<Page> 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 March 30, 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 April 30, 2002 was 105,836,909. <Page> WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES INDEX <Table> <Caption> PAGE NO. -------- <S> <C> PART I. FINANCIAL INFORMATION Item 1. Financial Statements Unaudited Consolidated Balance Sheets as of March 30, 2002 and December 29, 2001 2 Unaudited Consolidated Statements of Operations for the three months ended March 30, 2002 and March 31, 2001 3 Unaudited Consolidated Statements of Changes in Shareholders' Deficit and Comprehensive Income for the three months ended March 30, 2002, and for the fiscal year ended December 29, 2001 4 Unaudited Consolidated Statements of Cash Flows for the three months ended March 30, 2002 and March 31, 2001 5 Notes to Unaudited Consolidated Financial Statements 6 - 18 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 19 - 24 Item 3. Quantitative and Qualitative Disclosures About Market Risk 25 PART II. OTHER INFORMATION 26 - 27 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 </Table> <Page> 2 ITEM 1. FINANCIAL STATEMENTS WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) <Table> <Caption> MARCH 30, DECEMBER 29, 2002 2001 --------------- -------------- (UNAUDITED) <S> <C> <C> ASSETS CURRENT ASSETS Cash and cash equivalents $ 34,494 $ 23,338 Receivables, net 16,634 13,619 Inventories, net 22,217 26,205 Prepaid expenses, other 18,879 20,717 --------------- -------------- TOTAL CURRENT ASSETS 92,224 83,879 Property and equipment, net 10,922 10,725 Notes and other receivables, noncurrent 243 325 Goodwill, trademarks and other intangible assets, net 288,029 241,165 Deferred income taxes 135,861 136,281 Deferred financing costs, other 10,252 10,473 --------------- -------------- TOTAL ASSETS $ 537,531 $ 482,848 =============== ============== LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES Portion of long-term debt due within one year $ 32,199 $ 15,699 Accounts payable 13,016 17,698 Accrued liabilities 61,429 52,454 Income taxes 22,771 9,139 Deferred revenue 20,725 13,020 --------------- -------------- TOTAL CURRENT LIABILITIES 150,140 108,010 Long-term debt 453,498 458,320 Deferred income taxes 3,169 3,169 Other 812 870 --------------- -------------- TOTAL LONG-TERM DEBT AND OTHER LIABILITIES 457,479 462,359 Redeemable preferred stock - 25,996 SHAREHOLDERS' DEFICIT Common stock, $0 par; 1,000,000 shares authorized; 111,988 shares issued; 105,748 shares outstanding at March 30, 2002 and 105,500 shares at December 29, 2001 - - Treasury stock, at cost, 6,240 shares at March 30, 2002 and 6,488 shares at December 29, 2001 (25,198) (26,196) Accumulated deficit (36,470) (73,998) Accumulated other comprehensive loss (8,420) (13,323) --------------- -------------- TOTAL SHAREHOLDERS' DEFICIT (70,088) (113,517) --------------- -------------- TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' DEFICIT $ 537,531 $ 482,848 =============== ============== </Table> The accompanying notes are an integral part of the consolidated financial statements. <Page> 3 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <Table> <Caption> THREE MONTHS ENDED -------------------------------------------- MARCH 30, MARCH 31, 2002 2001 -------------------- ------------------ (UNAUDITED) <S> <C> <C> Meeting fees, net $ 134,356 $ 111,446 Product sales and other, net 78,147 60,505 -------------------- ------------------ Revenues, net 212,503 171,951 Cost of revenues 96,017 77,443 -------------------- ------------------ Gross profit 116,486 94,508 Marketing expenses 29,325 27,100 Selling, general and administrative expenses 16,105 19,163 -------------------- ------------------ Operating income 71,056 48,245 Interest expense, net 10,814 14,120 Other income, net (621) (986) -------------------- ------------------ Income before income taxes and minority interest 60,863 35,111 Provision for income taxes 23,553 11,815 -------------------- ------------------ Income before minority interest 37,310 23,296 Minority interest 26 58 -------------------- ------------------ Net income $ 37,284 $ 23,238 ==================== ================== Preferred stock dividends 254 375 -------------------- ------------------ Net income available to common shareholders $ 37,030 $ 22,863 ==================== ================== Net income per share: Basic $ 0.35 $ 0.20 ==================== ================== Diluted $ 0.34 $ 0.20 ==================== ================== Weighted average common shares outstanding: Basic 105,639 111,988 ==================== ================== Diluted 108,083 113,613 ==================== ================== </Table> The accompanying notes are an integral part of the consolidated financial statements. <Page> 4 