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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 2002
Commission File No. 000-03389
WEIGHT WATCHERS INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Virginia 11-6040273
- ----------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
175 Crossways Park West, Woodbury, New York 11797-2055
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (516) 390-1400
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
The number of common shares outstanding as of July 31, 2002 was
106,088,546.
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
--------
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets as of June 29, 2002 and December 29, 2001 2
Unaudited Consolidated Statements of Operations for the three months ended
June 29, 2002 and June 30, 2001 3
Unaudited Consolidated Statements of Operations for the six months ended
June 29, 2002 and June 30, 2001 4
Unaudited Consolidated Statements of Changes in Shareholders' Deficit and
Comprehensive Income for the six months ended June 29, 2002, and for the
fiscal year ended December 29, 2001 5
Unaudited Consolidated Statements of Cash Flows for the six months ended
June 29, 2002 and June 30, 2001 6
Notes to Unaudited Consolidated Financial Statements 7 - 23
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 24 - 31
Item 3. Quantitative and Qualitative Disclosures About Market Risk 32
Part II. OTHER INFORMATION 33 - 34
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters To a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
2
ITEM 1. FINANCIAL STATEMENTS
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNE 29, DECEMBER 29,
2002 2001
----------- ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 56,380 $ 23,338
Receivables, net 15,806 13,619
Inventories, net 21,231 26,205
Prepaid expenses and other current assets 21,967 20,717
----------- ------------
TOTAL CURRENT ASSETS 115,384 83,879
Property and equipment, net 11,427 10,725
Notes and other receivables, noncurrent 243 325
Goodwill, net 282,084 234,302
Trademarks and other intangible assets, net 7,005 6,863
Deferred income taxes 132,304 136,281
Deferred financing costs, other 9,957 10,473
----------- ------------
TOTAL ASSETS $ 558,404 $ 482,848
=========== ============
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Portion of long-term debt due within one year $ 16,129 $ 15,699
Accounts payable 15,251 17,698
Accrued liabilities 53,589 52,454
Income taxes 12,203 9,139
Deferred revenue 20,088 13,020
----------- ------------
TOTAL CURRENT LIABILITIES 117,260 108,010
Long-term debt 461,015 458,320
Deferred income taxes 3,255 3,169
Other 637 870
----------- ------------
TOTAL LONG-TERM DEBT AND OTHER LIABILITIES 464,907 462,359
Redeemable preferred stock - 25,996
SHAREHOLDERS' DEFICIT
Common stock, $0 par; 1,000,000 shares authorized; 111,988 shares issued;
105,978 shares outstanding at June 29, 2002 and 105,500 shares at December 29, 2001 - -
Treasury stock, at cost, 6,010 shares at June 29, 2002 and 6,488 shares at December 29, 2001 (24,268) (26,196)
Accumulated income (deficit) 6,044 (73,998)
Accumulated other comprehensive loss (5,539) (13,323)
----------- ------------
TOTAL SHAREHOLDERS' DEFICIT (23,763) (113,517)
----------- ------------
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' DEFICIT 558,404 $ 482,848
=========== ============
The accompanying notes are an integral part of the consolidated financial
statements.
3
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
-----------------------------
JUNE 29, JUNE 30,
2002 2001
------------ -------------
(UNAUDITED)
Meeting fees, net $ 141,441 $ 108,639
Product sales and other, net 76,452 53,686
------------ -------------
Revenues, net 217,893 162,325
Cost of revenues 96,012 71,701
------------ -------------
Gross profit 121,881 90,624
Marketing expenses 17,135 13,469
Selling, general and administrative expenses 14,225 19,659
------------ -------------
Operating income 90,521 57,496
Interest expense, net 10,405 13,248
Other expenses, net 12,796 1,516
------------ -------------
Income before income taxes and minority interest 67,320 42,732
Provision for income taxes 26,117 16,642
------------ -------------
Income before minority interest 41,203 26,090
Minority interest (17) 12
------------ -------------
Net income $ 41,220 $ 26,078
============ =============
Preferred stock dividends - 375
------------ -------------
Net income available to common shareholders $ 41,220 $ 25,703
============ =============
Net income per share:
Basic $ 0.39 $ 0.23
============ =============
Diluted $ 0.38 $ 0.23
============ =============
Weighted average common shares outstanding:
Basic 105,883 109,943
============ =============
Diluted 108,180 111,688
============ =============
The accompanying notes are an integral part of the consolidated financial
statements.
4
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIX MONTHS ENDED
---------------------------
JUNE 29, JUNE 30,
2002 2001
------------ ------------
(UNAUDITED)
Meeting fees, net $ 275,797 $ 220,085
Product sales and other, net 154,599 114,191
------------ ------------
Revenues, net 430,396 334,276
Cost of revenues 192,029 149,144
------------ ------------
Gross profit 238,367 185,132
Marketing expenses 46,460 40,569
Selling, general and administrative expenses 30,330 38,822
------------ ------------
Operating income 161,577 105,741
Interest expense, net 21,219 27,368
Other expenses, net 12,175 530
------------ ------------
Income before income taxes and minority interest 128,183 77,843
Provision for income taxes 49,670 28,457
------------ ------------
Income before minority interest 78,513 49,386
Minority interest 9 70
------------ ------------
Net income $ 78,504 $ 49,316
============ ============
Preferred stock dividends 254 750
------------ ------------
Net income available to common shareholders $ 78,250 $ 48,566
============ ============
Net income per share:
Basic $ 0.74 $ 0.44
============ ============
Diluted $ 0.72 $ 0.43
============ ============
Weighted average common shares outstanding:
Basic 105,761 110,965
============ ============
Diluted 108,180 112,601
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
5
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' DEFICIT AND COMPREHENSIVE INCOME
(IN THOUSANDS)
ACCUMULATED
COMMON STOCK TREASURY STOCK OTHER ACCUMULATED
---------------------- -------------------- COMPREHENSIVE INCOME
SHARES AMOUNT SHARES AMOUNT LOSS (DEFICIT) TOTAL
---------- --------- -------- --------- ------------ ---------- -----------
Balance at December 30, 2000 111,988 - - - $ (6,271) $ (216,507) $ (222,778)
Comprehensive Income:
Net income 147,187 147,187
Translation adjustment (3,132) (3,132)
Change in fair value of
derivatives accounted for as
hedges (3,920) (3,920)
-----------
Total Comprehensive Income 140,135
-----------
Preferred stock dividend (1,500) (1,500)
Purchase of treasury stock 6,719 $ (27,132) - (27,132)
Stock options exercised (93) 375 (177) 198
Sale of common stock (138) 561 (36) 525
Cost of public equity offering (2,965) (2,965)
---------- --------- -------- --------- ----------- ---------- -----------
Balance at December 29, 2001 111,988 - 6,488 (26,196) (13,323) (73,998) (113,517)
Comprehensive Income:
Net income 78,504 78,504
Translation adjustment 7,514 7,514
Change in fair value of
derivatives accounted for as
hedges 270 270
-----------
Total Comprehensive Income 86,288
-----------
Preferred stock dividend (254) (254)
Stock options exercised (478) 1,928 (880) 1,048
Tax benefit of stock options
exercised 2,672 2,672
---------- --------- -------- --------- ------------ ---------- -----------
Balance at June 29, 2002 111,988 $ - 6,010 $ (24,268) $ (5,539) $ 6,044 $ (23,763)
========== ========= ======== ========= ============ ========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
6
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS ENDED
----------------------------
JUNE 29, JUNE 30,
2002 2001
------------ ------------
(UNAUDITED)
Cash provided by operating activities $ 113,030 $ 92,869
------------ ------------
Investing activities:
Capital expenditures (2,075) (1,187)
Advances and interest in equity investment - (7,844)
Acquisitions (46,548) (84,353)
Other items, net (202) (1,532)
------------ ------------
Cash used for investing activities (48,825) (94,916)
------------ ------------
Financing activities:
Net decrease in short-term borrowings (570) (257)
Proceeds from borrowings 58,500 60,000
Payment of dividends (1,249) -
Payments of long-term debt (66,134) (42,735)
Redemption of redeemable preferred stock (25,000) -
Proceeds from stock options exercised 1,048 -
Purchase of treasury stock - (12,730)
Proceeds from sale of common stock - 430
------------ ------------
Cash (used for) provided by financing activities (33,405) 4,708
------------ ------------
Effect of exchange rate changes on cash and cash equivalents 2,242 (1,542)
Net increase in cash and cash equivalents 33,042 1,119
Cash and cash equivalents, beginning of period 23,338 44,501
------------ ------------
Cash and cash equivalents, end of period $ 56,380 $ 45,620
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
7
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION
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.
