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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Commission File No.                000-03389

WEIGHT WATCHERS INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)

        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 ý                                                 No o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes ý                                                 No o

        The number of common shares outstanding as of October 29, 2004 was 103,606,986.

WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX

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WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

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

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WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

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

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WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

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

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WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)

Total comprehensive earnings were $50,544 and $12,802, respectively, for the quarters ended October 2, 2004 and September 27, 2003, and $112,148 for the first nine months of 2003.

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

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WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

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

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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., its majority-owned subsidiaries and WeightWatchers.com, Inc. ("WeightWatchers.com"), the entity required to be consolidated pursuant to Financial Accounting Standards Board Interpretation No. 46R, "Consolidation of Variable Interest Entities" ("FIN 46R"). The term "WWI" as used throughout this document is used to indicate Weight Watchers International and its majority-owned subsidiaries. The term "the Company" as used throughout this document is used to indicate WWI as well as WeightWatchers.com. 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 and adjustments required upon adoption of FIN 46R) necessary for a fair presentation.

        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 January 3, 2004 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:

        On January 17, 2003, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 46 ("FIN 46"), to clarify when an entity should consolidate another entity known as a variable interest equity ("VIE"). The standard required that, under certain circumstances, separate businesses with some common ownership be consolidated for financial reporting purposes. Upon adoption of the original FIN 46, the Company would not have met those circumstances, and it therefore would not have consolidated WeightWatchers.com's financial statements.

        On December 24, 2003, the FASB issued FIN 46R, which completely replaced FIN 46. FIN 46R is applicable for financial statements issued for reporting periods after March 15, 2004. FIN 46R requires that an entity consolidate a VIE if that enterprise has a variable interest that will absorb a majority of the VIE's expected losses, will receive a majority of the VIE's expected residual returns, or both.

        Based on the revisions in this regulation, the Company was required to reevaluate its relationship with its affiliate and licensee, WeightWatchers.com. In the course of this reevaluation, the Company determined that WeightWatchers.com was a variable interest entity under the revised regulation and that WWI was its primary beneficiary. Effective April 3, 2004, the Company has consolidated WeightWatchers.com. In accordance with the provisions of FIN 46R, the Company recorded a charge of $11,941, including a tax charge of $9,866, in the quarter ended April 3, 2004 for the cumulative effect of this accounting change. This charge reflected the cumulative impact to the Company's results of operations had WeightWatchers.com been consolidated since its inception in September 1999. Beginning in the first fiscal quarter ended April 3, 2004, the Company's consolidated balance sheet includes the balance sheet of WeightWatchers.com. Effective at the beginning of the second fiscal quarter of 2004, the Company's consolidated statement of operations and statement of cash flows

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include the results of WeightWatchers.com. All intercompany balances have been eliminated in consolidation. See Notes 10 and 13 for further information regarding WeightWatchers.com.

Reclassification:

        Certain prior year amounts have been reclassified to conform to the current year presentation.

2.     Summary of Significant Accounting Policies

        For a complete discussion of the Company's significant accounting policies, see "Summary of Significant Accounting Policies" beginning on page F-7 of the Company's annual report on Form 10-K for the fiscal year ended January 3, 2004. In addition to those listed in the aforementioned annual report, the Company's significant accounting policies include those explained below.

        WeightWatchers.com generates revenue from monthly subscriptions to its web site. Subscription fee revenues are recognized over the period that products are provided. One time sign up fees are deferred and recognized over the expected customer relationship period. Subscription fee revenues that are paid in advance are deferred and recognized on a straight-line basis over the subscription period.

        Pursuant to Emerging Issues Task Force No. 00-2, "Web Site Development Costs" ("EITF 00-2"), WeightWatchers.com applies American Institute of Certified Public Accountants Statement of Position No. 98-1 to account for web site development costs. In accordance with EITF 00-2, WeightWatchers.com expenses all costs incurred during the preliminary project stage and capitalizes all internal and external direct costs of materials and services consumed in developing the software, once the development has reached the application development stage. Application development stage costs generally include software configuration, coding, installation to hardware and testing. These costs are amortized over their estimated useful life. All costs incurred for upgrades, maintenance and enhancements, including the cost of web site content, that does not result in additional functionality, are expensed as incurred.