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT AND COMPREHENSIVE INCOME (IN THOUSANDS) <Table> <Caption> ACCUMULATED COMMON STOCK TREASURY STOCK OTHER ------------------- -------------------- COMPREHENSIVE ACCUMULATED SHARES AMOUNT SHARES AMOUNT LOSS DEFICIT TOTAL -------- -------- -------- --------- ------------- ----------- ------------ <S> <C> <C> <C> <C> <C> <C> <C> 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 37,284 37,284 Translation adjustment 4,710 4,710 Change in fair value of derivatives accounted for as hedges 193 193 ----------- Total Comprehensive Income 42,187 ----------- Preferred stock dividend (254) (254) Stock options exercised (248) 998 (472) 526 Tax benefit of stock options exercised 970 970 ------- -------- -------- --------- ----------- ----------- ----------- Balance at March 30, 2002 111,988 $ - 6,240 $ (25,198) $ (8,420) $ (36,470) $ (70,088) ======= ======== ======== ========= =========== =========== =========== </Table> The accompanying notes are an integral part of the consolidated financial statements. <Page> 5 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) <Table> <Caption> THREE MONTHS ENDED -------------------------------------- MARCH 30, MARCH 31, 2002 2001 ---------------- ---------------- (UNAUDITED) <S> <C> <C> Cash provided by operating activities $ 73,154 $ 55,535 ---------------- ---------------- Investing activities: Capital expenditures (1,041) (691) Advances and interest in equity investment - (5,863) Acquisitions (46,548) (83,800) Other items, net (161) (1,805) ---------------- ---------------- Cash used for investing activities (47,750) (92,159) ---------------- ---------------- Financing activities: Net decrease in short-term borrowings (1,395) (629) Proceeds from borrowings 58,500 60,000 Payment of dividends (1,249) - Payments of long-term debt (45,602) (28,530) Redemption of redeemable preferred stock (25,000) - Proceeds from stock options exercised 526 - ---------------- ---------------- Cash (used for) provided by financing activities (14,220) 30,841 ---------------- ---------------- Effect of exchange rate changes on cash and cash equivalents (28) (1,832) Net increase (decrease) in cash and cash equivalents 11,156 (7,615) Cash and cash equivalents, beginning of period 23,338 44,501 ---------------- ---------------- Cash and cash equivalents, end of period $ 34,494 $ 36,886 ================ ================ </Table> The accompanying notes are an integral part of the consolidated financial statements. <Page> 6 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. 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. The acquisition has been accounted for by the purchase method of accounting and, accordingly, the results of operations are <Page> 7 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) included in the financial statements from the date of acquisition. Substantially all of the purchase price in excess of the net assets acquired has been recorded as goodwill and other intangible assets. Management is in the process of determining the allocation between goodwill and other intangible assets and expects this allocation to be finalized during the second quarter of fiscal 2002. The purchase price for the acquisition was $46,500. The acquisition was financed through additional borrowings pursuant to the Company's Amended and Restated Credit Agreement, as amended on January 16, 2001 and December 21, 2001 (the "Credit Facility"). See Note 4. 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. The acquisition has been accounted for under the purchase method of accounting and, accordingly, the results of operations are included in the financial statements from the date of the acquisition. Assets acquired include inventory ($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. 3. INTANGIBLE ASSETS In accordance with SFAS No. 142, the Company has performed a fair value impairment test on its goodwill and determined that no impairment loss was necessary as of December 30, 2001. As of March 30, 2002, certain intangible assets relating to the Company's acquisition of Weight Watchers of North Jersey, Inc. have not been allocated from goodwill. The Company expects this allocation to be finalized during the second quarter of fiscal 2002. See Note 2. The carrying amount of amortized intangible assets as of March 30, 2002 and December 29, 2001 is as follows: <Table> <Caption> MARCH 30, 2002 DECEMBER 29, 2001 ------------------------------- ----------------------------- GROSS GROSS CARRYING ACCUMULATED CARRYING ACCUMULATED AMORTIZATION AMOUNT AMORTIZATION AMOUNT AMORTIZATION PERIOD -------------- -------------- ------------- ------------- ---------------- <S> <C> <C> <C> <C> <C> Trademarks and other $ 21,565 $ 18,979 $ 21,238 $ 18,659 3 - 5 years </Table> Unamortized