES TO THE 1997, 1998, 1999 AND 2000 FISCAL YEARS ARE TO
OUR FISCAL YEARS ENDED APRIL 26, 1997, APRIL 25, 1998, APRIL 24, 1999 AND
APRIL 29, 2000, RESPECTIVELY. AFTER THE FISCAL YEAR ENDED APRIL 29, 2000, WE
CHANGED OUR FISCAL YEAR END TO THE SATURDAY CLOSEST TO DECEMBER 31. ACCORDINGLY,
THE FISCAL YEAR ENDED DECEMBER 30, 2000 IS AN EIGHT-MONTH PERIOD.
OVERVIEW
We are the leading provider of weight-loss services in 27 countries around
the world. We conduct our business through a combination of company-owned and
franchise operations, with company-owned operations accounting for 67% of total
worldwide attendance in the first six months of 2001. For the first six months
of 2001, 61% of our revenues were derived from our U.S. operations, and the
remaining 39% of our revenues were derived from our international operations. We
derive our revenues principally from:
- MEETING FEES. Our members pay us a weekly fee to attend our classes.
- PRODUCT SALES. We sell proprietary products which complement our program,
such as snack bars, books, CD-ROMs and POINTS calculators, to our members
and franchisees.
- FRANCHISE ROYALTIES. Our franchisees typically pay us a royalty fee of 10%
of their meeting fee revenues.
- OTHER. We license our brand for certain foods, clothing, books and other
products. We also generate revenues from the publishing of books and
magazines and third party advertising.
The following graph sets forth our revenues by category for the 1996, 1997,
1998, 1999 and 2000 fiscal years.
REVENUE SOURCES
(dollars in millions)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
[Enlarge/Download Table]
PRE-PACKAGED MEALS
NACO MEETING FEES INTERNATIONAL MEETING FEES PRODUCT SALES FRANCHISE ROYALTIES OTHER (Discontinued)
fiscal 1996 96.5 100.8 41.2 14.1 30.3 40.4 $323.3
fiscal 1997 86.5 113.6 30.8 13.9 14.1 34 $292.8
fiscal 1998 93.8 129.0 46.7 17.9 9.0 0.8 $297.2
fiscal 1999 122.3 143.8 57.3 23.2 18.0 0 $364.6
fiscal 2000 130.8 145.3 91.6 25.8 6 0 $399.5
In fiscal 1997, we made the strategic decision to discontinue the sale of
pre-packaged meals in our NACO classroom meetings (which were added in 1990 by
our former owner, Heinz) and to introduce to our NACO operations some of the
best practices developed by our European managers. After our
25
acquisition by Artal Luxembourg in 1999, we reorganized our management and
strengthened our strategic focus. Since 1997, our revenues and operating income
have increased principally as a result of:
- INCREASED NACO CLASSROOM ATTENDANCE. As a result of our decision to
re-focus our meetings exclusively on our group education approach and the
introduction of our POINTS-based diet developed in the United Kingdom and
our LIBERTY/LOYALTY meeting fee pricing strategy developed in France, our
NACO classroom attendance increased by 83% to 14.3 million in 2000 from
7.8 million in fiscal 1997. This increase brought NACO's penetration in
our target market to over 7%.
- OUR RETURN TO A VARIABLE COST STRUCTURE IN NACO OPERATIONS. The
introduction of pre-packaged meals required us to invest in a fixed cost
infrastructure. By abandoning pre-packaged meals, we returned our NACO
operations to their historical variable cost structure. As a result,
NACO's operating profit margin increased from being negative in fiscal
1997 to over 20% in 2000.
- ACCELERATED GROWTH IN CONTINENTAL EUROPE. In Continental Europe, we have
accelerated growth by adapting our business model to local conditions,
implementing more aggressive marketing programs tailored to the local
markets and increasing the number of meetings ahead of anticipated demand.
Our Continental Europe attendance increased by 79% to 7.0 million in 2000
from 3.9 million in fiscal 1997.
- INCREASED PRODUCT SALES. We have increased our product sales by 265% from
fiscal 1997 to 2000 by introducing new products and optimizing our product
mix. In our meetings, we have increased product sales per attendance from
$1.32 to $2.23 over the same period.
Our worldwide attendance has grown by 55% in our company-owned operations
from 23.0 million in fiscal 1997 to 35.7 million in 2000, and our operating
profit margin has grown from 6.7% (before a restructuring charge) in fiscal 1997
to 25.9% in 2000.
ATTENDANCE IN COMPANY-OWNED OPERATIONS
(in millions)
[Enlarge/Download Table]
EIGHT TWELVE
FISCAL YEAR ENDED MONTHS MONTHS
----------------------------------------------------- ENDED ENDED
APRIL 26, APRIL 25, APRIL 24, APRIL 29, DECEMBER 30, DECEMBER 30,
1997 1998 1999 2000 2000 2000*
----------- ----------- ----------- ----------- ------------ ------------
(52 weeks) (52 weeks) (52 weeks) (53 weeks) (35 weeks) (54 weeks)
United States......... 7.8 8.4 10.9 13.2 8.9 14.3
United Kingdom........ 9.1 10.4 9.8 10.6 7.0 11.2
Continental Europe.... 3.9 4.9 5.7 6.1 4.6 7.0
Other International... 2.2 2.5 3.4 3.3 1.9 3.2
----- ---- ---- ---- ---- ----
Total................. 23.0 26.2 29.8 33.2 22.4 35.7
===== ==== ==== ==== ==== ====
SIX MONTHS ENDED
------------------------
JULY 29, JUNE 30,
2000* 2001*
---------- -----------
(27 weeks) (26 weeks)
United States......... 8.0 12.4
United Kingdom........ 6.0 6.7
Continental Europe.... 3.4 4.8
Other International... 1.8 1.7
---- ----
Total................. 19.2 25.6
==== ====
----------------------------------
* Attendance for these periods does not include Weighco attendance of
4.4 million for 2000, 2.3 million for the six months ended July 29, 2000 and
0.2 million for the first two weeks of 2001 prior to the completion of the
Weighco acquisition.
On January 16, 2001, we acquired the franchised territories and certain
business assets of Weighco for $83.8 million. Pro forma for the acquisition, for
the first six months of 2001 our revenues grew more than 28% over the comparable
period in the prior year.
26
RESULTS OF OPERATIONS
The following table summarizes our historical income from operations as a
percentage of revenues for the fiscal years ended April 25, 1998, April 24, 1999
and April 29, 2000, the eight months ended December 30, 2000 and the six months
ended July 29, 2000 and June 30, 2001.
[Enlarge/Download Table]
EIGHT SIX MONTHS
FISCAL YEAR ENDED MONTHS ENDED
--------------------------------- ENDED -------------------
APRIL 25, APRIL 24, APRIL 29, DECEMBER 30, JULY 29, JUNE 30,
1998 1999 2000 2000 2000 2001
--------- --------- --------- ------------ -------- --------
Total revenues, net...................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues......................................... 53.8 49.1 50.4 51.0 47.1 44.6
----- ----- ----- ----- ----- -----
Gross profit............................................. 46.2 50.9 49.6 49.0 52.9 55.4
Marketing expenses....................................... 16.6 14.5 12.9 9.9 10.7 12.1
Selling, general and administrative expenses............. 14.8 13.4 14.8 11.8 12.2 10.6
----- ----- ----- ----- ----- -----
Operating income......................................... 14.8% 23.0% 21.9% 27.3% 30.0% 32.6%
===== ===== ===== ===== ===== =====
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2001 (26 WEEKS) TO THE SIX
MONTHS ENDED JULY 29, 2000 (27 WEEKS).
We have included a comparison of the six months ended June 30, 2001 to the
six months ended July 29, 2000, which, in the opinion of our management, is the
available period most comparable to the six months ended June 30, 2001.
Net revenues were $334.3 million for the six months ended June 30, 2001, an
increase of $98.3 million or 41.7% from $235.9 million for the six months ended
July 29, 2001. Of the $98.3 million increase, $51.5 million was attributable to
NACO classroom meeting fees, $7.7 million from our foreign company-owned
classroom meeting fees, $0.8 million from franchise royalties, $35.7 million
from product sales and $2.6 million from licensing, publications and other
royalties.
NACO classroom meeting fee revenues were $134.2 million for the six months
ended June 30, 2001, an increase of 62.2% from $82.7 for the six months ended
July 29, 2000. Our acquisition of Weighco accounted for $32.8 million of the
total increase. Our foreign company-owned classroom meeting fee revenues were
$85.9 million for the six months ended June 30, 2001, an increase of 9.9% from
$78.2 million for the six months ended July 29, 2000. The increase in NACO and
foreign company-owned meeting fee revenues was the result of increased member
attendance, the roll-out of new program innovations and price increases in
select markets, offset by negative exchange rate variances.
Franchise royalties were $15.6 million for the six months ended June 30,
2001, an increase of 4.7% from $14.9 million for the six months ended July 29,
2000. Excluding Weighco, franchise royalties increased 24.2% for the six months
ended June 30, 2001. This increase was primarily the result of an increase in
member attendance, offset by negative exchange rate variances.
Product sales were $92.7 million for the six months ended June 30, 2001, an
increase of 62.5% from $57.0 million for the six months ended July 29, 2000. The
increase in product sales was primarily the result of increased member
attendance and our strategy to focus sales efforts on core classroom products.
Royalties from licensing, publications and other were $5.8 million for the
six months ended June 30, 2001, an increase of 89.6% from $3.1 million for the
six months ended July 29, 2000.
Cost of revenues was $149.1 million for the six months ended June 30, 2001,
an increase of 34.2% from $111.1 million for the six months ended July 29, 2000.
Gross profit margin was 55.4% for the six months ended June 30, 2001, compared
to 52.9% for the six months ended July 29, 2000. The increase
27
in gross profit margin was due to price increases in selected markets, improved
operating efficiencies, higher margins generated by product sales and an
increase in attendance per meeting.
Marketing expenses were $40.6 million for the six months ended June 30,
2001, an increase of 60.4% from $25.3 million for the six months ended July 29,
2000. The increase in marketing expenses was primarily the result of additional
advertising to promote the new program innovations and timing differences
related to our shift in fiscal calendars.
Selling, general and administrative expenses were $35.5 million for the six
months ended June 30, 2001, an increase of 23.4% from $28.7 million for the six
months ended July 29, 2000. As a percentage of revenues, selling general and
administrative costs decreased from 12.2% for the six months ended July 29, 2000
to 10.6% for the six months ended June 30, 2001.
As a result of the above, operating income was $109.1 million for the six
months ended June 30, 2001, an increase 54.2% from $70.8 million for the six
months ended July 29, 2000. Our acquisition of Weighco accounted for
$16.2 million of the total increase in operating income.
COMPARISON OF THE EIGHT MONTHS ENDED DECEMBER 30, 2000 TO THE EIGHT MONTHS
ENDED DECEMBER 18, 1999.
Consolidated financial statements include our accounts and the accounts of
our wholly-owned subsidiaries. We eliminated all material intercompany accounts
and transactions in the consolidation. In order to facilitate timely reporting
in prior periods, some foreign subsidiaries ended their fiscal years one month
prior to our fiscal year end with no material impact on our consolidated
financial statements. The one month lag was eliminated effective April 30, 2000.
The results of operations for those foreign subsidiaries have been adjusted for
the eight months ended December 30, 2000. The effect on our net income of these
subsidiaries for the period March 31, 2000 through April 29, 2000 was
$1.1 million and was adjusted to the opening accumulated deficit at April 30,
2000.
Net revenues were $273.2 million for the eight months ended December 30,
2000, an increase of $36.2 million or 15.3% from $237.0 million for the eight
months ended December 18, 1999. Of the $36.2 million increase, $19.5 million was
attributable to NACO classroom meeting fees, $2.3 million from foreign
company-owned classroom meeting fees, $2.5 million from franchise royalties,
$11.7 million from product sales and $0.2 million from licensing, publications
and other royalties.
NACO classroom meeting fee revenues were $96.8 million for the eight months
ended December 30, 2000, an increase of 25.3% from $77.3 million for the eight
months ended December 18, 1999. This increase in NACO classroom meeting fee
revenues was the result of a 14.2% increase in member attendance as well as a
price increase in meetings fees in the majority of our markets for our NACO
operations. Our foreign company-owned classroom meeting fee revenues were
$87.3 million for the eight months ended December 30, 2000, an increase of 2.7%
from $85.0 million for the eight months ended December 18, 1999. This
performance was a result of a 7.9% increase in attendance offset by negative
exchange rate variances.
Franchise royalties were $17.7 million for the eight months ended
December 30, 2000, an increase of 17.2% from $15.1 million for the eight months
ended December 18, 1999. This increase was primarily the result of an increase
in member attendance offset by negative exchange rate variances.
Product sales were $66.4 million for the eight months ended December 30,
2000, an increase of 21.4% from $54.7 million for the eight months ended
December 18, 1999. This increase in product sales was primarily the result of
increased member attendance and our strategy to focus sales efforts on core
classroom products.
Royalties from licensing, publications and other were $5.1 million for the
eight months ended December 30, 2000, an increase of 4% from $4.9 million for
the eight months ended December 18, 1999.
28
Cost of revenues was $139.3 million for the eight months ended December 30,
2000, an increase of 13.8% from $122.4 million for the eight months ended
December 18, 1999. This increase was primarily the result of an increased number
of meetings to accommodate attendance growth and increased product sales. Gross
profit margin was 49.0% for the eight months ended December 30, 2000, compared
to 48.4% for the eight months ended December 18, 1999. The increase in gross
profit margin was primarily due to an increase in attendance per meeting and a
change in product mix with a greater focus on higher margin core products.
Marketing expenses were $27.0 million for the eight months ended
December 30, 2000, a decrease of 3.1% from $27.8 million for the eight months
ended December 18, 1999. As a percentage of revenues, marketing expenses
decreased from 11.7% for the eight months ended December 18, 1999 to 9.9% for
the eight months ended December 30, 2000 as a result of our efforts to improve
the effectiveness of our marketing program.
Selling, general and administrative expenses were $32.2 million for the
eight months ended December 30, 2000, an increase of 9.6% from $29.4 million for
the eight months ended December 18, 1999. This increase was partly the result of
an increase in incentive compensation as well as other professional fees
incurred. As a percentage of net revenues, these costs decreased from 12.4% for
the eight months ended December 18, 1999 to 11.8% for the eight months ended
December 30, 2000.
As a result of the above, our operating income was $74.7 million for the
eight months ended December 30, 2000, an increase of 34.4% from operating income
of $55.6 million, excluding a one-time charge of $8.3 million for transaction
costs and $1.8 million of discontinued food royalties for the eight months ended
December 18, 1999.
COMPARISON OF THE FISCAL YEAR ENDED APRIL 29, 2000 (53 WEEKS) TO THE FISCAL
YEAR ENDED APRIL 24, 1999 (52 WEEKS).
Net revenues were $399.6 million for the fiscal year ended April 29, 2000,
an increase of $35.0 million or 9.6% from $364.6 million for the fiscal year
ended April 24, 1999. Of the $35.0 million increase, $8.5 million was
attributable to our NACO classroom meeting fees, $8.8 million from our foreign
company-owned classroom meeting fees, $2.6 million from franchise royalties and
$26.9 million from product sales. These increases were offset by an
$11.8 million decrease in royalties from licensing, publications and other. The
$11.8 million decrease was primarily attributable to the discontinuation of food
royalties from Heinz, offset in part by the recognition in the fiscal year ended
April 24, 1999 of the present value of the guaranteed future payments from a
licensing agreement. Adjusting for the discontinued food royalties of
$1.8 million, net revenues were $397.8 million for the fiscal year ended
April 29, 2000, an increase of 13.5% from $350.6 million (excluding
$8.7 million from non-recurring revenue from the licensing agreement and
$5.3 million from discontinued food royalties) for the fiscal year ended
April 24, 1999.
NACO classroom meeting fee revenues were $130.8 million for the fiscal year
ended April 29, 2000 an increase of 6.9% from $122.3 million for the fiscal year
ended April 24, 1999, net of promotional allowances of $5.7 million and
$23.0 million, respectively. This increase in our NACO classroom meeting fee
revenues was the result of a 22% increase in member attendance, partially offset
by lower average meeting fee revenues per attendee as a result of the rollout of
the LIBERTY/LOYALTY pricing strategy. LIBERTY/LOYALTY provides members the
option of committing to consecutive weekly attendance and paying a lower weekly
fee with penalties for missed classes, or paying a higher weekly fee without the
missed meeting penalties. Our revenues from foreign company-owned classroom
meeting fees were $152.7 million for the fiscal year ended April 29, 2000, an
increase of 6.1% from $143.9 million for the fiscal year ended April 24, 1999,
net of promotional allowances of $17.4 million and $17.2 million, respectively.
This increase in our foreign company-owned classroom meeting fee revenues was
the result of a 6.1% increase in international attendance in the United Kingdom,
Continental Europe and Australia.
29
Domestic franchise royalties were $21.3 million for the fiscal year ended
April 29, 2000, an increase of 11.5% from $19.1 million for the fiscal year
ended April 24, 1999. This increase in domestic franchise royalties was
primarily the result of an increase in member attendance, due to improved
training and support and increased marketing effectiveness. International
franchise royalties were $4.5 million for the fiscal year ended April 29, 2000,
an increase of 9.8% from $4.1 million for the fiscal year ended April 24, 1999.
This increase was primarily the result of our strong performance in Canada and
Ireland.
Product sales were $84.2 million for the fiscal year ended April 29, 2000,
an increase of 47.0% from $57.3 million for the fiscal year ended April 24,
1999. This increase in product sales was primarily the result of increased
member attendance and our strategy to focus sales efforts on core classroom
products, including our newly introduced nutrition bars.
Royalties from licensing, publications and other were $6.1 million for the
fiscal year ended April 29, 2000, a decrease of 66% from $17.9 million for the
fiscal year ended April 24, 1999, which was primarily due to discontinued food
royalties from Heinz, offset in part by an increase in royalties from licensing
agreements.
Cost of revenues was $201.4 million for the fiscal year ended April 29,
2000, an increase of 12.6% from $178.9 million for the fiscal year ended
April 24, 1999. This increase was primarily the result of an increased number of
meetings to accommodate attendance growth and growing product sales. Our gross
profit margin was 49.4% for the fiscal year ended April 29, 2000, excluding
$1.8 million from discontinued food royalties, compared to 49.0% for the fiscal
year ended April 24, 1999, excluding $8.7 million from non-recurring revenues
from a licensing agreement and $5.3 million from discontinued food royalties.
Marketing expenses were $51.5 million for the fiscal year ended April 29,
2000, a decrease of 2.6% from $52.9 million for the fiscal year ended April 24,
1999, net of promotional allowances of $23.0 million and $40.2 million,
respectively. Our marketing program remained unchanged. The decrease of
$1.4 million was related to amounts expended under Heinz's marketing programs in
the fiscal year ended April 24, 1999 and the discontinuation of food royalty
related marketing rebate expenses.
Selling, general and administrative expenses were $50.7 million for the
fiscal year ended April 29, 2000, an increase of 3.7% from $48.9 million for the
fiscal year ended April 24, 1999. As a percentage of net revenues, excluding
$1.8 million from discontinued food royalties in the fiscal year ended
April 29, 2000 and excluding $8.7 million from non-recurring revenues from a
licensing agreement and $5.3 million from discontinued food royalties in the
fiscal year ended April 24, 1999, these costs were 12.7% for the fiscal year
ended April 29, 2000, compared to 13.9% for the fiscal year ended April 24,
1999. This percentage decrease was due to the continued benefit of our
restructuring and reorganization program.
As a result of the above, our operating income was $94.2 million, excluding
a one-time charge of $8.3 million of transaction costs and $1.8 million in
revenues from discontinued food royalties, for the year ended April 29, 2000, an
increase of 34.8% from operating income of $69.9 million, excluding
$8.7 million of non-recurring revenues from a licensing agreement and
$5.3 million from discontinued food royalties, for the fiscal year ended
April 24, 1999.
COMPARISON OF THE FISCAL YEAR ENDED APRIL 24, 1999 TO THE FISCAL YEAR ENDED
APRIL 25, 1998.
Net revenues were $364.6 million for the fiscal year ended April 24, 1999,
an increase of $67.4 million or 22.7% from $297.2 million for the fiscal year
ended April 25, 1998, net of promotional allowances of $40.2 million and
$37.1 million, respectively. Of the $67.4 million increase, $28.5 million was
attributable to our NACO classroom meeting fees, $14.8 million to our foreign
company-owned classroom meeting fees, $5.3 million to franchise royalties,
$9.8 million to product sales and
30
$9.0 million to royalties from licensing, publications and other. The increase
in royalties was due to the recognition, in the fiscal year ended April 24,
1999, of the present value of the guaranteed future payments from a licensing
agreement. Adjusting for non-recurring revenues of $8.7 million from that
licensing agreement, net revenues were $355.9 million for the fiscal year ended
April 24, 1999, an increase of $58.7 million, or 19.8%, from $297.2 million for
the fiscal year ended April 25, 1998.
NACO classroom meeting fee revenues were $122.3 million for the fiscal year
ended April 24, 1999, an increase of 30.4% from $93.8 million for the fiscal
year ended April 25, 1998, net of promotional allowances of $23.0 million and
$19.5 million, respectively. This increase in revenues from our NACO classroom
meeting fees was the result of a 29% increase in member attendance. We believe
the increase in member attendance was due to the continued improvement in member
satisfaction, which resulted from the full year impact of 1'2'3 SUCCESS, the
diet that preceded and was the foundation for WINNING POINTS, and the
elimination of our pre-packaged meals program. Our revenues from foreign
company-owned classroom meeting fees were $143.9 million for the fiscal year
ended April 24, 1999, an increase of 11.5% from $129.0 million for the fiscal
year ended April 25, 1998, net of promotional allowances of $17.2 million and
$17.6 million, respectively. This increase in revenues from our foreign
company-owned classroom meeting fees was the result of a 6% increase in
international attendance in the United Kingdom, Continental Europe and
Australia.
Domestic franchise royalties were $19.1 million for the fiscal year ended
April 24, 1999, an increase of 32.9% from $14.4 million for the fiscal year
ended April 25, 1998. This increase in domestic franchise royalties was
primarily the result of an increase in member attendance, which was due to the
full year impact of 1'2'3 SUCCESS, improved training and support and increased
marketing effectiveness. Our foreign franchise royalties were $4.1 million for
the fiscal year ended April 24, 1999, an increase of 15.3% from $3.5 million for
the fiscal year ended April 25, 1998. This increase was primarily the result of
our strong performance in Canada and Ireland.
Product sales were $57.3 million for the fiscal year ended April 24, 1999,
an increase of 20.6% from $47.5 million for the fiscal year ended April 25,
1998. This increase in product sales was primarily the result of increased
member attendance. In addition, we eliminated approximately two-thirds of the
items in our NACO operations, allowing us to focus our sales efforts on our core
products.
Royalties from licensing, publications and other were $9.3 million,
excluding $8.7 million of non-recurring revenues from a licensing agreement, for
the fiscal year ended April 24, 1999, an increase of 3.3% from $9.0 million for
the fiscal year ended April 25, 1998.
Cost of revenues was $178.9 million for the fiscal year ended April 24,
1999, an increase of 11.8% from $160.0 million for the fiscal year ended
April 25, 1998. This increase was attributable to the increased levels of
attendance. Gross profit margin, net of promotional allowances of $40.2 million
and $37.1 million, respectively, however, increased from 46.2% for the fiscal
year ended April 25, 1998 to 49.7%, excluding $8.7 million of non-recurring
revenues from a licensing agreement, for the fiscal year ended April 24, 1999.
This increase in gross margin was due to various factors, including an increase
in attendance per meeting, an increase in the ratio of third-party locations to
total locations and a change in product mix with a focus on higher margin core
products.
Marketing expenses were $52.9 million for the fiscal year ended April 24,
1999, an increase of 7.5% from $49.2 million for the fiscal year ended
April 25, 1998, net of promotional allowances of $40.2 million and
$37.1 million, respectively. This increase in marketing expenses was the result
of an increase in advertising.
Selling, general and administrative expenses were $48.9 million for the
fiscal year ended April 24, 1999, an increase of 10.9% from $44.1 million for
the fiscal year ended April 25, 1998. As a percentage of total revenues,
excluding $8.7 million of non-recurring revenues from a licensing agreement,
these costs decreased from 14.8% for the fiscal year ended April 25, 1998 to
13.7% for the fiscal year ended April 24, 1999. This percentage decrease was due
to the continued benefit of our restructuring and
31
reorganization program, which allowed us to eliminate certain costs that were
not directly associated with our core business, classroom operations and related
products.
As a result of the above, operating income was $75.2 million, excluding
$8.7 million of non-recurring revenues from a licensing agreement, for the
fiscal year ended April 24, 1999, an increase of 70.9% from operating income of
$43.9 million for the fiscal year ended April 25, 1998.
LIQUIDITY AND CAPITAL RESOURCES
During the eight months ended December 30, 2000 and for the six months ended
June 30, 2001, our primary source of funds to meet working capital needs was
cash from operations. For the eight months ended December 30, 2000 and the six
months ended June 30, 2001, cash flows provided by operating activities were
$28.9 million and $92.9 million, respectively. Cash and cash equivalents
increased $0.5 million to $44.5 million and increased $1.1 million to $45.6
million, respectively, during the eight months ended December 30, 2000 and the
six months ended June 30, 2001. These increases were driven by increased meeting
revenue and strong product sales. For the eight months ended December 30, 2000,
cash flows provided by operating activities of $28.9 million were used primarily
to fund a loan of $16.8 million to WeightWatchers.com and repayments of
principal on our outstanding senior credit facilities of $7.1 million. Cash
flows used for investing activities of $21.6 million were primarily attributable
to capital expenditures of $3.6 million and the loan made to WeightWatchers.com.
Cash flows used for financing activities of $8.0 million were attributable to
repayments of principal on our outstanding senior credit facilities of
$7.1 million and the payment of dividends on our preferred stock of
$0.9 million.
For the six months ended June 30, 2001, cash flows provided by operating
activities were used primarily for investing activities. Cash flows used for
investing activities of $94.9 million were attributable to $84.4 million in cash
paid in connection with the Weighco acquisition, the loans of $7.8 million made
to WeightWatchers.com and capital expenditures of $1.2 million. Net cash flows
provided by financing activities of $4.7 million consisted of proceeds from
borrowings under our senior credit facility of $60.0 million, offset by
repayments of principal on our outstanding senior credit facilities of $42.7
million and the repurchase of 3,152,591 shares of our common stock held by Heinz
for $12.7 million.
Capital spending has averaged approximately $3 million annually over the
last four years and has consisted primarily of leasehold improvements for
meeting locations and administrative offices, computer equipment for field staff
and call centers and year 2000 upgrades.
As of December 30, 2000 and June 30, 2001, we had outstanding
$470.7 million and $478.7 million, respectively, in aggregate indebtedness, with
approximately $30 million and $45 million, respectively, of additional borrowing
capacity available under our revolving credit facility. On January 16, 2001, we
acquired certain business assets and the Weight Watchers franchised territories
of Weighco for $83.8 million. We financed the acquisition with available cash of
$23.8 million and additional borrowings of $60.0 million under our senior credit
facilities.
We believe that cash flows from operating activities, together with
borrowings available under our revolving credit facility, will be sufficient for
the next twelve months to fund currently anticipated capital expenditure
requirements, debt service requirements and working capital expenditure
requirements. Any future acquisitions, joint ventures or other similar
transactions will likely require additional capital and we cannot be certain
that any additional capital will be available on acceptable terms or at all.
On April 18, 2001, we entered into a Put/Call Agreement with Heinz. Under
this agreement, Heinz has an option to sell and we have an option to purchase
all of our common stock owned by Heinz. Heinz has sold to us all 6,719,254
shares of our common stock held by it for an aggregate purchase price of
$27.1 million.
32
The balances under our senior credit facilities as of June 30, 2001 were
$243.7 million, consisting of a $70.8 million term loan A facility, a
$71.2 million term loan B facility, an $82.5 million transferable loan
certificate facility, a $19.2 million term loan D facility and a $45.0 million
revolving credit facility. As of June 30, 2001, $45.0 million was available
under the revolving credit facility for additional borrowings. The term loan A
facility matures on September 30, 2005, the term loan B facility matures on
September 30, 2006, the transferable loan certificate facility matures on
September 30, 2006, the term loan D facility matures on June 30, 2006 and the
revolving credit facility matures on September 30, 2005.
The term loan A facility, the term loan B facility, the transferable loan
certificate facility, the term loan D facility and the revolving credit facility
bear interest, subject to performance based stepdowns applicable to the term
loan A facility and the revolving credit facility, at a rate equal to (a) in the
case of the term loan A facility and the revolving credit facility, LIBOR plus
1.75% or, at our option, the alternate base rate (as defined in the credit
facilities) plus 0.75%, (b) in the case of the term loan B facility and the
transferable loan certificate facility, LIBOR plus 4.00% or, at our option, the
alternate base rate plus 3.00% or (c) in the case of the term loan D facility,
LIBOR plus 3.25% or, at our option, the alternate base rate plus 2.25%. In
addition to paying interest on outstanding principal under the senior credit
facilities, we are required to pay a commitment fee to the lenders under the
revolving credit facility with respect to the unused commitments at a rate equal
to 0.50% per year.
Our senior credit facilities contain covenants that restrict our ability to
incur additional indebtedness, pay dividends on and redeem capital stock and
make other restricted payments, including investments, sell our assets and enter
into consolidations, mergers and transfers of all or substantially all of our
assets. Our senior credit facilities also require us to maintain specified
financial ratios and satisfy financial condition tests. These tests and
financial ratios become more restrictive over the life of the senior credit
facilities.
We issued $150.0 million in aggregate principal amount of senior
subordinated notes and E100.0 million in aggregate principal amount of senior
subordinated notes in connection with our acquisition by Artal Luxembourg. Our
senior subordinated notes mature in 2009 and bear interest at a rate of 13% per
annum. Our obligations under the notes are subordinate and junior in right of
payment to all of our existing and future senior indebtedness, including all
indebtedness under the senior credit facilities. The indentures, pursuant to
which the notes were issued, restrict our ability to incur additional
indebtedness, issue shares of disqualified stock and preferred stock, pay
dividends or make other restricted payments, including investments, create
limitations on the ability of our subsidiaries to pay dividends or make certain
payments to us, merge or consolidate with any other person or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of our
assets.
In addition, we have one million shares of Series A Preferred Stock issued
and outstanding with a preference value of $25.0 million. Holders of the
Series A Preferred Stock are entitled to receive dividends at an annual rate of
6% payable annually in arrears. If there is a liquidation, dissolution or
winding up, the holders of shares of Series A Preferred Stock are entitled to be
paid out of our assets available for distribution to shareholders an amount in
cash equal to the $25 liquidation preference per share plus all accrued and
unpaid dividends prior to the distribution of any assets to holders of shares of
our common stock. Subject to the restrictions set forth in our debt instruments,
holders of our Series A Preferred Stock will have the right to cause us to
repurchase their shares upon completion of this offering. If we are required to
repurchase the Series A Preferred Stock, we expect that we would finance the
purchase with our available cash or borrowings under our revolving credit
facility.
Our ability to fund our capital expenditure requirements, interest,
principal and dividend payment obligations and working capital requirements and
to comply with all of the financial covenants under our debt agreements depends
on our future operations, performance and cash flow. These are subject
33
to prevailing economic conditions and to financial, business and other factors,
some of which are beyond our control.
SEASONALITY
Our business is seasonal, with revenues generally decreasing at year end and
during the summer months. Our advertising schedule supports the three key
enrollment-generating seasons of the year: winter, spring and fall. Due to the
timing of our marketing expenditures, particularly the higher level of
expenditures in the first quarter, our operating income for the second quarter
is generally the strongest, with the fourth quarter being the weakest.
The following table summarizes our historical quarterly results of
operations for the periods indicated. We believe this presentation illustrates
the seasonal nature of our business.
[Enlarge/Download Table]
HISTORICAL QUARTER ENDED
------------------------------------------------------------------------------
TWO MONTHS
ENDED
APRIL 29, JULY 29, OCTOBER 28, DECEMBER 30, MARCH 31, JUNE 30,
2000 2000 2000 2000 2001 2001
---------- ---------- ----------- ------------ ---------- ----------
(14 weeks) (13 weeks) (13 weeks) (9 weeks) (13 weeks) (13 weeks)
(in millions)
Revenues, net.................... $132.8 $103.1 $107.6 $62.5 $172.0 $162.3
Gross profit..................... 70.0 54.8 51.5 27.6 94.6 90.6
Marketing expenses............... 18.6 6.7 11.8 8.5 27.1 13.5
Selling, general and
administrative expenses........ 17.2 11.5 12.0 8.7 17.7 17.8
Operating income................. 34.2 36.6 27.7 10.4 49.8 59.3
Net income (loss)................ 17.5 13.7 10.9 (9.6) 23.2 26.1
As a result of the Weighco acquisition, we believe the following table
summarizing our pro forma quarterly results of operations is more indicative of
the impact of seasonality on our business than our historical quarterly results
of operations.
[Enlarge/Download Table]
PRO FORMA QUARTER ENDED
----------------------------------------------------------------- HISTORICAL
TWO MONTHS QUARTER
ENDED ENDED
APRIL 29, JULY 29, OCTOBER 28, DECEMBER 30, MARCH 31, JUNE 30,
2000 2000 2000 2000 2001 2001
---------- ---------- ----------- ------------ ---------- ----------
(14 weeks) (13 weeks) (13 weeks) (9 weeks) (13 weeks) (13 weeks)
(in millions)
Revenues, net.................... $145.4 $116.1 $120.6 $69.8 $173.8 $162.3
Gross profit..................... 77.9 62.1 58.8 31.9 95.9 90.6
Marketing expenses............... 20.1 7.4 12.8 8.8 27.4 13.5
Selling, general and
administrative expenses........ 20.1 14.3 14.9 10.6 17.9 17.8
Operating income................. 37.8 40.3 31.2 12.5 50.6 59.3
Net income (loss)................ 18.4 14.5 11.6 (9.2) 23.5 26.1
Effective April 30, 2000, we changed our fiscal year end from the last
Saturday in April to the Saturday closest to December 31. As a result of the
change in our reporting period, beginning in 2001, we believe that our first
quarter will typically have the highest revenue, followed by the second, third
and fourth quarters, respectively.
34
ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 and 142, "Business Combinations"
("SFAS 141") and "Goodwill and Other Intangible Assets" ("SFAS 142"),
respectively. SFAS 141 requires that all business combinations initiated after
June 30, 2001 be accounted for by the purchase method of accounting. SFAS 142
specifies that goodwill and indefinite lived intangible assets will no longer be
amortized but instead will be subject to annual impairment testing. We will
adopt SFAS 142 on December 30, 2001. We are currently evaluating the effect that
implementation of the new standards will have on our financial position, results
of operations and cash flows.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to foreign currency fluctuations and interest rate changes.
Our exposure to market risk for changes in interest rates relates to the fair
value of long-term fixed rate debt and interest expense of variable rate debt.
We have historically managed interest rates through the use of, and our
long-term debt is currently composed of, a combination of fixed and variable
rate borrowings. Generally, the fair market value of fixed rate debt will
increase as interest rates fall and decrease as interest rates rise.
Based on the overall interest rate exposure on our fixed rate borrowings at
June 30, 2001, a 10% change in market interest rates would have less than a 5%
impact on the fair value of our long-term debt. Based on variable rate debt
levels at December 30, 2000, a 10% change in market interest rates would have
less than a 5% impact on our interest expense, net.
Other than intercompany transactions between our domestic and foreign
entities and the portion of our senior subordinated notes which are denominated
in euros, we generally do not have significant transactions that are denominated
in a currency other than the functional currency applicable to each entity.
We enter into forward and swap contracts to hedge transactions denominated
in foreign currencies to reduce the currency risk associated with fluctuating
exchange rates. These contracts are used primarily to hedge certain intercompany
cash flows and for payments arising from some of our foreign currency
denominated obligations. Realized and unrealized gains and losses from these
transactions are included in net income for the period.
Fluctuations in currency exchange rates may also impact our shareholders'
equity. The assets and liabilities of our non-U.S. subsidiaries are translated
into U.S. dollars at the exchange rates in effect at the balance sheet date.
Revenues and expenses are translated into U.S. dollars at the weighted average
exchange rate for the period. The resulting translation adjustments are recorded
in shareholders' equity as accumulated other comprehensive income (loss). In
addition, fluctuations in the value of the euro will cause the U.S. dollar
translated amounts to change in comparison to prior periods. Furthermore, we
revalue our outstanding senior subordinated euro notes at the end of each
period, and the resulting change in value will be reflected in the income
statement of the corresponding period.
Each of our subsidiaries derives revenues and incurs expenses primarily
within a single country, and consequently, does not generally incur currency
risks in connection with the conduct of normal business operations.
We use foreign currency forward contracts to more properly align the
underlying sources of cash flow with our debt servicing requirements. At
June 30, 2001, we had long-term foreign currency forward contracts receivable
with notional amounts of $44.0 million and L76.0 million offset by foreign
currency forward contracts payable with notional amounts of L59.2 million and
$21.9 million.
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INDUSTRY
OVERVIEW
The number of overweight and obese people worldwide has been increasing due
to improving living standards and changing eating patterns, as well as
increasingly sedentary lifestyles. The World Health Organization has reported
that the world's population is becoming overweight at a rapid pace. According to
the organization, in 2000, over one billion people worldwide were overweight and
there exists an urgent need to deal with this problem. In the United States, the
proportion of U.S. adults who are overweight has increased from 47% to 61% over
the last 20 years, and approximately 52 million Americans are currently dieting.
The following table sets forth the percentage of overweight adults in the
countries indicated.
PERCENTAGE OF OVERWEIGHT ADULTS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
[Download Table]
UNITED STATES 61%
Germany 60%
United Kingdom 59%
Australia 58%
Spain 54%
Brazil 36%
SOURCES: NATIONAL HEALTH AND EXAMINATION SURVEY, 1999; ADIPOSITAS LEITLINIE
FUR DEN BEHANDELNDEN ARZT, 1997; FACTS PACK, 1998; NATIONAL NUTRITION
SURVEY, 1995; DOSSIER DE LA PRENSA, 2000; AND THE WORLD HEALTH ORGANIZATION,
1997, RESPECTIVELY.
This growing population of overweight people, motivated by both their desire
to improve their appearance and their increasing awareness of the health risks
associated with being overweight, is fueling the growth in demand for
weight-loss programs. According to the National Institutes of Health, the
economic cost of overweight and obesity in the United States was approximately
$100 billion in 1995. Demand for weight-loss programs is also growing as a
result of:
- greater awareness that achieving and maintaining a healthy weight will
reduce the risk of serious medical problems and significantly improve the
quality of life;
- the recognition that drugs are not an effective stand-alone remedy and may
have undesirable side effects; and
- an increasing willingness of employers to promote and contribute towards
the cost of weight-loss programs.
Weight control problems are affecting more children as well. The number of
overweight youths has more than doubled during the past 20 years. Currently,
over 13% of American children and teens are classified as overweight.
WEIGHT AND HEALTH CORRELATION
Being overweight is the second leading cause of preventable death in the
United States. In addition, numerous diseases, including heart disease, high
blood pressure and type II diabetes, are associated with being overweight or
obese. According to The World Health Organization, there is strong evidence that
weight loss reduces the risk of developing many of these diseases and benefits
those patients already diagnosed with the conditions. The prevalence of disease,
particularly cardiovascular disease, among overweight people increases with age.
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COMPETITION
The weight-loss market includes commercial weight-loss programs, self-help
weight-loss products, Internet-based weight-loss products, dietary supplements,
weight-loss services administered by doctors, nutritionists and dieticians and
weight-loss drugs. Competition among commercial weight-loss programs is largely
based on program recognition and reputation and the effectiveness, safety and
price of the program.
The following chart sets forth the diet attempts by method used by U.S.
adults in 2000:
U.S. DIET ATTEMPTS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
[Download Table]
MEAL REPLACEMENTS 7%
Commercial
Programs*
7% 7%
Doctor/Health Professionals 11%
Other 4%
Self-help 71%
SOURCE: 2000 GALLUP STUDY
------------------------
* Includes group education and pre-packaged meal-based commercial
weight-loss programs.
In the United States, we compete with several other companies in the
commercial weight-loss industry, although we believe our businesses are not
comparable. For example, many of our competitors' businesses are based on the
sale of pre-packaged meals and meal replacements, while our classes use group
support, education and behavior modification to help members change their eating
habits, in conjunction with a flexible diet that allows our members the freedom
to choose what they eat. Companies that sell pre-packaged meal programs, such as
Jenny Craig, have for the most part experienced declining revenues. In addition
to the lack of variety and the inflexible nature of pre-packaged meals, these
weight-loss programs are expensive because of the premiums charged for the
meals.
There are no significant group education-based competitors in any of our
major markets, except in the United Kingdom. Even there, we have a 50% market
share and approximately twice the revenues of our largest competitor, Slimming
World, our competitor since the 1960s.