3.     Acquisitions

        All 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. During the first nine months of fiscal 2004 and the full year fiscal 2003, the Company acquired certain assets of its franchises as outlined below.

        On August 22, 2004, the Company completed the acquisition of certain assets of its Fort Worth franchisee, Weight Watchers of Fort Worth, Inc., for a purchase price of $30,000, which was financed through cash from operations. The purchase price has principally been allocated to franchise rights acquired on the Company's balance sheet, however, due to the timing of this acquisition, the Company has not yet completed the purchase price allocation. Pro forma results of operations, assuming this acquisition had been completed at the beginning of each period presented, would not differ materially from the reported results.

        On May 9, 2004, the Company completed the acquisition of certain assets of its Washington, D.C. area franchisee, F-W Family Corporation (d/b/a Weight Watchers of Washington, D.C.) for a purchase price of $30,500, which was financed through cash from operations, plus assumed liabilities of $348. The total purchase price has been preliminarily allocated to franchise rights ($30,312), fixed assets ($320), inventory ($214) and other assets ($2). Pro forma results of operations, assuming this

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acquisition had been completed at the beginning of each period presented, would not differ materially from the reported results.

        On November 30, 2003, the Company completed the acquisition of certain assets of its franchisees, Weight Watchers of Dallas, Inc. and Pedebud, Inc. (d/b/a Weight Watchers of Northern New Mexico), pursuant to the terms of a combined asset purchase agreement between these two entities (collectively, "Dallas/New Mexico") and the Company. The purchase price was $27,200 plus assumed liabilities of $300, and was allocated to franchise rights ($26,874), property and equipment ($412) and inventory ($214). The acquisition was financed through cash from operations. Pro forma results of operations, assuming this acquisition had been completed at the beginning of each period presented, would not differ materially from the reported results.

        On March 30, 2003, the Company completed the acquisition of certain assets of eight of the 15 franchises of The WW Group, Inc. and its affiliates (the "WW Group") pursuant to the terms of an Asset Purchase Agreement executed on March 31, 2003 among the WW Group, The WW Group East L.L.C., The WW Group West L.L.C., Cuida Kilos, S.A. de C.V., Weight Watchers North America, Inc. and the Company. The purchase price for the acquisition was $180,700 plus assumed liabilities of $448 and acquisition costs of $866. The Company completed the purchase price allocation in the fourth quarter of 2003 as follows: franchise rights ($177,128), inventory ($2,741), prepaid expenses ($36) and property and equipment ($2,109). The acquisition was financed through cash and additional borrowings of $85,000 under a new Term Loan D under the Company's Credit Facility, as amended on April 1, 2003 (as defined in Note 5).

        The following table presents unaudited pro forma financial information that reflects the consolidated operations of WWI and the acquired franchises of the WW Group as if the acquisition had occurred as of the beginning of fiscal 2003. The pro forma financial information does not give effect to any synergies that might have resulted nor any discontinued expenses from the acquisition of the WW Group. Such discontinued expenses are estimated by management to be approximately $3,300 for the nine months ended September 27, 2003. These expenses relate to corporate expenses of the owners of the WW Group and other indirect expenses of non-acquired franchises for this period. This pro forma information does not include the impact of adopting FIN 46R, does not necessarily reflect the actual results that would have occurred, nor is it necessarily indicative of future results of operations of the consolidated companies.

        During fiscal 2003, the Company also completed the acquisition of franchises in Mexico and Hong Kong, as well as a third party entity, Easy Slim, for a total purchase price of $1,271, which was paid with cash from operations. As a result of these three acquisitions, the Company recorded goodwill of $395 and franchise rights acquired of $1,326. Pro forma results of operations, assuming these acquisitions had been completed at the beginning of each period presented, would not differ materially from the reported results.