goodwill is due mainly to acquisitions of the Company's franchised territories. The changes in the carrying amount of goodwill for the three months ended March 30, 2002 is due to the acquisition of Weight Watchers of North Jersey, Inc. and translation of the Company's foreign subsidiaries into U.S. Dollars. Aggregate amortization expense of definite lived intangible assets for the three months ended March 30, 2002 and March 31, 2001 was approximately $252 and $126, respectively. <Page> 8 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Estimated amortization expense for the next five fiscal years is as follows: <Table> <S> <C> 2002 $ 942 2003 $ 690 2004 $ 621 2005 $ 474 2006 $ 79 </Table> As required by SFAS No. 142, the results for the three months ended March 31, 2001 have not been restated. A reconciliation of net income, as if SFAS No. 142 had been adopted, is presented below for the three months ended March 30, 2002 and March 31, 2001: <Table> <Caption> THREE MONTHS ENDED ------------------------------------ MARCH 30, 2002 MARCH 31, 2001 ---------------- ---------------- <S> <C> <C> Reported net income available to common shareholders $ 37,030 $ 22,863 Addback: goodwill amortization (net of tax) - 1,452 ---------------- ---------------- Adjusted net income available to common shareholders $ 37,030 $ 24,315 ================ ================ Basic earnings per share: Reported net income available to common shareholders $ 0.35 $ 0.20 Addback: goodwill amortization - 0.01 ---------------- ---------------- Adjusted net income available to common shareholders $ 0.35 $ 0.21 ================ ================ Diluted earnings per share: Reported net income available to common shareholders $ 0.34 $ 0.20 Addback: goodwill amortization - 0.01 ---------------- ---------------- Adjusted net income available to common shareholders $ 0.34 $ 0.21 ================ ================ </Table> 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 months ended March 30, 2002 from 3.65% 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 March 30, 2002, the 100,000 EUR notes translated into 87,160 USD denominated equivalent. <Page> 9 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 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 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. The following table sets forth the computation of basic and diluted EPS. <Table> <Caption> THREE MONTHS ENDED -------------------------------- MARCH 30, MARCH 31, 2002 2001 -------------- -------------- <S> <C> <C> Numerator: Net income $ 37,284 $ 23,238 Preferred stock dividends 254 375 -------------- -------------- Numerator for basic and diluted EPS-net income available to common shareholders $ 37,030 $ 22,863 -------------- -------------- Denominator: Denominator for basic EPS-weighted-average shares 105,639 111,988 Effect of dilutive securities: Stock options 2,444 1,625 -------------- -------------- Denominator for diluted EPS-weighted-average shares 108,083 113,613 ============== ============== EPS: Basic EPS $ 0.35 $ 0.20 ============== ============== Diluted EPS $ 0.34 $ 0.20 ============== ============== </Table> <Page> 10 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 7. INCOME TAXES The effective tax rate for the three months ended March 30, 2002 and March 31, 2001 were 38.7% and 33.7%, respectively. For the three months ended March 30, 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 months ended March 31, 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 is not required to provide any additional funding to WeightWatchers.com. 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 all of WeightWatchers.com's losses. The remaining loan receivable balances were then reviewed for impairment. As a result of such review, the Company recorded a full valuation allowance against the remaining loan receivable balances. The note bears interest at 13% per year, beginning on January 1, 2002, and beginning March 31, 2002, interest 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 months ended March 30, 2002, the Company recorded interest income of $1,100 on the note, for which payment in full was received in April 2002. In addition, 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. 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 months ended March 30, 2002, the Company recorded royalty income of $720, for which payment in full was received in May 2002. 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 <Page> 11 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 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, its financial condition and its cash flows. 