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BUSINESS
OVERVIEW
We are a leading global branded consumer company and the leading provider of
weight-loss services in 27 countries around the world. Our programs help people
lose weight and maintain their weight loss and, as a result, improve their
health, enhance their lifestyles and build self-confidence. At the core of our
business are weekly meetings, which promote weight loss through education and
group support in conjunction with a flexible, healthy diet. Each week, more than
one million members attend approximately 37,000 Weight Watchers meetings, which
are run by over 13,000 classroom leaders. Our classroom leaders teach, inspire,
motivate and act as role models for our members.
We conduct our business through a combination of company-owned and franchise
operations, with company-owned operations accounting for approximately 67% of
total worldwide attendance in the first six months of 2001. In the 1960's we
pursued an aggressive franchising strategy with respect to our classroom
operations to rapidly grow our geographic presence and build market share. We
believe that our early franchising strategy was very effective in establishing
our brand as the world's leading weight-loss program.
We have experienced strong growth in sales and profits over the last five
years since we made the strategic decision to re-focus our meetings exclusively
on our group education approach. We discontinued the in-meeting sale of
pre-packaged meals, added in 1990 in NACO by our previous owner, Heinz. We also
modernized our diet to adapt it to contemporary lifestyles. Through these
initiatives, combined with our strengthened management and strategic focus since
our acquisition by Artal Luxembourg, we have grown our attendance.
The following table sets forth our NACO operations and international
attendance for the 1997, 1998, 1999 and 2000 fiscal years and the twelve months
ended April 28, 2001.
ATTENDANCE IN COMPANY-OWNED OPERATIONS
(in millions)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Classroom attendance in millions
[Download Table]
NACO OPERATIONS INTERNATIONAL
Fiscal Year 1997 15.1 7.8 22.9
Fiscal Year 1998 17.8 8.4 26.2
Fiscal Year 1999 18.9 10.9 29.8
Fiscal Year 2000 20.1 13.2 33.3
Twelve months ended April 28, 2001 22.4 15.1 37.5
------------------------------
* Attendance for the twelve months ended April 28, 2001 does not include
Weighco attendance.
Our members typically enroll to attend consecutive weekly meetings and have
historically demonstrated a consistent re-enrollment pattern across many years.
Historically, in our NACO operations:
- our members attend an average of 8 to 10 weekly sessions in an enrollment
cycle;
- approximately 75% of returning members re-enroll at least one more time in
the future; and
- since 1991, our members have enrolled in an average of four separate
enrollment cycles.
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We believe that our members' repeat enrollment and attendance patterns and
our large existing member base together with our growth in first-time members
represent strong potential for future growth.
MARKET OPPORTUNITY
The large and growing global weight-loss market provides us with significant
growth potential. In addition, we also believe that we can increase the
penetration rate of our target demographic market of overweight women, ages 25
to 64, in our existing major markets as well as in our less developed markets.
The following chart illustrates our level of penetration of our target
market, women ages 25 to 64, with a body mass index greater than 25 in 2000:
OUR TARGET MARKET PENETRATION IN SELECTED COUNTRIES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Percent Penetration in 2000
[Download Table]
SPAIN LESS THAN 0.1%
Denmark 0.1%
Germany 0.9%
Netherlands 1.4%
Switzerland 1.7%
France 3.2%
Belgium 3.6%
Australia 7.2%
United States 7.3%
New Zealand 7.6%
Finland 10.0%
United Kingdom 10.9%
Sweden 13.4%
Relative Size of Target Market
In the United Kingdom, the penetration rate of our target demographic group
by all education-based commercial weight-loss programs now exceeds 20%. We
believe that this demonstrates potential for significant increases in
penetration in our other markets. Since we do not face significant group
education competitors outside the United Kingdom, we believe that we are best
positioned to capture this growth.
We also believe that we have significant long-term growth opportunities in
countries where we have established a meeting infrastructure but our market
penetration rates are relatively low. For example, in Germany, we have grown our
attendance by over 60% in the twelve months ended June 30, 2001, while still
penetrating less than 2% of our target market.
We have demonstrated the ability to enter new markets as our program has
proven adaptable in 27 countries. We customize our program for each geographic
setting by tailoring the program for the local language, culture and food
preferences. We believe that our international success proves that our core
weight-loss program is effective worldwide and have recently begun operations in
Spain and Denmark.
We also believe that we can expand our customer base by developing new
products and services designed to meet the needs of a broader audience. For
example, while approximately 95% of our current
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members are women, we are actively researching and developing new products
and services that are intended to have a greater appeal to men.
OUR BILLION DOLLAR BRAND
WEIGHT WATCHERS is the leading global weight-loss brand with retail sales of
over $1.5 billion in 2000, including licensees and franchisees. Currently, over
97% of U.S. women recognize the WEIGHT WATCHERS brand. In addition, our program
is the most widely recommended weight-loss program by U.S. doctors. Our
credibility is further enhanced by the endorsement of the U.S. Department of
Agriculture.
We have built our business and brand on the following core principles:
[Download Table]
- Effective CLINICALLY PROVEN
- Healthy MEDICALLY RECOMMENDED
- Supportive HELPING MEMBERS HELP EACH OTHER
- Flexible COMPATIBLE WITH MODERN LIFESTYLES
- Balanced NOT JUST A DIET, AN APPROACH TO LIFE
WEIGHT WATCHERS MEETINGS
We present our program in a series of weekly classes of approximately one
hour in duration. Classes are conveniently scheduled throughout the day.
Typically, we hold classes in either meeting rooms rented from civic or
religious organizations or in leased locations.
In our classes, our leaders present our program, which combines group
support and education about healthy eating patterns, behavior modification and
physical activity with our scientifically developed diet. Our more than 13,000
classroom leaders run our meetings and educate members on the process of
successful and sustained weight loss. Our leaders also provide inspiration and
motivation for our members and are examples of our program's effectiveness
because they have lost weight and maintained their weight loss on our program.
Classes typically begin with registration and a confidential weigh-in to
track each member's progress. Leaders are trained to engage the members at the
weigh-in to talk about their weight control efforts during the previous week and
to provide encouragement and advice. Part of the class is educational, where the
leader uses personal anecdotes, games or open questions to demonstrate some of
our core strategies of weight-loss, such as self-belief and discipline. For the
remainder of the class, the leader focuses on a variety of topics pre-selected
by us, such as seasonal weight-loss topics, achievements people have made in the
prior week and celebrating and applauding successes. Members who have reached
their weight goal are singled out for their accomplishment. Discussions can
range from dealing with a holiday office party to making time to exercise. The
leader encourages substantial class participation and discusses supporting
products and materials as appropriate. At the end of the class, new members are
given special instruction in our current diet.
Our leaders help set a member's weight goal within a healthy range by using
a body mass index. When members reach their weight goal and maintain it for six
weeks, they achieve lifetime member status. This gives them the privilege to
attend our meetings free of charge as long as they maintain their weight within
a certain range. Successful members also become eligible to apply for positions
as classroom leaders. Field management and current leaders constantly identify
new leaders as members with strong interpersonal skills, personality and
communication skills. Leaders are usually paid on a commission basis.
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Our AT WORK program addresses the weight-loss needs of working people by
holding classes at their place of employment. AT WORK is particularly popular in
the United States as employees, and increasingly employers, are receptive to our
classes in the work place. In many cases, employers subsidize employee
participation and typically provide meeting space without charge. In 2000,
approximately 10% of NACO attendance was through our AT WORK meetings.
OUR APPROACH
Our approach has always been based on four core elements:
- Group support
- Behavior modification
- Diet
- Exercise
GROUP SUPPORT
The group support system remains the cornerstone of our classes. Members
provide each other support by sharing their experiences and their encouragement
and empathy with other people enduring similar weight-loss challenges. This
group support provides the reassurance that no one must overcome their
weight-loss challenges alone. Group support assists members in dealing with
issues such as depression-eating and habitual-eating behaviors. We facilitate
this support through interactive meetings that encourage learning through group
activities and discussions.
BEHAVIOR MODIFICATION
Behavior modification and education on eating habits have also always been
key elements of our program. We use motivation, education and support to help
members manage their weight and to change their habits. Discussions on topics
such as staying motivated, how to avoid overeating and managing stress offer
members valuable insight on how to stay on our program while dealing with the
realities of everyday life. Our U.S. members also currently learn "Tools for
Living," a program of eight fundamental goal-setting and motivational
principles. In addition, our U.S. members currently receive a booklet titled
"Managing Your Weight From the Inside Out" that teaches members how to develop a
positive mind-set about weight control, new approaches to problem solving and
specific ideas for handling some of the most common weight-loss issues. Our
international members learn similar principles and receive similar publications.
DIET
Our diets allow our members to eat regular meals instead of pre-packaged
meals. By giving members the freedom to choose what they eat, our diets are
flexible and adjusted to modern lifestyles. In order to keep our diets at the
forefront of weight-loss science, each is designed in consultation with doctors
and other scientific advisors. We continually strive to improve our diets by
periodically testing, then introducing, new features.
Our current diets feature the POINTS system, which assigns each food a
POINTS value based on its nutritional content. Members are given a daily POINTS
goal to use on whatever combination of food they prefer so long as the total
does not exceed the goal. While no food is forbidden, our POINTS-based diets
encourage members to eat a wide variety of foods in amounts that promote healthy
weight loss. Our diets help members choose foods that are low in fat, high in
complex carbohydrates and moderate in protein. We customize our diets from
country to country in order to suit local tastes, as well as package labeling
differences between countries. Our current U.S. diet,
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WINNING POINTS, allows members to carry-back or carry-forward unused POINTS and
thus gives members the flexibility to participate in special occasions and
special meals. Our current U.K. diet is branded PURE POINTS, and our current
diet in Continental Europe is marketed as THE POINTS PLAN.
EXERCISE
Exercise is an important component of weight loss and our overall program to
lose weight. Our classroom leaders emphasize the importance of exercise to
weight loss and to leading a healthy, balanced lifestyle. In addition, our
WINNING POINTS diet promotes exercise by granting members additional POINTS for
their diet based on the type and amount of exercise in which they engage. Our
U.S. members currently receive THE WEIGHT WATCHERS ACTIVITY GUIDE, which is
designed to promote exercise and activity outside of the classroom. It is
consistent with the recommendations for physical activity outlined by both the
Center for Disease Control and Prevention and the American College of Sports
Medicine. International members receive similar information.
ADDITIONAL DELIVERY METHODS
We have developed additional delivery methods for people who, either through
circumstance or personal preference, do not attend our classes. For example, we
have developed program cookbooks and an AT HOME self-help product that provide
information on our diet and guidance on weight loss, as well as CD-ROM versions
of our diet for the United Kingdom, Continental Europe and Australia.
Our affiliate and licensee, WeightWatchers.com, recently introduced in the
United States WEIGHT WATCHERS ONLINE, an online paid subscription product. This
product offers information on WINNING POINTS, POINTS values, content on various
weight-loss subjects, professionally-developed low-POINTS recipes and weekly
meal plans for different POINTS ranges. In addition, WEIGHT WATCHERS ONLINE
provides an online journal, an online POINTS calculator, a recipe POINTS
calculator, a weight tracker and progress charts and preprogrammed messages to
help subscribers achieve their weight-loss goals. This product targets self-help
dieters.
PRODUCT SALES
We sell a range of proprietary products, including snack bars, books,
CD-ROMS and POINTS calculators, that is consistent with our brand image. We sell
our products primarily through our classroom operations and to our franchisees.
In 2000, sales of our proprietary products represented 26% of our revenues, up
from 11% in fiscal 1997. We have grown our product sales per attendance by
focusing on a core group of products that complement the Weight Watchers
program. We intend to continue to optimize our product offerings by updating
existing products and selectively introducing new products.
[Download Table]
[picture] [picture] [picture]
Snack Bars Cookbooks POINTS Calculators
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FRANCHISE OPERATIONS
We have enjoyed a mutually beneficial relationship with our franchisees over
many years. In our early years, we used an aggressive franchising strategy to
quickly establish a meeting infrastructure throughout the world to pre-empt
competition. After buying back a significant number of our franchisees, our
franchised operations represented approximately 33% of our total worldwide
attendance for the six months ended June 30, 2001. We estimate that, in 2000,
these franchised operations attracted attendance of over 21 million. Franchisees
typically pay us a fee equal to 10% of their meeting fee revenues.
Our franchisees are responsible for operating classes in their territory
using the program we have developed. We provide a central support system for the
program and our brand. We also produce and sell program and marketing materials
to the franchisees. Franchisees also purchase products from us at wholesale
prices for resale directly to members. Franchisees are obligated to adhere
strictly to our program content guidelines, with the freedom to control pricing,
meeting locations, operational structure and local promotions. Franchisees
provide local operational expertise, advertising and public relations.
Franchisees are required to keep accurate records that we audit on a periodic
basis. Most franchise agreements are perpetual and can be terminated only upon a
material breach or bankruptcy of the franchisee.
We do not intend to award new franchise territories. From time to time we
repurchase franchise territories.
LICENSING
As a highly recognized global brand, WEIGHT WATCHERS is a powerful marketing
tool for us and for third parties. We currently license the WEIGHT WATCHERS
brand in certain categories of food, apparel, books and other products. We
believe there are opportunities to further capitalize on the strength of our
brand and the loyalty of our members by more aggressively licensing our brand
while maintaining its integrity.
During the period that Heinz owned our company, it developed a number of
food product lines under the WEIGHT WATCHERS brand, with hundreds of millions of
dollars of retail sales, mostly in the United States and in the United Kingdom.
Heinz, however, did not actively license the WEIGHT WATCHERS brand to other food
companies. Heinz has retained a perpetual royalty-free license to continue using
our brand in its core food categories. In addition, Heinz still continues to
receive royalty payments of over $4 million per year from an existing portfolio
of third-party licenses for various food products outside of Heinz's core
categories. After 2004, these royalty payments will be payable to us, although
we have the right to acquire them sooner.
We have begun focusing on proactively developing new licensing opportunities
with a number of food companies and have hired a general manager to focus
exclusively on this area. We also expect to generate royalties from our
affiliate and licensee, WeightWatchers.com, which has recently developed two
Internet-based paid subscription products.
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MARKETING AND PROMOTION
MEMBER REFERRALS
An important source of new members is through word-of-mouth generated by our
current and former members. Over our 40-year operating history, we have created
a powerful referral network of loyal members. These referrals, combined with our
strong brand and the effectiveness of our program, enable us to efficiently
attract new and returning members.
MEDIA ADVERTISING
Our advertising enhances our brand image and awareness and motivates both
former members and potential new members to join our program. Our advertising
schedule supports the three key enrollment-generating diet seasons of the year:
winter, spring and fall. We allocate our media advertising on a market-by-market
basis, as well as by media vehicle (television, radio, magazines and
newspapers), taking into account the target market and the effectiveness of the
medium.
DIRECT MAIL
Direct mail is a critical element of our marketing because it targets
potential returning members. We maintain a database of current and former
members, which we use to focus our direct mailings. During 2000 our NACO
operations sent over eight million pieces of direct mail. Most of these mailings
are timed to coincide with the start of the diet seasons. Direct mail generally
consists of special offers encouraging former members to re-enroll and related
advertisements.
PRICING STRUCTURE AND PROMOTIONS
Our most popular payment structure is a "pay-as-you-go" arrangement.
Typically, a new member pays an initial registration fee and then a weekly fee
for each class attended, although free registration is often offered as a
promotion. Our LIBERTY/LOYALTY payment plan provides members with the option of
committing to consecutive weekly attendance with a lower weekly fee with
penalties for missed classes or paying a higher weekly fee without the missed
meeting penalties. We also offer discounted prepayment options.
PUBLIC RELATIONS AND CELEBRITY ENDORSEMENTS
The focus of our public relations efforts is through our current and former
members who have successfully lost weight on our program. Classroom leaders and
successful members engage in local promotions, information presentations and
charity events to promote WEIGHT WATCHERS and demonstrate the program's
efficacy.
For many years we have also used celebrities to promote and endorse the
program. Since 1997, we have retained Sarah Ferguson, the Duchess of York, to
promote and endorse the program in North America. Prior to the Duchess, we used
Kathleen Sullivan and Lynn Redgrave as our North American celebrity
spokespersons. We also use local celebrities to promote our program in other
countries.
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WEIGHT WATCHERS MAGAZINE
WEIGHT WATCHERS MAGAZINE is an important branded marketing channel which is
experiencing strong growth. We re-acquired the rights to publish the magazine in
February 2000. Since its U.S. re-launch in March 2000, circulation has grown
from zero to over 500,000 in August 2001, and the magazine has a readership of
over two million. In addition to generating revenues from subscription sales and
advertising, WEIGHT WATCHERS MAGAZINE reinforces the value of our brand and
serves as an important marketing tool to non-members.
[LOGO]
WEIGHTWATCHERS.COM
Our affiliate and licensee, WeightWatchers.com, runs the WEIGHT WATCHERS
website which is an important global promotional channel for our brand and
businesses. The website contributes value to our classroom business by promoting
our brand, advertising Weight Watchers classes and keeping members involved with
the program outside the classroom through useful offerings, such as a meeting
locator, low calorie recipes, weight-loss news articles, success stories and
on-line forums. Over 70,000 searches per week are conducted on the meeting
locator, which helps consumers find the times and locations of Weight Watchers
meetings near them. WeightWatchers.com now generates over 60 million page views
and attracts over three million visits per month.
In the United States, WeightWatchers.com recently introduced two online paid
subscription products, WEIGHT WATCHERS ETOOLS and WEIGHT WATCHERS ONLINE. WEIGHT
WATCHERS ETOOLS is designed to supplement and strengthen the Weight Watchers
classroom business. WEIGHT WATCHERS ETOOLS is a suite of electronic tools
available only to Weight Watchers members designed to help them achieve greater
success by making it even easier to follow WINNING POINTS and by reinforcing our
weight-loss approach between meetings. WEIGHT WATCHERS ONLINE is a self-help
product based on our current diet designed to attract consumers who cannot or
choose not to attend Weight Watchers meetings. We believe that WEIGHT WATCHERS
ONLINE will increase the popularity of our brand among dieters and strengthen
our brand in the entire weight-loss market.
Under our agreement with WeightWatchers.com, we granted it an exclusive
license to use our trademarks, copyrights and domain names on the Internet in
connection with its online weight-loss business. The license agreement provides
us with control of how our intellectual property is used. In particular, we have
the right to approve WeightWatchers.com's e-commerce activities, strategies and
operational plans, marketing programs, privacy policy and materials publicly
displayed on the Internet.
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We own 19.8% of WeightWatchers.com, or 38.1% on a fully diluted basis
(including the exercise of all options and all warrants), and beginning in
January 2002, we will receive royalties of 10% of WeightWatchers.com's net
revenues.
ENTREPRENEURIAL MANAGEMENT
We run our company in a decentralized and entrepreneurial manner that allows
us to develop and test new ideas on a local basis and then implement the most
successful ideas across our network. We believe local country and regional
managers are best able to develop new strategies and programs to meet the needs
of their markets. For example, local managers in the United Kingdom were
responsible for developing our POINTS-based diet. Local managers have also
developed many of our customized pricing strategies such as the LIBERTY/LOYALTY
plan, which started in France. In addition, many of our classroom products have
been developed locally and then been introduced successfully in other countries.
Local managers have strong incentives to adopt and implement the best practices
of other regions and to continue to develop innovative new programs.
HISTORY
EARLY DEVELOPMENT
In 1961, Jean Nidetch, the founder of our company, attended a New York City
obesity clinic and took what she learned from her personal experience at the
obesity clinic and began weight-loss meetings with a group of her overweight
friends in the basement of a New York apartment building. Under Ms. Nidetch's
leadership, the group members supported each other in their weight-loss efforts,
and word of the group's success quickly spread. Ms. Nidetch and Al and Felice
Lippert, who all successfully lost weight, formally launched Weight Watchers.
HEINZ OWNERSHIP
Recognizing the power of the WEIGHT WATCHERS brand, Heinz acquired us in
1978 in large part to acquire the rights to our name for its food business.
Through the 1980s, we operated autonomously under Heinz, maintaining our group
education focus, and our business continued to grow.
In 1990, Heinz altered our successful model by introducing the sale of
pre-packaged meals through our NACO operations in response to the initial
success then experienced by some of our competitors who focused on meal
replacements. These changes forced our classroom leaders to become food sales
people and retail managers for food products, detracting from their function as
role models and motivators for our members. This caused a significant drop in
customer satisfaction and employee morale, and attendance in our NACO operations
declined. Prior to the introduction of pre-packaged meals in fiscal 1990, annual
attendance in our NACO operations was 12.9 million, but by fiscal 1997,
attendance had dropped to 7.8 million. The introduction of pre-packaged meals
also forced us to lease large fixed centers that could accommodate freezer
cases, and the reduction in attendance combined with our increased fixed costs
caused NACO's operating profit margin to decline from over 30% in fiscal 1989 to
an operating loss in fiscal 1997. In contrast, in our international operations
where the pre-packaged meals sales strategy was not implemented, our attendance
remained stable until fiscal 1997 and our international business remained
profitable. As we focused our NACO operations on promoting and selling our
pre-packaged meals, our centrally-developed diets became outdated as they still
focused on helping members prepare home-cooked meals. At the same time, more
women entered the workplace and preferred to buy ready-to-eat groceries,
including low-fat or low-calorie foods that became widely available in
supermarkets in the 1990s.
In 1995, we shifted to a more decentralized management approach, allowing
the management of our international operations to develop local business
strategies and diet innovations. This approach was successful and by 1996 our
international growth began to accelerate. Beginning in 1997, we
46
restructured our NACO operations by eliminating the pre-packaged meals program
from our classroom operations, improving customer service, restoring employee
morale and introducing a POINTS-based diet. Following this return to our core
program approach in the United States, we have moved from a fixed cost structure
back to a variable cost structure and grown attendance in our NACO operations by
over 83% from 7.8 million in fiscal 1997 to 14.3 million in 2000.
ARTAL OWNERSHIP
In September 1999, Artal Luxembourg acquired us from Heinz. Following the
acquisition, our senior management team was reorganized, key employees invested
over $4 million in our company and a new performance-based stock option plan was
put in place. The Invus Group, Ltd. is the exclusive investment advisor of Artal
Luxembourg and has extensive experience with branded consumer businesses,
including the turnaround of the Keebler Foods Company.
REGULATION AND LITIGATION
A number of laws and regulations govern our advertising, franchise
operations and relations with consumers. The FTC and certain states regulate
advertising, disclosures to consumers and franchisees and other consumer
matters. Our customers may file actions on their own behalf, as a class or
otherwise, and may file complaints with the FTC or state or local consumer
affairs offices and these agencies may take action on their own initiative or on
a referral from consumers or others.
During the mid-1990s, the FTC filed complaints against a number of
commercial weight-loss providers alleging violations of the Federal Trade
Commission Act by the use and content of advertisements for weight-loss programs
that featured testimonials, claims for program success and safety and statements
as to program costs to participants. In 1997, we entered into a consent order
with the FTC settling all contested issues raised in the complaint filed against
us. The consent order requires us to comply with certain procedures and
disclosures in connection with our advertisements of products and services but
does not contain any admission of guilt nor require us to pay any civil
penalties or damages.
Our foreign operations and franchises are also generally subject to
regulations of the applicable country regarding the offer and sale of
franchises, the content of advertising and promotion of diet products and
programs. Future legislation or regulations, including legislation or
regulations affecting our marketing and advertising practices, relations with
consumers or franchisees or our food products, could have an adverse impact on
us.
We are involved in legal proceedings incidental to our business. Although
the outcome of these matters cannot be predicted with certainty, our management
believes that none of these matters will have an adverse effect on our financial
condition, results of operations or cash flows.
EMPLOYEES AND SERVICE PROVIDERS
As of June 30, 2001, we had approximately 32,600 employees and service
providers, of which 12,200 were located in the United States, 12,900 were
located in the United Kingdom, 3,300 were located in Continental Europe and
4,200 were located in Australia and New Zealand. 112 employees work full-time as
management and support personnel in our Woodbury, New York offices, 222
employees work full-time as management and support personnel at four regional
offices in our NACO operations, and 433 employees work full-time as management
and support personnel in our international operations. Within our company-owned
operations, approximately 8,800 service providers work part-time as leaders and
approximately 23,000 work part-time as receptionists worldwide. None of our
service providers or employees is represented by a labor union. We consider our
employee relations to be satisfactory.
47
PROPERTIES
We are headquartered in Woodbury, New York in a leased office. Each of the
four NACO regions has a small regional office. The Woodbury lease expires in
2005, the Paramus, New Jersey lease expires in 2007, and the New York, New York
WEIGHT WATCHERS MAGAZINE lease expires in 2002. Our other North American office
leases are short-term. Each country operation also has one head office.
We typically hold our classes in third-party locations (typically meeting
rooms in well-located civic or religious organizations or space leased in
shopping centers). As of June 30, 2001, there were approximately 2,400 NACO
meeting locations, including approximately 1,900 third-party locations and 500
retail centers. In the United Kingdom, there were approximately 4,200 meeting
locations, with approximately 97% in third-party locations. In Continental
Europe, there were approximately 2,800 meeting locations, with approximately 96%
in third-party locations. In Australia and New Zealand, there were approximately
1,100 meeting locations, with approximately 97% in third-party locations.
48
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names, ages as of June 30, 2001 and current
positions with us and our subsidiaries of our executive officers and directors.
Directors are elected at the annual meeting of shareholders. Executive officers
are appointed by, and hold office at, the discretion of the directors.
[Enlarge/Download Table]
NAME AGE POSITION
---- -------------------------- ---------------------------------------------------
Linda Huett............................... 56 President and Chief Executive Officer, Director
Richard McSorley.......................... 57 Chief Operating Officer, NACO
Clive Brothers............................ 47 Chief Operating Officer, Europe
Scott R. Penn............................. 30 Vice President, Australasia
Thomas S. Kiritsis........................ 57 Vice President, Chief Financial Officer
Robert W. Hollweg......................... 58 Vice President, General Counsel and Secretary
Raymond Debbane(1)(2)..................... 46 Chairman of the Board
Jonas M. Fajgenbaum....................... 29 Director
Sacha Lainovic(1)......................... 44 Director
Christopher J. Sobecki(2)................. 43 Director
------------------------
(1) Member of our compensation and benefits committee.
(2) Member of our audit committee.
LINDA HUETT. Ms. Huett has been the President and a director of our company
since September 1999. She became our Chief Executive Officer in December 2000.
Ms. Huett joined our company in 1984 as a classroom leader. Ms. Huett was
promoted to U.K. Training Manager in 1986. In 1990, Ms. Huett was appointed
Director of the United Kingdom operation and in 1993 was appointed Vice
President of Weight Watchers U.K. Ms. Huett graduated from Gustavas Adolphus
College and received her Masters in Theater from Yale University. Ms. Huett is
also a director of WeightWatchers.com, Inc.
RICHARD MCSORLEY. Mr. McSorley has served as our Chief Operating Officer
for North America since January 2001. From 1992 until our purchase of Weighco,
Mr. McSorley served in various capacities with Weighco Enterprises, Inc.,
including as President since 1995 and Chief Executive Officer since 1996.
Mr. McSorley received his B.A. degree from Villanova University, and an M.B.A.
from the University of Pittsburgh.
CLIVE BROTHERS. Mr. Brothers has served as our Chief Operating Officer for
Europe since February 2001. Mr. Brothers joined our company in 1985 as a
marketing manager in the United Kingdom. In 1990, Mr. Brothers was appointed
General Manager, France and was appointed Vice President, Continental Europe in
1993. Mr. Brothers received a B.A. from Leeds Polytechnic in England and a
diploma in Marketing from the Chartered Institute of Marketing.
SCOTT R. PENN. Scott Penn has been a Vice President of our Australasia
operations since September 1999. Mr. Penn joined our company in 1994 as a
Marketing Services Manager in Australia. In 1996, he was promoted to Group
Marketing Manager in Australia and in 1997 he was promoted to General
Manager--Marketing and Finance.
49
THOMAS S. KIRITSIS. Mr. Kiritsis has served as our Vice President, Chief
Financial Officer since joining our company in May 2000. From June 1994 to
April 2000, he was Senior Vice President of Finance of Olsten Corporation.
Mr. Kiritsis received a B.B.A. in Accounting from Hofstra University and is a
certified public accountant.
ROBERT W. HOLLWEG. Mr. Hollweg has served as our Vice President, General
Counsel and Secretary since January 1998. He joined our company in 1969 as an
Assistant Counsel in the law department. He transferred to the Heinz law
department subsequent to Heinz's acquisition of our company in 1978 and served
there in various capacities. He rejoined us after Artal Luxembourg acquired our
company in September 1999. Mr. Hollweg graduated from Fordham University and
received his Juris Doctor degree from Fordham University School of Law. He is a
member of the American and New York State Bar Associations and a former
President of the International Trademark Association.
RAYMOND DEBBANE. Mr. Debbane has been our Chairman of the Board of
Directors since our acquisition by Artal Luxembourg on September 29, 1999.
Mr. Debbane is a co-founder and President of The Invus Group, Ltd. Prior to
forming The Invus Group, Ltd. in 1985, Mr. Debbane was a manager and consultant
for The Boston Consulting Group in Paris, France. He holds an M.B.A. from
Stanford Graduate School of Business, an M.S. in Food Science and Technology
from the University of California, Davis and a B.S. in Agricultural Sciences and
Agricultural Engineering from American University of Beirut. Mr. Debbane is a
director of Artal Group, Ceres, Inc., Financial Technologies International Inc.
and Nellson Nutraceutical, Inc. Mr. Debbane is also the Chairman of the Board of
Directors of WeightWatchers.com, Inc. and served as a director of Keebler Foods
Company from 1996 to 1999.
JONAS M. FAJGENBAUM. Mr. Fajgenbaum has been a director of our company
since our acquisition by Artal Luxembourg on September 29, 1999. Mr. Fajgenbaum
is a Managing Director at The Invus Group, Ltd., which he joined in 1996. Prior
to joining The Invus Group, Ltd., Mr. Fajgenbaum was a consultant for
McKinsey & Company in New York from 1994 to 1996. He graduated with a B.S. from
the Wharton School of Business and a B.A. in Economics from the University of
Pennsylvania in 1994.
SACHA LAINOVIC. Mr. Lainovic has been a director of our company since our
acquisition by Artal Luxembourg on September 29, 1999. Mr. Lainovic is a
co-founder and Executive Vice President of The Invus Group, Ltd. Prior to
forming The Invus Group, Ltd. in 1985, Mr. Lainovic was a manager and consultant
for the Boston Consulting Group in Paris, France. He holds an M.B.A. from
Stanford Graduate School of Business and an M.S. in engineering from Insa de
Lyon in Lyon, France. Mr. Lainovic is a director of WeightWatchers.com, Inc.,
Financial Technologies International Inc., Nellson Nutraceutical, Inc. and
Unwired Australia Pty Limited, and also served as a director of Keebler Foods
Company from 1996 to 1999.
CHRISTOPHER J. SOBECKI. Mr. Sobecki has been a director of our company
since our acquisition by Artal Luxembourg on September 29, 1999. Mr. Sobecki, a
Managing Director of The Invus Group, Ltd., joined the firm in 1989. He received
an M.B.A. from Harvard Business School. He also obtained a B.S. in Industrial
Engineering from Purdue University. Mr. Sobecki is a director of
WeightWatchers.com, Inc., Nellson Nutraceutical, Inc., Financial Technologies
International Inc. and iLife, Inc. He also served as a director of Keebler Foods
Company from 1996 to 1998.
BOARD OF DIRECTORS
Our board of directors is currently comprised of five directors. We expect
our board of directors to consist of nine members within twelve months of this
offering. We expect to add two independent members to our board of directors
within three months after the consummation of this offering and a third
independent member to our board of directors within 12 months after the
consummation of this offering.
50
BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION PROGRAMS
Our board of directors oversees the compensation programs of our company,
with particular attention to the compensation for our Chief Executive Officer
and the other executive officers. It is the responsibility of our board of
directors to review, recommend and approve changes to our compensation policies
and benefits programs, to administer our stock plans, including approving stock
option grants to executive officers and other stock option grants, and to
otherwise ensure that our compensation philosophy is consistent with the best
interests of our company and is properly implemented.
Our compensation philosophy is to (a) provide a competitive total
compensation package that enables us to attract and retain key executive and
employee talent needed to accomplish our goals and (b) directly link
compensation to improvements in our company's financial and operational
performance.
Total compensation is comprised of a base salary plus both cash and non-cash
incentive compensation, and is based on our financial performance and other
factors, and is delivered through a combination of cash and equity-based awards.
This approach results in overall compensation levels which follow our financial
performance.
Our board of directors reviews each senior executive officer's base salary
annually. In determining appropriate base salary levels, consideration is given
to the officer's impact level, scope of responsibility, prior experience, past
accomplishments and data on prevailing compensation levels in relevant executive
labor markets.
Our board of directors believes that granting stock options provides
officers with a strong economic interest in maximizing shareholder returns over
the longer term. We believe that the practice of granting stock options is
critical to retaining and recruiting the key talent necessary at all employee
levels to ensure our continued success.
Our board of directors will continue to monitor our compensation program in
order to maintain the proper balance between cash compensation and equity-based
incentives and may consider further revisions in the future, although it is
expected that equity-based compensation will remain one of the principal
components of compensation.
COMMITTEES OF OUR BOARD OF DIRECTORS
The standing committees of our board of directors will consist of an audit
committee and a compensation and benefits committee.
AUDIT COMMITTEE
The principal duties of our audit committee are as follows:
- to oversee that our management has maintained the reliability and
integrity of our accounting policies and financial reporting and our
disclosure practices;
- to oversee that our management has established and maintained processes to
assure that an adequate system of internal control is functioning;
- to oversee that our management has established and maintained processes to
assure our compliance with all applicable laws, regulations and corporate
policy;
- to review our annual and quarterly financial statements prior to their
filing or prior to the release of earnings; and
51
- to review the performance of the independent accountants and make
recommendations to the board of directors regarding the appointment or
termination of the independent accountants.
The audit committee has the power to investigate any matter brought to its
attention within the scope of its duties and to retain counsel for this purpose
where appropriate.
We plan to appoint two independent members of the audit committee within
three months following this offering and the third independent member within
twelve months after the consummation of this offering.
COMPENSATION AND BENEFITS COMMITTEE
The principal duties of the compensation committee and benefits are as
follows:
- to review key employee compensation policies, plans and programs;
- to monitor performance and compensation of our employee-director, officers
and other key employees;
- to prepare recommendations and periodic reports to the board of directors
concerning these matters; and
- to function as the committee which administers the incentive programs
referred to in "Executive Compensation" below.
COMPENSATION AND BENEFITS COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers has served as a director or member of the
compensation and benefits committee, or other committee serving an equivalent
function, of any entity of which an executive officer is expected to serve as a
member of our compensation and benefits committee.
CLASSES AND TERMS OF DIRECTORS
Our board of directors is divided into three classes, as nearly equal in
number as possible, with each director serving a three-year term and one class
being elected at each year's annual meeting of shareholders. As of the date of
this prospectus, the following individuals are directors and will serve for the
terms indicated:
Class 1 Directors (term expiring in 2002)
Raymond Debbane
Jonas M. Fajgenbaum
Class 2 Directors (term expiring in 2003)
Sacha Lainovic
Christopher J. Sobecki
Class 3 Director (term expiring in 2004)
Linda Huett
EXECUTIVE COMPENSATION
The following table sets forth for the twelve months ended December 30,
2000, and for the fiscal years ended April 29, 2000 and April 24, 1999, the
compensation paid to our President and Chief Executive Officer and to each of
the next four most highly compensated executive officers whose total annual
salary and bonus was in excess of $100,000.
52
SUMMARY COMPENSATION TABLE
[Enlarge/Download Table]
LONG-TERM
COMPENSATION
-------------------------------------------
AWARDS
-------------------------------------------
SECURITIES UNDERLYING OPTIONS (NO.
TWELVE MONTH PERIOD AWARDED)
COMPENSATION -------------------------------------------
------------------- WEIGHT
NAME AND PRINCIPAL POSITION TWELVE MONTHS ENDED SALARY BONUS WATCHERS WEIGHTWATCHERS.COM(4) HEINZ(4)
--------------------------- ------------------- -------- -------- -------- --------------------- --------
Linda Huett December 30, 2000(3) $236,565 $283,351 141,161 -- --
President and April 29, 2000 183,750 215,159 282,322 11,385 --
Chief Executive Officer April 24, 1999 138,574 219,435 -- -- 40,000
Clive Brothers December 30, 2000(3) 170,148 154,215 -- -- --
Chief Operating Officer, April 29, 2000 143,423 158,597 282,322 11,385 --
Europe April 24, 1999 138,574 219,435 -- -- 40,000
Scott R. Penn December 30, 2000(3) 124,758 78,059 -- -- --
Vice President, April 29, 2000 63,508 86,134 282,322 11,385 --
Australasia April 24, 1999 47,756 18,600 -- -- --
Thomas S. Kiritsis(1) December 30, 2000(3) 130,798 160,035 282,322 11,385 --
Vice President and
Chief Financial Officer
Robert W. Hollweg(2) December 30, 2000(3) 142,510 100,013 -- -- --
Vice President, General April 29, 2000 70,500 67,349 282,322 11,385 --
Counsel and Secretary
ALL OTHER
NAME AND PRINCIPAL POSITION COMPENSATION(5)
--------------------------- ---------------
Linda Huett $84,531
President and 288,905
Chief Executive Officer --
Clive Brothers 29,639
Chief Operating Officer, 12,908
Europe --
Scott R. Penn 28,484
Vice President, 15,930
Australasia 16,391
Thomas S. Kiritsis(1) 26,747
Vice President and
Chief Financial Officer
Robert W. Hollweg(2) 43,519
Vice President, General 11,325
Counsel and Secretary
------------------------------
(1) Mr. Kiritsis joined our company on May 1, 2000.
(2) Mr. Hollweg rejoined our company in September 1999. Prior to that time, he
was an employee of Heinz.
(3) Effective April 30, 2000, we changed our fiscal year end from the last
Saturday in April to the Saturday closest to December 31. To accurately
reflect annual compensation, the compensation reported for the twelve months
ended December 30, 2000 has been derived from the compensation for the eight
months ended December 30, 2000, plus the compensation for the four months
ended April 29, 2000, except that we have not included the shares underlying
the options issued in respect of WeightWatchers.com shares in the executive
officer's compensation for the twelve months ended December 30, 2000 because
this grant of options is reflected in the executive officer's compensation
for the twelve months ended April 29, 2000. As a result, there is overlap in
the compensation reported for the twelve months ended December 30, 2000 and
the twelve months ended April 29, 2000.
(4) Awards of options with respect to shares of WeightWatchers.com common stock
owned by us were made to the named executives under our WeightWatchers.com
1999 Stock Incentive Plan of Weight Watchers International, Inc. and
Subsidiaries. Awards of options with respect to Heinz common stock were made
to the named executives under the Heinz 1996 Stock Option Plan prior to our
acquisition by Artal Luxembourg from Heinz on September 29, 1999.
(5) Includes amounts contributed under our 401(k) savings plan and our
non-qualified executive profit sharing plan of $61,642 for Ms. Huett,
$10,394 for Mr. Brothers, $17,466 for Mr. Penn, $22,159 for Mr. Kiritsis and
$32,575 for Mr. Hollweg. Includes contributions to the U.K. Pension Plan of
$10,281 for Mr. Brothers. Also includes auto lease expense for named
executives.
In December 1999, our board of directors adopted the "1999 Stock Purchase
and Option Plan of Weight Watchers International, Inc. and Subsidiaries" under
which selected employees were afforded the opportunity to purchase shares of our
common stock and/or were granted options to purchase shares of our common stock.
The number of shares available for grant under this plan is 7,058,040 shares of
our authorized common stock. The following table sets forth information
regarding options granted during the twelve months ended December 30, 2000 to
the named executive officers under our stock purchase and option plan.
53
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES OPTION GRANTS
FOR THE TWELVE MONTHS ENDED DECEMBER 30, 2000
[Enlarge/Download Table]
INDIVIDUAL GRANTS
---------------------------------------------------------------------
PERCENT OF
TOTAL OPTIONS
GRANTED TO
NUMBER OF EMPLOYEES IN
SECURITIES TWELVE MONTHS EXERCISE OR
UNDERLYING ENDED BASE PRICE GRANT DATE
OPTIONS DECEMBER 30, (PER EXPIRATION PRESENT
NAME GRANTED(1) 2000(2) SHARE) DATE VALUE(3)
---- ---------- ------------- ----------- ------------- ----------
Linda Huett...................... 141,161 28.6% $2.13 July 4, 2010 $138,600
Thomas S. Kiritsis............... 282,322 57.1% $2.13 June 14, 2010 $279,000
--------------------------
(1) Options were granted during the twelve months ended December 30, 2000 under
the terms of our option plan. No options under the plan were exercised
during the twelve months ended December 30, 2000. Options are exercisable
based on vesting provisions outlined in the agreement.