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4.     Goodwill and Intangible Assets

        In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," the Company no longer amortizes goodwill or other indefinite lived intangible assets. The Company performed a fair value impairment test as of January 3, 2004 on its goodwill and other indefinite lived intangible assets and determined that no impairment was evident. Unamortized goodwill is due mainly to the acquisition of the Company by the H.J. Heinz Company in 1978. The balance in goodwill increased from January 3, 2004 to October 2, 2004, primarily due to the Company's purchase of the minority interest in one of its foreign subsidiaries. Franchise rights acquired are due mainly to acquisitions of the Company's franchised territories. For the nine months ended October 2, 2004, franchise rights acquired increased primarily due to the acquisitions of our Fort Worth and Washington D.C. area franchises.

        In accordance with SFAS No. 142, aggregate amortization expense for finite lived intangible assets was recorded in the amounts of $577 and $1,510 for the three and nine months ended October 2, 2004, respectively (including $262 and $598, respectively, for amortization of intangible assets of WeightWatchers.com). Aggregate amortization expense for the three and nine months ended September 27, 2003 was $259 and $772, respectively.

        The carrying amount of the Company's finite-lived intangible assets was as follows:

        Estimated amortization expense on the Company's finite lived intangible assets for the next five fiscal years is as follows:

5.     Long-Term Debt

        The Company's long-term debt is entirely attributable to WWI. WeightWatchers.com does not have any credit facilities.

        WWI's Credit Agreement, as amended on January 16, 2001, December 21, 2001, April 1, 2003 and August 21, 2003 (the "Credit Facility") consists of Term Loans, a Revolver and a transferable loan certificate ("TLC").

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        In January 2004, WWI refinanced its Credit Facility as follows: the Term Loan A, Term Loan B, and the TLC in the aggregate amount of $454,180 were repaid and replaced with a new Term Loan B in the amount of $150,000 and borrowings under the Revolver of $310,000. In connection with this refinancing, available borrowings under the Revolver increased from $45,000 to $350,000. (See also Note 14.)

        The Term Loan B and the Revolver bear interest at a rate equal to LIBOR plus 1.75% or, at WWI's option, the alternate base rate (as defined in the Credit Facility) plus 0.75%. In addition to paying interest on outstanding principal under the Credit Facility, WWI is required to pay a commitment fee to the lenders under the Revolver with respect to the unused commitments at a rate equal to 0.375% per year.

        The Credit Facility contains customary covenants including covenants that in certain circumstances restrict WWI's ability to incur additional indebtedness, pay dividends on and redeem capital stock, make other restricted payments, including investments, sell its assets and enter into consolidations, mergers and transfers of all or substantially all of its assets. The Credit Facility also requires WWI to maintain specified financial ratios and satisfy financial condition tests. The Credit Facility contains customary events of default. Upon the occurrence of an event of default under the Credit Facility, the lenders may cease making loans and declare amounts outstanding to be immediately due and payable.

        Due to the early extinguishment of the Term Loans resulting from this refinancing, the Company recognized expenses of $3,254 for the three months ended April 3, 2004, which included the write-off of unamortized debt issuance costs of $2,933 and $321 of fees associated with the transaction.

        On August 21, 2003, the Company successfully completed a tender offer and consent solicitation to purchase 96.6% of its $150,000 USD denominated ($144,900) and 91.6% of its €100,000 euro denominated (€91,600) 13% Senior Subordinated Notes. Due to this early extinguishment of debt, the Company recognized expenses of $47,368 in the three and nine months ended September 27, 2003, which included tender premiums of $42,619, the write-off of unamortized debt issuance costs of $4,387 and $362 of fees associated with the transaction.

        On October 1, 2004, the Company repurchased and retired the remaining balance of its 13% Senior Subordinated Notes in the amounts of $5,100 USD denominated and €8,400 euro-denominated. Due to this early extinguishment of debt, the Company recognized expenses of $1,010 in the quarter ended October 2, 2004 related to the tender premiums associated with this redemption.

6.     Treasury Stock

        On October 9, 2003, the Company, at the direction of WWI's Board of Directors, authorized a program to repurchase up to $250,000 of the Company's outstanding common stock. The repurchase program allows for shares to be purchased from time to time in the open market or through privately negotiated transactions. No shares will be purchased from Artal Luxembourg or its affiliates under the program. During the nine months ended October 2, 2004, the Company purchased 3,227 shares of common stock in the open market at a total cost of $121,009. During the period October 9, 2003 to January 3, 2004, the Company purchased 784 shares of common stock in the open market at a total cost of $28,815.