The Management's Discussion and Analysis of Financial Condition and
Results of Operations which follows these notes contains additional
information on the results of operations, the financial position and cash
flows of the Company. Those comments should be read in conjunction with
these notes. The Company's Annual Report on Form 10-K for the fiscal year
ended December 29, 2001 includes additional information about the Company,
its results of operations, its financial position and its cash flows, and
should be read in conjunction with this Quarterly Report on Form 10-Q.
RECENTLY ISSUED ACCOUNTING STANDARDS:
In June 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards, or SFAS No. 142, "Goodwill and
Other Intangible Assets." SFAS No. 142 addresses the mandatory use of the
purchase method of accounting for business combinations, elimination of
indefinite life goodwill amortization, a revised framework for testing
goodwill, impairment at a "reporting unit" level and new criteria for the
identification and potential amortization of other intangible assets. The
Company adopted SFAS No. 142 on December 30, 2001. See Note 3.
In August 2001, the Financial Accounting Standards Board issued SFAS
No. 143, "Accounting for Asset Retirement Obligations," and SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No.
143 addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," and the accounting and reporting provisions of AICPA Accounting
Principles Board Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions,"
and addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. The Company adopted SFAS No. 144 on December
30, 2001 and will adopt SFAS No. 143 on December 29, 2002. The adoption of
SFAS No. 144 did not have a material impact on the Company's consolidated
financial position or results of operations, nor does the Company expect
the adoption of SFAS No. 143 to have any such material impact.
RECLASSIFICATION:
Certain prior year amounts have been reclassified to conform to the
current year presentation.
8
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. ACQUISITIONS
On January 18, 2002, the Company completed the acquisition of one of
its franchisees, Weight Watchers of North Jersey, Inc., pursuant to the
terms of an Asset Purchase Agreement executed on December 31, 2001 among
Weight Watchers of North Jersey, Inc., the Company and Weight Watchers
North America, Inc., a wholly-owned subsidiary of the Company.
Substantially all of the purchase price in excess of the net assets
acquired has been recorded as goodwill and other intangible assets. The
purchase price for the acquisition was $46,500. The acquisition was
financed through additional borrowings from the Company's Revolving Credit
Facility under its Amended and Restated Credit Agreement, as amended on
January 16, 2001 and December 21, 2001 (the "Credit Facility"). This was
subsequently repaid by the end of the second quarter 2002. See Note 4.
On September 4, 2001, the Company completed the acquisition of Weight
Watchers of Oregon, Inc., for an aggregate purchase price of $13,500.
Substantially all of the purchase price in excess of the net assets
acquired was recorded as goodwill.
On January 16, 2001, the Company completed the acquisition of the
Company's franchised territories and certain business assets of Weighco
Enterprises, Inc., Weighco of Northwest, Inc., and Weighco of Southwest,
Inc. ("Weighco"), for an aggregate purchase price of $83,800 plus
acquisition costs of $577. Assets acquired include inventory ($1,884) and
property and equipment ($1,801). The excess of investment over the net book
value of assets acquired at the date of acquisition resulted in goodwill of
$80,692. The acquisition was financed through additional borrowings of
$60,000 obtained pursuant to the Credit Facility, and cash from operations.
Subsequent to June 29, 2002, the Company acquired the assets of one of
its franchisees, Weight Watchers of San Diego and The Inland Empire, Inc.
See Note 12.
These acquisitions have been accounted for under the purchase method
of accounting and accordingly, earnings have been included in the
consolidated operating results of the Company since the date of
acquisition.
9
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. INTANGIBLE ASSETS
In accordance with SFAS No. 142, the Company no longer amortizes
goodwill. The Company performed a fair value impairment test as of December
30, 2001 on its goodwill which determined that no impairment loss was
necessary. Unamortized goodwill is due mainly to acquisitions of the
Company's franchised territories. For the six months ended June 29, 2002,
goodwill increased due to the acquisition of Weight Watchers of North
Jersey, Inc. and due to the translation of the Company's foreign
subsidiaries into U.S. Dollars of $46,309 and $1,473, respectively.
Also, in accordance with SFAS No. 142, aggregate amortization expense
for definite lived intangible assets was recorded in the amounts of $212
and $464 for the three and six months ended June 29, 2002, respectively.
Aggregate amortization expense of definite lived intangible assets for the
three and six months ended June 30, 2001 was $238 and $365, respectively.