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 March 30, 2002 and March 31, 2001, the Company held currency and interest rate swap contracts to purchase certain foreign currencies totaling $202,473 and $202,011, respectively. The Company also held separate currency and interest rate swap contracts to sell foreign currencies of $206,437 and $207,047, respectively. As of March 30, 2002, losses of $82 ($51 net of taxes) for qualifying hedges, were reported as a component of accumulated other comprehensive loss. For the three months ended March 30, 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 a reduction of net income of $280 ($444 before taxes) for the three months ended March 31, 2002. In addition, for the three months ended March 30, 2002 reclassification to earnings from accumulated other comprehensive loss resulted in a decrease to net income of $142 ($225 before taxes). 11. COMPREHENSIVE INCOME Comprehensive income for the Company includes net income, the effects of foreign currency translation and changes in fair value of derivative instruments. Comprehensive income is as follows: <Table> <Caption> THREE MONTHS ENDED ------------------------------ MARCH 30, MARCH 31, 2002 2001 -------------- ------------- <S> <C> <C> Net income $ 37,284 $ 23,238 Foreign currency translation adjustment 4,710 (3,950) Change in fair value of derivatives Cumulative effect of the adoption of SFAS 133 (5,086) Current period changes in fair value of derivatives 193 - -------------- ------------- Comprehensive income $ 42,187 $ 14,202 ============== ============= </Table> <Page> 12 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 12. 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 concerning each of the Guarantor Subsidiaries would not provide additional information that is material to investors. Therefore, the Guarantor Subsidiaries are combined in the presentation below. Investments in subsidiaries are accounted for by the Parent Company on the equity method of accounting. Earnings of subsidiaries are, therefore, reflected in the Parent Company's investments in subsidiaries' accounts. The elimination entries eliminate investments in subsidiaries and intercompany balances and transactions. <Page> 13 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL UNAUDITED CONSOLIDATING BALANCE SHEET AS OF MARCH 30, 2002 (IN THOUSANDS) <Table> <Caption> NON- PARENT GUARANTOR GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ---------- ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> ASSETS CURRENT ASSETS Cash and cash equivalents $ 9,139 $ 17,529 $ 7,826 $ - $ 34,494 Receivables, net 1,817 11,577 3,240 - 16,634 Inventories - 17,547 4,670 - 22,217 Prepaid expenses, other 1,194 15,546 2,139 - 18,879 Intercompany (payables) receivables (169,490) 155,003 14,487 - - ---------- ------------ ------------ ------------ ------------ TOTAL CURRENT ASSETS (157,340) 217,202 32,362 - 92,224 Investment in consolidated subsidiaries 458,374 - - (458,374) - Property and equipment, net 1,160 8,397 1,365 - 10,922 Notes and other receivables, noncurrent 243 - - - 243 Goodwill, trademarks and other intangibles, net 27,610 259,749 670 - 288,029 Deferred income taxes 34,699 100,073 1,089 135,861 Deferred financing costs, other 9,299 (435) 1,388 10,252 ---------- ------------ ------------ ------------ ------------ TOTAL ASSETS $ 374,045 $ 584,986 $ 36,874 $ (458,374) $ 537,531 ========== ============ ============ ============ ============ LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY CURRENT LIABILITIES Portion of long-term debt due within one year $ 31,719 $ 480 $ - $ - $ 32,199 Accounts payable 483 9,224 3,309 - 13,016 Accrued liabilities 27,405 25,846 8,178 - 61,429 Income taxes (7,933) 28,531 2,173 - 22,771 Deferred revenue - 19,081 1,644 - 20,725 ---------- ------------ ------------ ------------ ------------ TOTAL CURRENT LIABILITIES 51,674 83,162 15,304 - 150,140 Long-term debt 389,978 63,520 - - 453,498 Deferred income taxes 2,481 112 576 - 3,169 Other - 525 287 - 812 ---------- ------------ ------------ ------------ ------------ TOTAL LONG-TERM DEBT AND OTHER LIABILITIES 392,459 64,157 863 - 457,479 Shareholders' (deficit) equity (70,088) 437,667 20,707 (458,374) (70,088) ---------- ------------ ------------ ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY $ 374,045 $ 584,986 $ 36,874 $ (458,374) $ 537,531 ========== ============ ============ ============ ============ </Table> The accompanying notes are an integral part of the consolidated financial statements. <Page> 14 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL UNAUDITED CONSOLIDATING BALANCE SHEET AS OF DECEMBER 29, 2001 (IN THOUSANDS) <Table> <Caption> NON- PARENT GUARANTOR GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ---------- ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> 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 ========== ============ ============ ============ ============ </Table> The accompanying notes are an integral part of the consolidated financial statements. <Page> 15 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL UNAUDITED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 30, 2002 (IN THOUSANDS) <Table> <Caption> NON- PARENT GUARANTOR GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ---------- ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> Revenues, net $ 1,510 $ 181,482 $ 29,511 $ - $ 212,503 Cost of revenues 60 80,122 15,835 - 96,017 ---------- ------------ ------------ ------------ ------------ Gross profit 1,450 101,360 13,676 - 116,486 Marketing expenses - 24,743 4,582 - 29,325 Selling, general and administrative expenses 4,265 9,519 2,321 - 16,105 ---------- ------------ ------------ ------------ ------------ Operating (loss) income (2,815) 67,098 6,773 - 71,056 Interest expense (income), net 8,625 2,379 (190) - 10,814 Other (income) expenses, net (1,410) 804 (15) - (621) Equity in income of consolidated subsidiaries 36,807 - - (36,807) - Franchise commission income (loss) 16,469 (14,821) (1,648) - - ---------- ------------ ------------ ------------ ------------ Income before income taxes and minority interest 43,246 49,094 5,330 (36,807) 60,863 Provision for income taxes 5,962 15,684 1,907 - 23,553 ---------- ------------ ------------ ------------ ------------ Income before minority interest 37,284 33,410 3,423 (36,807) 37,310 Minority interest - - 26 - 26 ---------- ------------ ------------ ------------ ------------ Net income $ 37,284 $ 33,410 $ 3,397 $ (36,807) $ 37,284 ========== ============ ============ ============ ============ </Table> The accompanying notes are an integral part of the consolidated financial statements. <Page> 16 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL UNAUDITED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001 (IN THOUSANDS) <Table> <Caption> NON- PARENT GUARANTOR GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ---------- ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> Revenues, net $ 881 $ 141,574 $ 29,496 $ - $ 171,951 Cost of revenues 502 61,359 15,582 - 77,443 ---------- ------------ ------------ ------------ ------------ Gross profit 379 80,215 13,914 - 94,508 Marketing expenses - 22,088 5,012 - 27,100 Selling, general and administrative expenses 6,079 10,750 2,334 - 19,163 ---------- ------------ ------------ ------------ ------------ Operating (loss) income (5,700) 47,377 6,568 - 48,245 Interest expense (income), net 9,720 4,565 (165) - 14,120 Other (income) expenses, net (998) 12 - - (986) Equity in income of consolidated subsidiaries 25,355 - - (25,355) - Franchise commission income (loss) 13,074 (11,506) (1,568) - - ---------- ------------ ------------ ------------ ------------ Income before income taxes and minority interest 24,007 31,294 5,165 (25,355) 35,111 Provision for income taxes 769 9,313 1,733 - 11,815 ---------- ------------ ------------ ------------ ------------ Income before minority interest 23,238 21,981 3,432 (25,355) 23,296 Minority interest - - 58 - 58 ---------- ------------ ------------ ------------ ------------ Net income $ 23,238 $ 21,981 $ 3,374 $ (25,355) $ 23,238 ========== ============ ============ ============ ============ </Table> The accompanying notes are an integral part of the consolidated financial statements. <Page> 17 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL UNAUDITED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 30, 2002 (IN THOUSANDS) <Table> <Caption> NON- PARENT GUARANTOR GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> Cash provided by (used for) operating activities $ 53,428 $ 58,981 $ (2,448) $ (36,807) $ 73,154 -------- ----------- ------------ ------------ ------------ Investing activities: Capital expenditures (25) (864) (152) - (1,041) Acquisition - (46,548) - - (46,548) Other items, net (64) (97) - - (161) -------- ----------- ------------ ------------ ------------ Cash used for investing activities (89) (47,509) (152) - (47,750) -------- ----------- ------------ ------------ ------------ Financing activities: Net decrease in short-term borrowings (741) (654) - - (1,395) Parent company investment in subsidiaries (41,562) - - 41,562 - Proceeds from borrowings 58,500 - - - 58,500 Payment of dividends (1,249) - - - (1,249) Payments on long-term debt (45,602) - - - (45,602) Redemption of redeemable preferred stock (25,000) - - - (25,000) Proceeds from stock options exercised 526 - - - 526 -------- ----------- ------------ ------------ ------------ Cash used for financing activities (55,128) (654) - 41,562 (14,220) -------- ----------- ------------ ------------ ------------ Effect of exchange rate changes on cash and cash equivalents 4,698 (2,093) 2,122 (4,755) (28) Net increase (decrease) in