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7.     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 dilutive common stock equivalents.

        The following table sets forth the computation of basic and diluted earnings per share:

        The number of anti-dilutive stock options excluded from the calculation of weighted average shares for diluted EPS was 372 and 24 for the three months ended October 2, 2004 and September 27, 2003, respectively, and 377 and 18 for the nine months ended October 2, 2004 and September 27, 2003, respectively.

8.     Stock Plans

        The Company has stock-based employee compensation plans and, as permitted by SFAS No. 123, continues to apply the recognition and measurement principles of APB No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for those plans. No compensation expense for employee stock options is reflected in earnings, as all options granted under the plans had an exercise price equal to the market value of the common stock on the date of grant.

        On May 12, 2004, the WWI stockholders approved the 2004 Stock Incentive Plan of Weight Watchers International (the "Plan") that was adopted by the WWI Board of Directors on March 11, 2004. The Plan is designed to promote the long-term financial interests and growth of WWI by

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attracting and retaining management with the ability to contribute to the success of the business. The Plan is to be administered by the Compensation Committee of the Board of Directors.

        Under the Plan, grants may take the following forms at the committee's sole discretion: incentive stock options, stock appreciation rights, restricted stock and other stock-based awards. The maximum number of shares available for grant under this Plan was 2,500 shares as of the effective date of the Plan. No awards have yet been made under this Plan.

        The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123:

9.     Income Taxes

        Although consolidated for financial reporting purposes under FIN 46R, WWI and WeightWatchers.com are separate tax paying entities.

        The effective tax rate for the three and nine months ended October 2, 2004 was 26.8% and 33.9%, respectively, on the consolidated results of the Company. The effective tax rate for the three and nine months ended September 27, 2003 was 35.3% and 38.3%, respectively. For the three and nine months ended October 2, 2004, the primary differences between the U.S. federal statutory tax rate and the Company's effective tax rate were state income taxes, offset by net operating loss carryforwards utilized by WeightWatchers.com (for which a full valuation allowance had been recorded) and the reversal of a $5,500 accrued tax liability recorded as a result of WWI's September 29, 1999 recapitalization and stock purchase transaction with its former parent, H.J. Heinz Company. For the three and nine months ended September 27, 2003, the primary differences between the U.S. federal statutory tax rate and the Company's effective tax rate were state income taxes.

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        Due to the consolidation of WeightWatchers.com, the Company had net operating loss carryforwards at October 2, 2004 of approximately $19,800 for federal income tax purposes. These losses are available to reduce WeightWatchers.com's future taxable income and will begin to expire at varying amounts after 2019. Due to the uncertainty surrounding the realization of deferred tax assets, comprised mainly of net operating loss carryforwards, a full valuation allowance has been provided. Management will continue to monitor the necessity of this valuation allowance.

10.   Transactions with WeightWatchers.com

        WeightWatchers.com was formed on September 22, 1999 to develop and market safe, sensible online weight management products on the Internet. WeightWatchers.com provides these weight management products to consumers through access to specified areas of its website, on a monthly subscription basis. It also provides online marketing services to WWI.

        For all periods through and including the first quarter of 2004, WWI's transactions with WeightWatchers.com were not considered intercompany activities and therefore, the resulting income/(expense) has been included in the Company's consolidated results of operations. Beginning in the second quarter of 2004 with the adoption of FIN 46R, all transactions with WeightWatchers.com are now considered intercompany activities and therefore, eliminated in consolidation.

        Therefore, the Company's consolidated results for the three months ended October 2, 2004 contain no income/(expense) related to WWI's activities with WeightWatchers.com since all such activity was eliminated in consolidation. The Company's consolidated results for the nine months ended October 2, 2004 include only the income/(expense) resulting from WWI's activities with WeightWatchers.com which took place in the first quarter of 2004. However, the Company's consolidated results for the three and nine months ended September 27, 2003 include all the income/(expense) resulting from WWI's activities with WeightWatchers.com which took place during each respective period.