The carrying amount of amortized intangible assets as of June 29, 2002
and December 29, 2001 was as follows:
JUNE 29, 2002 DECEMBER 29, 2001
-------------------------- -------------------------
GROSS GROSS
CARRYING ACCUMULATED CARRYING ACCUMULATED AMORTIZATION
AMOUNT AMORTIZATION AMOUNT AMORTIZATION PERIOD
---------- ------------ --------- ------------ -------------
Trademarks and
other $ 21,645 $ 19,163 $ 21,238 $ 18,659 3 - 5 years
Estimated amortization expense of definite lived intangible assets for
the next five fiscal years is as follows:
Remainder of 2002 $ 478
2003 $ 690
2004 $ 621
2005 $ 474
2006 $ 79
10
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
As required by SFAS No. 142, the results for the three and six months
ended June 30, 2001 have not been restated. A reconciliation of net income,
as if SFAS No. 142 had been adopted, is presented below for the three and
six months ended June 29, 2002 and June 30, 2001:
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------- -------------------------
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
2002 2001 2002 2001
----------- ----------- ----------- -----------
Reported net income available to common shareholders $ 41,220 $ 25,703 $ 78,250 $ 48,566
Addback: goodwill amortization (net of tax) - $ 1,627 - $ 3,079
----------- ----------- ----------- -----------
Adjusted net income available to common shareholders $ 41,220 $ 27,330 $ 78,250 $ 51,645
=========== =========== =========== ===========
Basic earnings per share:
Reported net income available to common shareholders $ 0.39 $ 0.23 $ 0.74 $ 0.44
Addback: goodwill amortization (net of tax) - 0.01 - 0.03
----------- ----------- ----------- -----------
Adjusted net income available to common shareholders $ 0.39 $ 0.24 $ 0.74 $ 0.47
=========== =========== =========== ===========
Diluted earnings per share:
Reported net income available to common shareholders $ 0.38 $ 0.23 $ 0.72 $ 0.43
Addback: goodwill amortization (net of tax) - 0.01 - 0.03
----------- ----------- ----------- -----------
Adjusted net income available to common shareholders $ 0.38 $ 0.24 $ 0.72 $ 0.46
=========== =========== =========== ===========
11
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
4. LONG-TERM DEBT
In connection with the Transaction (See Note 5), the Company entered
into the Credit Facility. As amended on January 16, 2001, the Credit
Facility provided for (i) a $90,000 term loan A facility ("Term Loan A"),
(ii) a $75,000 term loan B facility ("Term Loan B"), (iii) an $87,000
transferable loan certificate ("TLC"), (iv) a $20,000 Term loan D facility
("Term Loan D") and (v) a revolving credit facility with borrowings up to
$45,000 ("Revolving Credit Facility"). On December 21, 2001, the Credit
Facility was refinanced as follows: (i) Term Loan B, term Loan D and the
TLC in the amount of $71,000, $19,000 and $82,000, respectively, were
repaid and replaced with a new Term Loan B of $108,000 and a new TLC of
$64,000. Borrowings under the Credit Facility are paid quarterly and bear
interest at rates which varied through the three and six months ended June
29, 2002 from 3.72% to 5.5%.
In addition, as part of the Transaction, the Company issued 150,000
USD denominated and 100,000 EUR denominated principal amount of 13% Senior
Subordinated Notes due 2009 (the "Notes") to qualified institutional
buyers. At June 29, 2002, the 100,000 EUR notes translated into 99,140 USD
denominated equivalent.
5. REDEEMABLE PREFERRED STOCK
The Company issued one million shares of Series A Preferred Stock in
conjunction with a recapitalization and stock purchase agreement (the
"Transaction") with its former parent, H.J. Heinz Company ("Heinz"). The
liquidation preference of the Series A Preferred Stock is $25 per share.
On March 1, 2002, the Company redeemed from Heinz all of the Company's
Series A Preferred Stock for a redemption price of $25,000 plus accrued and
unpaid dividends. The redemption was financed through additional borrowings
of $12,000 under the Revolving Credit Facility, which has been repaid by
the end of the second quarter 2002, and cash from operations.
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 weighted average number of common
shares outstanding and the effect of common stock equivalents.
12
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth the computation of basic and diluted EPS.
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ -------------------------
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
2002 2001 2002 2001
---------- ----------- ----------- -----------
Numerator:
Net income $ 41,220 $ 26,078 $ 78,504 $ 49,316
Preferred stock dividends - 375 254 750
---------- ----------- ----------- -----------
Numerator for basic and diluted EPS-net income available to common
shareholders $ 41,220 $ 25,703 $ 78,250 $ 48,566
---------- ----------- ----------- -----------
Denominator:
Weighted-average shares 105,883 109,943 105,761 110,965
Effect of dilutive securities: stock options 2,297 1,745 2,419 1,636
---------- ----------- ----------- -----------
Denominator for diluted EPS - weighted-average shares 108,180 111,688 108,180 112,601
========== =========== =========== ===========
EPS:
Basic EPS $ 0.39 $ 0.23 $ 0.74 $ 0.44
========== =========== =========== ===========
Diluted EPS $ 0.38 $ 0.23 $ 0.72 $ 0.43
========== =========== =========== ===========
7. INCOME TAXES
The effective tax rates for the three and six months ended June 29,
2002 were 38.8%. The effective tax rates for the three and six months ended
June 30, 2001 were 38.9% and 36.6%, respectively. For the three and six
months ended June 29, 2002, the primary differences between the U.S.
federal statutory tax rate and the Company's effective tax rate were state
income taxes, offset by lower statutory tax rates in certain foreign
jurisdictions. For the three and six months ended June 30, 2001, the
primary differences between the U.S. federal statutory tax rate and the
Company's effective tax rate were state income taxes, offset by lower
statutory tax rates in certain foreign jurisdictions and the deferred tax
asset valuation allowance.
8. WeightWatchers.com
LOAN AGREEMENT:
Pursuant to the amended loan agreement dated September 10, 2001 between the
Company and WeightWatchers.com, through fiscal year 2001, the Company
provided loans to WeightWatchers.com aggregating $34,500. The Company has
no further obligation to provide
13
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
funding to WeightWatchers.com. Beginning on January 1, 2002, the note
bears interest at 13% per year, and beginning March 31, 2002, interest
has been and shall be paid to the Company semi-annually. All principal
outstanding under the agreement is payable in six semi-annual
installments commencing on March 31, 2004. For the three and six months
ended June 29, 2002, the Company recorded interest income of $1,118 and
$2,218, respectively, on the note. As of June 29, 2002, the receivable
balance was $1,118 and is included within receivables, net. As
WeightWatchers.com is an equity investee, and the Company has been the
only entity providing funding, through fiscal year 2001, the Company
reduced its loan receivable balances by 100% of WeightWatchers.com's
losses. Additionally, the remaining loan receivable balances were
reviewed for impairment on a quarterly basis and accordingly, the
Company recorded a full valuation allowance against the remaining
balances.
INTELLECTUAL PROPERTY LICENSE:
The Company entered into an amended and restated intellectual property
license agreement dated September 29, 2001 with WeightWatchers.com. In
fiscal 2002, the Company began earning royalties pursuant to the agreement.
For the three and six months ended June 29, 2002, the Company recorded
royalty income of $987 and $1,707, respectively, which was included in
product sales and other, net. As of June 29, 2002, the receivable balance
was $987 and is included within receivables, net.
SERVICE AGREEMENT:
Simultaneously with the signing of the amended and restated
intellectual property license agreement, the Company entered into a service
agreement with WeightWatchers.com, under which WeightWatchers.com provides
certain types of services. The Company is 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. The
Company recorded service expense for the three and six months ended June
29, 2002, of $479 and $754, respectively, and $240 for the three and six
months ended June 30, 2001 which was included in marketing expenses. The
accrued service payable at June 29, 2002 and June 30, 2001 was $758 and
$554, respectively, and is netted against receivables, net.
LEASE GUARANTEE:
The Company has guaranteed an operating lease of WeightWatchers.com
for office space. The annual rental rate is $459 plus increases for
operating expenses and real estate taxes. The lease expires in September
2003. If it is determined that WeightWatchers.com cannot meet its
obligations under the terms of the operating lease, the Company will be
required to fund this obligation and record a liability for the remaining
lease payments, less any estimated sublease revenues.