(2) Percentage of total options granted are based on total grants made to all
employees during the twelve months ended December 30, 2000.
(3) The estimated grant date's present value is determined using the
Black-Scholes model. The adjustments and assumptions incorporated in the
Black-Scholes model in estimating the value of the grants include the
following: (a) the exercise price of the options equals the fair market
value of the underlying stock on the date of grant; (b) an option term of
10 years; (c) dividend yield and volatility of 0%; and (d) a risk free
interest rate ranging from 6.20% to 6.26%. The ultimate value, if any, an
optionee will realize upon exercise of an option will depend on the excess
of the market value of our common stock over the exercise price on the date
the option is granted.
Under our 1999 Stock Purchase and Option Plan, we have the ability to grant
stock options, restricted stock, stock appreciation rights and other stock-based
awards. Generally, stock options granted under this plan vest and become
exercisable in annual increments over five years with respect to one-third of
options granted, and the remaining two-thirds of the options vest on the ninth
anniversary of the date the options were granted, subject to accelerated vesting
upon our achievement of certain performance targets. In any event, the options
that vest over five years automatically become fully vested upon the occurrence
of a change in control of our company.
In April 2000, our board of directors adopted the "WeightWatchers.com Stock
Incentive Plan of Weight Watchers International, Inc. and Subsidiaries" pursuant
to which selected employees were granted options to purchase shares of
WeightWatchers.com common stock. The number of shares available for grant under
this plan is 400,000 shares of authorized common stock of WeightWatchers.com.
The following table sets forth information regarding options granted during the
twelve months ended December 30, 2000 to the named executive officers under the
WeightWatchers.com option plan.
54
WEIGHTWATCHERS.COM OPTION GRANTS FOR THE
TWELVE MONTHS ENDED DECEMBER 30, 2000
[Enlarge/Download Table]
INDIVIDUAL GRANTS
-------------------------------------------------------------------------
PERCENT OF
TOTAL OPTIONS
GRANTED TO
NUMBER OF EMPLOYEES IN
SECURITIES THE TWELVE MONTHS EXERCISE OR
UNDERLYING ENDED BASE PRICE GRANT DATE
OPTIONS DECEMBER 30, (PER EXPIRATION PRESENT
NAME GRANTED(1) 2000(2) SHARE) DATE VALUE (3)
---- ---------- ----------------- ----------- ------------- ----------
Linda Huett................... 11,385 7.0% $0.50 June 14, 2010 $2,619
Clive Brothers................ 11,385 7.0% $0.50 June 14, 2010 $2,619
Scott R. Penn................. 11,385 7.0% $0.50 June 14, 2010 $2,619
Thomas S. Kiritsis............ 11,385 7.0% $0.50 June 14, 2010 $2,619
Robert W. Hollweg............. 11,385 7.0% $0.50 June 14, 2010 $2,619
------------------------
(1) Options were granted during the twelve months ended December 30, 2000 under
the terms of the option plan. Options are exercisable based on vesting
provisions outlined in the agreement.
(2) Percentage of total options granted are based on total grants made to our
employees during the twelve months ended December 30, 2000.
(3) The estimated grant date's present value is determined using the
Black-Scholes model. The adjustments and assumptions incorporated in the
Black-Scholes model in estimating the value of the grants include the
following: (a) price paid per share of $0.50; (b) an option term of
10 years; (c) dividend yield and volatility of 0%; and (d) a risk free
interest rate of 6.26%. The ultimate value, if any, an optionee will realize
upon exercise of an option will depend on the excess of the market value of
WeightWatchers.com common stock over the exercise price on the date the
option is granted.
Under our WeightWatchers.com Stock Incentive Plan, we have the ability to
grant stock options, restricted stock, stock appreciation rights and other
stock-based awards on shares of WeightWatchers.com common stock. Generally,
stock options vest with respect to 25% of shares subject to the options on the
first anniversary of the date of grant, with the remaining 75% vesting annually
on a ratable basis over three years. These options are not exercisable until the
earlier to occur of (x) six months after the tenth anniversary of the date the
option was granted and (y) a public offering of WeightWatchers.com common stock
or a private sale of the stock in which an employee holding stock is entitled to
participate under the terms of the sale participation agreement entered into
with Artal Luxembourg.
The following tables set forth the number and value of securities underlying
unexercised options held by each of our executive officers listed on the Summary
Compensation Table above as of the twelve months ended December 30, 2000. None
of our executive officers exercised any options in the twelve months ended
December 30, 2000, and we do not have any stock appreciation rights.
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AGGREGATED OPTIONS/SAR
VALUES AS OF THE TWELVE MONTHS ENDED
DECEMBER 30, 2000
[Enlarge/Download Table]
NUMBER OF WEIGHT WATCHERS VALUE OF WEIGHT WATCHERS
SECURITIES UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT OPTIONS/SARS AT
ACQUIRED IN VALUE TWELVE MONTHS ENDED TWELVE MONTHS ENDED
NAME EXERCISE (#) REALIZED DECEMBER 30, 2000 DECEMBER 30, 2000
---- ------------ -------- --------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE
(#) (#) EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
Linda Huett............................... -- -- 105,871 317,612 $202,500 $607,500
Clive Brothers............................ -- -- 70,581 211,742 $135,000 $405,000
Scott R. Penn............................. -- -- 70,581 211,742 $135,000 $405,000
Thomas S. Kiritsis........................ -- -- 70,581 211,742 $135,000 $405,000
Robert W. Hollweg......................... -- -- 70,581 211,742 $135,000 $405,000
[Enlarge/Download Table]
NUMBER OF
WEIGHTWATCHERS.COM VALUE OF NUMBER OF
SECURITIES WEIGHTWATCHERS.COM HEINZ SECURITIES
UNDERLYING UNEXERCISED IN-THE-MONEY UNDERLYING UNEXERCISED
OPTIONS/SARS AT OPTIONS/SARS AT OPTIONS/SARS AT
TWELVE MONTHS ENDED TWELVE MONTHS ENDED TWELVE MONTHS ENDED
NAME DECEMBER 30, 2000 DECEMBER 30, 2000 DECEMBER 30, 2000
---- --------------------------- --------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
(#) (#) EXERCISABLE UNEXERCISABLE (#) (#)
----------- ------------- ----------- ------------- ----------- -------------
Linda Huett............ 2,846 8,539 -- -- 40,000 --
Clive Brothers......... 2,846 8,539 -- -- 40,000 --
Scott R. Penn.......... 2,846 8,539 -- -- -- --
Thomas S. Kiritsis..... 2,846 8,539 -- -- -- --
Robert W. Hollweg...... 2,846 8,539 -- -- -- --
VALUE OF HEINZ
IN-THE-MONEY
OPTIONS/SARS AT
TWELVE MONTHS ENDED
NAME DECEMBER 30, 2000
---- ---------------------------
EXERCISABLE UNEXERCISABLE
----------- -------------
Linda Huett............ -- --
Clive Brothers......... -- --
Scott R. Penn.......... -- --
Thomas S. Kiritsis..... -- --
Robert W. Hollweg...... -- --
DIRECTOR COMPENSATION
Our executive directors and our directors who are associated with The Invus
Group, Ltd. do not receive compensation except in their capacity as officers or
employees. We have not yet determined our compensation policy with respect to
our independent directors.
EMPLOYMENT AGREEMENTS AND SEVERANCE POLICIES
We are in the process of establishing a severance policy to cover all
full-time salaried employees. It is intended that the severance policy will
provide continuation of base salary for employees for some period of time after
an individual's employment is terminated under specified circumstances. We are
still in the process of establishing the guidelines for this policy.
EXECUTIVE SAVINGS AND PROFIT SHARING PLAN
We sponsor a savings plan for salaried and eligible hourly employees. This
defined contribution plan provides for employer matching contributions up to
100% of the first 3% of an employee's eligible compensation. The savings plan
also permits employees to contribute between 1% percent and 13% of eligible
compensation on a pre-tax basis.
The savings plan also contains a profit sharing component for full time
salaried employees that are not key management personnel, which provides for a
guaranteed monthly employer contribution for each participant based on the
participant's age and a percentage of the participant's eligible compensation.
In addition, the profit sharing plan has a supplemental employer contribution
component, based on our achievement of certain annual performance targets, and a
discretionary contribution component.
We also established an executive profit sharing plan, which provides a
non-qualified profit sharing plan for key management personnel who are not
eligible to participate in our profit sharing plan. This non-qualified profit
sharing plan has similar features to our profit sharing plan.
56
RELATED PARTY TRANSACTIONS
THE SUMMARIES OF THE AGREEMENTS DESCRIBED BELOW ARE NOT COMPLETE. YOU SHOULD
READ THE AGREEMENTS IN THEIR ENTIRETY, WHICH HAVE BEEN FILED WITH THE SEC AS
EXHIBITS TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART.
SHAREHOLDERS' AGREEMENTS
Simultaneously with the closing of our acquisition by Artal Luxembourg, we
entered into a shareholders' agreement with Artal Luxembourg and Heinz that
governs our relationship surrounding our common stock. Subsequent transferees of
Artal Luxembourg and Heinz must, subject to limited exceptions, agree to be
bound by the terms and provisions of the agreement. Heinz has sold all shares of
our common stock held by it and accordingly no longer has any rights or
obligations under this agreement. We and Artal Luxembourg recently terminated
this agreement.
Shortly after our acquisition by Artal Luxembourg, we entered into a
shareholders' agreement with Artal Luxembourg and Merchant Capital, Inc.,
Richard and Heather Penn, Longisland International Limited, Envoy Partners and
Scotiabanc, Inc. that governs our relationship surrounding our common stock held
by these parties other than Artal Luxembourg. Without the consent of Artal
Luxembourg, transfers of our common stock by these shareholders are restricted
with certain exceptions. Subsequent transferees of our common stock must,
subject to limited exceptions, agree to be bound by the terms and provisions of
the agreement. Additionally, this agreement provides the shareholders with the
right to participate pro rata in certain transfers of our common stock by Artal
Luxembourg and grants Artal Luxembourg the right to require other shareholders
to participate on a pro rata basis in certain transfers of our common stock by
Artal Luxembourg.
REGISTRATION RIGHTS AGREEMENT
Simultaneously with the closing of our acquisition by Artal Luxembourg, we
entered into a registration rights agreement with Artal Luxembourg and Heinz.
The registration rights agreement grants Artal Luxembourg the right to require
us to register its shares of our common stock for public sale under the
Securities Act (1) upon demand and (2) in the event that we conduct certain
types of registered offerings. Heinz has sold all shares of our common stock
held by it and accordingly no longer has any rights under this agreement.
Merchant Capital, Inc., Richard and Heather Penn, Longisland International
Limited, Envoy Partners and Scotiabanc, Inc. became parties to this registration
rights agreement under joinder agreements, and each acquired the right to
require us to register and sell their stock in the event that we conduct certain
types of registered offerings.
PREFERRED SHAREHOLDERS' AGREEMENT
Simultaneously with the closing of our acquisition by Artal Luxembourg, we
entered into a preferred shareholders' agreement with Heinz that governs our
relationship concerning our Series A Preferred Stock. Subsequent transferees of
Heinz, subject to limited exceptions, must agree to be bound by the terms and
provisions of this agreement. Artal Luxembourg and we have a preemptive right to
acquire the preferred stock from Heinz if Heinz receives an offer to purchase
any or all of its preferred stock from a third party and it wishes to accept the
offer. As a result of this offering, Heinz has the right to require us to redeem
any or all of its shares of our preferred stock. This right, however, is limited
by the provisions contained in our credit agreement and the indentures pursuant
to which our senior subordinated notes were issued.
PUT/CALL AGREEMENT
On April 18, 2001, we entered into a Put/Call Agreement with Heinz. Under
this agreement, Heinz has an option to sell and we have an option to purchase
all of our common stock currently
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owned by Heinz. Heinz has sold to us all 6,719,254 shares of our common stock
held by it for an aggregate purchase price of $27.1 million.
LIMITED LIABILITY COMPANY AGREEMENT
Simultaneously with the closing of our acquisition by Artal Luxembourg, we
contributed $2,500 in exchange for a 50% membership interest in WW Foods, LLC, a
Delaware limited liability company. Heinz owns the remaining 50% interest. The
purpose of WW Foods is to own, maintain and preserve WEIGHT WATCHERS food and
beverage trademarks that were contributed to it by Heinz. WW Foods serves as the
vehicle for licensing rights in those food and beverage trademarks to us and to
Heinz, and for the licensing of program information by our company to Heinz.
LICENSING AGREEMENTS
The licensing agreements govern the ownership and rights to use the WEIGHT
WATCHERS and other trademarks, service marks and related rights among our
company, Heinz and WW Foods. As described below, the licensing agreements
address the parties' respective ownership and rights to use food and beverage
trademarks, service marks, program standards, program information, program
information trademarks and third party licenses. Heinz is also a party to the
operating agreement, which helps preserve and enhance these trademarks, service
marks and related rights and facilitates their orderly use by each party.
FOOD AND BEVERAGE TRADEMARKS
Under the licensing agreements, we distributed to Heinz and Heinz
contributed to WW Foods all WEIGHT WATCHERS trademarks and other trademarks we
owned relating to food and beverage products. However, Heinz retained certain
trademarks previously used by Heinz in connection with those food and beverage
trademarks that do not include the WEIGHT WATCHERS name (including, for example,
SMART ONES), which we distributed to Heinz. At the closing of our acquisition by
Artal Luxembourg, WW Foods granted an exclusive, worldwide, royalty-free,
perpetual license to use the food and beverage trademarks:
- to Heinz, for worldwide use on food products in specified product
categories (including frozen dinners, frozen breakfasts, frozen desserts
(excluding ice cream), frozen pizza and pizza snacks, frozen potatoes,
frozen rice products, ketchup, tomato sauce, gravy, canned tuna or salmon
products, soup, noodles (excluding pasta), and canned beans and pasta
products), and for use only in Australia and New Zealand in specified
additional food product categories (including mayonnaise, frozen
vegetables, canned fruits and canned vegetables); and
- to us, for use on all other food and beverage products.
We may promote, endorse and sell any of these licensed products through our
classroom business and related activities, subject to non-competition provisions
with Heinz. Additionally, we may continue to sell any food and beverage product
(or comparable product) sold by us in a particular country within the year
preceding the closing of our acquisition by Artal Luxembourg, even if that
product has been exclusively licensed to Heinz. However, we may do so only
within that country and by using the same channels of distribution through which
the product was sold during that one-year period.
Some of the food and beverage trademarks and trademark applications were not
distributed to Heinz for contribution to WW Foods. These trademarks and
trademark applications include:
- trademarks consisting of registrations in multiple trademark classes,
where the classes include both food and beverage product classes and
classes relating to other types of products or services;
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- pending applications that could not be transferred until a registration is
granted;
- trademark registrations and applications in countries that do not
recognize ownership of trademarks by an entity such as WW Foods;
- trademark registrations and applications in countries where the local law
imposes restrictions or limitations on the ownership or registration of
similar trademarks by unrelated parties; and
- program information trademarks (as defined below).
We retained legal ownership of these types of food and beverage trademarks,
which we hold in custody for the benefit of WW Foods.
At the closing of our acquisition by Artal Luxembourg, we granted to Heinz
an exclusive, worldwide, royalty-free license to use those food and beverage
trademarks (or any portion covering food and beverage products) that we hold in
custody for the benefit of WW Foods in connection with the other products
licensed to Heinz by WW Foods. We have undertaken to contribute any of these
custodial trademarks (or any portion covering food and beverage products) to WW
Foods if WW Foods determines that the transfer may be achieved under local law.
If local law does not permit an existing registration in multiple trademark
classes to be severed so as to reflect separate ownership of registrations in
food and beverage product classes from registrations in classes covering other
types of products or services, (1) WW Foods will apply for new registrations to
cover the food and beverage products, (2) we will cancel the portion of the
multi-class registration covering food and beverage products upon issuance of
the new registrations and (3) we will retain ownership of all remaining portions
of the multi-class registration. Heinz will pay us an annual fee of
$1.2 million until September 2004 in exchange for our serving as the custodian
of the food and beverage trademarks held for the benefit of WW Foods.
OTHER MARKS
We retain exclusive ownership of all service marks and trademarks other than
food and beverage trademarks and, except for the rights granted to WW Foods and
to Heinz, we have the exclusive right to use all these marks for any purpose,
including their use as trademarks for all products other than food and beverage
products.
PROGRAM STANDARDS
We have exclusive control of the dietary principles to be followed in any
eating or lifestyle regimen to facilitate weight loss or weight control employed
by the classroom business such as WINNING POINTS. Except for specified
limitations concerning products currently sold and extensions of existing
product lines, Heinz may use the food and beverage related trademarks only on
Heinz licensed products that have been specially formulated to be compatible
with our dietary principles. We have exclusive responsibility for enforcing
compliance with our dietary principles.
PROGRAM INFORMATION AND PROGRAM INFORMATION TRADEMARKS
We retain exclusive ownership of all program information, consisting of:
- all information and know-how relating to any weight-loss program;
- all terminology; and
- all trademarks or service marks used to identify the programs or
terminology.
We granted an exclusive, worldwide, royalty-free license to WW Foods (for
sublicense to Heinz) to use the terminology and the related trademarks and
service marks, and we provided WW Foods (and through it, Heinz) with access to
and a right to use this information as may be reasonably necessary to
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develop, manufacture or market food and beverage products in accordance with our
dietary principles. Heinz granted a worldwide, royalty-free license to WW Foods
to use improvements that Heinz may develop in the course of its use of our
dietary principles or weight-loss program, which WW Foods sublicensed in turn to
us.
THIRD PARTY LICENSES
Under the licensing agreements, we assigned to Heinz all licenses that we
previously granted to third parties, and Heinz retained all existing sublicenses
granted by it to third parties under a license previously granted to Heinz, that
relate to the manufacture, distribution or sale of food and beverage products.
Heinz assumed our obligations under these third party licenses, and has the
right to collect and keep all proceeds from them until September 2004. Ownership
of these licenses, to the extent they pertain to products licensed to us by WW
Foods, will be transitioned to us over the five-year period following our
acquisition by Artal Luxembourg. All proceeds from any of these licenses that
cannot be transitioned to us by September 2004 will be collected by Heinz and
paid over to us. Any sublicense that we or Heinz grant after the closing of our
acquisition by Artal Luxembourg relating to use of our food and beverage related
trademarks must conform to the terms of the WW Foods licenses granted to Heinz
and our company.
Effective May 3, 2001, we agreed to manage these third party licenses under
an agreement with Heinz dated April 30, 2001 for a fee equal to 5% of the
royalties from these licenses. This agreement also grants us an option,
exercisible in our sole discretion, to buy the royalty stream from these
licenses prior to September 29, 2004 at a price computed using a formula which
adjusts for the then current royalty base, an assumed growth rate over the
balance of the period, the 5% management fee, the custodial fee, an agreed
discount rate and a tax rate.
HEINZ LICENSES
Subsequent to our acquisition by Artal Luxembourg, we entered into three
short-term licenses with Heinz and its affiliates regarding the manufacture and
marketing of certain food products (not licensed to Heinz by WW Foods) under our
brand in the United Kingdom, Australia and in New Zealand through WW Foods as
described above. These products were ones that were manufactured and marketed by
Heinz prior to our acquisition by Artal Luxembourg.
MANAGEMENT AGREEMENT
Simultaneously with the closing of our acquisition by Artal Luxembourg, we
entered into a management agreement with The Invus Group, Ltd., the independent
investment advisor to Artal Luxembourg. Under this agreement, The Invus Group
provides us with management, consulting and other services in exchange for an
annual fee equal to the greater of one million dollars or one percent of our
EBITDA (as defined in the indentures relating to our senior subordinated notes),
plus any related out-of-pocket expenses. This agreement is terminable at the
option of The Invus Group at any time or by us at any time after Artal
Luxembourg owns less than a majority of our voting stock.
CORPORATE AGREEMENT
We have entered into a corporate agreement with Artal Luxembourg. We have
agreed that, so long as Artal Luxembourg beneficially owns 10% or more, but less
than a majority of our then outstanding voting stock, Artal Luxembourg will have
the right to nominate a number of directors approximately equal to that
percentage multiplied by the number of directors on our board. This right to
nominate directors will not restrict Artal Luxembourg from nominating a greater
number of directors.
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We have agreed with Artal Luxembourg that both Weight Watchers and Artal
Luxembourg have the right to:
- engage in the same or similar business activities as the other party;
- do business with any customer or client of the other party; and
- employ or engage any officer or employee of the other party.
Neither Artal Luxembourg nor we, nor our respective related parties, will be
liable to each other as a result of engaging in any of these activities.
Under the corporate agreement, if one of our officers or directors who also
serves as an officer, director or advisor of Artal Luxembourg becomes aware of a
potential transaction related primarily to the group education-based weight-loss
business that may represent a corporate opportunity for both Artal Luxembourg
and us, the officer, director or advisor has no duty to present that opportunity
to Artal Luxembourg, and we will have the sole right to pursue the transaction
if our board so determines. If one of our officers or directors who also serves
as an officer, director or advisor of Artal Luxembourg becomes aware of any
other potential transaction that may represent a corporate opportunity for both
Artal Luxembourg and us, the officer or director will have a duty to present
that opportunity to Artal Luxembourg, and Artal Luxembourg will have the sole
right to pursue the transaction if Artal Luxembourg's board so determines. If
one of our officers or directors who does not serve as an officer, director or
advisor of Artal Luxembourg becomes aware of a potential transaction that may
represent a corporate opportunity for both Artal Luxembourg and us, neither the
officer nor the director nor we have a duty to present that opportunity to Artal
Luxembourg, and we may pursue the transaction if our board so determines.
If Artal Luxembourg transfers, sells or otherwise disposes of our then
outstanding voting stock, the transferee will generally succeed to the same
rights that Artal Luxembourg has under this agreement by virtue of its ownership
of our voting stock, subject to Artal Luxembourg's option not to transfer those
rights.
WEIGHTWATCHERS.COM NOTE
On September 10, 2001, we amended and restated our loan agreement with
WeightWatchers.com, increasing the aggregate commitment thereunder to
$34.5 million. The principal amount may be advanced at any time or from time to
time prior to July 31, 2003. The note bears interest at 13% per year, beginning
on January 1, 2002, which interest shall be paid semi-annually starting on
March 31, 2002. All principal outstanding under this note will be payable in six
semi-annual installments, starting on March 31, 2004. The note may be prepaid at
any time in whole or in part, without penalty. As of September 29, 2001,
$26.2 million of principal was outstanding under this note.
WEIGHTWATCHERS.COM WARRANT AGREEMENTS
Under the warrant agreements that we entered with WeightWatchers.com, we
have received warrants to purchase an additional 6,394,997 shares of
WeightWatchers.com's common stock in connection with the loans that we made to
WeightWatchers.com under the note described above. These warrants will expire
from November 24, 2009 to September 10, 2011 and may be exercised at a price of
$7.14 per share of WeightWatchers.com's common stock until their expiration. We
own 19.8% of the outstanding common stock of WeightWatchers.com, or 38.1% on a
fully diluted basis (including the exercise of all options and all the warrants
we own in WeightWatchers.com).
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COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT
In connection with the WeightWatchers.com note, we entered into a collateral
assignment and security agreement whereby we obtained a security interest in the
assets of WeightWatchers.com. Our security interest in those assets will
terminate when the note has been paid in full.
WEIGHTWATCHERS.COM INTELLECTUAL PROPERTY LICENSE
We have entered into an amended intellectual property license agreement with
WeightWatchers.com that governs WeightWatchers.com's right to use our trademarks
and materials related to the Weight Watchers program.
The amended license agreement grants WeightWatchers.com the exclusive right
to (1) use any of our trademarks, service marks, logos, brand names and other
business identifiers as part of a domain name for a website on the Internet;
(2) use any of the domain names we own; (3) use any of our trademarks on the
Internet and any other similar or related forms of interactive digital
transmission that now exists or may be developed later (provided that we and our
affiliates, franchisees, and licensees other than WeightWatchers.com can
continue using the trademarks in connection with online advertising and
promotion of activities conducted offline) and (4) use any materials related to
the Weight Watchers program, including any text, artwork and photographs, and
advertising, marketing and promotional materials on the Internet. The license
agreement also grants WeightWatchers.com a non-exclusive right to (1) use any of
our trademarks to advertise any approved activities that relate to its online
weight-loss business and (2) create derivative works. All rights granted to
WeightWatchers.com must be used solely in connection with the conduct of its
online weight-loss business.
Beginning in January 2002, WeightWatchers.com will pay us a royalty of 10%
of the net revenues it earns through its online activities.
We retain exclusive ownership of all of the trademarks and materials that we
license to WeightWatchers.com and of the derivative works created by
WeightWatchers.com.
All of the rights granted to WeightWatchers.com in the license agreement are
subject to our pre-existing agreements with third parties, including
franchisees.
The license agreement provides us with control over the use of our
intellectual property. We will have the right to approve any e-commerce
activities, any materials, sublicense, communication to consumers, products,
privacy policy, strategies, marketing and operational plans WeightWatchers.com
intends to use or implement in connection with its online weight-loss business.
WeightWatchers.com is obligated to adhere to strict quality standards, usage
guidelines and business criteria provided to WeightWatchers.com by us.
WeightWatchers.com and we will jointly own user data collected through the
website and both parties are required to adhere to the site's privacy policy.
WEIGHTWATCHERS.COM SERVICE AGREEMENT
Simultaneously with the signing of the amended intellectual property
license, we entered into a service agreement with WeightWatchers.com, under
which WeightWatchers.com provides the following types of services:
- information distribution services, which include the hosting, displaying
and distributing on the Internet of information relating to us and our
affiliates and franchisees;
- marketing services, which include the hosting, displaying and distributing
on the Internet of information relating to our products and services such
as our classroom meetings, the WEIGHT
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WATCHERS MAGAZINE and AT HOME and similar products and services from our
affiliates and franchisees; and
- customer communication services, which include establishing a means by
which customers can communicate with us on the Internet to ask questions
related to our products and services and the products and services of our
affiliates and franchisees.
We are required to pay for all expenses incurred by WeightWatchers.com
directly attributable to the services it performs under this agreement, plus a
fee of 10% of those expenses.
WEIGHTWATCHERS.COM SHAREHOLDERS' AGREEMENT
We entered into a shareholders' agreement with WeightWatchers.com, Inc.,
Artal Luxembourg and Heinz that governs our and Artal Luxembourg's relationship
with WeightWatchers.com as holders of its common stock. Heinz has sold all of
its shares in WeightWatchers.com back to WeightWatchers.com and thus no longer
has any rights under this agreement. Subsequent transferees of ours and of Artal
Luxembourg must, except for some limited exceptions, agree to be bound by the
terms and provisions of the agreement.
The shareholders' agreement imposes on us restrictions on the transfer of
common stock of WeightWatchers.com until the earlier to occur of
(1) September 29, 2004 and (2) WeightWatchers.com's initial public offering of
common stock under the Securities Act, except for certain exceptions. We have
the right to participate pro rata in certain transfers of common stock of
WeightWatchers.com by Artal Luxembourg, and Artal Luxembourg has the right to
require us to participate on a pro rata basis in certain transfers of
WeightWatchers.com's common stock by it.
WEIGHTWATCHERS.COM REGISTRATION RIGHTS AGREEMENT
We entered into a registration rights agreement with WeightWatchers.com,
Artal Luxembourg and Heinz with respect to our shares in WeightWatchers.com.
Heinz has resold all of its shares in WeightWatchers.com back to
WeightWatchers.com and thus no longer has any rights under this agreement. The
registration rights agreement grants Artal Luxembourg the right to require
WeightWatchers.com to register its shares of WeightWatchers.com common stock
upon demand and also grants us and Artal Luxembourg rights to register and sell
shares of WeightWatchers.com's common stock in the event it conducts certain
types of registered offerings.
WEIGHTWATCHERS.COM LEASE GUARANTEE
We have guaranteed the performance of WeightWatcher.com's lease of its
office space at 888 Seventh Avenue, New York, New York. The annual rental rate
is $459,000 plus increases for operating expenses and real estate taxes. The
lease expires in September 2003.
NELLSON CO-PACK AGREEMENT
We entered into an agreement with Nellson Nutraceutical, a subsidiary of
Artal Luxembourg, to purchase nutrition bar and powder products manufactured by
Nellson Nutraceutical for sale at our meetings. Under the agreement, Nellson
Nutraceutical agreed to produce sufficient nutrition bar products to fill our
purchase orders within 30 days of Nellson Nutraceutical's receipt of these
purchase orders, and we are not bound to purchase a minimum quantity of
nutrition bar products. We purchased $4.9 million and $4.3 million,
respectively, of products from Nellson Nutraceutical during the eight months
ended December 30, 2000 and the twelve months ended April 29, 2000. The term of
the agreement runs through December 31, 2004, and we have the option to renew
the agreement for successive one-year periods by providing written notice to
Nellson Nutraceutical.
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock by (1) all persons known by us to own beneficially
more than 5% of our common stock, (2) our chief executive officer and each of
the named executive officers, (3) each director, (4) all directors and executive
officers as a group and (5) each selling shareholder.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person that are currently
exercisable or exercisable within 60 days of the date of this prospectus are
deemed issued and outstanding. These shares, however, are not deemed outstanding
for purposes of computing percentage ownership of each other shareholder.
Our capital stock consists of our common stock and our preferred stock. As
of September 29, 2001, there were 105,407,142 shares of our common stock and
1,000,000 shares of our preferred stock outstanding.
[Enlarge/Download Table]
IMMEDIATELY AFTER
AS OF SEPTEMBER 29, 2001 SHARES TO THIS OFFERING
NAME OF -------------------------- BE SOLD IN -------------------------
BENEFICIAL OWNER SHARES PERCENT OFFERING SHARES(6) PERCENT
---------------- ----------- -------- ---------- ---------- --------
Artal Luxembourg S.A.(1)............ 99,109,939 94.0% 16,047,516 83,062,423 78.8%
Linda Huett(2)(3)................... 199,978 * -- 199,978 *
Richard McSorley(2)................. 94,108 * -- 94,108 *
Clive Brothers(2)(3)................ 164,688 * -- 164,688 *
Scott R. Penn(2)(3)(4).............. 299,967 * -- 299,967 *
Thomas S. Kiritsis(2)(3)............ 164,688 * -- 164,688 *
Robert W. Hollweg(2)(3)............. 188,215 * -- 188,215 *
Raymond Debbane(5)(6)............... -- -- -- -- --
Sacha Lainovic(6)................... -- -- -- -- --
Christopher J. Sobecki(6)........... -- -- -- -- --
Jonas M. Fajgenbaum(6).............. -- -- -- -- --
All directors and executive officers
as a group (10 people)............ 1,111,644(3) 1.1% -- 1,111,644 1.1%
Richard and Heather Penn(3)(7)...... 1,246,921 1.2% 941,072 305,849 *
Merchant Capital, Inc.(8)........... 941,072 * 152,375 788,697 *
Scotiabanc, Inc.(9)................. 941,072 * 152,375 788,697 *
Longisland International
Limited(10)....................... 658,751 * 106,662 552,089 *
------------------------------
* Less than 1.0%
(1) Artal Luxembourg may be contacted at 105, Grand-Rue, L-1661 Luxembourg,
Luxembourg. The parent entity of Artal Luxembourg S.A. is Artal Group S.A.
The address of Artal Group S.A. is the same as the address of Artal
Luxembourg S.A.
(2) Our officers may be contacted c/o Weight Watchers International, Inc., 175
Crossways Park West, Woodbury, New York, 11797.
(3) Includes shares subject to purchase upon exercise of options exercisable
within 60 days after September 29, 2001, as follows: Ms. Huett 105,871
shares; Mr. Brothers 70,581 shares; Mr. Scott Penn 88,226 shares (includes
17,646 shares subject to options held by Mr. Scott Penn's spouse);
Mr. Kiritsis 70,581 shares; Mr. Hollweg 70,581 shares; and Mr. Richard Penn
70,581 shares.
(4) Includes 70,581 shares of our common stock and vested options to purchase
17,646 shares of our common stock held by Mr. Scott Penn's spouse.
(5) Includes all shares of common stock owned by Artal Luxembourg. Mr. Debbane
is also a director of Artal Luxembourg. Mr. Debbane disclaims beneficial
ownership of all shares owned by Artal Luxembourg.
(6) Our non-executive directors may be contacted c/o The Invus Group, Ltd., 135
East 57th Street, New York, New York 10022.
(7) From September 1999 to September 2001, Mr. Penn was a director of our
company. Richard and Heather Penn may be contacted c/o Logo Incorporated
Pty. Ltd., 502/1 Kirribilli Avenue, Kirribilli, N.S.W. 2061, Australia.
(8) Merchant Capital, Inc. may be contacted c/o Credit Suisse First Boston
Corporation, Eleven Madison Avenue, New York, New York 10010-3629.
(9) Scotiabanc, Inc. may be contacted at 600 Peachtree Street, NE, Atlanta,
Georgia 30308.
(10) Longisland International Limited may be contacted at c/o Altus Management,
Le Regina, 13 Boulevard des Moulins, MC 98000 Monaco.
In addition, the selling shareholders have granted the underwriters the
right to purchase up to an additional 2,610,000 shares of common stock to cover
over-allotments. If the underwriters exercise this over-allotment option in
full, Artal Luxembourg will beneficially own 76.5% of our common stock after
this offering.
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DESCRIPTION OF INDEBTEDNESS
The following are summaries of the material terms and conditions of our
principal indebtedness.
SENIOR CREDIT FACILITIES
Our senior credit facilities are provided by a syndicate of banks and other
financial institutions led by The Bank of Nova Scotia, as administrative agent,
letter of credit issuer, co-lead arranger and co-book manager, and Credit Suisse
First Boston, New York branch, as syndication agent, co-lead arranger and
co-book manager. We and one of our subsidiaries are the borrowers under the
senior credit facilities.
Our senior credit facilities provide senior secured financing of up to
$317.0 million, with outstanding borrowings, as of June 30, 2001, of
$243.7 million, consisting of a $70.8 million term loan A facility, a
$71.2 million term loan B facility, an $82.5 million transferable loan
certificate facility, a $19.2 million term loan D facility and a $45.0 million
revolving credit facility. As of June 30, 2001, $45.0 million was available
under the revolving credit facility for additional borrowings. The term loan A
facility matures on September 30, 2005, the term loan B facility matures on
September 30, 2006, the transferable loan certificate facility matures on
September 30, 2006, the term loan D facility matures on June 30, 2006 and the
revolving credit facility matures on September 30, 2005.
In addition to paying interest on outstanding principal under the senior
credit facilities, we pay a commitment fee to the lenders under the revolving
credit facility in respect of unused commitments at a rate equal to 0.50% per
year.
The credit facilities are subject to mandatory prepayment with, in general:
- 100% of the proceeds of asset sales,
- 75% of our excess cash flow (as defined in the agreements establishing the
senior credit facilities) and
- 50% of the proceeds of equity offerings by us.
We may voluntarily repay outstanding loans under the senior credit
facilities without penalty.
The obligations under the senior credit facilities and the related documents
are secured by a first priority lien upon substantially all of our domestic
subsidiaries' real and personal property, and a pledge of substantially all of
our domestic subsidiaries' common stock, as well as the common stock of certain
of our significant foreign subsidiaries. Our obligations under the senior credit
facilities are guaranteed by substantially all of our domestic subsidiaries, as
well as certain of our significant foreign subsidiaries to the extent guarantees
would not result in material increases in our taxes or liabilities.
The senior credit facilities contain a number of covenants that, among other
things, restrict our ability to:
- dispose of assets,
- incur additional indebtedness and issue preferred stock,
- incur guarantee obligations,
- repay other indebtedness,
- make specified restricted payments and dividends,
- create liens on assets,
- make investments, loans or advances,
- make specified acquisitions,
- engage in mergers or consolidations,
- make capital expenditures, or
- enter into sale and leaseback transactions.
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In addition, under the senior credit facilities, we are required to comply
with specified financial ratios and tests, including minimum fixed charge
coverage and interest coverage ratios and maximum leverage ratios. The senior
credit facilities also contain customary events of default.
SENIOR SUBORDINATED NOTES
On September 29, 1999, we sold $150,000,000 aggregate principal amount of
13% senior subordinated notes due 2009 and E100,000,000 aggregate principal
amount of 13% senior subordinated notes due 2009 to initial purchasers, Credit
Suisse First Boston Corporation and Scotia Capital Markets (USA) Inc. Interest
on the notes is due on April 1 and October 1 of each year, and the maturity date
of the notes is October 1, 2009.
Each of our subsidiaries that is a guarantor under our senior credit
facilities jointly and severally guarantees the notes on a full and
unconditional basis.
The notes are unsecured and subordinated in right of payment to all of our
existing and future senior indebtedness, including all of our borrowings under
our senior credit facilities. The note guarantees are unsecured and subordinated
in right of payment to all existing and future senior indebtedness of our
subsidiary guarantors, including all guarantees of our subsidiary guarantors
under our senior credit facilities.
We cannot redeem the notes until October 1, 2004, except as described below.
After October 1, 2004, we can redeem some or all of the notes at specified
redemption prices, plus accrued interest to the redemption date. In addition, at
any time and from time to time before October 1, 2002, we can redeem up to 35%
of the original principal amount of each series of notes with money that we
raise in equity offerings, as long as we pay holders a redemption price of 113%
of the principal amount of the notes we redeem, plus accrued interest and at
least 65% of the original principal amount of each series of notes issued
remains outstanding after each redemption.
If there is a change of control (as defined in the indentures), we must give
holders of the notes the opportunity to sell us their notes at a purchase price
of 101% of their principal amount, plus accrued interest, unless (a) we have
previously provided to the trustee under the indentures governing the notes an
irrevocable notice of redemption to redeem all outstanding notes at a time when
redemption is permitted under the indentures or (b) we have exercised our
option, upon a change of control, to call the notes at a redemption price equal
to 100% of the principal amount thereof, plus a premium, plus accrued interest.
The indentures governing the notes contain covenants that limit our ability
and that of our subsidiary guarantors, subject to important exceptions and
qualifications, to, among other things:
- incur additional indebtedness and issue preferred stock,
- pay dividends or distributions on, or redeem or repurchase, our capital
stock,
- make investments,
- transfer or sell assets, and
- consolidate, merge or transfer all or substantially all of our assets and
the assets of our subsidiaries.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of (1) 1.0 billion shares of common
stock, no par value, of which 105,407,142 million shares are issued and
outstanding and (2) 1.0 billion shares of preferred stock, no par value, of
which 1,000,000 shares are issued and outstanding. As of September 29, 2001,
there were 52 holders of our common stock. The following description of our
capital stock and related matters is qualified in its entirety by reference to
our articles of incorporation and bylaws, copies of which are filed as exhibits
to the registration statement of which this prospectus forms a part.
The following summary describes elements of our articles of incorporation
and bylaws after giving effect to the offering.
COMMON STOCK
VOTING RIGHTS. The holders of our common stock are entitled to one vote per
share on all matters submitted for action by the shareholders. There is no
provision for cumulative voting with respect to the election of directors.
Accordingly, a holder of more than 50% of the shares of our common stock can, if
it so chooses, elect all of our directors. In that event, the holders of the
remaining shares will not be able to elect any directors.
DIVIDEND RIGHTS. All shares of our common stock are entitled to share
equally in any dividends our board of directors may declare from legally
available sources. Our senior credit facilities and indentures impose
restrictions on our ability to declare dividends with respect to our common
stock.
LIQUIDATION RIGHTS. Upon liquidation or dissolution of our company, whether
voluntary or involuntary, all shares of our common stock are entitled to share
equally in the assets available for distribution to shareholders after payment
of all of our prior obligations, including our preferred stock.
OTHER MATTERS. The holders of our common stock have no preemptive or
conversion rights and our common stock is not subject to further calls or
assessments by us. There are no redemption or sinking fund provisions applicable
to the common stock. All outstanding shares of our common stock, including the
common stock offered in this offering, are fully paid and non-assessable.
PREFERRED STOCK
We have one million shares of Series A Preferred Stock issued and
outstanding. Holders of our Series A Preferred Stock are entitled to receive
dividends at an annual rate of 6% payable annually in arrears. The liquidation
preference of our Series A Preferred Stock is $25 per share. In the event of a
liquidation, dissolution or winding up of our company, the holders of shares of
our Series A Preferred Stock will be entitled to be paid out of our assets
available for distribution to our shareholders an amount in cash equal to the
$25 liquidation preference per share plus all accrued and unpaid dividends prior
to the distribution of any assets to holders of shares of our common stock.
Except as required by law, the holders of our preferred stock have no voting
rights with respect to their shares of preferred stock other than that the
approval of holders of a majority of the outstanding shares of our preferred
stock, voting as a class, will be required to amend, repeal or change any of the
provisions of our articles of incorporation in any manner that would alter or
change the powers, preferences or special rights of our preferred stock in a way
that would affect them adversely. Without the consent of each holder of the
Series A Preferred Stock, no amendment may reduce the dividend payable on or the
liquidation value of the Series A Preferred Stock.