Loan Agreement:

        Pursuant to the amended loan agreement, dated September 10, 2001, between WWI and WeightWatchers.com, WWI provided loans to WeightWatchers.com through fiscal 2001 aggregating $34,500. WWI has no further obligation to provide funding to WeightWatchers.com. By the end of 2001, having reviewed the loan balances quarterly for impairment, WWI recorded a full valuation allowance against the balances. Beginning on January 1, 2002, the loan bears interest at 13% per year, and beginning March 31, 2002, interest has been and shall be paid to WWI semi-annually. All principal outstanding under the agreement is payable in six semi-annual installments which commenced on March 31, 2004.

        Interest income recorded by the Company was $0 and $949 for the three and nine months ended October 2, 2004, respectively. This compares to $956 and $3,189 for the three and nine months ended September 27, 2003, respectively. The interest receivable balance as of October 2, 2004 and January 3, 2004 was $0 and $1,009, respectively, and was included within receivables, net. Other income recorded by the Company resulting from loan repayments was $0 and $4,917 for the three and nine months ended October 2, 2004, respectively. This compares to $0 and $5,000 for the three and nine months ended September 27, 2003, respectively.

Intellectual Property License:

        WWI entered into an amended and restated intellectual property license agreement dated September 10, 2001 with WeightWatchers.com. In fiscal 2002, WWI began earning royalties pursuant to the agreement. Royalty income recorded by the Company was $0 and $1,954 for the three and nine months ended October 2, 2004, respectively. This compares to $1,842 and $5,322 for the three and nine months ended September 27, 2003, respectively. These amounts were included in product sales and

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other, net. The royalty receivable balance as of October 2, 2004 and January 3, 2004 was $0 and $1,758, respectively, and was included within receivables, net.

Service Agreement:

        Simultaneous with the signing of the amended and restated intellectual property license agreement, WWI entered into a service agreement with WeightWatchers.com under which WeightWatchers.com provides certain types of services. WWI 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. Service expense recorded by the Company was $0 and $558 for the three and nine months ended October 2, 2004, respectively. This compares to $472 and $1,270 for the three and nine months ended September 27, 2003, respectively. These amounts were included in marketing expenses. The accrued service payable at October 2, 2004 and January 3, 2004 was $0 and $1,223, respectively, and was netted against receivables, net.

11.   Legal

        WWI's agreement with CoolBrands International, Inc., ("CoolBrands"), the now former licensee for Weight Watchers ice cream and frozen novelties, expired by its terms on September 28, 2004. On August 3, 2004, WWI filed a lawsuit against CoolBrands to enforce the sell-off provisions of the CoolBrands license in response to statements made by CoolBrands to the contrary.

        On August 11, 2004, CoolBrands filed a lawsuit in the Supreme Court, State of New York, Nassau County, against WWI and Wells' Dairy Inc., ("Wells"), which is WWI's new licensee for ice cream and frozen novelty products effective October 1, 2004.

        CoolBrands alleges that WWI breached the exclusivity of its license agreement by entering into the agreement with Wells on July 28, 2004 prior to the expiration of WWI's agreement with CoolBrands. CoolBrands further alleges that Wells induced WWI to breach the agreement with CoolBrands, and tortiously interfered with its contractual rights. CoolBrands claims that, as a result, its market capitalization has been reduced since July 28, 2004, when it first announced to the investment community that its Weight Watchers license would expire on September 28, 2004. CoolBrands also claims damages for a reduction of income and profit that will be suffered over the next 10 years, and punitive damages because WWI's actions were allegedly the equivalent of criminal indifference to civil obligations. Damages in excess of $360,000 are sought.

        WWI is vigorously contesting the matter and, based in part upon advice of legal counsel, strongly believes that the suit by CoolBrands is without merit, and that the ultimate resolution of both lawsuits will not have a materially adverse effect on the Company's financial position or results of operations.

        Due to the nature of its activities, the Company is, at times, also 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.