9. LEGAL
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 is not expected to have
a material effect on the Company's results of operations, financial
condition or cash flows.
14
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
10. DERIVATIVE INSTRUMENTS AND HEDGING
The Company enters into forward and swap contracts to hedge
transactions denominated in foreign currencies to reduce currency risk
associated with fluctuating exchange rates. These contracts are used
primarily to hedge certain foreign currency cash flows and for payments
arising from some of the Company's foreign currency denominated debt
obligations. In addition, the Company enters into interest rate swaps to
hedge a substantial portion of its variable rate debt. As of June 29, 2002
and June 30, 2001, the Company held currency and interest rate swap
contracts to purchase certain foreign currencies totaling $211,955 and
$201,309, respectively. The Company also held separate currency and
interest rate swap contracts to sell foreign currencies of $218,736 and
$204,276, respectively.
As of June 29, 2002, gains of $2,873 ($1,810 net of taxes) for
qualifying hedges were reported as a component of accumulated other
comprehensive loss. For the three and six months ended June 29, 2002, the
ineffective portion of changes in fair values of cash flow hedges were not
material. Fair value adjustments for non-qualifying hedges resulted in an
increase to [reduction of] net income of $60 ($95 before taxes) and $[607]
($[964] before taxes) for the three months ended June 29, 2002 and June 30,
2001, respectively. Fair value adjustments for non-qualifying hedges
resulted in an increase to net income of $339 ($539 before taxes) and $429
($681 before taxes) for the six months ended June 29, 2002 and June 30,
2001, respectively. In addition, for the three months ended June 29, 2002,
reclassification to earnings from accumulated other comprehensive loss
resulted in an increase to net income of $1,682 ($2,669 before taxes). For
the six months ended June 29, 2002, reclassification to earnings from
accumulated other comprehensive loss resulted in an increase to net income
of $1,540 ($2,444 before taxes).
11. COMPREHENSIVE INCOME
Comprehensive income for the Company includes net income, the effects
of foreign currency translation and changes in the fair value of derivative
instruments.
Comprehensive income is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- ---------------------
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
2002 2001 2002 2001
--------- --------- --------- ---------
Net income $ 41,220 $ 26,078 $ 78,504 $ 49,316
Foreign currency translation adjustment 2,804 96 7,514 (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 77 (480) 270 (480)
--------- --------- --------- ---------
Comprehensive income $ 44,101 $ 25,694 $ 86,288 $ 39,896
========= ========= ========= =========
15
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
12. SUBSEQUENT EVENT
On July 2, 2002, the Company completed the acquisition of the assets
of one of its franchisees, Weight Watchers of San Diego and The Inland
Empire, Inc., pursuant to the terms of an Asset Purchase Agreement among
Weight Watchers of San Diego and The Inland Empire, Inc., the Company and
Weight Watchers North America, Inc., a wholly-owned subsidiary of the
Company. The acquisition has been 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 $11,000 and was financed through cash from operations.
13. GUARANTOR SUBSIDIARIES
The Company's payment obligations under the 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.; 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; BLTC Pty Ltd.; LLTC Pty Ltd.; Weight Watchers Asia
Pacific Finance Limited Partnership (APF); 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 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
regarding 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
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL UNAUDITED CONSOLIDATING BALANCE SHEET
AS OF JUNE 29, 2002
(IN THOUSANDS)
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------- -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 21,403 $ 22,306 $ 12,671 $ - $ 56,380
Receivables, net 2,128 11,085 2,593 - 15,806
Inventories - 15,545 5,686 - 21,231
Prepaid expenses, other 2,314 17,176 2,477 - 21,967
Intercompany (payables) receivables (209,730) 196,443 13,287 - -
--------- ------------ ------------ ------------- -------------
TOTAL CURRENT ASSETS (183,885) 262,555 36,714 - 115,384
Investment in consolidated subsidiaries 492,947 - - (492,947) -
Property and equipment, net 1,170 8,713 1,544 - 11,427
Notes and other receivables, noncurrent 243 - - - 243
Goodwill, trademarks and other intangibles, net 27,591 260,739 759 - 289,089
Deferred income taxes 38,788 93,516 - - 132,304
Deferred financing costs, other 8,970 (704) 1,691 - 9,957
--------- ------------ ------------ ------------- -------------
TOTAL ASSETS $ 385,824 $ 624,819 $ 40,708 $ (492,947) $ 558,404
========= ============ ============ ============= =============
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES
Portion of long-term debt due within one year $ 15,489 $ 640 $ - $ - $ 16,129
Accounts payable 540 10,752 3,959 - 15,251
Accrued liabilities 24,938 21,370 7,281 - 53,589
Income taxes (31,676) 42,452 1,427 - 12,203
Deferred revenue - 18,671 1,417 - 20,088
--------- ------------ ------------ ------------- -------------
TOTAL CURRENT LIABILITIES 9,291 93,885 14,084 - 117,260
Long-term debt 397,815 63,200 - - 461,015
Deferred income taxes 2,481 120 654 - 3,255
Other - 474 163 - 637
--------- ------------ ------------ ------------- -------------
TOTAL LONG-TERM DEBT AND OTHER LIABILITIES 400,296 63,794 817 - 464,907
Shareholders' (deficit) equity (23,763) 467,140 25,807 (492,947) (23,763)
--------- ------------ ------------ ------------- -------------
TOTAL LIABILITIES AND
SHAREHOLDERS' (DEFICIT) EQUITY $ 385,824 $ 624,819 $ 40,708 $ (492,947) $ 558,404
========= ============ ============ ============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
17
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL UNAUDITED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 29, 2001
(IN THOUSANDS)
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------- ------------- ------------- -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,230 $ 8,804 $ 8,304 $ - $ 23,338
Receivables, net 2,638 9,229 1,752 - 13,619
Inventories - 21,902 4,303 - 26,205
Prepaid expenses, other 1,263 16,743 2,711 - 20,717
Intercompany (payables) receivables (157,902) 147,317 10,585 - -
--------- ------------- ------------- ------------- -------------
TOTAL CURRENT ASSETS (147,771) 203,995 27,655 - 83,879
Investment in consolidated subsidiaries 416,812 - - (416,812) -
Property and equipment, net 1,221 8,132 1,372 - 10,725
Notes and other receivables, noncurrent 325 - - - 325
Goodwill, trademarks and other intangibles, net 27,643 212,843 679 - 241,165
Deferred income taxes 35,253 101,028 - - 136,281
Deferred financing costs, other 9,626 (537) 1,384 - 10,473
--------- ------------- ------------- ------------- -------------
TOTAL ASSETS $ 343,109 $ 525,461 $ 31,090 $ (416,812) $ 482,848
========= ============= ============= ============= =============
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES
Portion of long-term debt due within one year $ 15,219 $ 480 $ - $ - $ 15,699
Accounts payable 1,287 14,077 2,334 - 17,698
Accrued liabilities 28,537 16,490 7,427 - 52,454
Income taxes (11,694) 18,544 2,289 - 9,139
Deferred revenue - 11,121 1,899 - 13,020
--------- ------------- ------------- ------------- -------------
TOTAL CURRENT LIABILITIES 33,349 60,712 13,949 - 108,010