We may redeem the Series A Preferred Stock, in whole or in part, at any time
or from time to time, at our option, at a price per share equal to 100% of the
liquidation value of the preferred stock plus all accrued and unpaid dividends.
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Subject to the restrictions set forth in our debt instruments, holders of
our Series A Preferred Stock will have the right to cause us to repurchase their
shares upon completion of this offering or upon the occurence of a change of
control. If that occurs, the redemption price will be equal to 100% of the
liquidation value plus accrued and unpaid dividends. If we are required to
repurchase the Series A Preferred Stock, we expect that we would finance the
purchase with our available cash or borrowings under our revolving credit
facility.
Our board of directors also has the authority, without any further vote or
action by the shareholders, to designate and issue preferred stock in one or
more additional series and to designate the rights, preferences and privileges
of each series, which may be greater than the rights of the common stock. It is
not possible to state the actual effect of the issuance of any additional series
of preferred stock upon the rights of holders of the common stock until the
board of directors determines the specific rights of the holders of that series.
However, the effects might include, among other things:
- restricting dividends on the common stock;
- diluting the voting power of the common stock;
- impairing the liquidation rights of the common stock; or
- delaying or preventing a change in control without further action by the
shareholders.
OPTIONS
As of September 29, 2001, there were outstanding 5,763,692 shares of our
common stock issuable upon exercise of outstanding stock options and
1,294,348 shares of our common stock reserved for future issuance under our
existing stock option plan.
AUTHORIZED BUT UNISSUED CAPITAL STOCK
The listing requirements of the New York Stock Exchange, which would apply
so long as the common stock remains listed on the New York Stock Exchange,
require shareholder approval of certain issuances equal to or exceeding 20% of
then-outstanding voting power or then-outstanding number of shares of common
stock. These additional shares may be used for a variety of corporate purposes,
including future public offerings, to raise additional capital or to facilitate
acquisitions.
One of the effects of the existence of unissued and unreserved common stock
or preferred stock may be to enable our board of directors to issue shares to
persons friendly to current management, which issuance could render more
difficult or discourage an attempt to obtain control of our company by means of
a merger, tender offer, proxy contest or otherwise, and thereby protect the
continuity of our management and possibly deprive the shareholders of
opportunities to sell their shares of common stock at prices higher than
prevailing market prices.
CERTAIN PROVISIONS OF VIRGINIA LAW AND OUR CHARTER AND BYLAWS
Some provisions of Virginia law and our articles of incorporation and bylaws
could make the following more difficult:
- acquisition of us by means of a tender offer;
- acquisition of us by means of a proxy contest or otherwise; or
- removal of our incumbent officers and directors.
These provisions, summarized below, are intended to discourage coercive
takeover practices and inadequate takeover bids. These provisions are also
designed to encourage persons seeking to acquire control of us to first
negotiate with our board. We believe that the benefits of increased protection
give us the potential ability to negotiate with the proponent of an unfriendly
or unsolicited proposal to acquire or restructure us and outweigh the
disadvantages of discouraging these proposals because negotiation of these
proposals could result in an improvement of their terms.
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ELECTION AND REMOVAL OF DIRECTORS
Our board of directors is divided into three classes. The directors in each
class will serve for a three-year term, one class being elected each year by our
shareholders. See "Management--Classes and Terms of Directors." This system of
electing and removing directors may discourage a third party from making a
tender offer or otherwise attempting to obtain control of us because it
generally makes it more difficult for shareholders to replace a majority of our
directors.
Our articles of incorporation and bylaws do not provide for cumulative
voting in the election of directors.
At any time that Artal Luxembourg beneficially owns a majority of our then
outstanding voting stock, directors may be removed by Artal Luxembourg with or
without cause. At all other times, directors may be removed only with cause.
BOARD MEETINGS
Our bylaws provide that the chairman of the board or any two of our
directors may call special meetings of the board of directors.
SHAREHOLDER MEETINGS
Our articles of incorporation provide that special meetings of shareholders
may be called by the chairman of our board of directors or by a resolution
adopted by our board of directors. In addition, our articles of incorporation
provide that Artal Luxembourg has the right to call special meetings of
shareholders prior to the date it ceases to beneficially own 20% of our then
outstanding voting stock.
REQUIREMENTS FOR ADVANCE NOTIFICATION OF SHAREHOLDER NOMINATIONS AND PROPOSALS
Our bylaws establish advance notice procedures with respect to shareholder
proposals and the nomination of candidates for election as directors, other than
nominations made by or at the direction of our board of directors or a committee
of the board of directors or by Artal Luxembourg when nominating its director
designees. In addition, our bylaws provide that so long as Artal Luxembourg
beneficially owns a majority of our then outstanding voting stock, the foregoing
advance notice procedures for shareholder proposals will not apply to it.
SHAREHOLDER ACTION BY WRITTEN CONSENT
Virginia law generally requires shareholder action to be taken only at a
meeting of shareholders and permits shareholders to act only by written consent
with the unanimous written consent of all shareholders.
AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAW PROVISIONS
Amendment of the provisions described above in our articles of incorporation
or bylaws generally will require an affirmative vote of our directors, as well
as the affirmative vote of at least 80% of our then outstanding voting stock,
except that at any time that Artal Luxembourg owns a majority of our voting
stock, the anti-takeover provisions of our articles of incorporation and bylaws
may be amended by the affirmative vote of a majority of our then outstanding
voting stock. Amendments to any other provisions of our articles of
incorporation or bylaws require the affirmative vote of a majority of our then
outstanding voting stock.
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RIGHTS AGREEMENT
We intend to adopt, prior to consummation of this offering, a rights
agreement, subject to the approval of our board. Under the rights agreement, one
right will be issued and attached to each share of our common stock including
all shares that are outstanding. Each right will entitle the holder, in the
circumstances described below, to purchase from our company a unit consisting of
one one-hundredth of a share of Series B preferred stock, no par value per
share, at an exercise price of $ per right, subject to adjustment in certain
events.
Initially, the rights will be attached to all certificates representing
outstanding shares of common stock and will be transferred with and only with
these certificates. The rights will become exercisable and separately
certificated only upon the distribution date, which will occur upon the earlier
of the following:
- ten days following a public announcement that a person or group other than
certain exempt persons has acquired or obtained the right to acquire
beneficial ownership of 10% or more of the shares of common stock then
outstanding; and
- ten days, or later, if determined by our board prior to any person
acquiring 10% or more of the shares of common stock then outstanding,
following the commencement or announcement of an intention to commence a
tender offer or exchange offer that would result in a person or group
becoming an acquiring person.
As soon as practicable after the distribution date, certificates will be
mailed to holders of record of common stock as of the close of business on the
distribution date. From and after the distribution date, the separate
certificates alone will represent the rights. Prior to the distribution date,
all shares of common stock issued will be issued with rights. Shares of common
stock issued after the distribution date will not be issued with rights, except
that rights may be issued with shares of common stock issued pursuant to any of:
- the exercise of stock options that were granted or awarded prior to the
distribution date;
- employee plans or arrangements we adopted prior to the distribution date;
- the exercise, conversion or exchange of securities issued prior to the
distribution date; or
- our contractual obligations.
The final expiration date of the rights will be the close of business on
November , 2011, unless earlier redeemed or exchanged by us as described
below.
In the event that a person acquires 10% or more of the shares of common
stock then outstanding, except pursuant to a tender offer or exchange offer for
all the outstanding shares of our common stock approved by our board before the
person acquires 10% or more of the shares of common stock then outstanding, each
holder of a right other than that person and certain related parties, whose
rights will automatically become null and void, will thereafter be entitled to
receive, upon exercise of the right, a number of shares of common stock, or, in
certain circumstances, cash, property or other securities of our company, having
a current market price averaged over the previous 30 consecutive trading days
equal to two times the exercise price of the right.
If, at any time on or after a person acquires 10% or more of the shares of
common stock then outstanding, our company effects a merger or other business
combination in which it is not the surviving entity, or any shares of our common
stock are changed into or exchanged for other securities, or 50% or more of its
assets, cash flow or earning power is sold or transferred, then each holder of a
right, except rights owned by any person who has acquired 10% or more of the
shares of common stock then outstanding or certain related parties, which will
have become void as set forth above, will
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thereafter have the right to receive, upon exercise, a number of shares of
common stock of the acquiring company having a fair market value equal to two
times the exercise price of the right.
The exercise price payable, and the number of shares of Series B preferred
stock, shares of common stock or other securities or property issuable, upon
exercise of the rights are subject to adjustment from time to time to prevent
dilution in the event of a stock dividend on the Series B preferred stock
payable in shares of Series B preferred stock, a subdivision or combination of
the Series B preferred stock, a grant or distribution to holders of the
Series B preferred stock of certain subscription rights, warrants, evidence of
indebtedness, cash or other assets, or other similar events. In addition, the
number of rights associated with each share of our common stock is subject to
adjustment in the event of a declaration of a dividend on our common stock
payable in common stock or a subdivision or combination of our common stock.
No fractional rights or shares of Series B preferred stock will be issued.
In lieu thereof, an adjustment in cash will be made based on the market price of
the common stock, right or Series B preferred stock on the last trading date
prior to the date of exercise. Pursuant to the rights agreement, we reserve the
right to require that, prior to the occurrence of one of the events that
triggers the ability to exercise the rights, upon any exercise of rights, a
number of rights be exercised so that only whole shares of Series B preferred
stock will be issued.
We will also have the option, at any time after a person acquires 10% and
before a person acquires a majority of the shares of our common stock then
outstanding to exchange some or all of the rights, other than rights owned by
the acquiring person or certain related parties, which will have become void, at
an exchange ratio of one share of common stock and/or other equity securities
deemed to have the same value as one share of common stock, per right, subject
to adjustment.
At any time prior to a person acquiring 10% or more of our common stock, our
company, by vote of a majority of our board, may redeem the rights in whole, but
not in part, at a price of $0.01 per right, payable, at our option, in cash,
shares of common stock or other consideration as our board may determine. Upon
redemption, the rights will terminate and holders of rights will receive only
the redemption price.
For as long as the rights are redeemable, our company may amend the rights
agreement in any manner, including extending the time period in which the rights
may be redeemed. After the time the rights cease to be redeemable, we may amend
the rights in any manner that does not materially adversely affect the interests
of holders of the rights as such. Until a right is exercised, the holder, as
such, will have no rights as a shareholder of our company, including the right
to vote or to receive dividends.
Our articles of incorporation provide that each share of Series B preferred
stock, that may be issued upon exercise of the rights will be entitled to
receive, when, as and if declared, cash and non-cash dividends equal to the
greater of:
- a dividend multiple of 100 times the aggregate per share amount of all
cash and non-cash dividends declared or paid on the common stock, subject
to adjustments for stock splits or dividends payable in common stock or
reclassifications of common stock; or
- preferential quarterly cash dividends of $0.01 per share.
Holders of Series B preferred stock will have a vote multiple of 100 votes
per share, subject to adjustments for dividends payable in common stock or
subdivisions or combinations of common stock and, except as otherwise provided
by the articles of incorporation, or applicable law, will vote together with
holders of common stock as a single class. In the event that the preferential
quarterly cash dividends are in arrears for six or more quarterly dividend
payment periods, holders of Series B preferred stock will have the right to
elect two additional members of our board.
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In the event of the liquidation, dissolution or winding up of our company,
after provision for liabilities and any preferential amounts payable with
respect to any preferred stock ranking senior to the Series B preferred stock,
the holders of any Series B preferred stock will be entitled to receive
liquidation payments per share in an amount equal to the following:
- $1.00 plus an amount equal to accrued and unpaid dividends and
distributions thereon to the date of payment; and
- a proportionate share, on equal terms with the holders of common stock, of
the assets remaining after payment described above and a nominal payment
to the holders of common stock.
The rights of the Series B preferred stock as to dividends, voting and
liquidation are protected by antidilution provisions.
In the event of a consolidation, merger or other transaction in which the
shares of capital stock are exchanged, holders of shares of Series B preferred
stock will be entitled to receive an amount per share, equal to 100 times the
amount of stock, securities, cash or other property for which each share of
common stock is exchanged. The shares of Series B preferred stock are not
redeemable at the option of our company or any holder thereof.
The rights will have certain anti-takeover effects. The rights will cause
substantial dilution to any person or group that attempts to acquire our company
without the approval of our board. As a result, the overall effect of the rights
may be to render more difficult or discourage any attempt to acquire our
company, even if that acquisition may be in the best interests of our
shareholders. Because our board can redeem the rights or approve a permitted
offer, the rights will not interfere with a merger or other business combination
approved by our board.
The rights agreement excludes Artal Luxembourg, as well as transferees of at
least 10% of our then outstanding common stock from Artal Luxembourg, from being
considered an acquiring person.
LIABILITY OF OFFICERS AND DIRECTORS
Our articles of incorporation require us to indemnify any director, officer
or employee who was or is a party to any claim, action or proceeding by reason
of his being or having been a director, officer or employee of our company or
any other corporation, entity or plan while serving at our request, unless he or
she engaged in willful misconduct or a knowing violation of criminal law.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling us pursuant
to the foregoing provisions, we have been informed that, in the opinion of the
SEC, indemnification for liabilities under the Securities Act is against public
policy and is unenforceable.
ANTI-TAKEOVER STATUTES
We have opted out of the Virginia anti-takeover law regulating "control
share acquisitions." Under Virginia law, shares acquired in a control share
acquisition have no voting rights unless granted by a majority vote of all
outstanding shares other than those held by the acquiring person or any officer
or employee director of the corporation, or the articles of incorporation or
bylaws of the corporation provide that this regulation does not apply to
acquisitions of its shares. An acquiring person that owns five percent or more
of the corporation's voting stock may require that a special meeting of the
shareholders be held, within 50 days of the acquiring person's request, to
consider the grant of voting rights to the shares acquired in the control share
acquisition. If voting rights are not granted and the corporation's articles of
incorporation or bylaws permit, the acquiring person's shares may be repurchased
by the corporation, at its option, at a price per share equal to the acquiring
person's cost. Virginia law grants dissenters' rights to any shareholder who
objects to a control share acquisition that is approved by a vote of
disinterested shareholders and that gives the acquiring person control of a
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majority of the corporation's voting shares. This regulation was designed to
deter certain takeovers of Virginia public corporations.
We have opted out, effective May 2003, of the Virginia anti-takeover law
regulating "affiliated acquisition transactions." Under this law, material
acquisition transactions between a Virginia corporation and any holder of more
than 10% of any class of its outstanding voting shares are required to be
approved by the holders of at least two-thirds of the remaining voting shares.
Affiliated transactions subject to this approval requirement include mergers,
share exchanges, material dispositions of corporate assets not in the ordinary
course of business, any dissolution of the corporation proposed by or on behalf
of a 10% holder or any reclassification, including reverse stock splits,
recapitalization or merger of the corporation with its subsidiaries, that
increases the percentage of voting shares owned beneficially by a 10% holder by
more than five percent.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for the common stock is EquiServe Trust
Company, N.A.
LISTING
We propose to list our common stock on the New York Stock Exchange, subject
to official notice of issuance, under the symbol "WTW".
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for our common
stock, and we cannot predict what effect, if any, market sales of shares of
common stock or the availability of shares of common stock for sale will have on
the market price of our common stock. Nevertheless, sales of substantial amounts
of common stock, including shares issued upon the exercise of outstanding
options, in the public market, or the perception that these sales could occur,
could materially and adversely affect the market price of our common stock and
could impair our future ability to raise capital through the sale of our equity
or equity-related securities at a time and price that we deem appropriate.
Upon the closing of this offering, we will have outstanding an aggregate of
105,407,142 shares of common stock. Of the outstanding shares, the shares sold
in this offering will be freely tradable without restriction or further
registration under the Securities Act, except that any shares held by our
"affiliates," as that term is defined under Rule 144 of the Securities Act, may
be sold only in compliance with the limitations described below. The remaining
shares of common stock will be deemed "restricted securities" as defined under
Rule 144. Restricted securities may be sold in the public market only if
registered or if they qualify for an exemption from registration under Rule 144
or 144(k) under the Securities Act, which we summarize below.
Subject to the lock-up agreements described below, the employee shareholders
agreements and the provisions of Rules 144 and 144(k), additional shares of our
common stock will be available for sale in the public market under exemptions
from registration requirements as follows:
[Download Table]
NUMBER OF SHARES DATE
---------------- ----
87,889,507 After 180 days from the date of this prospectus
117,635 At various times after 180 days from the date of this
prospectus
Artal Luxembourg, which will own 78.8% of our shares (or 76.5% if the
underwriters exercise their over-allotment options in full) upon the closing of
this offering, has the ability to cause us to register the resale of its shares.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
this offering, a person (or persons whose shares are required to be aggregated),
including an affiliate, who has beneficially owned shares of our common stock
for at least one year is entitled to sell in any three-month period a number of
shares that does not exceed the greater of:
- 1% of then-outstanding shares of common stock, or 1,054,072 shares; and
- the average weekly trading volume in the common stock on the New York
Stock Exchange during the four calendar weeks preceding the date on
which notice of sale is filed, subject to restrictions.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
RULE 144(K)
In addition, a person who is not deemed to have been an affiliate of ours at
any time during the 90 days preceding a sale and who has beneficially owned the
shares proposed to be sold for at least two years, would be entitled to sell
those shares under Rule 144(k) without regard to the manner of sale, public
information, volume limitation or notice requirements of Rule 144. To the extent
that our
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affiliates sell their shares, other than pursuant to Rule 144 or a registration
statement, the purchaser's holding period for the purpose of effecting a sale
under Rule 144 commences on the date of transfer from the affiliate.
LOCK-UP AGREEMENTS
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the SEC a
registration statement under the Securities Act relating to, any shares of our
common stock or securities convertible into or exchangeable or exercisable for
any shares of our common stock, or publicly disclose the intention to make any
offer, sale, pledge, disposition or filing, without the prior written consent of
Credit Suisse First Boston Corporation for a period of 180 days after the date
of this prospectus, except we may issue, and grant options to purchase, shares
of common stock under our existing employee benefit plans referred to in this
prospectus. In addition, we may issue shares of common stock in connection with
any acquisition of another company if the terms of the issuance provide that the
common stock may not be resold prior to the expiration of the 180-day period
described above.
Our executive officers and directors and the selling shareholders have
agreed, subject to limited exceptions, that they will not offer, sell, contract
to sell, pledge or otherwise dispose of, directly or indirectly, any shares of
our common stock or securities convertible into or exchangeable or exercisable
for any shares of our common stock, enter into a transaction that would have the
same effect, or enter into any swap, hedge or other arrangement that transfers,
in whole or in part, any of the economic consequences of ownership of our common
stock, whether any of these transactions are to be settled by delivery of our
common stock or other securities, in cash or otherwise, or publicly disclose the
intention to make any offer, sale, pledge or disposition, or to enter into any
transaction, swap, hedge or other arrangement, without, in each case, the prior
written consent of Credit Suisse First Boston Corporation for a period of
180 days after the date of this prospectus.
Following this offering, we intend to file a registration statement on
Form S-8 under the Securities Act with respect to up to 7,058,040 shares of our
common stock that are reserved for issuance pursuant to our stock option plan.
This registration statement is expected to become effective immediately upon
filing. However, shares received by employees upon exercise of their options
will be subject to certain lock-up agreements. As a result, these shares will be
eligible for resale by the holders in the public markets, subject to these
lock-up agreements and Rule 144 limitations applicable to affiliates.
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CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the material U.S. federal income tax
consequences as of the date hereof of the purchase, ownership and disposition of
our common stock by a Non-U.S. Holder (as defined below) who holds our common
stock as a capital asset. This discussion does not purport to be a comprehensive
description of all aspects of U.S. federal income taxes and does not address
foreign, state and local consequences that may be relevant to Non-U.S. Holders
in light of their personal circumstances. Special rules may apply to certain
Non-U.S. Holders, such as "controlled foreign corporations," "passive foreign
investment companies," "foreign personal holding companies," corporations that
accumulate earnings to avoid U.S. federal income tax, and U.S. expatriates that
are subject to special treatment under U.S. federal income tax laws. Non-U.S.
Holders should consult their own tax advisors to determine the U.S. federal,
state, local and other tax consequences that may be relevant to them. This
summary also only addresses purchasers of the common stock pursuant to this
offering who hold their shares as capital assets.
If a partnership holds our common stock, the tax treatment of a partner will
generally depend upon the status of the partner and the activities of the
partnership. If you are a partner of a partnership holding our common stock, you
should consult your tax advisors.
This discussion below is based upon the provisions of the Internal Revenue
Code of 1986, as amended, which we refer to as the Code, and U.S. Treasury
regulations, rulings and judicial decisions as of the date of this offering.
Those authorities may be changed, perhaps retroactively, so as to result in U.S.
federal income tax consequences different from those discussed below. Except
where noted, this discussion does not address any aspect of U.S. federal gift or
estate tax, or state, local or foreign tax laws. YOU SHOULD CONSULT YOUR OWN TAX
ADVISOR CONCERNING THE PARTICULAR U.S. INCOME TAX CONSEQUENCES TO YOU OF THE
OWNERSHIP OF THE COMMON STOCK, AS WELL AS THE CONSEQUENCES TO YOU ARISING UNDER
THE LAWS OF ANY OTHER TAXING JURISDICTION.
NON-U.S. HOLDERS
As used in this offering circular, the term Non-U.S. Holder means a
beneficial owner of common stock that, for U.S. federal income tax purposes, is
not:
- a U.S. citizen or resident;
- a corporation created or organized in or under the laws of the United
States or any political subdivision thereof;
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
- a trust if (1) it is subject to the primary supervision of a court within
the U.S. and one or more U.S. persons has the authority to control all
substantial decisions of the trust or (2) it has a valid election in
effect under applicable U.S. Treasury regulations to be treated as a U.S.
person.
TAXATION OF THE COMMON STOCK
DIVIDENDS. Distributions on or common stock will constitute dividends for
United States federal income tax purposes to the extent of our current or
accumulated earnings and profits as determined under U.S. federal income tax
principles. In general, distributions paid to you will be subject to withholding
of U.S. federal income tax at a 30% rate or such lower rate as may be specified
by an applicable income tax treaty. If you wish to claim the benefit of an
applicable treaty rate (and avoid backup withholding as discussed below under
"Information Reporting and Backup Withholding"), you will be required to satisfy
applicable certification and other requirements. However, dividends that are
effectively connected with your conduct of a trade or business within the United
States or, where a tax
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treaty applies, are attributable to a U.S. permanent establishment, are not
subject to the withholding tax, but instead are subject to U.S. federal income
tax on a net income basis at applicable graduated individual or corporate rates.
Certain certification and disclosure requirements must be complied with in order
for effectively connected income to be exempt from withholding. If you are a
foreign corporation, any such effectively connected dividends may be subject to
an additional "branch profits tax" at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.
If you are eligible for a reduced rate of U.S. withholding tax pursuant to
an income tax treaty, you may obtain a refund of any excess amounts withheld by
filing an appropriate claim for refund with the Internal Revenue Service.
GAIN ON DISPOSITION OF COMMON STOCK. You generally will not be subject to
U.S. federal income tax with respect to gain recognized on a sale or other
disposition of common stock unless (i) the gain is effectively connected with
your trade or business in the United States, and, where a tax treaty applies, is
attributable to a U.S. permanent establishment, (ii) you are an individual and
you are present in the United States for 183 or more days in the taxable year of
the sale or other disposition and certain other conditions are met, or
(iii) you hold (or held at any time within the shorter of the five-year period
preceding the sale or other disposition or the period you held our common stock)
more than 5% of our common stock and we are or have been at any such time a U.S.
real property holding corporation for U.S. federal income tax purposes.
If you are described in clause (i) above, you will be subject to tax on the
net gain derived from the sale under regular graduated U.S. federal income tax
rates. If you are described in clause (ii) above, you will be subject to a flat
30% tax on the gain derived from the sale, which may be offset by U.S. source
capital losses (even if you are not considered a resident of the United States).
If you are a foreign corporation that falls under clause (i) above, you will be
subject to tax on your gain under regular graduated U.S. federal income tax
rates and, in addition, may be subject to the branch profits tax equal to 30% of
your effectively connected earnings and profits or at such lower rate as may be
specified by an applicable income tax treaty.
We believe we are not, and do not anticipate becoming, a U.S. real property
holding corporation for U.S. federal income tax purposes.
U.S. FEDERAL ESTATE TAX
Common stock held by you at the time of death will be included in your gross
estate for U.S. federal estate tax purposes, unless an applicable estate tax
treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
We must report annually to the Internal Revenue Service and to you the
amount of dividends paid to you and the tax withheld with respect to such
dividends, regardless of whether withholding was required. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which you reside under the
provisions of an applicable income tax treaty.
You will be subject to backup withholding unless applicable certification
requirements are met.
Payment of the proceeds of a sale of the common stock within the United
States or conducted through certain U.S. related financial intermediaries is
subject to both backup withholding and information reporting unless the
beneficial owner certifies under penalties of perjury that you are a Non-U.S.
Holder (and the payor does not have actual knowledge that you are a U.S. person)
or you otherwise establish an exemption.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against your U.S. federal income tax liability provided the
required information is furnished to the Internal Revenue Service.
77
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2001, the selling shareholders have agreed to sell
to the underwriters named below, for whom Credit Suisse First Boston Corporation
and Goldman, Sachs & Co. are acting as representatives, the following respective
numbers of shares of common stock:
[Download Table]
NUMBER OF
UNDERWRITER SHARES
----------- ----------
Credit Suisse First Boston Corporation......................
Goldman, Sachs & Co. .......................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................................
Salomon Smith Barney Inc. ..................................
UBS Warburg LLC.............................................
----------
Total................................................. 17,400,000
==========
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that, if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering may be terminated.
The selling shareholders have granted to the underwriters a 30-day option to
purchase on a pro rata basis up to an aggregate of 2,610,000 additional shares
at the initial public offering price less the underwriting discounts and
commissions. The option may be exercised only to cover any over-allotments of
common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a selling concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share on
sales to other broker/dealers. After the initial public offering the
representatives may change the public offering price and concession and discount
to broker/dealers.
The following table summarizes the compensation the selling shareholders
will pay and the estimated expenses we will pay:
[Enlarge/Download Table]
PER SHARE TOTAL
------------------------------- -------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
Underwriting discounts and commissions
paid by selling shareholders.......... $ $ $ $
Expenses payable by us.................. $ $ $ $
The representatives have informed us that the underwriters do not expect
discretionary sales to exceed 5% of the shares of common stock being offered.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the SEC a
registration statement under the Securities Act relating to, any shares of our
common stock or securities convertible into or exchangeable or exercisable for
any shares of our common stock, or publicly disclose the intention to make any
offer, sale, pledge, disposition or filing, without the prior written consent of
Credit Suisse First Boston Corporation for a period of 180 days after the date
of this prospectus.
78
Our executive officers and directors and the selling shareholders have
agreed that they will not offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any shares of our common
stock, enter into a transaction that would have the same effect, or enter into
any swap, hedge or other arrangement that transfers, in whole or in part, any of
the economic consequences of ownership of our common stock, whether any of these
transactions are to be settled by delivery of our common stock or other
securities, in cash or otherwise, or publicly disclose the intention to make any
offer, sale, pledge or disposition, or to enter into any transaction, swap,
hedge or other arrangement, without, in each case, the prior written consent of
Credit Suisse First Boston Corporation for a period of 180 days after the date
of this prospectus.
We and the selling shareholders have agreed to indemnify the underwriters
against liabilities under the Securities Act, or to contribute to payments which
the underwriters may be required to make in that respect.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiation
between the selling shareholders and the representatives and will not
necessarily reflect the market price of the common stock following the offering.
The principal factors that will be considered in determining the public offering
price will include:
- the information in this prospectus and otherwise available to the
underwriters;
- market conditions for initial public offerings;
- the history and the prospects for the industry in which we compete;
- the ability of our management;
- the prospects for our future earnings;
- the present state of our development and our current financial condition;
- recent market prices of, and the demand for, publicly traded common stock
of generally comparable companies; and
- the general condition of the securities markets at the time of this
offering.
We offer no assurances that the initial public offering price will
correspond to the price at which the common stock will trade in the public
market subsequent to the offering or that an active trading market for the
common stock will develop and continue after the offering.
We will apply to list the shares of common stock on the New York Stock
Exchange.
In connection with the offering, the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Over-allotment involves sales by the underwriters of shares in excess of
the number of shares the underwriters are obligated to purchase, which
creates a syndicate short position. The short position may be either a
covered short position or a naked short position. In a covered short
position, the number of shares over-allotted by the underwriters is not
greater than the number of shares that they may purchase in the
over-allotment option. In a naked short position, the number of shares
involved is greater than the number of shares in the over-allotment
option.
79
The underwriters may close out any short position by either exercising
their over-allotment option and/or purchasing shares in the open market.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions. In determining the source of shares to
close out the short position, the underwriters will consider, among other
things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
over-allotment option. If the underwriters sell more shares than could be
covered by the over-allotment option, a naked short position, the position
can only be closed out by buying shares in the open market. A naked short
position is more likely to be created if the underwriters are concerned
that there could be downward pressure on the price of the shares in the
open market after pricing that could adversely affect investors who
purchase in the offering.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may have the effect of raising or maintaining the market price of our common
stock or preventing or retarding a decline in the market price of the common
stock. As a result, the price of our common stock may be higher than the price
that might otherwise exist in the open market. These transactions may be
effected on the New York Stock Exchange or otherwise and, if commenced, may be
discontinued at any time.
Each underwriter has represented and agreed that (1) it has not offered or
sold and prior to the date six months after the date of issue of the shares will
not offer or sell any shares to persons in the United Kingdom, except to persons
whose ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances that have not resulted and will not
result in an offer to the public in the United Kingdom within the meaning of the
Public Offers of Securities Regulations 1995; (2) it has complied, and will
comply with, all applicable provisions of the Financial Services Act 1986 of
Great Britain with respect to anything done by it in relation to the shares in,
from or otherwise involving the United Kingdom; and (3) it has only issued or
passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issuance of the shares to a person who is
of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 of Great Britain or is a
person to whom the document may lawfully be issued or passed on.
The securities may not be offered, sold, transferred or delivered in or from
The Netherlands, as part of their initial distribution or as part of any
re-offering, and neither this prospectus nor any other document in respect of
the offering may be distributed or circulated in The Netherlands, other than to
individuals or legal entities which include, but are not limited to, banks,
brokers, dealers, institutional investors and undertakings with a treasury
department, who or which trade or invest in securities in the conduct of a
business or profession.
Merchant Capital, Inc., an affiliate of Credit Suisse First Boston
Corporation, beneficially owns 941,072 shares of our common stock, and will be
selling 152,375 shares of our common stock in this offering. Upon completion of
this offering, Merchant Capital, Inc. will beneficially own 788,697 shares of
our common stock, 765,841 shares if the underwriters exercise their
overallotment option in full.
In the ordinary course of business, Credit Suisse First Boston Corporation
and its affiliates have provided and may in the future provide financial
advisory, investment banking and general financing and banking services for us
for customary fees. Credit Suisse First Boston, New York branch, an affiliate of
Credit Suisse First Boston Corporation, is an agent and a lender under our
senior credit
80
facilities, and Credit Suisse First Boston Corporation was one of the joint
book-running managers for, and an initial purchaser of, our 13% senior
subordinated notes due 2009. In addition, Credit Suisse First Boston, New York
branch, was a joint lead arranger and joint book manager for our $50 million
increase to our senior credit facilities.
Credit Suisse First Boston Corporation also served as financial advisor to
Artal Luxembourg in its acquisition of us. The decision of Credit Suisse First
Boston Corporation to underwrite our common stock offered hereby was made
independent of Credit Suisse First Boston, New York branch, which had no
involvement in determining whether to underwrite our common stock under this
offering or the terms of this offering.
A prospectus in electronic format may be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make internet distributions on the same
basis as other allocations. Credit Suisse First Boston may effect an on-line
distribution through its affiliate, CSFBDIRECT Inc., an on-line broker/dealer,
as a selling group member.
81
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we and the selling
shareholders prepare and file a prospectus with the securities regulatory
authorities in each province where trades of common stock are made. Any resale
of the common stock in Canada must be made under applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made under available statutory exemptions or under a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the common
stock.
REPRESENTATIONS OF PURCHASERS
By purchasing common stock in Canada and accepting a purchase confirmation a
purchaser is representing to us, the selling shareholders and the dealer from
whom the purchase confirmation is received that
- the purchaser is entitled under applicable provincial securities laws to
purchase the common stock without the benefit of a prospectus qualified
under those securities laws,
- where required by law, that the purchaser is purchasing as principal and
not as agent, and
- the purchaser has reviewed the text above under Resale Restrictions.
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein and the selling shareholders may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or a substantial
portion of the assets of the issuer and such persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
the issuer or such persons in Canada or to enforce a judgment obtained in
Canadian courts against such issuer or persons outside of Canada.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and about the eligibility of the common
stock for investment by the purchaser under relevant Canadian legislation.
82
LEGAL MATTERS
The validity of the issuance of the shares of common stock to be sold in the
offering will be passed upon for us by our special Virginia counsel, Hunton &
Williams, Richmond, Virginia. Certain legal matters in connection with the
issuance of the common stock to be sold in the offering will be passed upon for
us by Simpson Thacher & Bartlett, New York, New York. The underwriters have been
represented by Cravath, Swaine & Moore, New York, New York.
EXPERTS
The financial statements as of December 30, 2000, April 29, 2000 and
April 24, 1999 and for each of the fiscal years ended April 29, 2000, April 24,
1999 and April 25, 1998, the eight months ended December 30, 2000 and the year
ended December 30, 2000 included in this prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We file annual, quarterly and current reports and other information with the
SEC. You may access and read our SEC filings, including the complete
registration statement and all of the exhibits to it, through the SEC's Internet
site at www.sec.gov. This site contains reports and other information that we
file electronically with the SEC. You may also read and copy any document we
file at the SEC's public reference room located at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. While you may access our public
filings by the methods described above, our public filings are not incorporated
by reference in this prospectus.
We have filed with the SEC a registration statement under the Securities Act
with respect to the common stock offered by this prospectus. This prospectus,
which constitutes part of the registration statement, does not contain all of
the information presented in the registration statement and its exhibits and
schedules. Our descriptions in this prospectus of the provisions of documents
filed as exhibits to the registration statement or otherwise filed with the SEC
are only summaries of the terms of those documents that we consider material. If
you want a complete description of the content of the documents, you should
obtain the documents yourself by following the procedures described above.
You may request copies of the filings, at no cost, by telephone at
(516) 390-1400 or by mail at: 175 Crossways Park West, Woodbury, New York
11797-2055, Attention: Secretary.
83
INDEX TO FINANCIAL STATEMENTS
[Download Table]
PAGE
--------
WEIGHT WATCHERS INTERNATIONAL, INC.:
Report of PricewaterhouseCoopers LLP, Independent
Accountants............................................. F-2
Consolidated Balance Sheets at April 24, 1999, April 29,
2000, and December 30, 2000............................. F-3
Consolidated Statements of Operations for the Fiscal Years
Ended April 25, 1998, April 24, 1999 and April 29, 2000
and the Eight Months Ended December 30, 2000............ F-4
Consolidated Statements of Changes in Shareholders'
Deficit, Parent Company Investment and Comprehensive
Income for the Fiscal Years Ended April 25, 1998,
April 24, 1999 and April 25, 2000 and the Eight Months
Ended December 30, 2000................................. F-5
Consolidated Statements of Cash Flows for the Fiscal Years
Ended April 25, 1998, April 24, 1999 and April 29, 2000
and the Eight Months Ended December 30, 2000............ F-6
Notes to Consolidated Financial Statements................ F-7
Unaudited Consolidated Balance Sheets at December 30, 2000
and June 30, 2001....................................... F-41
Unaudited Consolidated Statements of Operations for the
Six Months Ended July 29, 2000 and June 30, 2001........ F-42
Unaudited Consolidated Statements of Shareholders Deficit,
Parent Company Investment and Comprehensive Income For
the Eight Months Ended December 30, 2000 and the Six
Months Ended June 30, 2001.............................. F-43
Unaudited Consolidated Statements of Cash Flows For the
Six Months Ended July 29, 2000 and June 30, 2001........ F-44
Unaudited Notes to Consolidated Financial Statements...... F-45
WEIGHCO ENTERPRISES INC. AND SUBSIDIARIES:
Report of PricewaterhouseCoopers LLP, Independent
Auditors................................................ F-58
Consolidated Balance Sheet at December 30, 2000........... F-59
Consolidated Statement of Operations For the Year Ended
December 30, 2000....................................... F-60
Consolidated Statement of Cash Flows For the Year Ended
December 30, 2000....................................... F-61
Consolidated Statement of Changes in Shareholders' Equity
For the Year Ended December 30, 2000.................... F-62
Notes to Consolidated Financial Statements................ F-63
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Weight Watchers International, Inc.:
The stock split described in Note 21 to the financial statements has not
been consummated at October 29, 2001. When it has been consummated, we will be
in a position to furnish the following report:
"In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows and of
changes in shareholders' deficit, parent company investment and
comprehensive income present fairly, in all material respects, the
consolidated financial position of Weight Watchers International, Inc.
and its subsidiaries at December 30, 2000, April 29, 2000 and April 24,
1999, and the results of their operations and their cash flows for the
eight months ended December 30, 2000 and for each of the three years in
the period ended April 29, 2000, in conformity with accounting principles
generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United
States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion."