cash and cash equivalents 2,909 8,725 (478) - 11,156 Cash and cash equivalents, beginning of period 6,230 8,804 8,304 - 23,338 -------- ----------- ------------ ------------ ------------ Cash and cash equivalents, end of period $ 9,139 $ 17,529 $ 7,826 $ - $ 34,494 ======== =========== ============ ============ ============ </Table> The accompanying notes are an integral part of the consolidated financial statements. <Page> 18 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL UNAUDITED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE THREE MONTHS MARCH 31, 2001 (IN THOUSANDS) <Table> <Caption> NON- PARENT GUARANTOR GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------- ------------ ------------ <S> <C> <C> <C> <C> <C> Cash (used for) provided by operating activities $ (21,848) $ 100,650 $ 2,088 $ (25,355) $ 55,535 --------- ------------ ------------- ------------ ------------ Investing activities: Capital expenditures (20) (546) (125) - (691) Advances to equity investment (5,863) - - - (5,863) Acquisition - (83,800) - - (83,800) Other items, net (404) (1,346) (55) - (1,805) --------- ------------ ------------- ------------ ------------ Cash used for investing activities (6,287) (85,692) (180) - (92,159) --------- ------------ ------------- ------------ ------------ Financing activities: Net decrease in short-term borrowings (355) (274) - - (629) Parent company investment in subsidiaries (12,917) - - 12,917 - Proceeds from borrowings 60,000 - - - 60,000 Payment of dividends - (8,488) - 8,488 - Payments on long-term debt (28,313) (217) - - (28,530) --------- ------------ ------------- ------------ ------------ Cash provided by (used for) financing activities 18,415 (8,979) - 21,405 30,841 --------- ------------ ------------- ------------ ------------ Effect of exchange rate changes on cash and cash equivalents (3,926) (975) (881) 3,950 (1,832) Net (decrease) increase in cash and cash equivalents (13,646) 5,004 1,027 - (7,615) Cash and cash equivalents, beginning of year 26,699 11,191 6,611 - 44,501 --------- ------------ ------------- ------------ ------------ Cash and cash equivalents, end of period $ 13,053 $ 16,195 $ 7,638 $ - $ 36,886 ========= ============ ============= ============ ============ </Table> The accompanying notes are an integral part of the consolidated financial statements. <Page> 19 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 which 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 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. 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. RESULTS OF OPERATIONS COMPARISON OF THE THREE MONTHS ENDED MARCH 30, 2002 TO THE THREE MONTHS ENDED MARCH 31, 2001 Net revenues were $212.5 million for the three months ended March 30, 2002, an increase of $40.5 million or 23.5%, from $172.0 million for the three months ended March 31, 2001. Of the $40.5 million <Page> 20 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS increase, $23.0 million was attributable to classroom meeting fees, $15.7 million to total company product sales, $1.3 million to franchise royalties and $0.5 million to licensing, publications and other royalties. The Company's business is seasonal, with revenues generally highest in the first half of the fiscal year. Classroom meeting fees were $134.4 million for the three months ended March 30, 2002 as compared to $111.4 million for the three months ended March 30, 2001. North American Company Owned ("NACO") classroom meeting fees were $90.3 million for the three months ended March 30, 2002, an increase of $26.1 million or 40.7%, from $64.2 million for the three months ended March 31, 2001. The increase in NACO classroom meeting fees was the result of a 35.9% increase in member attendance. International company-owned classroom meeting fees were $44.1 million for the three months ended March 30, 2002, a decrease of $3.1 million or 6.6%, from $47.2 million for the three months ended March 31, 2001. The decrease in international company-owned classroom meeting fees was the result of negative exchange rate variances and a 2.2% decrease in member attendance. Product sales were $65.5 million for the three months ended March 30, 2002, an increase of $15.7 million or 31.5%, from $49.8 million for the three months ended March 31, 2001. Product sales increased 48.4% to $41.1 million domestically and 10.4% to $24.4 million internationally, reflecting 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 $7.9 million domestically and $1.6 million internationally for the three months ended March 30, 2002. In total, franchise royalties increased $1.3 million or 15.9%, from $8.2 million for the three months ended March 31, 2001, on the strength of increased member attendance. Royalties from licensing, publications and other