Long-term debt 394,800 63,520 - - 458,320
Deferred income taxes 2,481 109 579 - 3,169
Other - 624 246 - 870
--------- ------------- ------------- ------------- -------------
TOTAL LONG-TERM DEBT AND OTHER LIABILITIES 397,281 64,253 825 - 462,359
Redeemable preferred stock 25,996 - - - 25,996
Shareholders' (deficit) equity (113,517) 400,496 16,316 (416,812) (113,517)
--------- ------------- ------------- ------------- -------------
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK
AND SHAREHOLDERS' (DEFICIT) EQUITY $ 343,109 $ 525,461 $ 31,090 $ (416,812) $ 482,848
========= ============= ============= ============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
18
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL UNAUDITED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 29, 2002
(IN THOUSANDS)
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------ ------------
Revenues, net $ 2,611 $ 186,521 $ 28,761 $ - $ 217,893
Cost of revenues 59 79,944 16,009 - 96,012
------------ ------------ ------------ ------------ ------------
Gross profit 2,552 106,577 12,752 - 121,881
Marketing expenses - 13,304 3,831 - 17,135
Selling, general and administrative expenses 301 11,216 2,708 - 14,225
------------ ------------ ------------ ------------ ------------
Operating income 2,251 82,057 6,213 - 90,521
Interest expense (income), net 8,109 2,522 (226) - 10,405
Other expenses (income), net 13,291 (490) (5) - 12,796
Equity in income of consolidated subsidiaries 47,026 - - (47,026) -
Franchise commission income (loss) 17,424 (15,672) (1,752) - -
------------ ------------ ------------ ------------ ------------
Income before income taxes
and minority interest 45,301 64,353 4,692 (47,026) 67,320
Provision for income taxes 4,081 20,386 1,650 - 26,117
------------ ------------ ------------ ------------ ------------
Income before minority interest 41,220 43,967 3,042 (47,026) 41,203
Minority interest - - (17) - (17)
------------ ------------ ------------ ------------ ------------
Net income $ 41,220 $ 43,967 $ 3,059 $ (47,026) $ 41,220
============ ============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
19
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL UNAUDITED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2001
(IN THOUSANDS)
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------ ------------
Revenues, net $ 1,949 $ 135,780 $ 24,596 $ - $ 162,325
Cost of revenues 61 58,524 13,116 - 71,701
------------ ------------ ------------ ------------ ------------
Gross profit 1,888 77,256 11,480 - 90,624
Marketing expenses - 11,681 1,788 - 13,469
Selling, general and administrative expenses 4,389 12,709 2,561 - 19,659
------------ ------------ ------------ ------------ ------------
Operating (loss) income (2,501) 52,866 7,131 - 57,496
Interest expense (income), net 9,199 4,244 (195) - 13,248
Other expenses, net 1,377 135 4 - 1,516
Equity in income of consolidated subsidiaries 27,838 - - (27,838) -
Franchise commission income (loss) 13,262 (11,451) (1,811) - -
------------ ------------ ------------ ------------ ------------
Income before income taxes
and minority interest 28,023 37,036 5,511 (27,838) 42,732
Provision for income taxes 1,945 12,538 2,159 - 16,642
------------ ------------ ------------ ------------ ------------
Income before minority interest 26,078 24,498 3,352 (27,838) 26,090
Minority interest - - 12 - 12
------------ ------------ ------------ ------------ ------------
Net income $ 26,078 $ 24,498 $ 3,340 $ (27,838) $ 26,078
============ ============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
20
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL UNAUDITED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 29, 2002
(IN THOUSANDS)
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------ ------------
Revenues, net $ 4,121 $ 368,003 $ 58,272 $ - $ 430,396
Cost of revenues 119 160,066 31,844 - 192,029
------------ ------------ ------------ ------------ ------------
Gross profit 4,002 207,937 26,428 - 238,367
Marketing expenses - 38,047 8,413 - 46,460
Selling, general and administrative expenses 4,566 20,735 5,029 - 30,330
------------ ------------ ------------ ------------ ------------
Operating (loss) income (564) 149,155 12,986 - 161,577
Interest expense (income), net 16,734 4,901 (416) - 21,219
Other expenses (income), net 11,881 314 (20) - 12,175
Equity in income of consolidated subsidiaries 83,833 - - (83,833) -
Franchise commission income (loss) 33,893 (30,493) (3,400) - -
------------ ------------ ------------ ------------ ------------
Income before income taxes
and minority interest 88,547 113,447 10,022 (83,833) 128,183
Provision for income taxes 10,043 36,070 3,557 - 49,670
------------ ------------ ------------ ------------ ------------
Income before minority interest 78,504 77,377 6,465 (83,833) 78,513
Minority interest - - 9 - 9
------------ ------------ ------------ ------------ ------------
Net income $ 78,504 $ 77,377 $ 6,456 $ (83,833) $ 78,504
============ ============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
21
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL UNAUDITED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(IN THOUSANDS)
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 10,468 23,459 4,895 - 38,822
------------ ------------ ------------ ------------ ------------
Operating (loss) income (8,201) 100,243 13,699 - 105,741
Interest expense (income), net 18,919 8,809 (360) - 27,368
Other expenses, net 379 147 4 - 530
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.
22
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL UNAUDITED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 29, 2002
(IN THOUSANDS)
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------ ------------
Cash provided by operating activities $ 118,576 $ 74,987 $ 3,300 $ (83,833) $ 113,030
------------ ------------ ------------ ------------ ------------
Investing activities:
Capital expenditures (105) (1,668) (302) - (2,075)
Acquisition - (46,548) - - (46,548)
Other items, net (147) (58) 3 - (202)
------------ ------------ ------------ ------------ ------------
Cash used for investing activities (252) (48,274) (299) - (48,825)
------------ ------------ ------------ ------------ ------------
Financing activities:
Net (decrease) increase in short-term borrowings (741) 171 - - (570)
Parent company investment in subsidiaries (76,135) - - 76,135 -
Proceeds from borrowings 58,500 - - - 58,500
Payment of dividends (1,249) (14,417) - 14,417 (1,249)
Payments on long-term debt (65,975) (159) - - (66,134)
Redemption of redeemable preferred stock (25,000) - - - (25,000)
Proceeds from stock options exercised 1,048 - - - 1,048
------------ ------------ ------------ ------------ ------------
Cash used for financing activities (109,552) (14,405) - 90,552 (33,405)
------------ ------------ ------------ ------------ ------------
Effect of exchange rate changes on cash and cash
equivalents 6,401 1,194 1,366 (6,719) 2,242
Net increase in cash and cash equivalents 15,173 13,502 4,367 - 33,042
Cash and cash equivalents, beginning of period 6,230 8,804 8,304 - 23,338
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents, end of period $ 21,403 $ 22,306 $ 12,671 $ - $ 56,380
============ ============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
23
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL UNAUDITED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(IN THOUSANDS)
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) -
Purchase of treasury stock (12,730) - - - (12,730)
Proceeds from sale of common 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 year 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.