PricewaterhouseCoopers LLP
New York, New York
March 2, 2001
F-2
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF APRIL 24, 1999, APRIL 29, 2000 AND DECEMBER 30, 2000
(IN THOUSANDS)
[Enlarge/Download Table]
APRIL 24, APRIL 29, DECEMBER 30,
1999 2000 2000
---------- ---------- -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 19,515 $ 44,043 $ 44,501
Receivables (net of allowances: April 24, 1999 -- $994;
April 29, 2000 -- $609; December 30, 2000 -- $797)...... 11,403 12,877 14,678
Notes receivable, current................................. 3,266 2,791 2,106
Foreign currency contract receivable...................... -- -- 5,364
Inventories............................................... 7,580 9,328 15,044
Prepaid expenses.......................................... 7,598 8,360 11,099
Deferred income taxes..................................... 3,609 94 648
Due from related parties.................................. 133,783 -- --
-------- --------- ---------
TOTAL CURRENT ASSETS.................................... 186,754 77,493 93,440
Property and equipment, net................................. 8,725 7,001 8,145
Notes and other receivables, noncurrent..................... 19,165 7,045 5,601
Goodwill (net of accumulated amortization:
April 24, 1999 -- $49,888; April 29, 2000 -- $55,430;
December 30, 2000 -- $59,216)........................... 143,714 152,565 150,901
Trademarks and other intangible assets (net of accumulated
amortization:
April 24, 1999 -- $18,982; April 29, 2000 -- $19,423;
December 30, 2000 -- $19,871)........................... 8,113 7,163 6,648
Deferred income taxes....................................... 4,133 67,574 67,207
Deferred financing costs.................................... -- 14,666 13,513
Other noncurrent assets..................................... 830 700 762
-------- --------- ---------
TOTAL ASSETS............................................ $371,434 $ 334,207 $ 346,217
======== ========= =========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND PARENT COMPANY'S INVESTMENT/SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Short-term borrowings and line of credit.................. $ 6,690 $ -- $ --
Short-term borrowings due to related party................ 16,250 1,489 1,730
Portion of long-term debt due within one year............. 1,164 14,120 14,120
Accounts payable.......................................... 12,710 12,362 11,989
Salaries and wages........................................ 11,285 10,125 10,544
Accrued interest.......................................... 2,176 4,082 9,662
Accrued restructuring costs............................... 7,690 4,786 2,485
Foreign currency contract payable......................... 7,169 486 --
Other accrued liabilities................................. 16,044 19,583 23,215
Income taxes.............................................. 7,962 6,786 3,660
Deferred revenue.......................................... 6,414 4,632 5,836
-------- --------- ---------
TOTAL CURRENT LIABILITIES............................... 95,554 78,451 83,241
Long-term debt.............................................. 15,500 460,510 456,530
Deferred income taxes....................................... 8,228 2,941 3,107
Other....................................................... 3,204 546 121
-------- --------- ---------
TOTAL LONG-TERM DEBT AND OTHER LIABILITIES.............. 26,932 463,997 459,758
Commitments and contingencies:
Redeemable preferred stock.................................. -- 25,875 25,996
Shareholders' deficit (Note 21):
Common stock, par value $0 per share (authorized:
1,000,000 shares; issued and outstanding: 276,429 shares
at April 24, 1999, 111,988 shares at April 29, 2000 and
December 30, 2000)
Accumulated deficit....................................... -- (231,663) (216,507)
Accumulated other comprehensive loss...................... -- (2,453) (6,271)
Parent company's investment............................... 248,948 -- --
-------- --------- ---------
TOTAL PARENT COMPANY'S INVESTMENT AND SHAREHOLDERS'
DEFICIT................................................ 248,948 (234,116) (222,778)
-------- --------- ---------
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK, PARENT
COMPANY'S INVESTMENT AND SHAREHOLDERS' DEFICIT......... $371,434 $ 334,207 $ 346,217
======== ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED APRIL 25, 1998, APRIL 24, 1999 AND APRIL 29, 2000,
AND
THE EIGHT MONTHS ENDED DECEMBER 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
[Enlarge/Download Table]
FISCAL YEAR ENDED EIGHT MONTHS
------------------------------------ ENDED
APRIL 25, APRIL 24, APRIL 29, DECEMBER 30,
1998 1999 2000 2000
---------- ---------- ---------- -------------
(52 WEEKS) (52 WEEKS) (53 WEEKS) (35 WEEKS)
Revenues, net.................................. $297,245 $364,608 $399,574 $273,175
Cost of revenues............................... 159,961 178,925 201,389 139,283
-------- -------- -------- --------
Gross profit................................. 137,284 185,683 198,185 133,892
Marketing expenses............................. 49,227 52,856 51,453 26,986
Selling, general and administrative expenses... 44,067 48,912 50,743 32,222
Transaction costs.............................. -- -- 8,345 --
-------- -------- -------- --------
Operating income............................. 43,990 83,915 87,644 74,684
Interest income................................ 13,452 16,027 5,792 3,119
Interest expense............................... 8,576 8,859 36,871 40,244
Other expense (income), net.................... 4,281 5,248 (10,351) 16,536
-------- -------- -------- --------
Income before income taxes and minority
interest................................... 44,585 85,835 66,916 21,023
Provision for income taxes..................... 19,969 36,360 28,323 5,857
-------- -------- -------- --------
Income before minority interest.............. 24,616 49,475 38,593 15,166
Minority interest.............................. 845 1,493 834 147
-------- -------- -------- --------
Net income................................... $ 23,771 $ 47,982 $ 37,759 $ 15,019
======== ======== ======== ========
Preferred stock dividends...................... -- -- $ 875 $ 1,000
-------- -------- -------- --------
Net income available to common
shareholders............................... $ 23,771 $ 47,982 $ 36,884 $ 14,019
======== ======== ======== ========
Net income per share:
Basic and diluted............................ $ 0.09 $ 0.17 $ 0.20 $ 0.13
======== ======== ======== ========
Weighted average common shares outstanding:
Basic........................................ 276,430 276,430 182,206 111,988
======== ======== ======== ========
Diluted...................................... 276,430 276,430 182,206 112,171
======== ======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT,
PARENT COMPANY INVESTMENT AND COMPREHENSIVE INCOME
FOR THE FISCAL YEARS ENDED APRIL 25, 1998, APRIL 24, 1999 AND APRIL 24, 2000,
AND
THE EIGHT MONTHS ENDED DECEMBER 30, 2000
(IN THOUSANDS)
[Enlarge/Download Table]
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER PARENT
------------------- PAID TO COMPREHENSIVE ACCUMULATED COMPANY'S
SHARES AMOUNT CAPITAL LOSS DEFICIT INVESTMENT TOTAL
-------- -------- ---------- ------------- ----------- ---------- ---------
Balance April 26, 1997.......... 276,430 -- $ 188,936 $ 188,936
Comprehensive Income:
Net income...................... 23,771 23,771
Translation adjustment.......... (10,212) (10,212)
---------
Total Comprehensive Income...... 13,559
---------
Net Parent advances............. 29,115 29,115
Dividend........................ (2,521) (2,521)
--------- ---------
Balance at April 25, 1998....... 276,430 -- 229,089 229,089
Comprehensive Income:
Net income...................... 47,982 47,982
Translation adjustment.......... 19,660 19,660
---------
Total Comprehensive Income...... 67,642
---------
Net Parent settlements.......... (42,851) (42,851)
Dividend........................ (4,932) (4,932)
--------- ---------
Balance at April 24, 1999....... 276,430 -- 248,948 248,948
Net Parent settlements.......... (252,883) (252,883)
Recapitalization and settlement
of Parent company
investment.................... (164,442) $ -- $(72,100) $(12,764) $(268,547) 3,935 (349,476)
Deferred tax asset.............. 72,100 72,100
Comprehensive Income:
Net income...................... 37,759 37,759
Translation adjustment.......... 10,311 10,311
---------
Total Comprehensive Income...... 48,070
---------
Preferred stock dividend........ (875) (875)
-------- ------- -------- -------- --------- --------- ---------
Balance at April 29, 2000....... 111,988 (2,453) (231,663) (234,116)
Elimination of foreign
subsidiaries one month
reporting lag effective
April 30, 2000................ 1,137 1,137
Comprehensive Income:
Net income...................... 15,019 15,019
Translation adjustment.......... (3,818) (3,818)
---------
Total Comprehensive Income...... 11,201
---------
Preferred stock dividend........ (1,000) (1,000)
-------- ------- -------- -------- --------- --------- ---------
Balance at December 30, 2000.... 111,988 $ -- $ -- $ (6,271) $(216,507) $ -- $(222,778)
======== ======= ======== ======== ========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED APRIL 25, 1998, APRIL 24, 1999 AND APRIL 29, 2000,
AND
THE EIGHT MONTHS ENDED DECEMBER 30, 2000
(IN THOUSANDS)
[Enlarge/Download Table]
FISCAL YEAR ENDED EIGHT MONTHS
------------------------------------ ENDED
APRIL 25, APRIL 24, APRIL 29, DECEMBER 30,
1998 1999 2000 2000
---------- ---------- ---------- -------------
(52 WEEKS) (52 WEEKS) (53 WEEKS) (35 WEEKS)
Operating activities:
Net income......................................... $ 23,771 $ 47,982 $ 37,759 $ 15,019
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization...................... 8,775 9,586 10,398 7,889
Deferred tax provision............................. 15,563 9,279 8,541 104
Accounting for equity investment................... -- -- -- 17,604
Elimination of foreign subsidiaries one month
reporting lag.................................... -- -- -- 1,206
Allowance for doubtful accounts.................... (143) (118) 385 (188)
Reserve for inventory obsolescence, other.......... (3,489) 2,525 (121) (975)
Other items, net................................... 415 38 (2,492) (954)
Changes in cash due to:
Receivables...................................... (2,348) (7,041) 12,654 (8,210)
Inventories...................................... 664 (2,451) (1,696) (4,771)
Prepaid expenses................................. 1,913 (1,454) (801) (2,755)
Due from related parties......................... (8,610) 3,693 (14,765) 241
Accounts payable................................. (2,250) 3,083 (1,512) (303)
Accrued liabilities.............................. (414) (10,076) 5,780 6,897
Deferred revenue................................. 1,872 (716) (1,753) 1,043
Income taxes..................................... 647 3,571 (2,492) (2,975)
-------- -------- --------- --------
Cash provided by operating activities............ 36,366 57,901 49,885 28,872
-------- -------- --------- --------
Investing activities:
Capital expenditures............................... (3,389) (2,474) (1,874) (3,626)
Advances and interest to equity investment......... -- -- -- (15,604)
Acquisitions, net of cash acquired................. (1,412) -- -- --
Acquisitions of minority interest.................. -- -- (15,900) (2,400)
Other items, net................................... (121) (565) (1,867) 3
-------- -------- --------- --------
Cash used for investing activities............... (4,922) (3,039) (19,641) (21,627)
-------- -------- --------- --------
Financing activities:
Net (decrease) increase in short-term borrowings... (2,174) 856 (5,455) (34)
Proceeds from borrowings........................... -- -- 491,260 --
Repurchase of common stock......................... -- -- (324,476) --
Payment of dividends............................... (8,470) (10,368) (2,796) (879)
Payments on long-term debt......................... (1,368) (1,081) (3,530) (7,060)
Deferred financing cost............................ -- -- (15,861) --
Net Parent settlements............................. (18,630) (37,076) (131,030) --
-------- -------- --------- --------
Cash (used for) provided by financing
activities..................................... (30,642) (47,669) 8,112 (7,973)
-------- -------- --------- --------
Effect of exchange rate changes on cash and cash
equivalents........................................ (44) 493 (13,828) 1,186
Net increase in cash and cash equivalents............ 758 7,686 24,528 458
Cash and cash equivalents, beginning of period/fiscal
year............................................... 11,071 11,829 19,515 44,043
-------- -------- --------- --------
Cash and cash equivalents, end of period/fiscal
year............................................... $ 11,829 $ 19,515 $ 44,043 $ 44,501
======== ======== ========= ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION:
Weight Watchers International, Inc. (the "Company") operates and franchises
territories offering weight loss and control programs through the operation of
classroom type meetings to the general public in the United States, Canada,
Mexico, the United Kingdom, Continental Europe, Australia, New Zealand, South
Africa, Latin America and South America.
RECAPITALIZATION
On September 29, 1999, the Company entered into a recapitalization and stock
purchase agreement (the "Transaction") with its former parent, H.J. Heinz
Company ("Heinz"). In connection with this Transaction, the Company effectuated
a stock split of 58,747.6 shares for each share outstanding. The Company then
redeemed 276.43 million shares of common stock from Heinz for $349.5 million.
The number of shares of the Company's common stock that was authorized and
outstanding prior to the Transaction has been adjusted to reflect the stock
split. The $349.5 million consisted of $324.5 million of cash and $25.0 million
of the Company's redeemable Series A Preferred Stock. After the redemption,
Artal Luxembourg S.A. purchased 94% of the Company's remaining common stock from
Heinz for $223.7 million. The recapitalization and stock purchase was financed
through borrowings under credit facilities amounting to approximately
$237.0 million and by issuing Senior Subordinated Notes amounting to
$255.0 million, due 2009. The balance of the borrowings was utilized to
refinance debt incurred prior to the Transaction relating to the transfer of
ownership and acquisition of the minority interest in the Weight Watchers
businesses that operate in Australia and New Zealand. The acquisition of the
minority interest resulted in approximately $15.9 million of goodwill. In
connection with the Transaction, the Company incurred approximately
$8.3 million in transaction costs which were expensed and $15.9 million in
deferred financing costs. For U.S. Federal and State tax purposes, the
Transaction was treated as a taxable sale under Section 338(h)(10) of the
Internal Revenue Code of 1986, as amended. As a result, for tax purposes, the
Company recorded a step-up in the tax basis of net assets. For financial
reporting purposes, a valuation allowance of approximately $72.1 million was
established against the corresponding deferred tax asset of $144.2 million.
Management concluded, more likely than not, this amount would not be utilized to
reduce future tax payments. The Company will continue to monitor the need to
maintain the valuation allowance in the future periods.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CHANGE IN FISCAL YEAR:
The Company changed its fiscal year from the last Saturday of April, to the
Saturday closest to December 31st effective with the eight months commencing
April 30, 2000.
CONSOLIDATION:
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All material intercompany accounts and
transactions have been eliminated in consolidation. In order to facilitate
timely reporting in prior periods, certain foreign subsidiaries ended their
fiscal years one month prior to the Company's fiscal year end with no material
impact on the consolidated financial statements. The one month lag has now been
eliminated effective April 30, 2000.
F-7
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
The effect on net income of these subsidiaries for the period March 31, 2000
through April 29, 2000 was $1.1 million and was adjusted to opening accumulated
deficit at April 30, 2000.
USE OF ESTIMATES:
The preparation of financial statements, in conformity with accounting
principles generally accepted in the United States of America, 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. Actual results could differ from these
estimates.
TRANSLATION OF FOREIGN CURRENCIES:
For all foreign operations, the functional currency is the local currency.
Assets and liabilities of these operations are translated at the exchange rate
in effect at each year-end. Income statement accounts are translated at the
average rate of exchange prevailing during the year. Translation adjustments
arising from the use of differing exchange rates from period to period are
included in accumulated other comprehensive income.
CASH EQUIVALENTS:
Cash and cash equivalents are defined as highly liquid investments with
original maturities of three months or less.
INVENTORIES:
Inventories, which consist of finished goods, are stated at the lower of
cost or market on a first-in, first-out basis, net of reserves. The net reserve
for inventory and prepaid program materials as of April 24, 1999, April 29, 2000
and December 30, 2000 was $1.4 million, $1.6 million and $2.5 million,
respectively.
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 (5 to 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 (5 to 10 years). 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.
INTANGIBLES:
Goodwill, trademarks and other intangibles arising from acquisitions,
including the acquisition of previously franchised areas, are being amortized on
a straight-line basis over periods ranging from 3 to 40 years. Amortization of
goodwill, trademarks and other intangibles for the fiscal years ended
F-8
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
April 25, 1998, April 24, 1999 and April 29, 2000 and for the eight months ended
December 30, 2000 was $5.6 million, $6.0 million, $6.4 million and
$4.5 million, respectively.
The Company accounts for software costs under the AICPA Statement of
Position ("SOP") No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." SOP No. 98-1 requires capitalization of
certain costs incurred in connection with developing or obtaining internally
used software. Software costs are amortized over 3 to 5 years.
IMPAIRMENT OF LONG LIVED ASSETS:
The Company follows the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of." This
statement requires that certain assets be reviewed for impairment and, if
impaired, remeasured at fair value whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable.
REVENUE RECOGNITION:
The Company earns revenue by conducting meetings, selling products and aids
in its own facilities, by collecting commissions from franchisees operating
under the Weight Watchers name and by collecting royalties related to licensing
agreements. Revenue is recognized when registration fees are paid, services are
rendered, products are sold and commissions and royalties are earned. Deferred
revenue, consisting of prepaid lecture income, is amortized into income over the
period earned. Effective April 30, 2000, the Company adopted Staff Accounting
Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements," which
does not change existing revenue recognition rules, but rather, addresses and
clarifies existing rules and their application. Adoption of SAB 101 did not
impact the Company's financial position or results of operations.
ADVERTISING COSTS:
Advertising costs consist primarily of national and local direct mail,
television, and spokesperson's fees. All costs related to advertising are
expensed in the period incurred. Total advertising expenses for the fiscal years
ended April 25, 1998, April 24, 1999 and April 29, 2000 and for the eight months
ended December 30, 2000 were approximately $45.7 million, $48.8 million,
$48.0 million and $25.8 million, respectively.
INCOME TAXES:
The Company provides for taxes based on current taxable income and the
future tax consequences of temporary differences between the financial reporting
and income tax carrying values of its assets and liabilities. Under SFAS
No. 109, assets and liabilities acquired in purchase business combinations are
assigned their fair values and deferred taxes are provided for lower or higher
tax bases.
FOREIGN CURRENCY CONTRACTS:
The Company enters into forward and swap contracts to hedge transactions
denominated in foreign currencies in order to reduce the currency risk
associated with fluctuating exchange rates. Such contracts are used primarily to
hedge certain intercompany cash flows and for payments arising from
F-9
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
certain foreign currency denominated obligations. Realized and unrealized gains
and losses from instruments qualifying as hedges are included in net income for
the period.
INVESTMENTS:
The Company uses the cost method to account for investments in which the
Company holds 20% or less of the investee's voting stock. Where the Company
holds 50% or less of the investee's voting stock or where the Company has the
ability to exercise significant influence over operating and financial policies
of the investee, the investment is accounted for under the equity method.
DEFERRED FINANCING COSTS:
Deferred financing costs consists of costs associated with the establishment
of the Company's credit facilities resulting from the Transaction. Such costs
are being amortized using the interest rate method over the term of the related
debt. Amortization expense for the fiscal year ended April 29, 2000 and for the
eight months ended December 30, 2000 was approximately $1.1 million and
$1.3 million, respectively.
RECENTLY ISSUED ACCOUNTING STANDARDS:
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement established accounting and
reporting standards for derivative instruments. The statement requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. In
June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative instruments
and Hedging Activities-Deferral of the Effective Date of Statement 133," which
postponed the adoption date of SFAS No. 133. As such, the Company is required to
adopt the statement effective January 1, 2001. Management has not yet determined
the impact adoption will have on the Company's financial position or results of
operations.
RECLASSIFICATION:
Certain amounts for the fiscal years ended April 25, 1998, April 24, 1999
and April 29, 2000 have been reclassified to conform to the eight months ended
December 30, 2000 presentation.
F-10
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. TRANSITION PERIOD COMPARATIVE DATA:
The following table presents certain financial information for the eight
months ended December 18, 1999 and December 30, 2000.
[Enlarge/Download Table]
EIGHT MONTHS ENDED
---------------------------------------
DECEMBER 18, 1999 DECEMBER 30, 2000
(34 WEEKS) (35 WEEKS)
------------------ ------------------
(UNAUDITED)
Revenues, net............................................... $236,974 $273,175
Gross profit................................................ $114,592 $133,892
Income before income taxes and minority interest............ $ 39,020 $ 21,023
Provision for income taxes.................................. $ 15,150 $ 5,857
Income before minority interest............................. $ 23,870 $ 15,166
Minority interest........................................... $ 694 $ 147
Net income.................................................. $ 23,176 $ 15,019
4. REDEEMABLE PREFERRED STOCK:
The Company issued one million shares of Series A Preferred Stock in
conjunction with the Transaction. Holders of the Series A Preferred Stock are
entitled to receive dividends at an annual rate of 6% payable annually in
arrears. The liquidation preference of the Series A Preferred Stock is $25 per
share. If there is a liquidation, dissolution or winding up, the holders of
shares of Series A Preferred Stock are entitled to be paid out of the Company
assets available for distribution to shareholders an amount in cash equal to the
$25 liquidation preference per share plus all accrued and unpaid dividends prior
to the distribution of any assets to holders of shares of common stock.
Except as required by law, the holders of the preferred stock have no voting
rights with respect to their shares of preferred stock, except that (1) the
approval of holders of a majority of the outstanding shares of preferred stock,
voting as a class, is required to amend, repeal or change any of the provisions
of the Company's articles of incorporation in any manner that would alter or
change the powers, preferences or special rights of the shares of preferred
stock in a way that would affect them adversely and (2) the consent of each
holder of Series A Preferred Stock is required for any amendment that reduces
the dividend payable on or the liquidation value of the Series A Preferred
Stock.
At the Company's option, the Company may redeem the Series A Preferred
Stock, in whole or in part, at any time, at a price per share equal to 100% of
its liquidation value plus all accrued and unpaid dividends.
In addition, the Series A Preferred Stock is redeemable at the option of its
holders upon the occurrence of a change of control or upon a sale of the
Company's common stock by Artal in a registered public offering. If that occurs,
the redemption price will be equal to 100% of the liquidation value plus accrued
and unpaid dividends.
F-11
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
5. LONG-TERM DEBT:
[Enlarge/Download Table]
APRIL 24, 1999 APRIL 29, 2000 DECEMBER 30, 2000
---------------------- -------------------- --------------------
EFFECTIVE EFFECTIVE EFFECTIVE
BALANCE RATE BALANCE RATE BALANCE RATE
-------- ----------- -------- --------- -------- ---------
Euro 100.0 million 13% Senior Subordinated
Notes due 2009............................. $ -- $ 91,160 13.00% $ 94,240 13.00%
U.S. $150.0 million 13% Senior Subordinated
Notes due 2009............................. -- 150,000 13.00% 150,000 13.00%
Term A Loan due 2005......................... -- 71,875 9.22% 65,625 9.81%
Term B Loan due 2006......................... -- 74,813 10.04% 74,438 10.95%
Transferable Loan Certificate due 2006....... -- 86,782 10.04% 86,347 10.95%
Promissory Notes............................. 16,664 7-10% -- --
------- -------- --------
16,664 474,630 470,650
Less Current Portion......................... 1,164 14,120 14,120
------- -------- --------
$15,500 $460,510 $456,530
======= ======== ========
In connection with the Transaction, the Company entered into a credit
facility ("Credit Facility") with the Bank of Nova Scotia, Credit Suisse First
Boston and certain other lenders providing (i) a $75.0 million term loan A
facility ("Term Loan A"), (ii) a $75.0 million term loan B facility ("Term Loan
B"), (iii) an $87.0 million transferable loan certificate ("TLC") and (iv) a
revolving credit facility with borrowings up to $30.0 million ("Revolving Credit
Facility"). Borrowings under the Credit Facility are paid quarterly and
initially bear interest at a rate equal to LIBOR plus (a) in the case of Term
Loan A and the Revolving Credit Facility, 3.25% or, at the Company's option, the
alternate base rate, as defined, plus 2.25% or (b) in the case of Term Loan B
and the TLC, 4.00% or, at the Company's option, the alternate base rate plus
3.00%. At December 30, 2000, the interest rates were 9.6% for Term Loan A and
10.7% for Term Loan B and the TLC. All assets of the Company collateralize the
Credit Facility.
The facility was amended on January 16, 2001 to provide for an additional
$50.0 million in borrowings in connection with the acquisition (see Note 20) of
certain Weight Watchers International, Inc. franchised territories.
In addition, the Company issued $150.0 million USD denominated and
100.0 million EUR denominated principal amount 13% Senior Subordinated Notes due
2009 (the "Notes") to qualified institutional buyers. At December 30, 2000, the
100.0 million EUR notes translated into $94.2 million USD denominated
equivalent. The impact of the change in foreign exchange rates related to euro
denominated debt are reflected in the income statement. Interest is payable on
the Notes semi-annually on April 1 and October 1 of each year, commencing
April 1, 2000. The Company uses interest rate swaps and foreign currency forward
contracts in association with its debt (see Note 18). The Notes are
uncollateralized senior subordinated obligations of the Company, subordinated in
right of payment to all existing and future senior indebtedness of the Company,
including the Credit Facility. The notes are guaranteed by certain subsidiaries
of the Company.
The credit facilities contain a number of covenants that, among other
things, restrict the Company's ability to dispose of assets, incur additional
indebtedness, or engage in certain transactions
F-12
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
5. LONG-TERM DEBT: (CONTINUED)
with affiliates and otherwise restrict the Company's corporate activities. In
addition, under the credit facilities, the Company is required to comply with
specified financial ratios and tests, including minimum fixed charge coverage
and interest coverage ratios and maximum leverage ratios.
The aggregate amounts of existing long-term debt maturing in each of the
next five years and thereafter are as follows:
[Download Table]
2001........................................................ $ 14,120
2002........................................................ 14,120
2003........................................................ 14,120
2004........................................................ 14,120
2005........................................................ 17,245
2006 and thereafter......................................... 396,925
--------
$470,650
========
Effective with the Transaction on September 29, 1999, outstanding lines of
credit were $6.7 million and promissory notes of $16.7 million have been
settled. The lines of credit had a weighted-average interest rate of 5.32%
during 1999. The promissory notes represent amounts due various former
franchisees as a result of the Company acquiring certain franchised operations.
The Company has guaranteed Term Loans and Letters of Credit of franchisees
that originated as part of a franchisees' acquisition of certain franchised
areas. The balance of the guaranteed indebtedness was $15.5 million as of
April 24, 1999. No such guarantee continues as of December 30, 2000.
6. EARNINGS PER SHARE:
Basic earnings per share ("EPS") computations are calculated utilizing the
weighted average number of common shares outstanding during the fiscal years and
period presented. Diluted EPS
F-13
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. EARNINGS PER SHARE: (CONTINUED)
includes the weighted average number of common shares outstanding and the effect
of common stock equivalents. The following table sets forth the computation of
basic and diluted EPS:
[Enlarge/Download Table]
EIGHT
FISCAL YEAR ENDED MONTHS
--------------------------------- ENDED
APRIL 25, APRIL 24, APRIL 29, DECEMBER 30,
1998 1999 2000 2000
--------- --------- --------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Numerator:
Net income...................................... $ 23,771 $ 47,982 $ 37,759 $ 15,019
Preferred stock dividends....................... -- -- 875 1,000
-------- -------- -------- --------
Numerator for basic EPS-income available to
common shareholders......................... $ 23,771 $ 47,982 $ 36,884 $ 14,019
======== ======== ======== ========
Numerator for diluted EPS-income available to
common shareholders......................... $ 23,771 $ 47,982 $ 36,884 $ 14,019
======== ======== ======== ========
Denominator:
Denominator for basic EPS-weighted-average
shares........................................ 276,430 276,430 182,206 111,988
Effect of dilutive securities:
Stock options................................. -- -- -- 39
-------- -------- -------- --------
Denominator for diluted EPS-adjusted weighted-
average shares.............................. 276,430 276,430 182,206 112,171
======== ======== ======== ========
EPS:
Basic and diluted EPS(*)........................ $ 0.09 $ 0.17 $ 0.20 $ 0.13
======== ======== ======== ========
------------------------------
* Prior to our acquisition by Artal Luxembourg on September 29, 1999, there
were 4,705 shares of our common stock outstanding. In connection with the
transactions related to our acquisition, we declared a stock split that
resulted in 276,428,607 outstanding shares of our common stock. We have
adjusted our historical statements to reflect the stock split. We then
repurchased 164,441,039 shares in connection with the transactions so that
upon completion of our acquisition, there were 111,987,568 shares of our
common stock outstanding.
7. STOCK PLANS:
WEIGHT WATCHERS INCENTIVE COMPENSATION PLANS
On December 16, 1999, the Board of Directors adopted the 1999 Stock Purchase
and Option Plan of Weight Watchers International, Inc. and Subsidiaries (the
"Plan"). The Plan is designed to promote the long-term financial interests and
growth of the Company and its subsidiaries by attracting and retaining
management with the ability to contribute to the success of the business. The
Plan is to be administered by the Board of Directors or a committee thereof.
Under the stock purchase component of the plan discussed above, 1,594,176
shares of common stock were sold to 44 members of the Company's management group
at $2.13 per share.
Under the option component of the Plan, grants may take the following forms
in the committee's sole discretion: Incentive Stock Options, Other Stock Options
(other than incentive options), Stock
F-14
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7. STOCK PLANS: (CONTINUED)
Appreciation Rights, Restricted Stock, Purchase Stock, Dividend Equivalent
Rights, Performance Units, Performance Shares and Other Stock-Based Grants. The
maximum number of shares available for grant under this plan shall be 7,058,040
shares of authorized common stock as of the effective date of the Plan.
Pursuant to the option component of the Plan, the Board of Directors
authorized the Company to enter into agreements under which certain members of
management received Non-Qualified Time and Performance Stock Options providing
them the opportunity to purchase shares of the Company's common stock at an
exercise price of $2.13 per share. The options are exercisable based on the
terms outlined in the agreement.
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants for the fiscal year ended April 29, 2000 and for the
eight months ended December 30, 2000: dividend yield of 0%; expected volatility
of risk was 0%; risk free interest rate ranging from 5.91% to 6.65%; and
expected life of 10 years. The exercise price was equivalent to the fair market
value at the date of grant. A summary of the Company's stock option activity is
as follows:
[Enlarge/Download Table]
APRIL 29, 2000 DECEMBER 30, 2000
-------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE
--------- -------- --------- --------
Options outstanding,
Beginning of year.......................... -- 4,933,570 $2.13
Granted.................................... 4,933,570 $2.13 494,063 $2.13
Exercised.................................. -- --
Cancelled.................................. -- 127,045 $2.13
Options outstanding, end of year............. 4,933,570 $2.13 5,300,588 $2.13
Options exercisable, end of year............. 164,452 $2.13 1,325,147 $2.13
Options available for grant, end of year..... 712,862 $2.13 345,844 $2.13
Weighted-average fair value of options
granted during the Year.................... -- $1.03 $0.98
The weighted average remaining contractual life of options outstanding at
December 30, 2000 was 8.9 years.
WEIGHTWATCHERS.COM STOCK INCENTIVE PLAN OF WEIGHT WATCHERS INTERNATIONAL, INC.
AND SUBSIDIARIES
In April 2000, the Board of Directors adopted the WeightWatchers.com Stock
Incentive Plan of Weight Watchers International, Inc. and Subsidiaries, pursuant
to which selected employees were granted options to purchase shares of common
stock of WeightWatchers.com, Inc. that are owned by the Company. The number of
shares available for grant under this plan is 400,000 shares of authorized
common stock of WeightWatchers.com, Inc. All options vest over a period of time,
however, vesting of certain options may be accelerated if the Company achieves
specified performance levels.
F-15
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7. STOCK PLANS: (CONTINUED)
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants for the fiscal year ended April 29, 2000 and for the
eight months ended December 30, 2000: dividend yield of 0%; expected volatility
of risk was 0%; risk free interest rate ranging from 5.91% to 6.49%; and
expected life of ten years. A summary of the Company's stock option activity is
as follows:
[Enlarge/Download Table]
APRIL 29, 2000 DECEMBER 30, 2000
-------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE
--------- -------- --------- --------
Options outstanding,
Beginning of year........................... -- 158,704 $0.50
Granted..................................... 158,704 $0.50 14,231 $0.50
Exercised................................... -- --
Cancelled................................... -- --
Options outstanding, end of year.............. 158,704 $0.50 172,935 $0.50
Options exercisable, end of year.............. -- $0.50 43,234 $0.50
Options available for grant, end of year...... 241,296 $0.50 227,065 $0.50
Weighted-average fair value of options granted
during the year/period...................... $0.16 $0.23
The weighted average remaining contractual life of options outstanding at
December 30, 2000 was 9.3 years.
The pro forma effect of SFAS No. 123 on the Company's financial statements
would have been as follows under the 1999 Stock Purchase and Option Plan of
Weight Watchers International, Inc. and Subsidiaries and the WeightWatchers.com
Stock Incentive Plan of Weight Watchers International, Inc. and Subsidiaries.
[Enlarge/Download Table]
FISCAL YEAR EIGHT MONTHS
ENDED ENDED
APRIL 29, DECEMBER 30,
2000 2000
----------- -------------
Net Income:
As reported............................................... $37,759 $15,019
Pro forma................................................. $37,170 $14,984
HEINZ INCENTIVE COMPENSATION PLANS--PRIOR TO THE TRANSACTION
Certain qualifying employees of the Company were granted options to purchase
Heinz common stock under Heinz's stock option plans. These options under the
Plan have been granted at not less than market prices on the date of grant.
Stock options granted have a maximum term of ten years. Vesting occurs from one
to three years after the date of grant. Beginning in fiscal 1998, in order to
place greater emphasis on creation of shareholder value, performance-accelerated
stock options were
F-16
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7. STOCK PLANS: (CONTINUED)
granted to certain key executives. These options vest eight years after the
grant date, subject to acceleration if predetermined share price goals are
achieved.
The pro forma effect of SFAS No. 123 on the Company's financial statements
would have been as follows:
[Enlarge/Download Table]
FISCAL YEAR ENDED
---------------------------------
APRIL 25, 1998 APRIL 24, 1999
--------------- ---------------
As reported................................................ $23,771 $47,982
Pro forma.................................................. 23,485 47,621
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weight-average
assumptions:
[Enlarge/Download Table]
FISCAL YEAR ENDED
---------------------------------
APRIL 25, 1998 APRIL 24, 1999
--------------- ---------------
Dividend yield............................................. 2.5% 2.5%
Volatility................................................. 20.0 22.0
Risk-free interest rate.................................... 6.2 5.1
Expected term (years)...................................... 5.0 5.0
8. EMPLOYEE BENEFIT PLANS:
WEIGHT WATCHERS SPONSORED PLANS:
Effective September 29, 1999, the net assets of the Heinz sponsored employee
savings plan were transferred to the Weight Watchers sponsored plan upon
execution of the Transaction. The Company sponsors the Weight Watchers Savings
Plan (the "Savings Plan") for salaried and hourly employees. The Savings Plan is
a defined contribution plan which provides for employer matching contributions
up to 100% of the first 3% of an employee's eligible compensation. The Savings
Plan also permits employees to contribute between 1% and 13% of eligible
compensation on a pre-tax basis. Company contributions for the fiscal year ended
April 29, 2000 and the eight months ended December 30, 2000 were $1.0 million
and $0.5 million respectively.
The Company sponsors the Weight Watchers Profit Sharing Plan (the "Profit
Sharing Plan") for all full-time salaried employees who are eligible to
participate in the Savings Plan (except for certain senior management
personnel). The Profit Sharing Plan provides for 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 Profit Sharing Plan
has a supplemental employer contribution component, based on the Company's
achievement of certain annual performance targets, which are determined annually
by the Company's Board of Directors. The Company also reserves the right to make
additional discretionary contributions to the Profit Sharing Plan.
For certain senior management personnel, the Company sponsors the Weight
Watchers Executive Profit Sharing Plan. Under the Internal Revenue Service
("IRS") definition this plan is considered a Nonqualified Deferred Compensation
Plan. There is a promise of payment by the Company made on
F-17
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8. EMPLOYEE BENEFIT PLANS: (CONTINUED)
the employees' behalf instead of an individual account with a cash balance. The
account is valued at the end of each fiscal month, based on an annualized
interest rate of prime plus 2%, with an annualized cap of 15%.
The Company is currently applying for a determination letter to qualify the
Savings Plan under Section 401(a) of the IRS Code. It is the Company's opinion
that the IRS will issue a favorable determination letter as to the qualified
status of the Savings Plan.
HEINZ SPONSORED PLANS--PRIOR TO THE TRANSACTION:
Domestic employees participate in certain defined pension plans, a defined
contribution 401(k) savings plan and, for employees affected by certain IRS
limits, a section 415 Excess Plan, all of which are sponsored by Heinz. The
Company also provides post-retirement health care and life insurance benefits
for employees who meet the eligibility requirements of the Heinz plans. Retirees
share in the cost of these benefits based on age and years of service.
Company contributions to the Heinz Savings Plan include a qualified
age-related contribution and a matching of the employee's contribution, up to a
specified amount.
The following amounts were included in the Company's result of operations:
[Enlarge/Download Table]
FISCAL YEAR ENDED
---------------------------------
APRIL 25, APRIL 24, APRIL 29,
1998 1999 2000
--------- --------- ---------
Defined Benefit Pension Plans............................. $ 726 $1,456 $421
Defined Benefit Postretirement Medical.................... $ 261 $ 577 $253
Savings Plan.............................................. $1,668 $2,170 $994
In addition, foreign employees participate in certain Company sponsored
pension plans and such charges, which are included in the results of operations,
are not material.
9. WEIGHTWATCHERS.COM WARRANT AND NOTE AGREEMENT:
On September 29, 1999, the Company entered into a subscription agreement
with WeightWatchers.com, Artal and Heinz under which Artal, Heinz and the
Company purchased common stock of WeightWatchers.com for a nominal amount. At
that date, the Company owned approximately 19.8% of WeightWatchers.com's common
stock while Artal and Heinz owned 72.1% and 4.8%, respectively, of
WeightWatchers.com's common stock.
Under a warrant agreement dated November 24, 1999 entered into between
WeightWatchers.com and the Company, the Company received warrants to purchase an
additional 4,217,220 shares of WeightWatchers.com's common stock in connection
with the loans that the Company has made to WeightWatchers.com under the
WeightWatchers.com note described below. These warrants expire on November 24,
2009 and may be exercised at a price of $7.14 per share of WeightWatchers.com's
common stock until then. The exercise price and the number of shares of
WeightWatchers.com's common stock available for purchase upon exercise of the
warrants may be adjusted from time to time upon the occurrence of certain
events.
F-18
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9. WEIGHTWATCHERS.COM WARRANT AND NOTE AGREEMENT: (CONTINUED)
Under a warrant agreement dated October 1, 2000 entered into between
WeightWatchers.com and the Company, the Company received warrants to purchase an
additional 1,200,000 shares of WeightWatchers.com's common stock in connection
with the loans that the Company made to WeightWatchers.com under the
WeightWatchers.com note described below. These warrants expire on October 1,
2010 and may be exercised at a price of $7.14 per share of WeightWatchers.com's
common stock until then. The exercise price and the number shares of
WeightWatchers.com's common stock available for purchase upon exercise of the
warrants may be adjusted from time to time upon the occurrence of certain
events.
On October 1, 2000, the Company amended its loan agreement with Weight
Watchers.com increasing the aggregate principal amount from $10.0 million to
$23.5 million. On that date, the unpaid principal and accumulated interest was
rolled over into the new loan. The amount may be advanced at any time or from
time to time prior to July 31, 2003. The note bears interest at 13% per year.
All principal and interest outstanding under the note are scheduled to be
payable on September 30, 2003. The note may be prepaid at any time in whole or
in part, without premium or penalty. Pursuant to the note the Company has
advanced WeightWatchers.com $2.0 million during the fiscal year ended April 29,
2000 and $14.8 million during the eight months ended December 30, 2000. As of
December 30, 2000, $16.8 million of principal and $0.8 million of interest was
charged to other expenses.
10. RESTRUCTURING CHARGES:
During the fourth quarter of fiscal 1997, the Company announced a
reorganization and restructuring program. The reorganization plan was designed
to strengthen the Company's classroom business and improve profitability and
global growth.
Charges related to the restructuring were recognized to reflect the exit
from the Personal Cuisine Food Option in United States Company-owned locations,
the relocation of classes from certain fixed retail outlets to traveling
locations, and other initiatives involving the exit of certain under-performing
business and product lines.
Restructuring and related costs recorded in fiscal 1997 totalled
$51.7 million pretax. Pretax charges of $49.7 million were classified as
classroom operating expenses and $2.0 million as selling, general and
F-19
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
10. RESTRUCTURING CHARGES: (CONTINUED)
administrative expenses. The major components of the fiscal 1997 charges and the
remaining accrual balances were as follows:
[Enlarge/Download Table]
EMPLOYEE
TERMINATION EXIST COSTS
NON-CASH AND --------------------------------------
ASSET SEVERANCE ACCRUED IMPLEMENTATION
WRITE-DOWNS COSTS EXIT COSTS COSTS TOTAL
----------- ----------- ---------- -------------- --------
Accrued restructuring costs--
Initial charge--1997........................ $ 27,402 $ 4,723 $19,569 $ -- $ 51,694
Amounts utilized--1997...................... (27,402) (339) (46) -- (27,787)
-------- ------- ------- ----- --------
Accrued restructuring costs--April 26,
1997...................................... -- 4,384 19,523 -- 23,907
Implementation costs--1998.................. -- -- -- 999 999
Amounts utilized--1998...................... -- (3,709) (8,553) (999) (13,261)
-------- ------- ------- ----- --------
Accrued restructuring costs--April 25,
1998...................................... -- 675 10,970 -- 11,645
Implementation costs--1999.................. -- -- -- 32 32
Amounts utilized--1999...................... -- (186) (3,769) (32) (3,987)
-------- ------- ------- ----- --------
Accrued restructuring costs--April 24,
1999...................................... -- 489 7,201 -- 7,690
Amounts utilized--2000...................... -- -- (2,904) -- (2,904)
-------- ------- ------- ----- --------
Accrued restructuring costs--April 29,
2000...................................... -- 489 4,297 -- 4,786
Amounts utilized--Apr 30--Dec 30, 2000...... -- (489) (1,812) -- (2,301)
-------- ------- ------- ----- --------
Accrued restructuring costs--December 30,
2000...................................... $ -- $ -- $ 2,485 $ -- $ 2,485
======== ======= ======= ===== ========
Asset write-downs of $16.9 million consisted primarily of fixed assets and
other long-term asset impairments that were recorded as a direct result of the
Company's decision to exit businesses or facilities. Such assets were written
down based on management's estimate of fair value. Write-downs of $10.5 million
were also recognized for estimated losses from disposals of classroom
inventories, packaging materials and other assets related to product line
rationalizations and process changes as a direct result of the Company's
decision to exit businesses or facilities.
Employee severance costs include charges related to both involuntary
terminations and involuntary terminations. As part of the voluntary termination
agreements, enhanced retirement benefits were offered to the affected employees.
These amounts were included in the Employee Termination and Severance costs
component of the restructuring charge.
Exit costs consist primarily of contract and lease termination costs
associated with the Company's decision to exit the activities described above.
The remaining accrued exit costs will be utilized through 2002.
The results for 1998 included costs related to the implementation of the
restructuring program of $999 pretax, which were classified as selling, general
and administrative expenses. These costs consist primarily of center relocation
and training. The results for 1999 included costs related to the implementation
of the restructuring program of $32 pretax, which were classified as selling,
general and administrative expenses. These costs consist primarily of relocation
and training costs.
F-20
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
11. PROPERTY AND EQUIPMENT:
The components of property and equipment were:
[Enlarge/Download Table]
APRIL 24, 1999 APRIL 29, 2000 DECEMBER 30, 2000
--------------- --------------- ------------------
Leasehold improvements...................... $18,343 $17,954 $19,218
Equipment................................... 36,559 30,900 31,921
------- ------- -------
54,902 48,854 51,139
Less: Accumulated depreciation and
amortization.............................. 46,428 41,911 43,006
------- ------- -------
8,474 6,943 8,133
Construction in progress.................... 251 58 12
------- ------- -------
$ 8,725 $ 7,001 $ 8,145
======= ======= =======
Depreciation and amortization expense of property and equipment for the
fiscal years ended April 25, 1998, April 24, 1999 and April 29, 2000 and for the
eight months ended December 30, 2000 was $3.3 million, $3.6 million,
$2.9 million and $2.1 million, respectively.