12.   Derivative Instruments and Hedging

        The Company entered into forward and swap contracts to hedge transactions denominated in foreign currencies in order to reduce currency risk associated with fluctuating exchange rates. These contracts were 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 October 2, 2004, the Company held contracts to purchase interest rate swaps with notional amounts totaling $200,000. The Company also held contracts to sell interest rate swaps with notional amounts totaling

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$200,000. As of September 27, 2003, the Company held currency and interest rate swap contracts to purchase foreign currency and interest rate swaps with notional amounts totaling $55,156. The Company also held separate foreign currency and interest rate swap contracts to sell foreign currency and interest rate swaps with notional amounts totaling $55,628. The Company is hedging forecasted transactions for periods not exceeding the next 12 months. As of October 2, 2004, the Company estimates that derivative losses of $10, net of income taxes, reported in accumulated other comprehensive income will be reclassified to the Statement of Operations within the next 12 months.

        As of October 2, 2004 and September 27, 2003, cumulative losses for qualifying hedges were reported as a component of accumulated other comprehensive income in the amounts of $10 ($17 before taxes) and $430 ($852 before taxes), respectively. In the third quarter of 2004 and 2003, the Company discontinued certain of its cash flow hedges that were associated with the euro-denominated Notes extinguished in these periods, as described in Note 5. As such, the Company recorded net (gains)/losses of ($16) and $5,381 to other (income)/expense, net in the three months ended October 2, 2004 and September 27, 2003, respectively. In addition, the Company recorded net proceeds of $1,255 and $2,710 from the gain on settlement in cash from financing activities in the statement of cash flows for the nine months ended October 2, 2004 and September 27, 2003, respectively, as cash flows from hedge transactions are classified in a manner consistent with the item being hedged. The ineffective portion of changes in fair values for qualifying cash flow hedges was not material. Prior to the extinguishment of the euro Notes, the Company hedged 24% of the outstanding principal of the euro-denominated Notes via forward contracts. As such, to offset gains or losses from changes in foreign exchange rates related to the euro Notes for the nine months ended September 27, 2003, the Company reclassified gains of $1,452 ($2,380 before taxes) from accumulated other comprehensive income (loss) to other (income)/expense, net. Subsequent to the extinguishment of the majority of its euro Notes in the third quarter of 2003, the Company was 100% hedged for foreign currency fluctuations related to the remaining balance of its euro Notes. Subsequent to the extinguishment of the remaining balance of its euro Notes in the third quarter of 2004, the Company no longer requires hedges for foreign currency fluctuations. For the three and nine months ended October 2, 2004 fair value adjustments for non-qualifying hedges resulted in a decrease to net income of $590 ($967 before taxes) and $756 ($1,240 before taxes), respectively, included within other expense, net.

13.   Segment Data

        Effective with the adoption of FIN 46R in the first quarter of 2004 (See Note 1), the Company now has two reportable operating segments: Weight Watchers International and WeightWatchers.com, its affiliate and licensee. Since these are two separate and distinct businesses, the financial information for each company is maintained and managed separately. The results of operations and assets for each of these segments are derived from each company's financial reporting system. All intercompany activity is eliminated in consolidation. Since FIN 46R was adopted as of the last day of the first quarter of 2004, WeightWatchers.com's results of operations for the three months ended April 3, 2004 have been included in the charge for the cumulative effect of accounting change. Therefore, the measure of profitability for WeightWatchers.com for the three and nine months ended October 2, 2004 included only their results of operations beginning with the second quarter of 2004. For the same reason, comparative financial information by segment is not presented.

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        Information about the Company's reportable operating segments is as follows:

14.   Subsequent Events

        On October 19, 2004, WWI increased its net borrowing capacity by adding a new term loan to its existing Credit Facility in the amount of $150,000. Coterminous with the previously existing Credit Facility, these funds were initially used to reduce borrowings under WWI's Revolver, resulting in no increase in WWI's net borrowing. The additional term loan bears interest at an annual rate of LIBOR plus 1.50%, or at WWI's option, the alternate base rate (as defined in the Credit Facility) plus 0.50%. The maturity date for these borrowings is March 31, 2010.

        In anticipation of the expiration of its existing lease in Woodbury, New York, on October 3, 2004, WWI entered into an eight-year lease agreement to relocate its corporate headquarters to New York City. Lease payments approximate $2,140 per year.