24
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Annual Report on Form 10-K for the fiscal year ended December 29, 2001 that
includes additional information about the Company, its results of operations,
its financial position and its cash flows. Except for historical information
contained herein, the matters discussed in this Quarterly Report on Form 10-Q
include "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 with respect to the Company's results
of operations, financial position, cash flows, financing plans and business
strategies. The Company has used the words "may", "will", "expect",
"anticipate", "believe", "estimate", "plan", "intend", and similar expressions
in this Quarterly Report on Form 10Q and the documents incorporated by reference
in this Quarterly Report on Form 10Q to identify forward-looking statements. The
Company has based these forward-looking statements on the Company's 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 the Company's marketing
and advertising;
- risks associated with the continued attractiveness of the Company's
programs;
- risks associated with the Company's ability to meet its obligations
related to its outstanding indebtedness;
- risks associated with general economic conditions; and
- 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.
You should not put undue reliance on any forward-looking statements. You
should understand that many important factors could cause the Company's results
to differ materially from those expressed or suggested in any forward-looking
statements. Except as required by law, the Company does not undertake any
obligation to publicly release any revisions to these forward-looking statements
to reflect events or circumstances that occur after the date of this Quarterly
Report or to reflect the occurrence of unanticipated events.
CRITICAL ACCOUNTING POLICIES
For a discussion of the critical accounting policies affecting the Company,
see "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations, Significant Accounting Policies" beginning on page 11 of
the Company's Annual Report on Form 10-K for the fiscal year ended December 29,
2001. The critical accounting policies affecting the Company have not changed
since December 29, 2001.
25
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Figures are rounded to the nearest one hundred thousand; percentage changes
are based on rounded figures.
COMPARISON OF THE THREE MONTHS ENDED JUNE 29, 2002 TO THE THREE MONTHS ENDED
JUNE 30, 2001
Net revenues were $217.9 million for the three months ended June 29, 2002,
an increase of $55.6 million or 34.3%, from $162.3 million for the three months
ended June 30, 2001. Of the $55.6 million increase in net revenues, $32.8
million was attributable to classroom meeting fees, $20.2 million to total
company product sales, $1.0 million to franchise commissions and $1.6 million to
publications, licensing and other royalties. On a geographical basis, net
revenue from classroom meeting fees and product sales were up 44.4% in North
America and 19.1% internationally. The positive impact of foreign currency
exchange rates on net revenues was $2.8 million in the three months ended June
29, 2002.
Classroom meeting fees were $141.4 million for the three months ended June
29, 2002 as compared to $108.6 million for the three months ended June 30, 2001.
North American Company Owned ("NACO") classroom meeting fees were $98.2 million
for the three months ended June 29, 2002, an increase of $28.2 million or 40.3%,
from $70.0 million for the three months ended June 30, 2001. The increase in
NACO classroom meeting fees was the result of a 36.7% increase in member
attendance. International company-owned classroom meeting fees were $43.2
million for the three months ended June 29, 2002, an increase of $4.6 million or
11.9%, from $38.6 million for the three months ended June 30, 2001. The increase
in international company-owned classroom meeting fees was the result of a 3.4%
increase in member attendance, driven by a strong performance in the Australasia
operations, and the result of positive exchange rate variances.
Product sales were $63.1 million for the three months ended June 29, 2002,
an increase of $20.2 million or 47.1%, from $42.9 million for the three months
ended June 30, 2001. Product sales increased 56.0% to $39.0 million domestically
and 34.6% to $24.1 million internationally as a result of increased attendance
and the Company's strategy to focus product sales efforts on core classroom
products. Average product sales per attendance have increased in all regions.
Franchise royalties were $7.0 million domestically and $1.5 million
internationally for the three months ended June 29, 2002. In total, franchise
royalties increased $1.0 million or 13.3%, from $7.5 million for the three
months ended June 30, 2001, despite the reduction of franchise royalties
revenue from two franchises which were acquired by the Company subsequent to
June 30, 2001. At the franchise level revenue growth was the direct result of
the increased member attendance.
Revenues generated from publications, licensing and other royalties were
$4.9 million for the three months ended June 29, 2002, an increase of $1.6
million or 48.5%, from $3.3 million for the three months ended June 30, 2001.
This increase was primarily the result of royalty income from WeightWatchers.com
and higher revenues from advertising arrangements.
Cost of revenues was $96.1 million for the three months ended June 29,
2002, an increase of $24.4 million or 34.0%, from $71.7 million for the three
months ended June 30, 2001. Gross profit margin was 55.9% for the three months
ended June 29, 2002, slightly higher than the 55.8% level of the three months
ended June 30, 2001.
Marketing expenses were $17.1 million for the three months ended June 29,
2002, an increase of $3.6 million or 26.7%, as compared to $13.5 million for the
three months ended June 30, 2001. Marketing expenses increased primarily to
drive and support continued enrollment growth of the business. As a
26
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
percentage of net revenues, marketing expenses decreased from 8.3% for the
three months ended June 30, 2001 to 7.8% for the three months ended June 29,
2002, as the Company continues to leverage its marketing efforts across the
growing revenue base.
Selling, general and administrative expenses were $14.2 million for the
three months ended June 29, 2002, a decrease of $5.4 million or 27.6%, from
$19.6 million for the three months ended June 30, 2001. The decrease in selling,
general and administrative expenses was primarily the result of two
non-recurring items in the three months ended June 30, 2001: a one-time charge
of $2.1 million for the write-off of a receivable from a licensing agreement and
$2.5 million of goodwill amortization. As a result of the adoption of SFAS Nos.
141 and 142, the Company no longer amortizes goodwill, but rather reviews
goodwill annually for impairment. In addition to these items, professional fees
decreased $1.2 million from the prior year level.
As a result of the above, operating income was $90.5 million for the three
months ended June 29, 2002, an increase of $33.0 million or 57.4%, from $57.5
million for the three months ended June 30, 2001. The positive impact of foreign
exchange rates on operating income was $0.9 million in the three months ended
June 29, 2002. The operating income margin rose to 41.5% for the three months
ended 2002 from 35.4% for the same period of 2001 as a result of lower selling,
general and administrative expenses and the decrease in marketing expenses as a
percentage of net sales.
Other expenses, net were $12.8 million for the three months ended June 29,
2002 as compared to $1.5 million for the three months ended June 30, 2001. For
the three months ended June 29, 2002, the Company recorded unrealized currency
losses on its foreign currency denominated debt and other obligations of $11.5
million, net of hedges, as compared to a $2.4 million gain in the three months
ended June 30, 2001.