12. RELATED PARTY TRANSACTIONS:
On November 30, 1999, the Company entered into an agreement with Nellson
Nutraceutical, Inc. ("Nellson"), a wholly-owned subsidiary of Artal, to purchase
nutrition bar products manufactured by Nellson for sale at the Company's
meetings. Under the agreement, Nellson agrees to produce sufficient nutrition
bar products to fill the Company's purchase orders within 30 days of receipt.
The Company is not bound to purchase a minimum quantity of nutrition bar
products. The term of the agreement is one year and the Company may renew the
agreement for successive one-year periods by providing written notice to
Nellson. The provisions of the agreement are comparable to those the Company
would receive from a third party. Total purchases from Nellson for the eight
months ended December 30, 2000 and for the fiscal year ended April 29, 2000 were
$4.9 million and $4.3 million, respectively.
At the closing of the Transaction, the Company granted to Heinz an
exclusive, worldwide, royalty-free license to use the Custodial Trademarks (or
any portion covering food and beverage products) in connection with Heinz
licensed products. Heinz will pay the Company an annual fee of $1.2 million for
five years in exchange for the Company serving as the custodian of the Custodial
Trademarks.
Prior to the Transaction, the following related party transactions existed.
Certain of Heinz' general and administrative expenses were allocated to the
Company. Total costs allocated include charges for salaries of corporate
officers and staff and other Heinz corporate overhead. Total costs charged to
the Company for these services were $1.8 million, $2.2 million and $1.0 million
for the fiscal years ended April 25, 1998, April 24, 1999 and April 29, 2000,
respectively.
In addition, Heinz charged the Company for its share of group health
insurance costs for eligible Company employees based upon location specific
costs, overall insurance costs and loss experience
F-21
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
12. RELATED PARTY TRANSACTIONS: (CONTINUED)
incurred during a calendar year. In addition, various other insurance coverages
were also provided to the Company through Heinz' consolidated programs. Workers
compensation, auto, property, product liability and other insurance coverages
are charged directly based on the Company's loss experience. Amounts charged to
the Company for insurance costs were $4.2 million, $4.3 million and
$3.8 million for the fiscal years ended April 25, 1998, April 24, 1999 and
April 29, 2000, respectively, and are recorded in selling, general and
administrative expenses in the accompanying statement of operations.
Total costs charged to the Company by Heinz for other miscellaneous services
were $579 thousand, $520 thousand and $93 thousand for the fiscal years ended
April 25, 1998, April 24, 1999 and April 29, 2000, respectively, and were
recorded in selling, general and administrative expenses in the accompanying
statement of operations.
The Company maintained a cash management arrangement with Heinz. On a daily
basis, all available domestic cash was deposited and disbursements were
withdrawn. Heinz charged the Company interest on the average daily balance
maintained in an intercompany account. Net interest expense related to this
arrangement included in the statement of operations was $965 thousand,
$3.1 million and $1.7 million for the fiscal years ended April 25, 1998,
April 24, 1999 and April 29, 2000, respectively. The interest rate charged to or
received by the Company was 6.25% for fiscal years ended April 25, 1998 and
April 24, 1999 and 5.5% for the fiscal year ended April 29, 2000.
Substantially all of the due from related parties of $133.8 million at
April 24, 1999 represents a note receivable from an affiliate of Heinz which was
repaid in June 1999. Interest income reflected in the statement of operations
related to this note receivable was $9.6 million and $10.0 million, for the
fiscal years ended April 25, 1998 and April 24, 1999 respectively. The interest
rate charged by the Company was LIBOR plus 25 basis points in both years.
Short-term borrowings due to an affiliate of Heinz of $16.3 million at
April 24, 1999 represented a note payable due April 28, 1999. Interest expense
related to the note payable was $1.0 million for the fiscal year ended
April 24, 1999 and $35 thousand for the fiscal year ended April 29, 2000.
Long-term borrowings of $52.5 million due to a related party were
contributed to capital during the fiscal year ended April 25, 1998. Interest
expense related to these long-term borrowings was $961 thousand and the interest
rate was 10.5%.
Pension costs and postretirement costs are also charged to the Company based
upon eligible employees participating in the Plans. See also Note 7.
F-22
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
13. INCOME TAXES:
The following tables summarizes the provision (benefit) for U.S. federal,
state and foreign taxes on income:
[Enlarge/Download Table]
FISCAL YEAR ENDED EIGHT MONTHS
------------------------------------ ENDED
APRIL 25, APRIL 24, APRIL 29, DECEMBER 30,
1998 1999 2000 2000
---------- ---------- ---------- -------------
Current:
U.S. federal....................................... $(4,798) $11,997 $ 5,727 $ 234
State.............................................. 346 3,247 2,464 200
Foreign............................................ 8,858 11,837 11,591 5,319
------- ------- ------- ------
4,406 27,081 19,782 5,753
------- ------- ------- ------
Deferred:
U.S. federal....................................... 10,493 6,368 7,800 --
State.............................................. 502 312 368 --
Foreign............................................ 4,568 2,599 373 104
------- ------- ------- ------
15,563 9,279 8,541 104
------- ------- ------- ------
Total tax provision.................................. $19,969 $36,360 $28,323 $5,857
======= ======= ======= ======
The components of income before income taxes and minority interest consist
of the following:
[Enlarge/Download Table]
FISCAL YEAR ENDED EIGHT MONTHS
------------------------------------ ENDED
APRIL 25, APRIL 24, APRIL 29, DECEMBER 30,
1998 1999 2000 2000
---------- ---------- ---------- -------------
Domestic............................................. $13,143 $48,199 $33,538 $ 9,399
Foreign.............................................. 31,442 37,636 33,378 11,624
------- ------- ------- -------
$44,585 $85,835 $66,916 $21,023
======= ======= ======= =======
The difference between the U.S. federal statutory tax rate and the Company's
consolidated effective tax rate are as follows:
[Enlarge/Download Table]
FISCAL YEAR ENDED EIGHT MONTHS
------------------------------------ ENDED
APRIL 25, APRIL 24, APRIL 29, DECEMBER 30,
1998 1999 2000 2000
---------- ---------- ---------- -------------
U.S. federal statutory rate........................... 35.0% 35.0% 35.0% 35.0%
Foreign income taxes.................................. 7.2 3.5 1.7 4.0
States' income taxes (net of federal benefit)......... 1.6 2.7 2.6 0.6
Goodwill amortization................................. 1.7 0.8 0.4 1.0
Other................................................. (0.7) 0.4 2.6 1.3
Valuation allowance................................... -- -- -- (14.0)
---- ---- ---- -----
Effective tax rate.................................... 44.8% 42.4% 42.3% 27.9%
==== ==== ==== =====
F-23
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
13. INCOME TAXES: (CONTINUED)
The deferred tax assets and deferred tax (liabilities) recorded on the
balance sheet as of April 24, 1999, April 29, 2000 and December 30, 2000 are as
follows:
[Enlarge/Download Table]
APRIL 24, APRIL 29, DECEMBER 30,
1999 2000 2000
---------- ---------- -------------
Depreciation........................................ $ -- $ 304 $ 333
Provision for estimated expenses.................... 3,288 1,771 2,702
Operating loss carryforwards........................ 4,430 4,369 953
Transaction expenses................................ -- 2,933 --
Benefits plans...................................... 5,878 -- --
WeightWatchers.com loan............................. -- -- 6,513
Other............................................... 1,998 216 143
Amortization........................................ -- 135,329 139,642
Less: Valuation allowance........................... (630) (71,979) (71,903)
-------- -------- --------
Total deferred tax assets........................... 14,964 72,943 78,383
-------- -------- --------
Transaction expenses................................ -- -- (4,374)
Depreciation/amortization........................... (9,620) -- --
Deferred income..................................... (3,767) (4,985) (5,764)
Other............................................... (2,063) (3,231) (3,497)
-------- -------- --------
Total deferred tax liabilities...................... (15,450) (8,216) (13,635)
-------- -------- --------
Net deferred tax assets (liabilities)............... $ (486) $ 64,727 $ 64,748
======== ======== ========
Having utilized approximately $9.2 million in the current year, remaining
net operating loss carryforwards at December 30, 2000 totalled $2.6 million, all
of which will expire by 2019. Further, the Company will be subject to the
federal alternative minimum tax (AMT) for the current year, resulting in an AMT
credit carryforward at December 30, 2000 of approximately $0.2 million, which
can be carried forward indefinitely and used to offset taxable income in future
years to the extent the Company is not subject to AMT.
As of December 30, 2000, the Company has provided for a valuation allowance
for its deferred tax assets. Although realization is not assured, management
believes it is more likely than not, that the net deferred tax assets will be
realized. The determination of the net deferred tax assets deemed realizable was
based on available historical evidence, and estimates of future taxable income.
This amount may be subject to adjustment based on changes to those factors in
future years.
On September 29, 1999 the Company effected a recapitalization and stock
purchase agreement with its former parent, Heinz. For U.S. tax purposes, the
transaction was treated as a taxable sale under IRC Section 338(h)(10),
resulting in a step-up in the tax basis of net assets. The step-up in tax basis
as finally determined upon filing of the Section 338(h)(10) election during the
current year resulted in an additional deferred tax asset of approximately
$3.3 million, with an offsetting adjustment to the valuation allowance.
Undistributed earnings of foreign subsidiaries considered to be reinvested
permanently, for which no deferred taxes are provided, amounted to
$27.2 million as of December 30, 2000.
F-24
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
14. CASH FLOW INFORMATION:
[Enlarge/Download Table]
EIGHT
FISCAL YEAR ENDED MONTHS
------------------------------------ ENDED
APRIL 25, APRIL 24, APRIL 29, DECEMBER 30,
1998 1999 2000 2000
---------- ---------- ---------- -------------
Net cash paid during the year for:
Interest expense............................ $ 5,818 $2,748 $31,402 $31,639
Income taxes................................ $ 4,706 $5,380 $13,601 $ 8,405
Noncash investing and financing activities
were as follows:
Deferred tax asset recorded as a component
of shareholders' deficit in conjunction
with the recapitalization of the
Company................................... -- -- $72,100 --
Redeemable preferred stock issued to
Heinz..................................... -- -- $25,875 --
Contribution of related party debt to
capital................................... $52,500 -- -- --
Reduction of existing receivable in
connection with the acquisition of
minority interest......................... -- -- -- $ 1,124
15. COMMITMENTS AND CONTINGENCIES:
LEGAL:
Due to the nature of its activities, the Company is, at times, subject to
pending and threatened legal actions which arise during the normal course of
business. In the opinion of management, based in part upon advice of legal
counsel, the disposition of such matters will not have a material effect on the
consolidated financial statements.
LEASE COMMITMENTS:
Minimum rental commitments under non-cancelable operating leases, primarily
for office and rental facilities at December 30, 2000, consists of the
following:
[Download Table]
2001........................................................ $12,677
2002........................................................ 7,922
2003........................................................ 5,241
2004........................................................ 3,659
2005........................................................ 3,373
2006 and thereafter......................................... 18,913
-------
Total....................................................... $51,785
=======
Total rent expense charged to operations under these leases for the fiscal
years ended April 25, 1998, April 24, 1999 and April 29, 2000 and for the eight
months ended December 30, 2000 was approximately $10.3 million, $11.0 million,
$12.3 million and $8.2 million, respectively.
F-25
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
15. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
REPURCHASE AGREEMENTS:
The Company is a party to a repurchase agreement related to the 10% minority
interest in the classroom operation of Finland. Pursuant to this agreement, the
Company may elect or be required to repurchase the minority shareholders'
interest in this operation. If the Company repurchases the minority interest
within five years of the original sale, the repurchase price is based on the
original sales price times the increase in the consumer price index since the
date of the sale. If the Company repurchases the minority interest after five
years from the original sale, the repurchase price is based on a multiple of the
average operating income during the last three years. On August 1, 2000 the
Company repurchased the remaining 10% minority interest of the Sweden. The
acquisition was financed with $2.4 million of cash plus $1.1 million reduction
of an existing receivable from the minority owner resulting in goodwill of
$3.5 million.
16. FRANCHISE PROFIT SHARING FUND:
The Company's franchise agreement with certain North American franchisees
provides for an annual franchise profit sharing distribution based upon
specified formulas. In October 2000, the Company reached an agreement with
certain franchisees regarding the sharing of profits of prior and future product
sales. The settlement provided for a payment of approximately $3.8 million
during the eight months ended December 30, 2000 and releases the Company from
any future obligations to the franchisees under profit sharing arrangements
dating back to 1969. Profit sharing expense under this arrangement for the
fiscal years ended April 25, 1998, April 24, 1999 and April 29, 2000 was
$0.7 million, $0.8 million and $0.4 million, respectively. Unpaid amounts are
included in accrued liabilities.
17. SEGMENT AND GEOGRAPHIC DATA:
The Company is engaged principally in one line of business, i.e., weight
control. The following table presents information about the Company by
geographic area. There were no material amounts of sales or transfers among
geographic areas and no material amounts of United States export sales.
[Enlarge/Download Table]
EXTERNAL SALES
----------------------------------------------------
EIGHT
FISCAL YEAR ENDED MONTHS
------------------------------------ ENDED
APRIL 25, APRIL 24, APRIL 29, DECEMBER 30,
1998 1999 2000 2000
---------- ---------- ---------- -------------
United States............................. $143,765 $189,366 $207,256 $150,199
United Kingdom............................ 73,146 76,143 90,778 55,945
Continental Europe........................ 54,850 65,119 66,524 48,306
Other International....................... 25,484 33,980 35,016 18,725
-------- -------- -------- --------
$297,245 $364,608 $399,574 $273,175
======== ======== ======== ========
F-26
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
17. SEGMENT AND GEOGRAPHIC DATA: (CONTINUED)
[Enlarge/Download Table]
LONG-LIVED ASSETS
----------------------------------------------------
APRIL 25, APRIL 24, APRIL 29, DECEMBER 30,
1998 1999 2000 2000
---------- ---------- ---------- -------------
United States............................. $155,360 $149,054 $142,675 $142,641
United Kingdom............................ 1,272 1,198 949 2,737
Continental Europe........................ 2,463 2,422 1,973 1,914
Other International....................... 8,208 7,878 21,132 18,402
-------- -------- -------- --------
$167,303 $160,552 $166,729 $165,694
======== ======== ======== ========
18. FINANCIAL INSTRUMENTS:
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company's significant financial instruments include cash and cash
equivalents, short-and-long-term debt, current and noncurrent notes receivable,
currency exchange agreements and guarantees.
In evaluating the fair value of significant financial instruments, the
Company generally uses quoted market prices of the same or similar instruments
or calculates an estimated fair value on a discounted cash flow basis using the
rates available for instruments with the same remaining maturities. As of
December 30, 2000, the fair value of financial instruments held by the Company
approximated the recorded value. Based on the current interest rates, management
believes that the carrying amount of the Company's debt approximates fair market
value.
FOREIGN CURRENCY CONTRACTS:
As of April 29, 2000 and December 30, 2000, the Company held currency and
interest rate swap contracts to purchase certain foreign currencies totalling
$139.4 million and $158.1 million, respectively. The Company also held separate
currency and interest rate swap contracts to sell foreign currencies of
$138.9 million and $163.5 million, respectively. Net unrealized gains (losses)
associated with the Company's foreign currency contracts were ($0.5) million and
$5.9 million, respectively.
19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The change in the Company's fiscal year end resulted in the elimination of
the one month lag for certain foreign subsidiaries and is effective retroactive
to April 30, 2000 which results in the quarterly data presented herein to differ
from that previously reported on the July 29, 2000 and October 28, 2000
Form 10-Q's. The change from the previous Form 10-Q's for revenue is an increase
of $469 and a decrease of $6,469 for the quarters ended July 29 and October 28,
2000, respectively. The change for operating income is an increase of $2,374 and
an increase of $2,443 for the quarters ended July 29 and
F-27
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
October 28, 2000, respectively. The change for net income is an increase of
$1,736 and an increase of $1,816 for the quarters ended, July 29 and
October 28, 2000, respectively.
[Enlarge/Download Table]
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
FISCAL YEAR ENDED APRIL 24, 1999
Revenues................................... $84,036 $79,966 $89,403 $111,203
Operating income........................... $22,488 $14,505 $20,118 $ 26,804
Net income................................. $12,708 $ 8,227 $11,506 $ 15,541
FISCAL YEAR ENDED APRIL 29, 2000
Revenues................................... $92,174 $84,031 $90,507 $132,862
Operating income........................... $28,302 $10,508 $14,719 $ 34,115
Net income................................. $17,095 $ 2,239 $ 912 $ 17,513
[Enlarge/Download Table]
TWO MONTHS
ENDED
FIRST QUARTER SECOND QUARTER DECEMBER 30, 2000
------------- -------------- ------------------
EIGHT-MONTH PERIOD ENDED DECEMBER 30, 2000
Revenues.............................................. $103,073 $107,582 $62,520
Operating income...................................... $ 36,626 $ 27,648 $10,410
Net income (loss)..................................... $ 13,705 $ 10,908 $(9,594)
20. SUBSEQUENT EVENT
On January 16, 2001 the Company completed the acquisition of the Weight
Watchers franchised territories and certain business assets of Weighco
Enterprises, Inc., Weighco of Northwest, Inc., and Weighco of Southwest, Inc.
pursuant to the terms of the Asset Purchase Agreement, dated as of December 11,
2000 among Weighco Enterprises, Inc., Weighco of Northwest, Inc., and Weighco of
Southwest, Inc., the Company and Weight Watchers North America, Inc., a
wholly-owned subsidiary of the Company.
The transaction will be accounted for by the purchase method of accounting.
Substantially all of the purchase price in excess of the net assets acquired
will be recorded as goodwill.
The purchase price for the acquisition was $83.8 million. Of this amount,
the Company obtained $60.0 million pursuant to the Amended and Restated Credit
Agreement, dated as of January 16, 2001 among Weight Watchers
International, Inc., WW Funding Corp. and various financial institutions.
21. STOCK SPLIT
On October 26, 2001, the Company's Board of Directors declared a
4.70536-for-one stock split to be effective concurrent with the effective date
of the registration filed by the Company in connection with its initial public
offering. In addition, the Company's Articles of Incorporation will be amended
to authorize the issuance of up to one billion shares of common stock, no par
value, upon filing of the registration statement.
All common share and per share amounts have been retroactively restated to
account for the stock split. In addition, stock options and the respective
exercise prices have been amended to reflect this split.
F-28
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
22. GUARANTOR SUBSIDIARIES
The Company's payment obligations under the Senior Subordinated Notes are
fully and unconditionally guaranteed on a joint and several basis by the
following wholly-owned subsidiaries: 58 WW Food Corp.; Waist Watchers, Inc.;
Weight Watchers Camps, Inc.; W.W. Camps and Spas, Inc.; Weight Watchers
Direct, Inc.; W/W Twenty first Corporation; W.W. Weight Reduction
Services, Inc.; W.W.I. European Services Ltd.; W.W. Inventory Service Corp.;
Weight Watchers North America, Inc.; Weight Watchers UK Holdings Ltd.; Weight
Watchers International Holdings Ltd.; Weight Watchers (U.K.) Limited; Weight
Watchers (Exercise) Ltd.; Weight Watchers (Accessories & Publications) Ltd.;
Weight Watchers (Food Products) Limited; Weight Watchers New Zealand Limited;
Weight Watchers International Pty Limited; Fortuity Pty Ltd; and Gutbusters
Pty Ltd. (collectively, the "Guarantor Subsidiaries"). The obligations of each
Guarantor Subsidiary under its guarantee of the Notes are subordinated to such
subsidiary's obligations under its guarantee of the new senior credit facility.
Presented below is condensed consolidating financial information for Weight
Watchers International, Inc. ("Parent Company"), the Guarantor Subsidiaries and
the Non-Guarantor Subsidiaries (primarily companies incorporated in European
countries other than the United Kingdom). In the Company's opinion, separate
financial statements and other disclosures concerning each of the Guarantor
Subsidiaries would not provide additional information that is material to
investors. Therefore, the Guarantor Subsidiaries are combined in the
presentation below.
Investments in subsidiaries are accounted for by the Parent Company on the
equity method of accounting. Earnings of subsidiaries are, therefore, reflected
in the Parent Company's investments in subsidiaries' accounts. The elimination
entries eliminate investments in subsidiaries and intercompany balances and
transactions.
F-29
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
AS OF APRIL 24, 1999
(IN THOUSANDS)
[Enlarge/Download Table]
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
ASSETS
Current assets
Cash and cash equivalents...................... $ (74) $ 12,376 $ 7,213 $ -- $ 19,515
Receivables, net............................... 5,134 4,364 1,905 -- 11,403
Notes receivable, current...................... 3,266 -- -- -- 3,266
Inventories.................................... -- 5,775 1,805 -- 7,580
Prepaid expenses............................... 856 4,588 2,154 -- 7,598
Deferred income taxes.......................... 1,758 (1,949) 3,800 -- 3,609
Due from related parties....................... 1,034 242 132,507 -- 133,783
Intercompany receivables (payables)............ 103,588 (107,373) 3,785 -- --
-------- -------- -------- --------- --------
TOTAL CURRENT ASSETS......................... 115,562 (81,977) 153,169 -- 186,754
Investment in consolidated subsidiaries.......... 117,732 -- -- (117,732) --
Property and equipment, net...................... 1,981 5,231 1,513 -- 8,725
Notes and other receivables, noncurrent.......... 10,295 -- 8,870 -- 19,165
Goodwill, net.................................... 27,254 115,568 892 -- 143,714
Trademarks and other intangible assets, net...... 2,355 5,745 13 -- 8,113
Deferred income taxes............................ (22) 4,155 -- -- 4,133
Other noncurrent assets.......................... 138 510 182 -- 830
-------- -------- -------- --------- --------
TOTAL ASSETS................................. $275,295 $ 49,232 $164,639 $(117,732) $371,434
======== ======== ======== ========= ========
LIABILITIES AND PARENT COMPANY'S INVESTMENT
Current liabilities
Short-term borrowings and line of credit....... $ -- $ -- $ 6,690 $ -- $ 6,690
Short-term borrowings due to related party..... 16,638 (388) -- -- 16,250
Portion of long-term debt due within one
year......................................... 1,164 -- -- -- 1,164
Accounts payable............................... 631 9,192 2,887 -- 12,710
Salaries and wages............................. 4,189 7,096 -- -- 11,285
Accrued interest............................... 2,161 -- 15 -- 2,176
Accrued restructuring costs.................... 8 7,929 (247) -- 7,690
Foreign currency contract payable.............. -- -- 7,169 -- 7,169
Other accrued liabilities...................... 1,798 6,659 7,587 -- 16,044
Income taxes................................... (11,168) 17,118 2,012 -- 7,962
Deferred revenue............................... -- 5,680 734 -- 6,414
-------- -------- -------- --------- --------
TOTAL CURRENT LIABILITIES.................... 15,421 53,286 26,847 -- 95,554
Long-term debt................................... 15,500 -- -- -- 15,500
Deferred income taxes............................ (2,366) 10,338 256 -- 8,228
Other............................................ -- 2,659 545 -- 3,204
-------- -------- -------- --------- --------
TOTAL LONG-TERM DEBT AND OTHER LIABILITIES... 13,134 12,997 801 -- 26,932
Parent company's investment...................... 246,740 (17,051) 136,991 (117,732) 248,948
-------- -------- -------- --------- --------
TOTAL LIABILITIES AND PARENT COMPANY'S
INVESTMENT................................. $275,295 $ 49,232 $164,639 $(117,732) $371,434
======== ======== ======== ========= ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-30
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
AS OF APRIL 29, 2000
(IN THOUSANDS)
[Enlarge/Download Table]
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
ASSETS
Current assets
Cash and cash equivalents..................... $ 10,984 $ 22,465 $10,594 $ -- $ 44,043
Receivables, net.............................. 6,006 5,606 1,265 -- 12,877
Notes receivable, current..................... 2,791 -- -- -- 2,791
Inventories................................... -- 7,827 1,501 -- 9,328
Prepaid expenses.............................. 748 6,240 1,372 -- 8,360
Deferred income taxes......................... 2,846 (2,752) -- -- 94
Intercompany receivables (payables)........... (32,114) 27,742 4,372 -- --
--------- -------- ------- --------- ---------
TOTAL CURRENT ASSETS........................ (8,739) 67,128 19,104 -- 77,493
Investment in consolidated subsidiaries......... 162,320 -- -- (162,320) --
Property and equipment, net..................... 1,809 3,974 1,218 -- 7,001
Notes and other receivables, noncurrent......... 7,045 -- -- -- 7,045
Goodwill, net................................... 25,833 125,977 755 -- 152,565
Trademarks and other intangible assets, net..... 1,960 5,193 10 -- 7,163
Deferred income taxes........................... (9,854) 77,428 -- -- 67,574
Deferred financing costs........................ 14,749 (83) -- -- 14,666
Other noncurrent assets......................... 163 365 172 -- 700
--------- -------- ------- --------- ---------
TOTAL ASSETS................................ $ 195,286 $279,982 $21,259 $(162,320) $ 334,207
========= ======== ======= ========= =========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
Short-term borrowings due to related party.... $ 1,489 $ -- $ -- $ -- $ 1,489
Portion of long-term debt due within one
year........................................ 13,250 870 -- -- 14,120
Accounts payable.............................. 1,438 9,084 1,840 -- 12,362
Salaries and wages............................ 2,301 4,256 3,568 -- 10,125
Accrued interest.............................. 3,521 561 -- -- 4,082
Accrued restructuring costs................... -- 4,786 -- -- 4,786
Foreign currency contract payable............. 486 -- -- -- 486
Other accrued liabilities..................... 6,387 9,049 4,147 -- 19,583
Income taxes.................................. (1,846) 5,965 2,667 -- 6,786
Deferred revenue.............................. -- 3,824 808 -- 4,632
--------- -------- ------- --------- ---------
TOTAL CURRENT LIABILITIES................... 27,026 38,395 13,030 -- 78,451
Long-term debt.................................. 374,598 85,912 -- -- 460,510
Deferred income taxes........................... 1,903 390 648 -- 2,941
Other........................................... -- -- 546 -- 546
--------- -------- ------- --------- ---------
TOTAL LONG-TERM DEBT AND OTHER
LIABILITIES............................... 376,501 86,302 1,194 -- 463,997
Redeemable preferred stock...................... 25,875 2,507 254 (2,761) 25,875
Shareholders' equity (deficit).................. (234,116) 152,778 6,781 (159,559) (234,116)
--------- -------- ------- --------- ---------
TOTAL LIABILITIES, REDEEMABLE STOCK AND
SHAREHOLDERS' EQUITY (DEFICIT)............ $ 195,286 $279,982 $21,259 $(162,320) $ 334,207
========= ======== ======= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-31
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 30, 2000
(IN THOUSANDS)
[Enlarge/Download Table]
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
ASSETS
Current assets
Cash and cash equivalents..................... $ 26,699 $ 11,191 $ 6,611 $ -- $ 44,501
Receivables, net.............................. 7,390 5,941 1,347 -- 14,678
Notes receivable, current..................... 2,104 -- 2 -- 2,106
Foreign currency contracts receivable......... 5,364 -- -- -- 5,364
Inventories................................... -- 11,867 3,177 -- 15,044
Prepaid expenses.............................. 961 7,809 2,329 -- 11,099
Deferred income taxes......................... 2,846 (2,198) -- -- 648
Intercompany receivables (payables)........... (10,921) 3,147 7,774 -- --
--------- -------- ------- --------- ---------
TOTAL CURRENT ASSETS........................ 34,443 37,757 21,240 -- 93,440
Investment in consolidated subsidiaries......... 175,876 -- -- (175,876) --
Property and equipment, net..................... 1,272 5,679 1,194 -- 8,145
Notes and other receivables, noncurrent......... 5,601 -- -- -- 5,601
Goodwill, net................................... 28,367 121,814 720 -- 150,901
Trademarks and other intangible assets, net..... 1,876 4,761 11 -- 6,648
Deferred income taxes........................... (44,713) 111,920 -- -- 67,207
Deferred financing costs........................ 13,513 -- -- -- 13,513
Other noncurrent assets......................... 163 271 328 -- 762
--------- -------- ------- --------- ---------
TOTAL ASSETS................................ $ 216,398 $282,202 $23,493 $(175,876) $ 346,217
========= ======== ======= ========= =========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
Short-term borrowings due to related party.... $ 1,730 $ -- $ -- $ -- $ 1,730
Portion of long-term debt due within one
year........................................ 13,250 870 -- -- 14,120
Accounts payable.............................. 932 8,379 2,678 -- 11,989
Salaries and wages............................ 3,568 3,533 3,443 -- 10,544
Accrued interest.............................. 9,069 593 -- -- 9,662
Accrued restructuring costs................... -- 2,485 -- -- 2,485
Other accrued liabilities..................... 9,420 10,540 3,255 -- 23,215
Income taxes.................................. 1,677 (414) 2,397 -- 3,660
Deferred revenue.............................. -- 4,843 993 -- 5,836
--------- -------- ------- --------- ---------
TOTAL CURRENT LIABILITIES................... 39,646 30,829 12,766 -- 83,241
Long-term debt.................................. 371,053 85,477 -- -- 456,530
Deferred income taxes........................... 2,481 -- 626 -- 3,107
Other........................................... -- -- 121 -- 121
--------- -------- ------- --------- ---------
TOTAL LONG-TERM DEBT AND OTHER
LIABILITIES............................... 373,534 85,477 747 -- 459,758
Redeemable preferred stock...................... 25,996 -- -- -- 25,996
Shareholders' equity (deficit).................. (222,778) 165,896 9,980 (175,876) (222,778)
--------- -------- ------- --------- ---------
TOTAL LIABILITIES, REDEEMABLE STOCK AND
SHAREHOLDERS' EQUITY (DEFICIT)............ $ 216,398 $282,202 $23,493 $(175,876) $ 346,217
========= ======== ======= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-32
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED APRIL 25, 1998
(IN THOUSANDS)
[Enlarge/Download Table]
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
Revenues, net......................... $28,465 $213,929 $54,851 $ -- $297,245
Cost of revenues...................... 3,264 122,148 34,549 -- 159,961
------- -------- ------- -------- --------
Gross profit........................ 25,201 91,781 20,302 -- 137,284
Marketing expenses.................... 7,916 33,499 7,812 -- 49,227
Selling, general and administrative
expenses............................ 21,154 16,578 6,335 -- 44,067
------- -------- ------- -------- --------
Operating (loss) income............. (3,869) 41,704 6,155 -- 43,990
Interest income....................... 831 2,297 10,641 (317) 13,452
Interest expense...................... 4,033 607 4,253 (317) 8,576
Other expense, net.................... 1,695 2,494 92 -- 4,281
Equity in income of consolidated
subsidiaries........................ 16,837 -- -- (16,837) --
Franchise commission income (loss).... 8,038 (5,984) (2,054) -- --
------- -------- ------- -------- --------
Income before income taxes and
minority interest................... 16,109 34,916 10,397 (16,837) 44,585
(Benefit from) provision for income
taxes............................... (1,979) 16,355 5,593 -- 19,969
------- -------- ------- -------- --------
Income before minority interest..... 18,088 18,561 4,804 (16,837) 24,616
Minority interest..................... -- 629 216 -- 845
------- -------- ------- -------- --------
Net income.......................... $18,088 $ 17,932 $ 4,588 $(16,837) $ 23,771
======= ======== ======= ======== ========
The accompanying notes are an integral part of the consolidated financial
statements
F-33
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED APRIL 24, 1999
(IN THOUSANDS)
[Enlarge/Download Table]
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
Revenues, net......................... $42,288 $257,202 $65,118 $ -- $364,608
Cost of revenues...................... 3,685 135,095 40,145 -- 178,925
------- -------- ------- -------- --------
Gross profit........................ 38,603 122,107 24,973 -- 185,683
Marketing expenses.................... 8,815 35,381 8,660 -- 52,856
Selling, general and administrative
expenses............................ 23,715 17,794 7,403 -- 48,912
------- -------- ------- -------- --------
Operating income.................... 6,073 68,932 8,910 -- 83,915
Interest income....................... 615 5,096 10,938 (622) 16,027
Interest expense...................... 3,537 357 5,587 (622) 8,859
Other expense, (income) net........... 1,930 3,361 (43) -- 5,248
Equity in income of consolidated
subsidiaries........................ 37,310 -- -- (37,310) --
Franchise commission income (loss).... 8,697 (6,072) (2,625) -- --
------- -------- ------- -------- --------
Income before income taxes and
Minority interest................. 47,228 64,238 11,679 (37,310) 85,835
Provision for income taxes............ 7,944 22,860 5,556 -- 36,360
------- -------- ------- -------- --------
Income before minority Interest..... 39,284 41,378 6,123 (37,310) 49,475
Minority interest..................... -- 1,108 385 -- 1,493
------- -------- ------- -------- --------
Net income.......................... $39,284 $ 40,270 $ 5,738 $(37,310) $ 47,982
======= ======== ======= ======== ========
The accompanying notes are an integral part of the consolidated financial
statements
F-34
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED APRIL 29, 2000
(IN THOUSANDS)
[Enlarge/Download Table]
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
Revenues, net......................... $32,836 $300,215 $66,523 $ -- $399,574
Cost of revenues...................... 4,911 155,251 41,227 -- 201,389
------- -------- ------- -------- --------
Gross profit........................ 27,925 144,964 25,296 -- 198,185
Marketing expenses.................... 7,417 35,707 8,329 -- 51,453
Selling, general and administrative
expenses............................ 23,066 20,357 7,320 -- 50,743
Transaction costs..................... 8,247 98 -- -- 8,345
------- -------- ------- -------- --------
Operating (loss) income............. (10,805) 88,802 9,647 -- 87,644
Interest income....................... 1,462 1,864 2,466 -- 5,792
Interest expense...................... 29,104 6,471 1,296 -- 36,871
Other (income) expense, net........... (10,997) 151 495 -- (10,351)
Equity in income of consolidated
subsidiaries........................ 44,441 -- -- (44,441) --
Franchise commission income (loss).... 21,686 (18,500) (3,186) -- --
------- -------- ------- -------- --------
Income before income taxes and
minority interest................. 38,677 65,544 7,136 (44,441) 66,916
Provision for income taxes............ 918 24,090 3,315 -- 28,323
------- -------- ------- -------- --------
Income before minority interest..... 37,759 41,454 3,821 (44,441) 38,593
Minority interest..................... -- 834 -- -- 834
------- -------- ------- -------- --------
Net income.......................... $37,759 $ 40,620 $ 3,821 $(44,441) $ 37,759
======= ======== ======= ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-35
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE EIGHT MONTHS ENDED DECEMBER 30, 2000
(IN THOUSANDS)
[Enlarge/Download Table]
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
Revenues, net......................... $20,794 $204,074 $48,307 $ -- $273,175
Cost of revenues...................... 4,571 105,444 29,268 -- 139,283
------- -------- ------- -------- --------
Gross profit........................ 16,223 98,630 19,039 -- 133,892
Marketing expenses.................... 2,784 18,994 5,208 -- 26,986
Selling, general and administrative
expenses............................ 14,826 11,708 5,688 -- 32,222
------- -------- ------- -------- --------
Operating (loss) income............. (1,387) 67,928 8,143 -- 74,684
Interest income....................... 1,642 1,209 268 -- 3,119
Interest expense...................... 26,338 13,849 57 -- 40,244
Other expense (income), net........... 16,545 (2) (7) -- 16,536
Equity in income of consolidated
subsidiaries........................ 26,621 -- -- (26,621) --
Franchise commission income (loss).... 20,144 (17,647) (2,497) -- --
------- -------- ------- -------- --------
Income before income taxes and
minority interest................. 4,137 37,643 5,864 (26,621) 21,023
(Benefit from) provision for income
taxes............................... (10,882) 14,558 2,181 -- 5,857
------- -------- ------- -------- --------
Income before minority interest..... 15,019 23,085 3,683 (26,621) 15,166
Minority interest..................... -- -- 147 -- 147
------- -------- ------- -------- --------
Net income.......................... $15,019 $ 23,085 $ 3,536 $(26,621) $ 15,019
======= ======== ======= ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-36
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOW
FOR THE FISCAL YEAR ENDED APRIL 25, 1998
(IN THOUSANDS)
[Enlarge/Download Table]
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
Operating activities:
Net income......................... $ 18,088 $ 17,932 $ 4,588 $(16,837) $ 23,771
Adjustments to reconcile net income
to cash provided by operating
activities:
Depreciation and amortization...... 2,390 5,764 621 -- 8,775
Deferred tax provision............. 1,628 10,463 3,472 -- 15,563
Allowance for doubtful accounts.... 66 (209) -- -- (143)
Reserve for inventory obsolescence,
other............................ -- (3,489) -- (3,489)
Other items, net................... (120) 139 396 -- 415
Change in cash due to:
Receivables...................... 380 (3,069) 341 -- (2,348)
Inventories...................... -- 982 (318) -- 664
Prepaid expense.................. (298) 2,091 120 -- 1,913
Due from related parties......... (5,092) 1,546 (5,064) -- (8,610)
Accounts payable................. (45) (3,024) 819 -- (2,250)
Accrued liabilities.............. (1,311) (5,849) 6,746 -- (414)
Deferred revenue................. -- 1,872 -- -- 1,872
Income taxes..................... 12,315 (10,428) (1,240) -- 647
-------- -------- ------- -------- --------
Cash provided by operating
activities..................... 28,001 14,721 10,481 (16,837) 36,366
-------- -------- ------- -------- --------
Investing activities:
Capital expenditures............... (170) (2,539) (680) -- (3,389)
Acquisitions, net of cash
acquired......................... -- (1,007) (405) -- (1,412)
Other items, net................... (627) 521 (15) -- (121)
-------- -------- ------- -------- --------
Cash used for investing
activities..................... (797) (3,025) (1,100) -- (4,922)
-------- -------- ------- -------- --------
Financing activities:
Net decrease in short-term
borrowings....................... (1,250) (133) (791) -- (2,174)
Payment of dividends............... (5,949) (8,378) (1,145) 7,002 (8,470)
Payments on long-term debt......... 2,382 (3,750) -- -- (1,368)
Net Parent settlements............. (21,818) (42) (6,373) 9,603 (18,630)
-------- -------- ------- -------- --------
Cash used for financing
activities..................... (26,635) (12,303) (8,309) 16,605 (30,642)
-------- -------- ------- -------- --------
Effect of exchange rate changes on
cash and cash equivalents.......... (229) 689 (736) 232 (44)
Net increase in cash and cash
equivalents........................ 340 82 336 -- 758
Cash and cash equivalents, beginning
of year............................ (444) 5,718 5,797 -- 11,071
-------- -------- ------- -------- --------
Cash and cash equivalents, end of
year............................... $ (104) $ 5,800 $ 6,133 $ -- $ 11,829
======== ======== ======= ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-37
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOW
FOR THE FISCAL YEAR ENDED APRIL 24, 1999
(IN THOUSANDS)
[Enlarge/Download Table]
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
Operating activities:
Net income......................... $ 39,284 $ 40,270 $ 5,738 $(37,310) $ 47,982
Adjustments to reconcile net income
to cash provided by operating
activities:
Depreciation and amortization...... 2,378 6,609 599 -- 9,586
Deferred tax provision............. 1,735 4,345 3,199 -- 9,279
Allowance for doubtful accounts.... (84) (30) (4) -- (118)
Reserve for inventory obsolescence,
other............................ -- 2,528 (3) 2,525
Other items, net................... -- 153 (115) -- 38
Changes in cash due to:
Receivables...................... (7,219) 1,378 (1,200) -- (7,041)
Inventories...................... -- (2,476) 25 -- (2,451)
Prepaid expense.................. (20) (1,141) (293) -- (1,454)
Due from related parties......... 38,317 (35,394) 770 -- 3,693
Accounts payable................. (288) 3,698 (327) -- 3,083
Accrued liabilities.............. 1,003 (2,572) (8,507) -- (10,076)
Deferred revenue................. -- (1,450) 734 -- (716)
Income taxes..................... (36,393) 38,362 1,602 -- 3,571
-------- -------- ------- -------- --------
Cash provided by operating
activities..................... 38,713 54,280 2,218 (37,310) 57,901
-------- -------- ------- -------- --------
Investing activities:
Capital expenditures............... (271) (1,612) (591) -- (2,474)
Other items, net................... (278) (286) (1) -- (565)
-------- -------- ------- -------- --------
Cash used for investing
activities..................... (549) (1,898) (592) -- (3,039)
-------- -------- ------- -------- --------
Financing activities:
Net increase (decrease) in
short-term borrowings............ -- 1,262 (406) -- 856
Payment of dividends............... (5,435) (14,446) (3,670) 13,183 (10,368)
Payments on long-term debt......... (1,081) -- -- -- (1,081)
Net Parent (settlements)
advances......................... (31,483) (32,903) 3,316 23,994 (37,076)
-------- -------- ------- -------- --------
Cash (used for) provided by
financing activities........... (37,999) (46,087) (760) 37,177 (47,669)
-------- -------- ------- -------- --------
Effect of exchange rate changes on
cash and cash equivalents.......... (135) 281 214 133 493
Net increase in cash and cash
equivalents........................ 30 6,576 1,080 -- 7,686
Cash and cash equivalents, beginning
of year............................ (104) 5,800 6,133 -- 11,829
-------- -------- ------- -------- --------
Cash and cash equivalents, end of
year............................... $ (74) $ 12,376 $ 7,213 $ -- $ 19,515
======== ======== ======= ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-38
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOW
FOR THE FISCAL YEAR ENDED APRIL 29, 2000
(IN THOUSANDS)
[Enlarge/Download Table]
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
Operating activities:
Net income............................ $ 37,759 $ 40,620 $ 3,821 $(44,441) $ 37,759
Adjustments to reconcile net income to
cash provided by (used for)
operating activities:
Depreciation and amortization......... 3,438 6,028 932 -- 10,398
Deferred tax provision................ 3,785 4,685 71 -- 8,541
Allowance for doubtful accounts....... 352 29 4 -- 385
Reserve for inventory obsolescence,
other............................... -- (93) (28) -- (121)
Other items, net...................... -- (2,492) -- -- (2,492)
Changes in cash due to:
Receivables......................... 4,501 (1,353) 9,506 -- 12,654
Inventories......................... -- (2,028) 332 -- (1,696)
Prepaid expense..................... 108 (1,691) 782 -- (801)
Due from related parties............ (15,149) 384 -- -- (14,765)
Accounts payable.................... 807 (1,272) (1,047) -- (1,512)
Accrued liabilities................. 4,538 (1,845) 3,087 -- 5,780
Deferred revenue.................... (1,827) 74 (1,753)
Income taxes........................ 90,650 (97,918) 4,776 -- (2,492)
--------- -------- -------- -------- ---------
Cash provided by (used for)
operating activities.............. 130,789 (58,773) 22,310 (44,441) 49,885
--------- -------- -------- -------- ---------
Investing activities:
Capital expenditures.................. (299) (1,004) (571) -- (1,874)
Acquisitions, net of cash acquired.... -- -- -- -- --
Acquisitions of minority interest..... -- (15,900) -- -- (15,900)
Other items, net...................... (2,067) 116 84 -- (1,867)
--------- -------- -------- -------- ---------
Cash used for investing
activities........................ (2,366) (16,788) (487) -- (19,641)
--------- -------- -------- -------- ---------
Financing activities:
Net increase (decrease) in short-term
borrowings.......................... -- 1,235 (6,690) -- (5,455)
Parent company investment in
subsidiaries........................ (34,693) -- -- 34,693 --
Proceeds from borrowings.............. 404,260 87,000 -- -- 491,260
Repurchase of common stock............ (324,476) -- -- -- (324,476)
Payment of dividends.................. (2,797) (3,120) (4,494) 7,615 (2,796)
Payments on long-term debt............ (3,312) (218) -- -- (3,530)
Deferred financing costs.............. (15,861) -- -- -- (15,861)
Net Parent (settlements) advances..... (138,998) 14,552 (7,175) 591 (131,030)
--------- -------- -------- -------- ---------
Cash (used for) provided by
financing activities.............. (115,877) 99,449 (18,359) 42,899 8,112
--------- -------- -------- -------- ---------
Effect of exchange rate changes on cash
and cash equivalents.................. (1,488) (13,799) (83) 1,542 (13,828)
Net increase in cash and cash
equivalents........................... 11,058 10,089 3,381 -- 24,528
Cash and cash equivalents, beginning of
year.................................. (74) 12,376 7,213 -- 19,515
--------- -------- -------- -------- ---------
Cash and cash equivalents, end of
year.................................. $ 10,984 $ 22,465 $ 10,594 $ -- 44,043
========= ======== ======== ======== =========
The accompanying notes are an integral part of the consolidated financial
statements
F-39
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOW
FOR THE EIGHT MONTHS ENDED DECEMBER 30, 2000
(IN THOUSANDS)
[Enlarge/Download Table]
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
Operating activities:
Net income.............................. $15,019 $ 23,085 $ 3,536 $(26,621) $ 15,019
Adjustments to reconcile net income to
cash provided by (used for) operating
activities:
Depreciation and amortization........... 3,212 4,266 411 -- 7,889
Deferred tax provision.................. -- 104 -- -- 104
Accounting for equity investment........ 17,604 -- -- -- 17,604
Elimination of foreign subsidiaries one
month reporting lag................... 1,137 86 1,120 (1,137) 1,206
Allowance for doubtful accounts......... -- (188) -- -- (188)
Reserve for inventory obsolescence,
other................................. -- (1,024) 49 -- (975)
Other items, net........................ -- (532) (422) -- (954)
Changes in cash due to:
Receivables........................... (7,946) (180) (84) -- (8,210)
Inventories........................... -- (3,046) (1,725) -- (4,771)
Prepaid expense....................... (213) (1,585) (957) -- (2,755)
Intercompany receivables/payables..... (21,193) 24,595 (3,402) -- --
Due from related parties.............. 241 -- -- -- 241
Accounts payable...................... (1,072) (69) 838 -- (303)
Accrued liabilities................... 9,362 (1,450) (1,015) -- 6,897
Deferred revenue...................... 0 858 185 -- 1,043
Income taxes.......................... 38,960 (41,643) (292) -- (2,975)
-------- -------- ------- -------- --------
Cash provided by (used for) operating
activities.......................... 55,111 3,277 (1,758) (27,758) 28,872
-------- -------- ------- -------- --------
Investing activities:
Capital expenditures.................... (100) (3,017) (509) -- (3,626)
Advances and interest to equity
investment............................ (15,604) -- -- -- (15,604)
Acquisitions of minority interest....... (2,400) -- -- -- (2,400)
Other items, net........................ (148) 147 4 -- 3
-------- -------- ------- -------- --------
Cash used for investing activities.... (18,252) (2,870) (505) -- (21,627)
-------- -------- ------- -------- --------
Financing activities:
Net increase (decrease) in short-term
borrowings............................ 566 (600) -- -- (34)
Parent company investment in
subsidiaries.......................... (13,556) -- -- 13,556 --
Payment of dividends.................... (879) (8,834) (1,968) 10,802 (879)
Payments on long-term debt.............. (6,625) (435) -- -- (7,060)
Net Parent advances (settlements)....... -- -- 421 (421) --
-------- -------- ------- -------- --------
Cash used for financing activities.... (20,494) (9,869) (1,547) 23,937 (7,973)
-------- -------- ------- -------- --------
Effect of exchange rate changes on cash
and cash equivalents.................... (650) (1,812) (173) 3,821 1,186
Net increase (decrease) in cash and cash
equivalents............................. 15,715 (11,274) (3,983) -- 458
Cash and cash equivalents, beginning of
period.................................. 10,984 22,465 10,594 -- 44,043
-------- -------- ------- -------- --------
Cash and cash equivalents, end of
period.................................. $26,699 $ 11,191 $ 6,611 $ -- $ 44,501
======== ======== ======= ======== ========
The accompanying notes are an integral part of the consolidated financial
statements
F-40
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 30, 2000 AND JUNE 30, 2001
(IN THOUSANDS)
[Enlarge/Download Table]
DECEMBER 30, JUNE 30,
2000 2001
------------ -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 44,501 $ 45,620
Receivables, net.......................................... 14,678 18,009
Notes receivable, current................................. 2,106 608
Inventories............................................... 15,044 12,389
Prepaid expenses, other................................... 17,111 11,743
--------- ---------
TOTAL CURRENT ASSETS.................................... 93,440 88,369
Property and equipment, net................................. 8,145 9,500
Notes and other receivables, noncurrent..................... 5,601 240
Goodwill, net............................................... 150,901 225,514
Trademarks and other intangible assets, net................. 6,648 7,066
Deferred income taxes....................................... 67,207 67,207
Deferred financing costs, other............................. 14,275 14,685
--------- ---------
TOTAL ASSETS............................................ $ 346,217 $ 412,581
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Portion of long-term debt due within one year............. $ 14,120 $ 16,157
Accounts payable.......................................... 11,989 8,784
Accrued liabilities....................................... 47,636 55,559
Income taxes.............................................. 3,660 19,861
Deferred revenue.......................................... 5,836 14,928
--------- ---------
TOTAL CURRENT LIABILITIES............................... 83,241 115,289
Long-term debt.............................................. 456,530 462,548
Deferred income taxes....................................... 3,107 3,040
Other....................................................... 121 890
--------- ---------
TOTAL LONG-TERM DEBT AND OTHER LIABILITIES.............. 459,758 466,478
Redeemable preferred stock.................................. 25,996 26,746
Common stock subject to a Put............................... -- 14,402
Shareholders' deficit (Note 21):
Common stock, par value $0 per share, 1,000,000
authorized, issued 111,988 shares at December 30, 2000
and June 30, 2001; outstanding 111,988 shares at
December 30, 2000 and 108,950 shares at June 30,
2001.................................................... -- --
Treasury stock, at cost, 3,038 shares at June 30, 2001.... -- (12,265)
Accumulated deficit....................................... (216,507) (182,378)
Accumulated other comprehensive loss...................... (6,271) (15,691)
--------- ---------
TOTAL SHAREHOLDERS' DEFICIT............................. (222,778) (210,334)
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT................. $ 346,217 $ 412,581
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-41
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 29, 2000 AND JUNE 30, 2001
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
[Download Table]
SIX MONTHS ENDED
-------------------
JULY 29, JUNE 30,
2000 2001
-------- --------
(UNAUDITED)
Revenues, net............................................... $235,935 $334,276
Cost of revenues............................................ 111,158 149,144
-------- --------
Gross profit.............................................. 124,777 185,132
Marketing expenses.......................................... 25,290 40,569
Selling, general and administrative expenses................ 28,747 35,481
-------- --------
Operating income.......................................... 70,740 109,082
Interest expense, net....................................... 29,018 27,368
Other (income), expenses net................................ (6,594) 3,871
-------- --------
Income before income taxes and minority interest.......... 48,316 77,843
Provision for income taxes.................................. 16,872 28,457
-------- --------
Income before minority interest........................... 31,444 49,386
Minority interest........................................... 226 70
-------- --------
Net income................................................ $ 31,218 $ 49,316
======== ========
Preferred stock dividends................................... $ 750 $ 750
-------- --------
Net income available to common shareholders............... $ 30,468 $ 48,566
======== ========
Net income per share:
Basic..................................................... $ 0.27 $ 0.44
======== ========
Diluted................................................... $ 0.27 $ 0.43
======== ========
Weighted average common shares outstanding:
Basic..................................................... 111,988 110,967
======== ========
Diluted................................................... 111,988 112,176
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-42
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT,
PARENT COMPANY INVESTMENT AND COMPREHENSIVE INCOME
FOR THE FISCAL YEAR ENDED APRIL 29, 2000, THE EIGHT MONTHS ENDED
DECEMBER 30, 2000, AND THE SIX MONTHS ENDED JUNE 30, 2001
(IN THOUSANDS)
[Enlarge/Download Table]
COMMON TREASURY ACCUMULATED
STOCK STOCK ADDITIONAL OTHER
-------------------- ------------------- PAID IN COMPREHENSIVE ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL LOSS DEFICIT
--------- -------- -------- -------- ---------- ------------- -----------
Balance at April 24, 1999............. 276,430
Net Parent settlements..................