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ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                   OPERATIONS

        The following discussion should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended January 3, 2004 that includes additional information about us, our results of operations, our financial position and our 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 Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 including, in particular, statements about our plans, strategies and prospects under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations." We have used the words "may," "will," "expect," "anticipate," "believe," "estimate," "plan," "intend," and similar expressions in this Quarterly Report on Form 10-Q and the documents incorporated by reference in this Quarterly Report on Form 10-Q 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 with self-help, pharmaceutical, surgical, dietary supplements and meal replacement products, and other weight-loss brands, diets, 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; and



•

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, including those discussed herein could cause our results to differ materially from those expressed or suggested in any forward-looking statements. Except as required by law, we do 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 us, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Significant Accounting Policies" beginning on page 17 of our Annual Report on Form 10-K for the fiscal year ended January 3, 2004. Other than the accounting for web site development costs and FIN 46R (as explained further below), the critical accounting policies affecting us have not changed since January 3, 2004.

        WeightWatchers.com generates revenue from monthly subscriptions to its web site. Subscription fee revenues are recognized over the period that products are provided. One time sign up fees are deferred and recognized over the expected customer relationship period. Subscription fee revenues that are paid in advance are deferred and recognized on a straight-line basis over the subscription period.

        Pursuant to Emerging Issues Task Force No. 00-2, "Web Site Development Costs" ("EITF 00-2"), WeightWatchers.com applies American Institute of Certified Public Accountants Statement of Position

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No. 98-1 to account for web site development costs. In accordance with EITF 00-2, WeightWatchers.com expenses all costs incurred during the preliminary project stage and capitalizes all internal and external direct costs of materials and services consumed in developing the software, once the development has reached the application development stage. Application development stage costs generally include software configuration, coding, installation to hardware and testing. These costs are amortized over their estimated useful life. All costs incurred for upgrades, maintenance and enhancements, including the cost of web site content, that does not result in additional functionality, are expensed as incurred.

        On January 17, 2003, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 46 ("FIN 46"), to clarify when an entity should consolidate another entity known as a variable interest equity ("VIE"). The standard required that, under certain circumstances, separate businesses with some common ownership be consolidated for financial reporting purposes. Upon adoption of the original FIN 46, we would not have met those circumstances, and we therefore have not consolidated WeightWatchers.com's financial statements into our 2003 and prior reported financial statements.

        On December 24, 2003, the FASB issued FIN 46R, which completely replaced FIN 46. FIN 46R is applicable for financial statements issued for reporting periods after March 15, 2004. FIN 46R requires that an entity consolidate a VIE if that enterprise has a variable interest that will absorb a majority of the VIE's expected losses, will receive a majority of the VIE's expected residual returns, or both.

        Based on the revisions in this regulation, we were required to reevaluate our relationship with our affiliate and licensee, WeightWatchers.com. In the course of this reevaluation, we determined that WeightWatchers.com was a variable interest entity under the revised regulation and that we were its primary beneficiary. Effective April 3, 2004, we have consolidated WeightWatchers.com. In accordance with the provisions of FIN 46R, we recorded a charge of $11.9 million, including a tax charge of $9.9 million, in the quarter ended April 3, 2004 for the cumulative effect of this accounting change. This charge reflects the cumulative impact to our results of operations had WeightWatchers.com been consolidated since its inception in September 1999. Beginning in our first fiscal quarter ended April 3, 2004, our consolidated balance sheet includes the balance sheet of WeightWatchers.com. Effective at the beginning of the second fiscal quarter of 2004, our consolidated statement of operations and statement of cash flows include the results of WeightWatchers.com. All intercompany balances have been eliminated in consolidation.

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RESULTS OF OPERATIONS

        Figures are rounded to the nearest one hundred thousand; percentage changes are based on rounded figures. Attendance percentage changes are based on rounded figures to the nearest thousand.

        As a result of the adoption of FIN 46R in the first quarter of 2004, our consolidated results now include the addition of the financial results of WeightWatchers.com, and eliminate any intercompany transactions between the two companies. The financial impact of adopting FIN 46R is shown as a separate column on each of the tables below.

Impact of FIN 46R

        As a result of our adoption of FIN 46R, we began consolidating the results of operations of our affiliate and licensee, WeightWatchers.com, at the beginning of the second quarter 2004. The table below shows the impact of this adoption on the three and nine months ended October 2, 2004 income statements of Weight Watchers International.