COMPARISON OF THE SIX MONTHS ENDED JUNE 29, 2002 TO THE SIX MONTHS ENDED JUNE
30, 2001
Net revenues were $430.4 million for the six months ended June 29, 2002, an
increase of $96.1 million or 28.7%, from $334.3 million for the six months ended
June 30, 2001. Of the $96.1 million increase in net revenues, $55.7 million was
attributable to classroom meeting fees, $35.8 million to total company product
sales, $2.4 million to franchise commissions and $2.2 million to publications,
licensing and other royalties. On a geographical basis, meeting fees and product
sales were up 43.6% in North America and 7.9% internationally. The Company's
business is seasonal, with revenues generally highest in the first half of the
fiscal year.
Classroom meeting fees were $275.8 million for the six months ended June
29, 2002 as compared to $220.1 million for the six months ended June 30, 2001.
North American Company Owned ("NACO") classroom meeting fees were $188.5 million
for the six months ended June 29, 2002, an increase of $54.3 million or 40.5%,
from $134.2 million for the six months ended June 30, 2001. The increase in NACO
classroom meeting fees was the result of a 36.3% increase in member attendance.
International company-owned classroom meeting fees were $87.3 million
for the six months ended June 29, 2002, an increase of $1.4 million or 1.6%,
from $85.9 million for the six months ended June 30, 2001. On a year to date
basis, the impact of foreign currency exchange rates was negligible.
International member attendances increased 0.4% overall with attendances in
the United Kingdom down 2.3%, while attendances in Continental Europe and
Australasia posted gains of 2.3% and 5.7%, respectively.
27
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Product sales were $128.6 million for the six months ended June 29,
2002, an increase of $35.8 million or 38.6%, from $92.8 million for the six
months ended June 30, 2001. Product sales increased 51.7% to $80.1 million
domestically and 21.6% to $48.5 million internationally, reflecting
attendance growth in NACO as well as the Company's strategy to focus product
sales efforts on core classroom products. Average product sales per
attendance have increased in all regions.
Franchise royalties were $14.9 million domestically and $3.1 million
internationally for the six months ended June 29, 2002. In total, franchise
royalties increased $2.4 million or 15.4%, from $15.6 million for the six months
ended June 30, 2001, on the strength of increased member attendance and product
sales offset by the loss of franchise royalties revenue from two franchises
which were acquired by the Company subsequent to June 30, 2001.
Revenues from publications, licensing and other royalties were $8.0 million
for the six months ended June 29, 2002, an increase of $2.2 million or 37.9%,
from $5.8 million for the six months ended June 30, 2001. This increase was in
large part the result of licensing royalty income from WeightWatchers.com which
began in the first quarter of 2002.
Cost of revenues was $192.0 million for the six months ended June 29, 2002,
an increase of $42.8 million or 28.7%, from $149.2 million for the six months
ended June 30, 2001. Gross profit margin was 55.4% for the six months ended June
29, 2002, unchanged as compared to the level of the six months ended June 30,
2001.
Marketing expenses were $46.5 million for the six months ended June 29,
2002, an increase of $5.9 million or 14.5%, as compared to $40.6 million for the
six months ended June 30, 2001. Marketing expenses increased to support the
continuing growth of the business. As a percentage of net revenues, marketing
expenses decreased from 12.1% for the six months ended June 30, 2001 to 10.8%
for the six months ended June 29, 2002, as the Company continues to leverage
its marketing efforts across the growing revenue base.
Selling, general and administrative expenses were $30.3 million for the
six months ended June 29, 2002, a decrease of $8.5 million or 21.9%, from
$38.8 million for the six months ended June 30, 2001. The decrease in
selling, general and administrative expenses was partially the result of two
non-recurring items in the six months ended June 30, 2001: a one-time charge
of $6.1 million for the write-off of a receivable from a licensing agreement
and $4.7 million of goodwill amortization, resulting from the adoption of
SFAS Nos. 141 and 142. In addition, professional fees decreased $0.9 million
from the prior year level. Excluding non-recurring items selling, general and
administrative expenses, which were down as a percentage of revenues, rose
13% in absolute dollars mainly as a result of the Company's investment in
additional personnel to support the growth of the Company.
As a result of the above, operating income was $161.6 million for the six
months ended June 29, 2002, an increase of $55.9 million or 52.9%, from $105.7
million for the six months ended June 30, 2001. The operating income margin for
the six months ended June 29, 2002 was 37.5%.
Other expenses, net were $12.2 million for the six months ended June 29,
2002 as compared to $0.5 million for the six months ended June 30, 2001. For
the six months ended June 29, 2002, the Company recorded unrealized currency
losses on its foreign currency denominated debt and other obligations of
$10.0 million, net of hedge, as compared to a $9.5 million gain in the six
months ended June 30, 2001. Reserves recorded against the loan to
WeightWatchers.com in 2001 offset the impact of the unrealized currency gains.
28
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 29, 2002, the Company's primary source of
funds to meet working capital needs was cash from operations. Cash and cash
equivalents increased $33.0 million during the six month period ended June 29,
2002, to $56.4 million.
Cash flows of $113.0 million were provided by operating activities in the
six months ended June 29, 2002. During the first quarter, borrowings under the
Company's Revolving Credit Facility totaled $58.5 million and were subsequently
repaid. Funds were used primarily for investing and financing activities.
Investing activities totaled $48.8 million in the six months ended June 29,
2002 and were primarily attributable to $46.5 million paid in connection with
the acquisition of the Company's North Jersey franchise, acquired on January 18,
2002, and $2.1 invested in capital expenditures. The North Jersey franchise
acquisition was financed through borrowings under the Company's Revolving Credit
Facility. Capital spending consisted primarily of leasehold improvements,
furniture and equipment for meeting locations and information system
expenditures.
Cash used for financing activities totaled $33.4 million. Included were
repayments of $66.1 million in principal on the Company's Credit Facility, the
repurchase of one million shares of the Company's preferred stock held by Heinz
for $25.0 million on March 1, 2002 and the cumulative final payment of $1.2
million of dividends on the Company's preferred stock.
The Company's total debt was $477.1 million and $474.0 million at June 29,
2002 and December 29, 2001, respectively. As of June 29, 2002, the Company had
approximately $45.0 million of additional borrowing capacity available under the
Company's Revolving Credit Facility.
The Company's debt consists of both fixed and variable-rate instruments. At
June 29, 2002, fixed-rate debt constituted approximately 52.2% of the Company's
total debt. The following schedule sets forth the Company's long-term debt
obligations as of June 29, 2002.
29
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LONG-TERM DEBT
AS OF JUNE 29, 2002
(IN MILLIONS)
BALANCE INTEREST RATE
---------- -------------
EURO $100.0 million 13% Senior
Subordinated Notes Due 2009 $ 99.1 13.00%
---------- -------------
US $150.0 million 13% Senior
Subordinated Notes Due 2009 150.0 13.00%
Term A Loan due 2005 56.4 3.72%
Term B Loan due 2007 107.7 4.37%
Transferable Loan Certificate due 2007 63.9 4.45%
Revolving Credit Facility - -
----------
Total Debt 477.1
Less Current Portion (16.1)
----------
Total Long-Term Debt $ 461.0
==========
The term loan A facility, the term loan B facility, the transferable loan
certificate facility and the Revolving Credit Facility bear interest 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 the Company's option, the alternate base rate
(as defined in the Credit Facility) plus 0.75%, (b) in the case of the Term Loan
B facility and the transferable loan certificate facility, LIBOR plus 2.50% or,
at the Company's option, the alternate base rate plus 1.50%. In addition to
paying interest on outstanding principal under the Credit Facility, the Company
is 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.