Recapitalization and settlement of
Parent Company investment............. (164,442) (72,100) (12,764) (268,547)
Deferred tax asset...................... 72,100
Comprehensive Income:
Net income............................ 37,759
Translation adjustment................ 10,311
Total Comprehensive Income............
Preferred stock dividend................ (875)
--------- ------ ----- -------- -------- -------- ---------
Balance at April 29, 2000............. 111,988 $ -- -- $ -- $ -- $ (2,453) $(231,663)
Elimination of foreign subsidiaries one
month reporting lag effective April
30, 2000.............................. 1,137
Comprehensive income:
Net Income............................ 15,019
Translation adjustment................ (3,818)
Total Comprehensive Income............
Preferred stock dividend................ (1,000)
--------- ------ ----- -------- -------- -------- ---------
Balance at December 30, 2000.......... 111,988 $ -- -- $ -- $ -- $ (6,271) $(216,507)
Comprehensive Income:
Net Income............................ 49,316
Foreign currency translation
adjustment.......................... (3,854)
Change in fair value of derivatives
accounted for as hedges............. (5,566)
Total Comprehensive Income............
Preferred Stock Dividend................ (750)
Transfer of common stock to common stock
subject to a Put...................... (14,402)
Purchase of Treasury Stock.............. 3,153 (12,730) -- --
Sale of Treasury Stock.................. (115) 465 -- (35)
--------- ------ ----- -------- -------- -------- ---------
Balance at June 30, 2001.............. 111,988 $ -- 3,038 $(12,265) $ -- $(15,691) $(182,378)
========= ====== ===== ======== ======== ======== =========
PARENT
COMPANY'S
INVESTMENT TOTAL
---------- ---------
Balance at April 24, 1999............. $ 248,948 $ 248,948
Net Parent settlements.................. (252,883) (252,883)
Recapitalization and settlement of
Parent Company investment............. 3,935 (349,476)
Deferred tax asset...................... 72,100
Comprehensive Income:
Net income............................ 37,759
Translation adjustment................ 10,311
---------
Total Comprehensive Income............ 48,070
---------
Preferred stock dividend................ (875)
--------- ---------
Balance at April 29, 2000............. $ -- $(234,116)
Elimination of foreign subsidiaries one
month reporting lag effective April
30, 2000.............................. 1,137
Comprehensive income:
Net Income............................ 15,019
Translation adjustment................ (3,818)
---------
Total Comprehensive Income............ 11,201
---------
Preferred stock dividend................ (1,000)
--------- ---------
Balance at December 30, 2000.......... $ -- $(222,778)
Comprehensive Income:
Net Income............................ 49,316
Foreign currency translation
adjustment.......................... (3,854)
Change in fair value of derivatives
accounted for as hedges............. (5,566)
---------
Total Comprehensive Income............ 39,896
---------
Preferred Stock Dividend................ (750)
Transfer of common stock to common stock
subject to a Put...................... (14,402)
Purchase of Treasury Stock.............. (12,730)
Sale of Treasury Stock.................. 430
--------- ---------
Balance at June 30, 2001.............. $ -- $(210,334)
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-43
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 29, 2000 AND JUNE 30, 2001
(IN THOUSANDS)
[Download Table]
SIX MONTHS ENDED
-------------------
JULY 29, JUNE 30,
2000 2001
-------- --------
(UNAUDITED)
Cash provided by operating activities....................... $39,570 $ 92,869
------- --------
Investing activities:
Capital expenditures...................................... (1,314) (1,187)
Advances to equity investment............................. (4,800) (7,844)
Acquisition............................................... -- (84,353)
Other items, net.......................................... (2,839) (1,532)
------- --------
Cash used for investing activities...................... (8,953) (94,916)
------- --------
Financing activities:
Net decrease in short-term borrowings..................... (1,200) (257)
Proceeds from borrowings.................................. -- 60,000
Payments of long-term debt................................ (7,060) (42,735)
Deferred financing costs.................................. (165) --
Net Parent advances....................................... 2,171 --
Purchase of treasury stock................................ -- (12,730)
Proceeds from issuance of treasury stock.................. -- 430
------- --------
Cash (used for) provided by financing activities........ (6,254) 4,708
------- --------
Effect of exchange rate changes on cash and cash
equivalents............................................... (2,523) (1,542)
Net increase in cash and cash equivalents................... 21,840 1,119
Cash and cash equivalents, beginning of period.............. 34,446 44,501
------- --------
Cash and cash equivalents, end of period.................... $56,286 $ 45,620
======= ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-44
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. GENERAL
The accompanying consolidated financial statements include the accounts of
Weight Watchers International, Inc. and Subsidiaries (the "Company"). The
consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America and
include amounts that are based on management's best estimates and judgments.
While all available information has been considered, actual amounts could differ
from those estimates. The consolidated financial statements are unaudited but,
in the opinion of management, reflect all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation. This report should be
read in conjunction with the Company's Form 10K for the eight months ended
December 30, 2000.
2. CHANGE IN FISCAL YEAR
The Company changed its fiscal year end from the last Saturday of April, to
the Saturday closest to December 31st effective with the eight month period
commencing April 30, 2000.
In the prior periods, in order to facilitate timely reporting, certain
foreign subsidiaries ended their fiscal period one month prior to the Company's
fiscal period with no material impact on the consolidated financial statements.
Effective April 30, 2000, the one month lag has been eliminated.
3. RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 and 142, "Business Combinations"
("SFAS 141") and "Goodwill and Other Intangible Assets" ("SFAS 142"),
respectively. SFAS 141 requires that all business combinations initiated after
June 30, 2001 be accounted for by the purchase method of accounting. SFAS 142
specifies that goodwill and indefinite lived intangible assets will no longer be
amortized but instead will be subject to annual impairment testing. The Company
will adopt SFAS 142 on December 30, 2001. The Company is currently evaluating
the effect that implementation of the new standards will have on its financial
position, results of operations and cash flows.
4. ACQUISITION
On January 16, 2001, the Company completed the acquisition of Weight
Watchers' franchised territories and certain business assets of Weighco
Enterprises, Inc., Weighco of Northeast, Inc., and Weighco of Southwest, Inc.
("Weighco"), for an aggregate purchase price of approximately $83.8 million plus
acquisition costs of approximately $0.6 million. The acquisition was financed
through additional borrowings of $60.0 million obtained pursuant to the
Company's Amended and Restated Credit Agreement, dated January 16, 2001, and
cash from operations.
The acquisition has been accounted for under the purchase method of
accounting and, accordingly, the results of operations are included in the
financial statements from the date of the acquisition. Assets acquired include
inventory ($2.0 million) and property and equipment ($1.8 million). The excess
of investment over the net book value of assets acquired at the date of
acquisition resulted in goodwill of $80.6 million which will be amortized over
20 years.
The following table presents unaudited pro forma financial information that
reflects the consolidated results of operations of the Company and Weighco as if
the acquisition had occurred as of the beginning of the respective periods. This
pro forma information does not necessarily reflect the
F-45
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
4. ACQUISITION (CONTINUED)
actual results that would have occurred, nor is it necessarily indicative of
future results of operations of the consolidated companies.
[Download Table]
PRO FORMA
----------------
SIX MONTHS ENDED
JULY 29, 2000
----------------
Revenues.................................................... $261,323
Net income.................................................. $ 34,477
5. RECAPITALIZATION
On September 29, 1999, the Company entered into a recapitalization and stock
purchase agreement (the "Transaction") with its former parent, H.J. Heinz
Company ("Heinz"). In connection with the Transaction, the Company effectuated a
stock split of 58,747.6 shares for each share outstanding. The Company then
redeemed 276.43 million shares of common stock from Heinz for $349.5 million.
The number of shares of the Company's common stock that was authorized and
outstanding prior to the Transaction has been adjusted to reflect the stock
split. The $349.5 million consisted of $324.5 million of cash and $25.0 million
of the Company's redeemable Series A Preferred Stock. After the redemption,
Artal Luxembourg S.A. purchased 94% of the Company's remaining common stock from
Heinz for $223.7 million. The recapitalization and stock purchase was financed
through borrowings under credit facilities amounting to approximately
$237.0 million and by issuing Senior Subordinated Notes amounting to
$255.0 million, due 2009. The balance of the borrowings was utilized to
refinance debt incurred prior to the Transaction relating to the transfer of
ownership and acquisition of the minority interest in the Weight Watchers
businesses that operate in Australia and New Zealand. The acquisition of the
minority interest resulted in approximately $15.9 million of goodwill. In
connection with the Transaction, the Company incurred approximately
$8.3 million in transaction costs and $15.9 million in deferred financing costs.
For U.S. Federal and State tax purposes, the Transaction is being treated as a
taxable sale under Section 338(h)(10) of the Internal Revenue Code of 1986 as
amended. As a result, for tax purposes, the Company recorded a step-up in the
tax basis of net assets. For financial reporting purposes, a valuation allowance
of approximately $72.1 million was established against the corresponding
deferred tax asset of $144.2 million. Management concluded, more likely than
not, that the valuation allowance would not be utilized to reduce future tax
payments. The Company will continue to monitor the need to maintain the
valuation allowance in the future periods.
6. EARNINGS PER SHARE
Basic earnings per share ("EPS") computations are calculated utilizing the
weighted average number of common shares outstanding during the periods
presented. Diluted EPS includes the
F-46
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. EARNINGS PER SHARE (CONTINUED)
weighted average number of common shares outstanding and the effect of common
stock equivalents. The following table sets forth the computation of basic and
diluted EPS:
[Download Table]
SIX MONTHS ENDED
---------------------
JULY 29, JUNE 30,
2000 2001
--------- ---------
Numerator:
Net income.............................................. $31,218 $49,316
Preferred stock dividends............................... 750 750
------- -------
Numerator for basic EPS-income available to common
shareholders........................................ $30,468 $48,566
------- -------
Numerator for diluted EPS-income available to common
shareholders........................................ $30,468 $48,566
------- -------
Denominator:
Denominator for basic EPS-weighted-average shares..... 111,988 110,967
Effect of dilutive securities:
Stock options....................................... -- 1,209
------- -------
Denominator for diluted EPS-adjusted weighted-average
shares 111,988 112,176
======= =======
EPS:
Basic EPS............................................... $ 0.27 $ 0.44
======= =======
Diluted EPS............................................. $ 0.27 $ 0.43
======= =======
7. TREASURY STOCK
On April 18, 2001, the Company entered into a Put/Call Agreement with Heinz.
Under this agreement, Heinz has an option to sell and we have an option to
purchase all of our common stock currently owned by Heinz. Heinz sold to the
Company 3,152,591 shares ($12.7 million) on April 30, 2001. As of June 30, 2001,
3,566,663 shares of our common stock were still held by Heinz.
The Company expects that it will fund any future repurchases of its common
stock held by Heinz with cash from operations.
8. COMPREHENSIVE INCOME
Comprehensive income for the Company includes net income, the effects of
foreign currency translation and changes in fair value of derivative
instruments.
F-47
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8. COMPREHENSIVE INCOME (CONTINUED)
Comprehensive income is as follows:
[Download Table]
SIX MONTHS ENDED
-----------------------
JULY 29, JUNE 30,
2000 2001
---------- ----------
Net income.................................................. $31,218 $49,316
Foreign currency translation adjustment..................... (2,974) (3,854)
Change in fair value of derivatives
Cumulative effect of the adoption of SFAS 133............. -- (5,086)
Current period changes in fair value of derivatives....... -- (480)
------- -------
Comprehensive income........................................ $28,244 $39,896
======= =======
9. LONG-TERM DEBT
In connection with the Transaction, the Company entered into a credit
facility ("Credit Facility") with The Bank of Nova Scotia, Credit Suisse First
Boston and certain other lenders providing (i) a $75.0 million term loan A
facility ("Term Loan A"), (ii) a $75.0 million term loan B facility ("Term Loan
B"), (iii) an $87.0 million transferable loan certificate ("TLC") and (iv) a
revolving credit facility with borrowings up to $30.0 million ("Revolving Credit
Facility"). The Credit Facility was amended and restated on January 16, 2001 to
provide for an additional $50 million in borrowings in connection with the
acquisition of Weighco (see Note 4) as follows: (i) Term Loan A was increased by
$15.0 million, (ii) the Revolving Credit Facility was increased by
$15.0 million to $45.0 million and (iii) a new $20.0 million term loan D
facility ("Term Loan D"). Borrowings under the Credit Facility are paid
quarterly and initially bear interest at a rate equal to LIBOR plus (a) in the
case of Term Loan A and the Revolving Credit Facility, 3.25% or, at the
Company's option, the alternate base rate, as defined, plus 2.25%, (b) in the
case of Term Loan B and the TLC, 4.00% or, at the Company's option, the
alternate base rate plus 3.00% and (c) in the case of Term Loan D, 3.25% or, at
the Company's option, the alternate base rate plus 2.25%. At June 30, 2001, the
interest rates were 7.58% for Term Loan A, 8.80% for Term Loan B, 8.02% for the
TLC and 8.7% for Term Loan D. All assets of the Company collateralize the Credit
Facility.
In addition, as part of the Transaction, the Company issued $150.0 million
USD denominated and 100.0 million EUR denominated principal amount of 13% Senior
Subordinated Notes due 2009 (the "Notes") to qualified institutional buyers. At
June 30, 2001, the 100.0 million EUR notes translated into $85.0 million USD
denominated equivalent. The impact of the change in foreign exchange rates
related to euro denominated debt are reflected in the income statement. Interest
is payable on the Notes semi-annually on April 1 and October 1 of each year,
commencing April 1, 2000. The Company uses interest rate swaps and foreign
currency forward contracts in association with its debt. The Notes are
uncollateralized senior subordinated obligations of the Company, subordinated in
right of payment to all existing and future senior indebtedness of the Company,
including the Credit Facility. The notes are guaranteed by certain subsidiaries
of the Company.
The Credit Facility contains a number of covenants that, among other things,
restrict the Company's ability to dispose of assets, incur additional
indebtedness, or engage in certain transactions with affiliates and otherwise
restrict the Company's corporate activities. In addition, under the Credit
F-48
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9. LONG-TERM DEBT (CONTINUED)
Facility, the Company is required to comply with specified financial ratios and
tests, including minimum fixed charge coverage and interest coverage ratios and
maximum leverage ratios.
10. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Effective December 31, 2000, the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," and its related amendment, Statement of Financial Accounting
Standards No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities" ("SFAS 133"). These standards require that all derivative
financial instruments be recorded on the consolidated balance sheets at their
fair value as either assets or liabilities. Changes in the fair value of
derivatives will be recorded each period in earnings or accumulated other
comprehensive loss, depending on whether a derivative is designated and
effective as part of a hedge transaction and, if it is, the type of hedge
transaction. Gains and losses on derivative instruments reported in accumulated
other comprehensive loss will be included in earnings in the periods in which
earnings are affected by the hedged item. As of December 31, 2000, the adoption
of these new standards resulted in an adjustment of $5.1 million to accumulated
other comprehensive loss.
The Company enters into forward and swap contracts to hedge certain
transactions denominated in foreign currencies in order to reduce the currency
risk associated with fluctuating exchange rates. Such contracts are used
primarily to hedge certain intercompany cash flows and for payments arising from
certain foreign denominated obligations. In addition, the Company enters into
interest rate swaps to hedge a substantial portion of its variable rate debt
which are accounted for as cash flow hedges.
As of June 30, 2001, losses of $0.5 million for effective hedges, were
reported as a component of accumulated other comprehensive loss. For the six
months ended June 30, 2001, ineffectiveness related to cash flow hedges was not
material. In addition, fair value adjustments for non-qualifying hedges resulted
in a reduction of net income of $1.2 million, for the six months ended June 30,
2001. The Company does not anticipate any reclassification to earnings from
accumulated other comprehensive loss within the next twelve months.
11. WEIGHTWATCHERS.COM NOTE AND WARRANT AGREEMENTS
On May 3, 2001, the Company amended and restated its loan agreement with
WeightWatchers.com increasing the aggregate principal amount from $23.5 million
to $28.5 million. The principal amount may be advanced at any time or from time
to time prior to July 31, 2003. The note bears interest at 13% per year. All
principal and interest outstanding under the note is payable on September 30,
2003. The note may be prepaid at any time in whole or in part, without premium
or penalty. During the three month and six month period ended June 30, 2001, the
Company advanced WeightWatchers.com $2.6 million and $7.8 million, respectively,
pursuant to the note. In addition to the advance, $0.7 million and
$1.9 million, respectively, of interest, were classified in other expenses, net
during the three month and six month period ended June 30, 2001. At June 30,
2001 the balance outstanding under the loan agreement was $25.0 million.
Under Warrant Agreements dated November 24, 1999, October 1, 2000 and
May 3, 2001, each agreement entered into between WeightWatchers.com and the
Company, the Company received warrants to purchase 5,861,664 shares of
WeightWatchers.com's common stock in connection with the
F-49
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
11. WEIGHTWATCHERS.COM NOTE AND WARRANT AGREEMENTS (CONTINUED)
loans that the Company has made to WeightWatchers.com under the
WeightWatchers.com Note described above. These warrants will expire on
November 24, 2009, October 1, 2010 and May 2, 2011, respectively and may be
exercised at a price of $7.14 per warrant share. The exercise price and the
number of shares of WeightWatchers.com's common stock available for purchase
upon exercise of the warrants may be adjusted from time to time upon the
occurrence of certain described events.
12. LEGAL
The Company is not a party to any material pending legal proceedings. The
Company has had and continues to have disputes with the Company's franchisees
regarding, among other things, operations and revenue sharing, including the
interpretation of franchise territories as they relate to the internet and
mail-order products. In addition, due to the nature of its activities, the
Company is, at times, subject to pending and threatened legal actions that arise
out of the normal course of business. In the opinion of management, based in
part upon advice of legal counsel, the disposition of all such matters will not
have a material effect on the consolidated results of operations, cash flows or
financial position of the Company.
13. INCOME TAXES
As a result of the Transaction, the Company has provided for a valuation
allowance for its deferred tax assets. The determination of the net deferred tax
assets deemed realizable was based on available historical evidence, and
estimates of future taxable income. This amount may be subject to adjustment
based on changes to those factors in future periods.
The primary differences between the U.S. federal statutory tax rate and the
Company's effective tax rate are the valuation allowance and state income taxes.
The effective tax rate for the three month and six month period ended June 30,
2001 were 38.9% and 36.6%, respectively.
14. STOCK SPLIT
On October 26, 2001, the Company's Board of Directors declared a
4.70536-for-one stock split to be effective concurrent with the effective date
of the registration statement filed by the Company in connection with its
initial public offering. In addition, the Company's Articles of Incorporation
was amended to authorize the issuance of up to one billion shares of common
stock, no par value, upon filing of the registration statement.
All common share and per share amounts have been retroactively restated to
account for the stock split. In addition, stock options and the respective
exercise prices have been amended to reflect this split.
15. GUARANTOR SUBSIDIARIES
The Company's payment obligations under the Senior Subordinated Notes are
fully and unconditionally guaranteed on a joint and several basis by the
following wholly-owned subsidiaries: 58 WW Food Corp.; Waist Watchers, Inc.;
Weight Watchers Camps, Inc.; W.W. Camps and Spas, Inc.; Weight Watchers
Direct, Inc.; W/W Twentyfirst Corporation; W.W. Weight Reduction
Services, Inc.; W.W.I. European Services Ltd.; W.W. Inventory Service Corp.;
Weight Watchers North America, Inc.;
F-50
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
15. GUARANTOR SUBSIDIARIES (CONTINUED)
Weight Watchers UK Holdings Ltd.; Weight Watchers International Holdings Ltd.;
Weight Watchers (U.K.) Limited; Weight Watchers (Exercise) Ltd.; Weight Watchers
(Accessories & Publication) Ltd.; Weight Watchers (Food Products) Limited;
Weight Watchers New Zealand Limited; Weight Watchers International Pty Limited;
Fortuity Pty Ltd.; and Gutbusters Pty Ltd. (collectively, the "Guarantor
Subsidiaries"). The obligations of each Guarantor Subsidiary under its guarantee
of the Notes are subordinated to such subsidiary's obligations under its
guarantee of the new senior credit facility.
Presented below is condensed consolidating financial information for Weight
Watchers International, Inc. ("Parent Company"), the Guarantor Subsidiaries and
the Non-Guarantor Subsidiaries (primarily companies incorporated in European
countries other than the United Kingdom). In the Company's opinion, separate
financial statements and other disclosures concerning each of the Guarantor
Subsidiaries would not provide additional information that is material to
investors. Therefore, the Guarantor Subsidiaries are combined in the
presentation below.
Investments in subsidiaries are accounted for by the Parent Company on the
equity method of accounting. Earnings of subsidiaries are, therefore, reflected
in the Parent Company's investments in subsidiaries' accounts. The elimination
entries eliminate investments in subsidiaries and intercompany balances and
transactions.
16. SUBSEQUENT EVENT
Subsequent to June 30, 2001, the Company repurchased 3,566,663 shares of its
common stock from Heinz for an aggregate purchase price of $14.4 million. This
repurchase was funded with cash from operations.
F-51
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL UNAUDITED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 30, 2000
(IN THOUSANDS)
[Enlarge/Download Table]
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents..................... $ 26,699 $ 11,191 $ 6,611 $ -- $ 44,501
Receivables, net.............................. 7,390 5,941 1,347 -- 14,678
Notes receivable, current..................... 2,104 -- 2 -- 2,106
Inventories................................... -- 11,867 3,177 -- 15,044
Prepaid expenses, other....................... 9,171 5,611 2,329 -- 17,111
Intercompany (payables) receivables........... (10,921) 3,147 7,774 -- --
--------- -------- ------- --------- ---------
TOTAL CURRENT ASSETS........................ 34,443 37,757 21,240 -- 93,440
Investment in consolidated subsidiaries......... 175,876 -- -- (175,876) --
Property and equipment, net..................... 1,272 5,679 1,194 -- 8,145
Notes and other receivables, noncurrent......... 5,601 -- -- -- 5,601
Goodwill, net................................... 28,367 121,814 720 -- 150,901
Trademarks and other intangible assets, net..... 1,876 4,761 11 -- 6,648
Deferred income taxes........................... (44,713) 111,920 -- -- 67,207
Deferred financing costs, other................. 13,676 271 328 -- 14,275
--------- -------- ------- --------- ---------
TOTAL ASSETS................................ $ 216,398 $282,202 $23,493 $(175,876) $ 346,217
========= ======== ======= ========= =========
LIABILITIES AND SHAREHOLDERS'
(DEFICIT) EQUITY
CURRENT LIABILITIES
Portion of long-term debt due within one
year........................................ $ 13,250 $ 870 $ -- $ -- $ 14,120
Accounts payable.............................. 932 8,379 2,678 -- 11,989
Accrued liabilities........................... 23,787 17,151 6,698 -- 47,636
Income taxes.................................. 1,677 (414) 2,397 -- 3,660
Deferred revenue.............................. -- 4,843 993 -- 5,836
--------- -------- ------- --------- ---------
TOTAL CURRENT LIABILITIES................... 39,646 30,829 12,766 -- 83,241
Long-term debt................................ 371,053 85,477 -- -- 456,530
Deferred income taxes......................... 2,481 -- 626 -- 3,107
Other......................................... -- -- 121 -- 121
--------- -------- ------- --------- ---------
TOTAL LONG-TERM DEBT AND OTHER
LIABILITIES............................... 373,534 85,477 747 -- 459,758
Redeemable preferred stock.................... 25,996 -- -- -- 25,996
Shareholders' (deficit) equity................ (222,778) 165,896 9,980 (175,876) (222,778)
--------- -------- ------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS'
(DEFICIT) EQUITY.......................... $ 216,398 $282,202 $23,493 $(175,876) 346,217
========= ======== ======= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-52
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL UNAUDITED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 2001
(IN THOUSANDS)
[Enlarge/Download Table]
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents..................... $ 12,306 $ 19,521 $13,793 $ -- $ 45,620
Receivables, net.............................. 4,960 11,650 1,399 -- 18,009
Notes receivable, current..................... 606 -- 2 -- 608
Inventories................................... -- 9,397 2,992 -- 12,389
Prepaid expenses, other....................... 419 9,593 1,731 -- 11,743
Intercompany receivables (payables)........... 24,074 (31,880) 7,806 -- --
--------- -------- ------- --------- ---------
TOTAL CURRENT ASSETS........................ 42,365 18,281 27,723 -- 88,369
Investment in consolidated subsidiaries......... 213,923 -- -- (213,923) --
Property and equipment, net..................... 1,164 7,267 1,069 -- 9,500
Notes and other receivables, noncurrent......... 240 -- -- -- 240
Goodwill, net................................... 27,568 197,308 638 -- 225,514
Trademarks and other intangible assets, net..... 837 6,216 13 -- 7,066
Deferred income taxes........................... (44,713) 111,920 -- -- 67,207
Deferred financing costs, other................. 13,876 97 712 -- 14,685
--------- -------- ------- --------- ---------
TOTAL ASSETS................................ $ 255,260 $341,089 $30,155 $(213,923) $ 412,581
========= ======== ======= ========= =========
LIABILITIES AND SHAREHOLDERS'
(DEFICIT) EQUITY
CURRENT LIABILITIES
Portion of long-term debt due within one
year........................................ $ 15,321 $ 836 $ -- $ -- $ 16,157
Accounts payable.............................. 492 6,437 1,855 -- 8,784
Accrued liabilities........................... 28,033 20,076 7,450 -- 55,559
Income taxes.................................. (2,739) 19,073 3,527 -- 19,861
Deferred revenue.............................. -- 13,723 1,205 -- 14,928
--------- -------- ------- --------- ---------
TOTAL CURRENT LIABILITIES................... 41,107 60,145 14,037 -- 115,289
Long-term debt................................ 380,858 81,690 -- -- 462,548
Deferred income taxes......................... 2,481 -- 559 -- 3,040
Other......................................... -- 775 115 -- 890
--------- -------- ------- --------- ---------
TOTAL LONG-TERM DEBT AND OTHER
LIABILITIES............................... 383,339 82,465 674 -- 466,478
Redeemable preferred stock.................... 26,746 -- -- -- 26,746
Common stock subject to a Put................. 14,402 -- -- -- 14,402
Shareholders' (deficit) equity................ (210,334) 198,479 15,444 (213,923) (210,334)
--------- -------- ------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS'
(DEFICIT) EQUITY.......................... $ 255,260 $341,089 $30,155 $(213,923) $ 412,581
========= ======== ======= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-53
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL UNAUDITED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 29, 2000
(IN THOUSANDS)
[Enlarge/Download Table]
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
Revenues, net......................... $17,649 $183,716 $34,570 $ -- $235,935
Cost of revenues...................... 2,375 87,957 20,826 -- 111,158
------- -------- ------- -------- --------
Gross profit........................ 15,274 95,759 13,744 -- 124,777
Marketing expenses.................... 1,903 20,031 3,356 -- 25,290
Selling, general and administrative
expenses............................ 15,023 10,052 3,672 -- 28,747
------- -------- ------- -------- --------
Operating (loss) income............. (1,652) 65,676 6,716 -- 70,740
Interest expense (income), net........ 21,191 7,914 (87) -- 29,018
Other (income) expenses, net.......... (6,129) (484) 19 -- (6,594)
Equity in income of consolidated
subsidiaries........................ 27,390 -- -- (27,390) --
Franchise commission income (loss).... 17,100 (15,126) (1,974) -- --
------- -------- ------- -------- --------
Income before income taxes and
minority interest................. 27,776 43,120 4,810 (27,390) 48,316
(Benefit from) provision for income
taxes............................... (3,442) 18,381 1,933 -- 16,872
------- -------- ------- -------- --------
Income before minority interest..... 31,218 24,739 2,877 (27,390) 31,444
Minority interest..................... -- -- 226 -- 226
------- -------- ------- -------- --------
Net income.......................... $31,218 $ 24,739 $ 2,651 $(27,390) $ 31,218
======= ======== ======= ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-54
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL UNAUDITED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(IN THOUSANDS)
[Enlarge/Download Table]
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
Revenues, net......................... $ 2,830 $277,354 $54,092 $ -- $334,276
Cost of revenues...................... 563 119,883 28,698 -- 149,144
------- -------- ------- -------- --------
Gross profit........................ 2,267 157,471 25,394 -- 185,132
Marketing expenses.................... -- 33,769 6,800 -- 40,569
Selling, general and administrative
expenses............................ 9,669 20,929 4,883 -- 35,481
------- -------- ------- -------- --------
Operating (loss) income............. (7,402) 102,773 13,711 -- 109,082
Interest expense (income), net........ 18,919 8,809 (360) -- 27,368
Other expenses, net................... 1,178 2,677 16 -- 3,871
Equity in income of consolidated
subsidiaries........................ 53,193 -- -- (53,193) --
Franchise commission income (loss).... 26,336 (22,957) (3,379) -- --
------- -------- ------- -------- --------
Income before income taxes and
minority interest................. 52,030 68,330 10,676 (53,193) 77,843
Provision for income taxes............ 2,714 21,851 3,892 -- 28,457
------- -------- ------- -------- --------
Income before minority interest..... 49,316 46,479 6,784 (53,193) 49,386
Minority interest..................... -- -- 70 -- 70
------- -------- ------- -------- --------
Net income.......................... $49,316 $ 46,479 $ 6,714 $(53,193) $ 49,316
======= ======== ======= ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-55
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL UNAUDITED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS JULY 29, 2000
(IN THOUSANDS)
[Enlarge/Download Table]
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
Cash provided by (used for) operating
activities............................ $ 54,914 $12,104 $ 1,079 $(28,527) $39,570
-------- ------- ------- -------- -------
Investing activities:
Capital expenditures.................. (235) (744) (335) -- (1,314)
Advances to equity investment......... (4,800) -- -- -- (4,800)
Other items, net...................... (2,143) (740) 44 -- (2,839)
-------- ------- ------- -------- -------
Cash (used for) provided by
investing activities.............. (7,178) (1,484) (291) -- (8,953)
-------- ------- ------- -------- -------
Financing activities:
Net increase (decrease) in short-term
borrowings.......................... 196 (1,396) -- -- (1,200)
Parent company investment in
subsidiaries........................ (25,208) -- -- 25,208 --
Proceeds from borrowings.............. -- -- -- -- --
Payment of dividends.................. -- -- (1,603) 1,603 --
Payments on long-term debt............ (6,625) (435) -- -- (7,060)
Deferred financing costs.............. (165) -- -- -- (165)
Net Parent (settlements) advances..... 2,177 -- 1,217 (1,223) 2,171
-------- ------- ------- -------- -------
Cash (used for) provided by
financing activities.............. (29,625) (1,831) (386) 25,588 (6,254)
-------- ------- ------- -------- -------
Effect of exchange rate changes on cash
and cash equivalents.................. (2,903) (1,686) (873) 2,939 (2,523)
Net increase (decrease) in cash and cash
equivalents........................... 15,208 7,103 (471) -- 21,840
Cash and cash equivalents, beginning of
year.................................. 3,880 21,847 8,719 -- 34,446
-------- ------- ------- -------- -------
Cash and cash equivalents, end of
year.................................. $ 19,088 $28,950 $ 8,248 $ -- $56,286
======== ======= ======= ======== =======
The accompanying notes are an integral part of the consolidated financial
statements.
F-56
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL UNAUDITED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(IN THOUSANDS)
[Enlarge/Download Table]
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
Cash provided by operating activities... $ 27,388 $110,293 $ 8,381 $(53,193) $ 92,869
-------- -------- ------- -------- --------
Investing activities:
Capital expenditures.................. (51) (867) (269) -- (1,187)
Advances to equity investment......... (7,844) -- -- -- (7,844)
Acquisition........................... -- (84,353) -- -- (84,353)
Other items, net...................... (406) (1,041) (85) -- (1,532)
-------- -------- ------- -------- --------
Cash used for investing activities.... (8,301) (86,261) (354) -- (94,916)
-------- -------- ------- -------- --------
Financing activities:
Net (decrease) increase in short-term
borrowings.......................... (566) 309 -- -- (257)
Parent company investment in
subsidiaries........................ (38,047) -- -- 38,047 --
Proceeds from borrowings.............. 60,000 -- -- -- 60,000
Payment of dividends.................. -- (11,585) -- 11,585 --
Payments on long-term debt............ (38,913) (3,822) -- -- (42,735)
Net parent settlements................ -- -- 330 (330) --
Payments to acquire treasury stock.... (12,730) -- -- -- (12,730)
Proceeds from issuance of treasury
stock............................... 430 -- -- -- 430
-------- -------- ------- -------- --------
Cash (used for) provided by financing
activities.......................... (29,826) (15,098) 330 49,302 4,708
-------- -------- ------- -------- --------
Effect of exchange rate changes on cash
and cash equivalents.................. (3,654) (604) (1,175) 3,891 (1,542)
Net (decrease) increase in cash and cash
equivalents........................... (14,393) 8,330 7,182 -- 1,119
Cash and cash equivalents, beginning of
period................................ 26,699 11,191 6,611 -- 44,501
-------- -------- ------- -------- --------
Cash and cash equivalents, end of
period................................ $ 12,306 $ 19,521 $13,793 $ -- $ 45,620
======== ======== ======= ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-57
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Weight Watchers International, Incorporated
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statement of operations, changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Weighco Enterprises, Incorporated and Subsidiaries (the "Company") at
December 30, 2000, and the results of their operations and their cash flows for
the year then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with auditing standards generally accepted in
the United States of America which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
On December 11, 2000, the Company entered into an Asset Purchase Agreement
with Weight Watchers International, Incorporated ("WWI"), under which WWI was to
acquire substantially all of the assets of the Company. The acquisition was
completed on January 16, 2001 and is more fully described in Note 15 to the
consolidated financial statements.
PricewaterhouseCoopers, LLP
March 3, 2001
Charlotte, NC
F-58
WEIGHCO ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 30, 2000
[Download Table]
ASSETS
Current assets
Cash...................................................... $ 6,172,489
Accounts receivable....................................... 25,226
Inventories............................................... 2,139,007
Prepaid member materials.................................. 476,619
Prepaid consulting and other expenses..................... 492,996
-----------
Total current assets.................................... 9,306,337
-----------
Property and equipment, net................................. 1,553,703
-----------
Other assets:
Cash surrender value--life insurance...................... 511,319
Intangible assets, net.................................... 35,647,444
Other non-current assets.................................. 196,254
-----------
Total other assets...................................... 36,355,017
-----------
Total assets............................................ $47,215,057
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable--current portion............................ $ 4,080,000
Accounts payable.......................................... 2,156,604
Accrued expenses.......................................... 6,456,142
Interest payable.......................................... 345,434
Deferred income........................................... 2,694,820
Deferred compensation..................................... 1,000,000
-----------
Total current liabilities............................... 16,733,000
-----------
Long-term liabilities:
Notes payable--net of current portion..................... 21,203,345
-----------
Shareholders' equity:
Common stock--$.331/3 par value, 30,000 shares authorized;
shares issued and 16,783 outstanding.................... 5,593
Additional paid-in capital................................ 3,107,941
Treasury stock--at cost, 2,189 shares..................... (2,189)
Retained earnings......................................... 6,167,367
-----------
Total shareholders' equity.............................. 9,278,712
-----------
Total liabilities and shareholders' equity.............. $47,215,057
===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-59
WEIGHCO ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 30, 2000
[Download Table]
REVENUES:
Meeting income............................................ $51,661,934
Product sales............................................. 8,027,742
-----------
Total revenue........................................... 59,689,676
-----------
COST OF REVENUE:
Meeting and facility expenses............................. 20,579,961
Cost of products sold..................................... 3,889,031
Franchise royalty fees.................................... 5,959,779
-----------
Total cost of revenue................................... 30,428,771
-----------
Gross profit............................................ 29,260,905
OPERATING EXPENSES:
General and administrative expenses....................... 5,934,717
Marketing expense......................................... 4,114,108
Management and incentive compensation (Note 13)........... 3,786,749
Amortization expense...................................... 3,307,040
Acquisition related expenses (Note 15).................... 8,929,493
-----------
Income from operations.................................. 3,188,798
-----------
Other income (expense):
Interest income........................................... 238,858
Interest expense.......................................... (2,430,107)
Loss on sale of franchise................................. (226,945)
Other..................................................... (24,154)
-----------
Total other expense..................................... (2,442,348)
-----------
Net income.............................................. $ 746,450
===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-60
WEIGHCO ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 30, 2000
[Download Table]
OPERATING ACTIVITIES:
Net income................................................ $ 746,450
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization............................. 6,847,022
Loss from sale of franchise............................... 226,945
Changes in:
Accounts receivable..................................... 6,313
Prepaid member materials and expenses................... (249,376)
Inventories............................................. (695,099)
Other non-current assets................................ (168,986)
Accounts payable and accrued expenses................... 4,175,075
Deferred compensation and revenue....................... 1,435,243
-----------
Net cash provided by operating activities................. 12,323,587
-----------
INVESTING ACTIVITIES:
Acquisition of franchises................................. (7,262,815)
Purchase of property and equipment........................ (793,316)
Proceeds from sale of franchise........................... 365,000
-----------
Net cash used by investing activities..................... (7,691,131)
-----------
FINANCING ACTIVITIES:
Shareholder distributions................................. (2,064,426)
Repayment of borrowings and line of credit................ (6,026,914)
Proceeds from borrowings and line of credit............... 3,976,462
Proceeds from common shares issued........................ 153,534
-----------
Net cash used by financing activities....................... (3,961,344)
-----------
Net increase in cash........................................ 671,112
Cash, beginning of year..................................... 5,501,377
-----------
Cash, end of year........................................... $ 6,172,489
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest...................................... $ 2,227,423
===========
Cash paid for franchise taxes............................... $ 120,039
===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-61
WEIGHCO ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 30, 2000
[Enlarge/Download Table]
ADDITIONAL TOTAL
COMMON COMMON PAID-IN TREASURY RETAINED SHAREHOLDERS'
SHARES STOCK CAPITAL STOCK EARNINGS EQUITY
-------- -------- ---------- -------- ----------- -------------
BALANCES, DECEMBER 25, 1999................ 16,400 $5,466 $2,954,534 $(2,189) $ 7,485,343 $10,443,154
Shares issued............................ 383 127 153,407 -- -- 153,534
Net income............................... -- -- -- -- 746,450 746,450
Shareholder distribution................. -- -- -- (2,064,426) (2,064,426)
------ ------ ---------- ------- ----------- -----------
BALANCES, DECEMBER 30, 2000................ 16,783 $5,593 $3,107,941 $(2,189) $ 6,167,367 $ 9,278,712
====== ====== ========== ======= =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-62
WEIGHCO ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 2000
1. NATURE OF BUSINESS
Weighco Enterprises, Inc. (the "Company") was incorporated on January 26,
1988 and was organized under the laws of the State of Delaware. Weighco
Enterprises, Inc., prior to April 28, 2000 was previously known as Weighco of
Florida, Inc. The Company operates and conducts meetings as a Weight Watchers
International ("WWI") franchise in the states of Florida, Georgia, Alabama,
Texas, Oklahoma, North and South Carolina, Washington and Alaska.
On December 11, 2000, the Company entered into an Asset Purchase Agreement
with Weight Watchers International, Inc. ("WWI"), under which WWI was to acquire
substantially all of the assets of the Company. The acquisition was completed on
January 16, 2001 and is further described in Note 15.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Weighco
Enterprises, Inc. and its wholly-owned subsidiaries, Weighco of Southwest, Inc.
and Weight Watchers Northwest, Inc., after elimination of all material
intercompany accounts and transactions.
CASH EQUIVALENTS
The Company considers short-term, highly liquid investments with an original
maturity of three months or less to be cash equivalents. The Company invests
excess cash reserves daily in Repurchase Agreements and Government Securities.
PREPAID MEMBER MATERIALS
Prepaid member materials consists of promotional and educational material
provided to program participants.
INVENTORIES
Inventories, consisting principally of cookbooks, points managers, mugs and
other resale items, are stated at the lower of cost, as determined on an average
cost basis, or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated on the
straight-line method over the estimated useful lives of the assets. 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.
INTANGIBLES
Goodwill, franchise costs and other intangibles arising from acquisitions
are amortized on a straight-line basis over the estimated useful lives of the
assets.
The carrying values of intangible assets are reviewed for impairment by
management at least annually, or whenever changes in circumstances or events
indicate that such carrying values may not be
F-63
WEIGHCO ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 30, 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
recoverable, by assessing the recoverability of such assets through estimated
undiscounted future net cash flows.
REVENUE RECOGNITION
The Company earns revenue by conducting meetings and by selling products and
aids. Revenue is recognized when services are rendered and products are sold.
Deferred revenue, consisting of prepaid lecture income, is recognized in income
over the period earned.
ADVERTISING COSTS
It is the Company's policy to expense advertising costs as incurred.
Advertising costs totalled approximately $3.4 million for the year ended
December 30, 2000.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
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. Actual results could differ from those estimates.
3. ACQUISITIONS
In December 1999, the Company acquired twenty-five (25%) percent of the
outstanding stock of Weight Watchers of British Columbia, Ltd. ("British
Columbia") for $25,000. In October 2000, this investment interest was sold at
cost to a shareholder of the Company.
On March 28, 2000, the Company purchased certain assets and franchise rights
of Weight Watchers of Greater Washington State, Inc. and Weight Watchers of
Alaska, Inc. The transaction was accounted for as a purchase, and accordingly,
the consolidated financial statements of Weighco Enterprises, Inc. include the
results of operations of Weight Watchers of Greater Washington State, Inc. and
Weight Watchers of Alaska, Inc. from the date of acquisition. The franchises
were purchased for $9,330,000 and $650,000, respectively, paid through a
combination of cash ($6,500,000) and the issuance of a note payable to the
seller ($3,480,000). The purchase price was allocated to current assets
($110,000) and intangibles and other assets ($9,870,000) based on the estimated
fair values of assets acquired and liabilities assumed, if any, at the date of
acquisition.
Unaudited sales and operating income of the acquired franchises were
approximately $2.3 million and $315,000, respectively, for the three months
ended March 31, 2000.
The Company capitalized professional fees totaling approximately $113,000
related to these acquisitions. Other expenses, including travel and meals,
totalled approximately $77,000 and were recorded as general and administrative
expenses in the statement of operations.
F-64
WEIGHCO ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 30, 2000
4. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 2000 is summarized as follows:
USEFUL LIVES
[Enlarge/Download Table]
Furniture and fixtures................................... 5--7 years $ 1,268,222
Machinery and equipment.................................. 5--10 years 880,544
Leasehold improvements................................... Term of lease 833,664
-----------
2,982,430
Less accumulated depreciation............................ (1,428,727)
-----------
$ 1,553,703
===========
Depreciation expense totalled $164,648 for the year ended December 30, 2000.
5. INTANGIBLES
Intangibles as of December 31, 2000 are summarized as follows:
USEFUL LIVES
[Download Table]
Franchise costs and tradenames...................... 30--40 years $41,003,392
Goodwill............................................ 40 years 905,129
Noncompete agreements............................... Term of agreement 6,100,000
-----------
48,008,521
Less accumulated amortization....................... (12,361,077)
-----------
$35,647,444
===========
Amortization expense totalled $6,682,374 for the year ended December 30,
2000. Of this amount, $3,375,334 related to write-offs of non-compete agreements
(see Note 15) and has been classified as part of acquisition related expenses.
6. COMMITMENTS
The Company entered into a management agreement with Weight Watchers of
North Carolina, Inc. ("WWNC"). The agreement permits the Company to conduct all
activities contained in the restated franchise agreement with Weight Watchers
International, Inc. ("WWI"). This agreement provides for annual royalty fees of
$350,000, payable in quarterly installments, without interest and secured by a
bank letter of credit. The management agreement was terminated in conjunction
with the acquisition, and WWNC was sold to the Company and included in assets
purchased by WWI.
The Company is obligated, under franchise agreements with WWI, to pay
monthly royalty fees of 10% of the gross receipts from meeting and certain
product sales of the Company. Total royalty fees were approximately $5,182,864
in the year ended December 30, 2000. These agreements were terminated upon the
sale of the Company to WWI.
F-65
WEIGHCO ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 30, 2000
6. COMMITMENTS (CONTINUED)
The Company is obligated under various deferred compensation, incentive
bonus and consulting agreements entered into as part of various franchise
acquisitions. As discussed in Note 15, these agreements were terminated and
settled through various payments upon the sale of the Company to WWI.
7. INCOME TAXES
The Company has elected treatment as a small business corporation (S
Corporation) for Federal and state income tax purposes and accordingly, the
Company has not recorded an income tax provision for the year ended
December 30, 2000 or for any prior periods.
8. CONCENTRATIONS
The Company maintains cash and cash equivalents balances at various
financial institutions, which are insured by the Federal Deposit Insurance
Corporation ("FDIC") up to $100,000. At certain times during the year, the
Company's cash balances may exceed this limit. Cash and cash equivalents held
with financial institutions exceeding FDIC limits was approximately $5,329,000
as of December 30, 2000. The Company has not experienced any losses associated
with these balances.
In the course of its operations, the Company grants trade credits to its
customers. Due to the number and geographic dispersion of its customers, the
Company does not have any significant concentrations of business transacted with
a particular customer. However, the Company purchases substantially all of its
inventory from WWI under the provisions of their various franchise agreements.
9. LINE OF CREDIT
The Company has a revolving credit line of $2.1 million with a bank.
Borrowings under the line of credit accrue interest at 3/4% below the prime rate
(8.75% at December 30, 2000) and is payable on demand. The line of credit is
collateralized by inventories, property and equipment, and customer contacts.
The line of credit expires March 30, 2001. At December 30, 2000, the Company had
no balances outstanding under the line of credit.
F-66
WEIGHCO ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 30, 2000
10. NOTES PAYABLE
Notes payable consist of the following:
[Download Table]
Note payable--H.J. Heinz Company, interest payable annually
each March at 9%, principal installments of $250,000
annually each March, note matures March 2003.............. $ 2,015,000
Bank note payable $33,333 per month, plus interest at prime
minus 1/2% (9% at December 30, 2000), maturing
January 2003 when all outstanding principal and interest
are due................................................... 1,688,345
Bank notes payable in escalating monthly principal payments,
plus interest at prime (9.5% at December 30, 2000),
maturing in October 2005.................................. 14,500,000
Various bank notes payable in monthly installments ranging
from $8,333 to $50,000, over their respective terms, plus
interest at prime minus 1/2% (9% at December 30, 2000),
maturing at various dates through August 2004............. 3,600,000
Note payable to former owners of acquired franchises in
annual installments of $580,000 through March 2006, plus
interest at 8%............................................ 3,480,000
-----------
25,283,345
Less: current portion....................................... 4,080,000
-----------
Long-term portion........................................... $21,203,345
===========
The various notes payable are collateralized by franchise agreements and
various assets of the Company and certain guarantees as defined in the
respective agreements. Certain of these notes contain restrictions, which
include limitations on subsequent indebtedness, prohibitions against guarantees,
limits on shareholder distributions, and future consolidation or merger of the
Company.
Following are the maturities of notes payable for each for the next five
years and in the aggregate as of December 30, 2000:
[Download Table]
2001........................................................ $ 4,080,000
2002........................................................ 4,830,000
2003........................................................ 6,683,337
2004........................................................ 4,530,000
2005........................................................ 4,580,008
Thereafter.................................................. 580,000
-----------
$25,283,345
===========
The outstanding notes payable were paid in full subsequent to year-end in
conjunction with the acquisition of the Company.
F-67
WEIGHCO ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 30, 2000
11. LEASING ARRANGEMENTS
The Company leases space for its executive offices and meeting facilities
under operating leases expiring in various years through 2005. Certain of the
leases contain provisions for renewal at the option of the Company upon
expiration. Following are the approximate annual future minimum lease payments
under noncancelable operating leases having a remaining term in excess of one
year as of December 30, 2000:
[Download Table]
2001........................................................ $2,476,760
2002........................................................ 1,603,661
2003........................................................ 967,129
2004........................................................ 470,986
2005........................................................ 163,029
----------
$5,681,565
==========
Rent expense was approximately $4,657,000 in the year ended December 30,
2000.
12. STOCK INCENTIVE PLAN
The Company has 1995 and 1998 share appreciation plans whereby share
appreciation rights ("SARs") may be granted to officers and others. Under the
terms of the plans, SARs are valued as specified in the Shareholders' Agreement.
The SARs may be exercised in exchange for cash or a combination of cash and the
Company's stock, not to exceed 50% in Company stock (at a value also specified
in the Shareholders' Agreement). Upon grant, the SARs vest at a rate of 20% per
year. The 1995 SARs were fully vested as of December 31, 1999. The 1995 and 1998
SARs may be paid on or before March 31, 2003. In March 2000, settlement for 482
of the 1995 SARs was made in the form of both cash and Company stock.
Compensation expense under the terms of the plans included in operating expenses
totalled $636,724 in the year ended December 30, 2000. In conjunction with the
acquisition of the Company and related termination of these plans, an additional
lump-sum payment was made and included in acquisition related expenses, as
described in Note 15.
13. MANAGEMENT AND INCENTIVE COMPENSATION
Management and incentive compensation consists primarily of amounts paid to
or for a certain shareholder of the Company, certain current and former
franchise owners and a certain officer of the Company. For the year ended
December 30, 2000, management and incentive compensation included in operating
expenses consists of the following:
[Download Table]
Office expense paid to a shareholder........................ $ 139,737
Management fees paid to a shareholder and a former franchise
owner..................................................... 240,000
Rental fees paid to an owner of a Company managed
franchise................................................. 350,004
Key man life insurance premiums............................. 79,284
Stock Appreciation Rights compensation expense.............. 636,724
Incentive compensation paid to a shareholder, a former
franchise owner and an officer of the Company............. 2,341,000
----------
$3,786,749
==========
F-68
WEIGHCO ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 30, 2000
14. RELATED PARTY TRANSACTIONS
The Company has a management agreement with Grant Peacock & Company, Inc.
for financial, management, and administrative services. Grant Peacock &
Company, Inc. is owned by a shareholder of the Company. This agreement has no
expiration date and can be terminated by either party at the end of any fiscal
year. Fees incurred under this agreement totalled $120,000 for the year ended
December 30, 2000. The Company also reimburses Grant Peacock & Company for
certain expenses in performing its management and administrative duties.
Expenses reimbursed for the year ended December 30, 2000 totalled $139,737. The
management agreement was terminated subsequent to year-end upon the acquisition
of the Company by WWI.
Grant Peacock & Company, Inc. is also entitled to an incentive management
fee based on net income of the Company after certain adjustments. Incentive
management fees included in operating results totalled $1,472,000 in the year
ended December 30, 2000. No future payments will be made under this agreement.
Purchases from WWI of inventory and member materials totalled $4.7 million
in the year ended December 30, 2000.
15. ACQUISITION OF THE COMPANY
On December 11, 2000, the Company entered into an Asset Purchase Agreement
with Weight Watchers International, Inc. ("WWI"), under which WWI was to acquire
substantially all of the assets of the Company. In connection with this
agreement, the Company agreed to settle and/or cancel various employment,
compensation and non-compete agreements, the cost of which totalled
approximately $8,929,493 and is included in acquisition related expenses in the
statement of operations for the year ended December 30, 2000 as follows:
[Download Table]
Professional fees........................................... $ 167,638
Incentive compensation paid to an officer of the Company and
a former franchise owner.................................. 5,386,521
Additional amortization expense related to termination of
non-compete agreements.................................... 3,375,334
----------
$8,929,493
==========
The aforementioned acquisition was completed on January 16, 2001.
F-69
Picture of POINTS Calculator
Picture of WeightWatchers.com website page
Weight Watchers Logo
Picture of recipe book
Pictures of Just 2 POINTS snack bars
Picture of Weight Watchers candies
Picture of Weight Watchers book by Sarah Ferguson, the Duchess of York
[LOGO]
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The actual and estimated expenses in connection with the offering, all of
which will be borne by Weight Watchers International, Inc. are as follows:
[Download Table]
SEC Registration Fee........................................ $ 115,058
Printing and Engraving Expenses............................. 275,000
Legal Fees.................................................. 1,000,000
Accounting Fees............................................. 500,000
NYSE Listing Fees........................................... 250,000
NASD Filing Fee............................................. 30,500
Miscellaneous............................................... 50,000
----------
Total....................................................... $2,220,558
==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our articles of incorporation provide for the indemnification of our
directors and officers in a variety of circumstances, which may include
indemnification for liabilities under the Securities Act. Under sections
13.1-697 and 13.1-702 of the Virginia Stock Corporation Act, a Virginia
corporation generally is authorized to indemnify its directors and officers in
civil and criminal actions if they acted in good faith and believed their
conduct to be in the best interests of the corporation and, in the case of
criminal actions, had no reasonable cause to believe that the conduct was
unlawful. Our articles of incorporation require indemnification of directors and
officers with respect to certain liabilities and expenses imposed upon them by
reason of having been a director or officer, except in the case of willful
misconduct or a knowing violation of criminal law. Weight Watchers also carries
insurance on behalf of its directors, officers, employees or agents that may
cover liabilities under the Securities Act. In addition, the Virginia Stock
Corporation Act and our articles of incorporation eliminate the liability for
monetary damages of a director officer in a shareholder or derivative
proceeding. This elimination of liability will not apply in the event of willful
misconduct or a knowing violation of criminal law or any federal or state
securities law. Sections 13.1-692.1 and 13.1-696 through 704 of the Virginia
Stock Corporation Act are incorporated into this paragraph by reference.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During the three years preceding the filing of this registration statement,
the Registrant sold shares of and issued options for its common stock and
preferred stock in the amounts, at the times, and for the aggregate amounts of
consideration listed below without registration under the Securities Act of
1933. Exemption from registration under the Securities Act for each of the
following sales is claimed under Section 4(2) of the Securities Act because each
of the transactions was by the issuer and did not involve a public offering:
On September 29, 1999, in connection with a stock split, H.J. Heinz Company
received 276,423,607 shares of common stock of the Registrant.
On December 17, 1999, the Registrant issued to a number of its employees
options to purchase a total of 3,723,822 shares of its common stock at an
exercise price of $2.13 per share.
On December 17, 1999, the Registrant issued to a non-employee director
options to purchase a total of 282,322 shares of its common stock at an exercise
price of $2.13 per share.
On April 28, 2000, the Registrant issued to a number of its employees
options to purchase a total of 927,426 shares of its common stock at an exercise
price of $2.13 per share.
II-1
On June 15, 2000, the Registrant issued to an employee director options to
purchase a total of 282,322 shares of its common stock at an exercise price of
$2.13 per share.
On July 5, 2000, the Registrant issued to an employee options to purchase a
total of 141,161 shares of its common stock at an exercise price of $2.13 per
share.
On September 1, 2000, the Registrant issued 23,527 shares of common stock to
an employee for an aggregate consideration of $50,000, and issued to that
employee options to purchase a total of 70,580 shares of its common stock at an
exercise price of $2.13 per share.
On October 1, 2000, the Registrant issued 21,174 shares of common stock to
an employee for an aggregate consideration of $49,500 and issued to that
employee options to purchase a total of 63,522 shares of its common stock at an
exercise price of $2.34.
On February 21, 2001, the Registrant issued to a number of its employees
options to purchase a total of 42,348 shares of its common stock at an exercise
price of $4.04 per share.
On May 7, 2001, the Registrant issued 94,107 shares of common stock to an
employee for an aggregate consideration of $380,000 and issued to that employee
options to purchase a total of 282,322 shares of its common stock at an exercise
price of $4.04.
On July 9, 2001, the Registrant issued to a number of its employees options
to purchase a total of 272,440 shares of its common stock at an exercise price
of $4.04 per share.
On August 16, 2001, the Registrant issued 23,527 shares of common stock to
an employee for an aggregate consideration of $95,000 and issued to that
employee options to purchase a total of 70,580 shares of its common stock at an
exercise price of $4.04.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
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EXHIBIT NO. DESCRIPTION OF EXHIBIT
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1.1* Form of Underwriting Agreement.
3.1* Form of Second Amended and Restated Articles of
Incorporation of Weight Watchers International, Inc.
3.2* Form of Second Amended and Restated Bylaws of Weight
Watchers International, Inc.
4.1 Senior Subordinated Dollar Notes Indenture, dated as of
September 29, 1999, between Weight Watchers International,
Inc. and Norwest Bank Minnesota, National Association
(Incorporated by reference to Exhibit 4.1 of Weight Watchers
International, Inc.'s Form S-4 Registration Statement No.
333-92005).
4.2 Guarantee Agreement, dated as of March 3, 2000, given by 58
WW Food Corp., Waist Watchers, Inc., Weight Watchers Camps,
Inc. W.W. Camps and Spas, Inc., Weight Watchers Direct,
Inc., W/W Twentyfirst Corporation, W.W. Weight Reduction
Services, Inc., W.W.I. European Services, Ltd., W.W.
Inventory Service Corp., Weight Watchers North America,
Inc., Weight Watchers UK Holdings Ltd, Weight Watchers
International Holdings Ltd, Weight Watchers U.K. Limited,
Weight Watchers (Accessories & Publications) Ltd, Weight
Watchers (Food Products) Limited, Weight Watchers New
Zealand Limited, Weight Watchers International Pty Limited,
Fortuity Pty Ltd and Gutbusters Pty Ltd. (Incorporated by
reference to Exhibit 4.2 of Weight Watchers International,
Inc.'s Form S-4 Registration Statement No. 333-92005).
4.3 Senior Subordinated Euro Notes Indenture, dated as of
September 29, 1999, between Weight Watchers International
Inc. and Norwest Bank Minnesota, National Association
(Incorporated by reference to Exhibit 4.3 of Weight Watchers
International, Inc.'s Form S-4 Registration Statement No.
333-92005).
II-2
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EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
4.4 Guarantee Agreement, dated as of March 3, 2000, given by 58
WW Food Corp., Waist Watchers, Inc., Weight Watchers Camps,
Inc. W.W. Camps and Spas, Inc., Weight Watchers Direct,
Inc., W/W Twentyfirst Corporation, W.W. Weight Reduction
Services, Inc., W.W.I. European Services, Ltd., W.W.
Inventory Service Corp., Weight Watchers North America,
Inc., Weight Watchers UK Holdings Ltd, Weight Watchers
International Holdings Ltd, Weight Watchers U.K. Limited,
Weight Watchers (Accessories & Publications) Ltd, Weight
Watchers (Food Products) Limited, Weight Watchers New
Zealand Limited, Weight Watchers International Pty Limited,
Fortuity Pty Ltd and Gutbusters Pty Ltd. (Incorporated by
reference to Exhibit 4.4 of Weight Watchers International,
Inc.'s Form S-4 Registration Statement No. 333-92005).
4.5* Form of Shareholders' Rights Plan.
4.6* Specimen of stock certificate representing Weight Watchers
International, Inc.'s common stock, no par value.
5.1** Opinion of Hunton & Williams.
10.1* Amended and Restated Credit Agreement, dated as of
January 16, 2001, among Weight Watchers International, Inc.,
WW Funding Corp., Credit Suisse First Boston, BHF (USA)
Capital Corporation, The Bank of Nova Scotia and various
financial institutions.
10.2 Preferred Stockholders' Agreement, dated as of September 29,
1999, among Weight Watchers International, Inc., Artal
Luxembourg S.A. and H.J. Heinz Company (Incorporated by
reference to Exhibit 10.2 of Weight Watchers International,
Inc.'s Form S-4 Registration Statement No. 333-92005).
10.3 Stockholders' Agreement, dated as of September 29, 1999,
among Weight Watchers International, Inc., Artal Luxembourg
S.A. and H.J. Heinz Company (Incorporated by reference to
Exhibit 10.3 of Weight Watchers International, Inc.'s Form
S-4 Registration Statement No. 333-92005).
10.4 License Agreement, dated as of September 29, 1999, between
WW Foods, LLC and Weight Watchers International, Inc.
(Incorporated by reference to Exhibit 10.4 of Weight
Watchers International, Inc.'s Form S-4 Registration
Statement No. 333-92005).
10.5 License Agreement, dated as of September 29, 1999, between
Weight Watchers International, Inc. and H.J. Heinz Company
(Incorporated by reference to Exhibit 10.5 of Weight
Watchers International, Inc.'s Form S-4 Registration
Statement No. 333-92005).
10.6 License Agreement, dated as of September 29, 1999, between
WW Foods, LLC and H.J. Heinz Company (Incorporated by
reference to Exhibit 10.6 of Weight Watchers International,
Inc.'s Form S-4 Registration Statement No. 333-92005).
10.7 LLC Agreement, dated as of September 29, 1999, between H.J.
Heinz Company and Weight Watchers International Inc.
(Incorporated by reference to Exhibit 10.7 of Weight
Watchers International, Inc.'s Form S-4 Registration
Statement No. 333-92005).
10.8 Operating Agreement, dated as of September 29, 1999, between
Weight Watchers International, Inc. and H.J. Heinz Company
(Incorporated by reference to Exhibit 10.8 of Weight
Watchers International, Inc.'s Form S-4 Registration
Statement No. 333-92005).
10.9** Stockholders' Agreement, dated as of September 30, 1999,
among Weight Watchers International, Inc., Artal
Luxembourg S.A., Merchant Capital, Inc., Logo Incorporated
Pty. Ltd., Longisland International Limited, Envoy Partners
and Scotiabanc, Inc.
10.10 Registration Rights Agreement, dated as of September 29,
1999, among WeightWatchers.com, Inc., Weight Watchers
International, Inc., H.J. Heinz Company and Artal Luxembourg
S.A. (Incorporated by reference to Exhibit 10.10 of Weight
Watchers International, Inc.'s Form S-4 Registration
Statement No. 333-92005).
II-3
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EXHIBIT NO. DESCRIPTION OF EXHIBIT
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10.11 Stockholders' Agreement, dated as of September 29, 1999,
among WeightWatchers.com, Weight Watchers International,
Inc., Artal Luxembourg S.A., H.J. Heinz Company
(Incorporated by reference to Exhibit 10.11 of Weight
Watchers International, Inc.'s Form S-4 Registration
Statement No. 333-92005).
10.12 Letter Agreement, dated as of September 29, 1999, between
Weight Watchers International, Inc. and The Invus Group,
Ltd. (Incorporated by reference to Exhibit 10.12 of Weight
Watchers International, Inc.'s Form S-4 Registration
Statement No. 333-92005).
10.13 Agreement of Lease, dated as of August 1, 1995, between
Industrial & Research Associates Co. and Weight Watchers
International, Inc. (Incorporated by reference to Exhibit
10.13 of Weight Watchers International, Inc.'s Form S-4
Registration Statement No. 333-92005).
10.14 Lease Agreement, dated as of April 1, 1997, between Junto
Investments and Weight Watchers North America, Inc.
(Incorporated by reference to Exhibit 10.14 of Weight
Watchers International, Inc.'s Form S-4 Registration
Statement No. 333-92005).
10.15 Lease Agreement, dated as of August 31, 1995, between 89
State Line Limited Partnership and Weight Watchers North
America, Inc. (Incorporated by reference to Exhibit 10.15 of
Weight Watchers International, Inc.'s Form S-4 Registration
Statement No. 333-92005).
10.16 Weight Watchers Savings Plan, dated as of October 3, 1999
(Incorporated by reference to Exhibit 10.17 filed with
Weight Watchers International, Inc.'s Annual Report on
Form 10-K for the fiscal year ended April 29, 2000).
10.17 Weight Watchers Executive Profit Sharing Plan, dated as of
October 4, 1999 (Incorporated by reference to Exhibit 10.18
filed with Weight Watchers International, Inc.'s Annual
Report on Form 10-K for the fiscal year ended April 29,
2000).
10.18 1999 Stock Purchase and Option Plan of Weight Watchers
International, Inc. and Subsidiaries (Incorporated by
reference to Exhibit 10.19 filed with the Weight Watchers
International, Inc.'s Annual Report on Form 10-K for the
fiscal year ended April 29, 2000).
10.19 Weight Watchers.com Stock Incentive Plan of Weight Watchers
International, Inc. and Subsidiaries (Incorporated by
reference to Exhibit 10.20 filed with Weight Watchers
International, Inc.'s Annual Report on Form 10-K for the
fiscal year ended April 29, 2000).
10.20** Warrant Agreement, dated as of November 24, 1999, between
WeightWatchers.com, Inc. and Weight Watchers International,
Inc.
10.21** Warrant Certificate of WeightWatchers.com, Inc. No. 1, dated
as of November 24, 1999.
10.22 Warrant Agreement, dated as of October 1, 2000, between
WeightWatchers.com, Inc. and Weight Watchers International,
Inc. (Incorporated by reference to Exhibit 10.2 filed with
Weight Watchers International, Inc.'s Quarterly Report on
Form 10-Q for the quarterly period ended October 28, 2000).
10.23 Warrant Certificate of WeightWatchers.com, Inc. No. 2, dated
as of October 1, 2000 (Incorporated by reference to
Exhibit 10.2 filed with Weight Watchers International,
Inc.'s Quarterly Report on Form 10-Q for the quarterly
period ended October 28, 2000).
10.24** Second Amended and Restated Note, dated as of September 10,
2001, by WeightWatchers.com, Inc. to Weight Watchers
International, Inc.
10.25 Warrant Agreement, dated as of May 3, 2001, between
WeightWatchers.com, Inc. and Weight Watchers International,
Inc. (Incorporated by reference to Exhibit 10.2 filed with
Weight Watchers International, Inc.'s Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 2001).
10.26 Warrant Certificate of WeightWatchers.com, Inc., No. 3,
dated as of May 3, 2001 (Incorporated by reference to
Exhibit 10.3 filed with Weight Watchers International,
Inc.'s Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 2001).
II-4
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EXHIBIT NO. DESCRIPTION OF EXHIBIT
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10.27 Put/Call Agreement, dated April 18, 2001, between Weight
Watchers International, Inc. and H.J. Heinz Company
(Incorporated by reference to Exhibit 10.4 filed with Weight
Watchers International, Inc.'s Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 2001).
10.28* Amendment No. 1 to Credit Agreement, dated as of April 26,
2001, among Weight Watchers International, Inc., WW Funding
Corp., Credit Suisse First Boston, BHF (USA) Capital
Corporation, The Bank of Nova Scotia and various financial
institutions.
10.29** Warrant Agreement, dated as of September 10, 2001, between
WeightWatchers.com, Inc. and WeightWatchers.com, Inc. and
Weight Watchers International, Inc.
10.30** Warrant Certificate of WeightWatchers.com, Inc., No. 4,
dated as of September 10, 2001.
10.31** Second Amended and Restated Collateral Assignment and
Security Agreement, dated as of September 10, 2001, by
WeightWatchers.com, Inc. in favor of Weight Watchers
International, Inc.
10.32* Termination Agreement between Weight Watchers International,
Inc. and Artal Luxembourg S.A.
10.33** Amended and Restated Co-Pack Agreement between Weight
Watchers International, Inc. and Nellson
Nutraceutical, Inc.
10.34* Form of Intellectual Property License Agreement between
Weight Watchers International, Inc. and WeightWatchers.com,
Inc.
10.35* Form of Service Agreement between Weight Watchers
International, Inc. and WeightWatchers.com, Inc.
10.36* Form of Corporate Agreement between Weight Watchers
International, Inc. and Artal Luxembourg S.A.
10.37** Guaranty of Sublease, dated as of September 12, 2000, by
Weight Watchers International, Inc. of the Agreement of
Sublease between RDR Associates, Inc. and
WeightWatchers.com, Inc.
10.38** Registration Rights Agreement, dated as of September 29,
1999, among Weight Watchers International, Inc., H.J. Heinz
Company and Artal Luxembourg S.A.
21** List of Subsidiaries.
23.1 Consent of Hunton & Williams (included in Exhibit 5.1).
23.2** Consent of PricewaterhouseCoopers LLP, Independent
Accountants, relating to Weight Watchers International,
Inc.'s financial statements.
23.3** Consent of PricewaterhouseCoopers LLP, Independent
Accountants, relating to financial statements of Weighco
Enterprises, Inc. and Subsidiaries.
24 Power of Attorney (Previously filed).
------------------------
* To be filed by amendment.
** Filed herewith.
(B) FINANCIAL STATEMENT SCHEDULE
Schedule II--Valuation and Qualifying Accounts--Period from December 30,
2000, and years ended December 30, 2000, April 23, 2000 and April 24, 1999 on
page II-7.
II-5
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Weight Watchers International, Inc.:
Our audits of the consolidated financial statements referred to in our
report dated March 2, 2001 appearing elsewhere in this Registration Statement
also included an audit of the financial statement schedule listed in Item 16(b)
of this Form S-1. In our opinion, this financial statement schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
New York, New York
March 2, 2001
II-6
WEIGHT WATCHERS INTERNATIONAL, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
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BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
PERIOD EXPENSES DEDUCTIONS(1) PERIOD
------------ ---------- ------------- ----------
EIGHT MONTH PERIOD ENDED DECEMBER 30, 2000
Allowance for doubtful accounts............... $ 609 $ 198 $ (10) $ 797
Inventory reserves, other..................... 1,557 3,993 (3,018) 2,532
FISCAL YEAR ENDED APRIL 29, 2000
Allowance for doubtful accounts............... $ 994 $ (385) $ -- $ 609
Inventory reserves, other..................... 1,436 3,360 (3,239) 1,557
FISCAL YEAR ENDED APRIL 24, 1999
Allowance for doubtful accounts............... $ 876 $ 118 $ -- $ 994
Inventory reserves, other..................... 3,961 3,910 (6,435) 1,436
FISCAL YEAR ENDED APRIL 25, 1998
Allowance for doubtful accounts............... $ 733 $ 143 $ -- $ 876
Inventory reserves, other..................... 472 4,505 (1,016) 3,961
------------------------
(1) Primarily represents the utilization of established reserves, net of
recoveries.
II-7
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized on October 29, 2001.
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WEIGHT WATCHERS INTERNATIONAL, INC.
By: *
-----------------------------------------
Linda Huett
President, Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Act, as amended, this
Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities indicated on the 29th day of October, 2001.
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SIGNATURE TITLE
--------- -----
* President, Chief Executive Officer and
------------------------------------------- Director
Linda Huett (PRINCIPAL EXECUTIVE OFFICER)
*
------------------------------------------- Vice President and Chief Financial Officer
Thomas S. Kiritsis (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
*
------------------------------------------- Chairman of the Board of Directors
Raymond Debbane
/s/ SACHA LAINOVIC
------------------------------------------- Director
Sacha Lainovic
*
------------------------------------------- Director
Christopher J. Sobecki
*
------------------------------------------- Director
Jonas M. Fajgenbaum
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*By: /s/ SACHA LAINOVIC
--------------------------------------
ATTORNEY-IN-FACT
II-9
Dates Referenced Herein and Documents Incorporated by Reference
3 Subsequent Filings that Reference this Filing
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