The Company's Credit Facility contains covenants that restrict the
Company's ability to incur additional indebtedness, pay dividends on and redeem
capital stock, make other restricted payments, including investments, sell the
Company's assets and enter into consolidations, mergers and transfers of all or
substantially all of the Company's assets. The Company's Credit Facility also
requires the Company to maintain specified financial ratios and satisfy
financial condition tests. These tests and financial ratios become more
restrictive over the life of the Credit Facility.
The Company's obligations under the Notes are subordinate and junior in
right of payment to all of the Company's existing and future senior
indebtedness, including all indebtedness under the Credit Facility. The
indentures, pursuant to which the Notes were issued, restrict the Company's
ability to incur additional indebtedness, issue shares of disqualified stock and
preferred stock, pay dividends, make other restricted payments, including
investments, create limitations on the ability of the Company's subsidiaries to
pay dividends or make certain payments to the Company, merge or consolidate with
any other person or sell, assign, transfer, lease, convey or otherwise dispose
of all or substantially all of the Company's assets. The Company and/or
affiliates of the Company, including entities related to Artal Luxembourg S.A.,
may from time to time, depending on market conditions, purchase the Notes in the
open market or by other means.
30
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company's credit ratings by Moody's at June 29, 2002 for the Credit
Facility and the Notes were "Ba1" and "Ba3", respectively. The Company's credit
ratings by Standard & Poor's at June 29, 2002 for the Credit Facility and the
Notes were "BB - " and "B", respectively.
The following schedule sets forth the Company's year by year long-term debt
obligations as of June 29, 2002.
LONG-TERM DEBT OBLIGATIONS
(INCLUDING CURRENT PORTION)
AS OF JUNE 29, 2002
(in millions)
Payments Due by Fiscal Year
---------------------------
Remainder of Year 2002 $ 8.1
2003 20.2
2004 17.6
2005 17.0
2006 1.7
Thereafter 412.5
----------
Total $ 477.1
==========
Debt obligations due to be repaid in the next twelve months are expected to
be satisfied with operating cash flows. The Company is not aware of factors that
are reasonably likely to adversely affect liquidity trends or increase the
Company's risk beyond the risk factors presented in other Company filings. The
Company believes that cash flows from operating activities, together with
borrowings available under the Company's Revolving Credit Facility, will be
sufficient for the next twelve months to fund currently anticipated capital
expenditure requirements, debt service requirements and working capital
requirements.
On July 2, 2002, the Company completed the acquisition of Weight Watchers
of San Diego and The Inland Empire, Inc. for a purchase price of $11.0 million.
The acquisition was financed through cash from operations. Our expected capital
expenditure requirements over the next 12 months include, but are not limited
to, leasehold improvements, furniture and equipment for meeting locations and
administrative offices and information system upgrades.
Any future acquisitions, joint ventures or other similar transactions could
require additional capital and the Company cannot be certain that any additional
capital will be available on acceptable terms or at all. The Company's ability
to fund the Company's capital expenditure requirements, interest and principal
payment obligations and working capital requirements and to comply with all of
the financial covenants under the Company's debt agreements depends on the
Company's future operations, performance and cash flow. These are subject to
prevailing economic conditions and to financial, business and other factors,
some of which are beyond the Company's control.
31
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OFF-BALANCE SHEET TRANSACTIONS
As part of its on-going business, the Company does not participate in
transactions that generate relationships with unconsolidated entities or
financial partnerships, such as entities often referred to as structured finance
or special purpose entities, which would have been established for the purpose
of facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes.
RELATED PARTY TRANSACTIONS
For a discussion of related party transactions affecting the Company, see
"Item 13. Certain Relationships and Related Transactions" beginning on page 32
of the Company's Annual Report on Form 10-K for the fiscal year ended December
29, 2001. Other than during the normal course of business, the related party
transactions affecting the Company have not changed since December 29, 2001. See
Note 8 to the unaudited consolidated financial statements contained herein for
further discussion.
SEASONALITY
The Company's business is seasonal, with revenues generally decreasing at
year end and during the summer months. The Company's advertising schedule
supports the three key enrollment-generating seasons of the year: winter, spring
and fall. Due to the timing of the Company's marketing expenditures,
particularly the higher level of expenditures in the first quarter, the
Company's operating income for the second quarter is generally the strongest,
with the fourth quarter generally being the weakest.
ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, or SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 addresses the mandatory use of the purchase method of
accounting for business combinations, elimination of indefinite life goodwill
amortization, a revised framework for testing goodwill, impairment at a
"reporting unit" level and new criteria for the identification and potential
amortization of other intangible assets. The Company adopted SFAS No. 142 on
December 30, 2001. See Note 3 to the unaudited consolidated financial statements
contained herein for further discussion.
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards, or SFAS No. 143, "Accounting for Asset
Retirement Obligations," and SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS No. 144 supersedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," and the accounting and reporting provisions of AICPA
Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations
- - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," and
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. The Company adopted SFAS No. 144 on December 30, 2001 and
will adopt SFAS No. 143 on December 29, 2002. The adoption of SFAS No. 144 did
not have a material impact on the Company's consolidated financial position or
results of operations nor does the Company expect the adoption of SFAS No. 143
to have any material impact.
32
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Based on the overall interest rate exposure on the Company's fixed rate
borrowings at June 29, 2002, a 10% change in market interest rates would have
less than a 5% impact on the fair value of the Company's long-term debt. Based
on variable rate debt levels at June 29, 2002, a 10% change in market interest
rates would have less than a 5% impact on the Company's net interest expense.
The Company uses foreign currency forward contracts to more properly align
the underlying sources of cash flow with the Company's debt servicing
requirements. At June 29, 2002, the Company had long-term foreign currency
forward contracts receivables with notional amounts of $44.0 million and Euro
76.0 million, offset by foreign currency forward contracts payables with
notional amounts of L59.2 million and $21.9 million.
For a more detailed discussion of the quantitative and qualitative
disclosures about market risks affecting the Company, see Item 7A "Quantitative
and Qualitative Disclosure About Market Risk" beginning on page 21 of the
Company's Annual Report on Form 10-K for the fiscal year ended December 29,
2001. The Company's exposure to market risks has not changed materially since
December 29, 2001.
33
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Nothing to report under this item.
ITEM 2. CHANGES IN SECURITIES
Nothing to report under this item.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Nothing to report under this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Nothing to report under this item.
ITEM 5. OTHER INFORMATION
Nothing to report under this item.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended June
29, 2002.
34
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 13, 2002
By: /s/ LINDA HUETT
-----------------------------------------------
Linda Huett
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date: August 13, 2002
By: /s/ ANN M. SARDINI
-----------------------------------------------
Ann M. Sardini
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)