were $3.1 million for the three months ended March 30, 2002, up $0.5 million or 19.2%, from $2.6 million for the three months ended March 31, 2001. This increase was primarily the result of licensing royalty income from WeightWatchers.com. Cost of revenues was $96.0 million for the three months ended March 30, 2002, an increase of $18.6 million or 24.0%, from $77.4 million for the three months ended March 31, 2001. Gross profit margin was 54.8% for the three months ended March 30, 2002, slightly lower than the 55.0% level of the three months ended March 31, 2001. Marketing expenses were $29.3 million for the three months ended March 30, 2002, an increase of $2.2 million or 8.1%, as compared to $27.1 million for the three months ended March 31, 2001. The increase in marketing expenses was primarily in support of the continued enrollment growth of the business. As a percentage of net revenues, marketing expenses decreased from 15.8% for the three months ended March 31, 2001 to 13.8% for the three months ended March 30, 2002. Selling, general and administrative expenses were $16.1 million for the three months ended March 30, 2002, a decrease of $3.1 million or 16.1%, from $19.2 million for the three months ended March 31, 2001. The decrease in selling, general and administrative expenses was the result of two items that occurred in the three months ended March 31, 2001: a one-time charge of $4.0 million for the write-off of a receivable from a licensing agreement and $2.2 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. These decreases were partially offset by an increase in salary and incentive compensation for the three months ended March 30, 2002. <Page> 21 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS As a result of the above, operating income was $71.1 million for the three months ended March 30, 2002, an increase of $22.8 million or 47.2%, from $48.3 million for the three months ended March 31, 2001. Other income, net was $0.6 million for the three months ended March 30, 2002 as compared to $1.0 million for the three months ended March 31, 2001. In the three months ended March 31, 2001, a loan to WeightWatchers.com was more than offset by an unrealized currency gain. In the three months ended March 30, 2002, the Company experienced a lesser unrealized currency gain and did not make any advances to WeightWatchers.com. LIQUIDITY AND CAPITAL RESOURCES For the three months ended March 30, 2002, the Company's primary source of funds to meet working capital needs was cash from operations. Cash and cash equivalents increased $11.2 million for the three months ended March 30, 2002, to $34.5 million. Cash flows of $73.2 million provided by operating activities and $58.5 million of proceeds from borrowings under the Company's Credit Facility were used primarily for investing and financing activities. Investing activities totaled $47.8 million in the three months ended March 30, 2002 and were primarily attributable to $46.5 million paid in connection with the acquisition of the Company's North Jersey franchise and $1.0 invested in capital expenditures. Capital spending consisted primarily of leasehold improvements for meeting locations and administrative offices, computer equipment for field staff and call centers, and information system upgrades. Cash used for financing activities included repayments of $45.6 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, and the cumulative final payment of $1.2 million of dividends on the Company's preferred stock. In total, after proceeds from borrowings of $58.5 million, net cash used for financing activities totaled $14.2 million. The Company's total debt was $485.7 million and $474.0 million at March 30, 2002 and December 29, 2001, respectively. As of March 30, 2002, the Company had approximately $28.5 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 March 30, 2002 fixed-rate debt constituted approximately 48.9% of the Company's total debt. The following schedule sets forth the Company's long term debt obligations as of the three month period ended March 30, 2002. <Page> 22 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 MARCH 30, 2002 (in millions) <Table> <Caption> BALANCE INTEREST RATE ----------- -------------- <S> <C> <C> EURO $100.0 million 13% Senior Subordinated Notes Due 2009 $ 87.2 13.00% US $150.0 million 13% Senior Subordinated Notes Due 2009 150.0 13.00% Term A Loan due 2005 60.0 3.73% Term B Loan due 2007 108.0 4.56% Transferable Loan Certificate due 2007 64.0 4.24% Revolving Credit Facility 16.5 3.65% ----------- 485.7 Less Current Portion (including revolver) (32.2) ----------- Total Long-Term Debt $ 453.5 =========== </Table> 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's credit ratings by Moody's at March 30, 2002 for the Credit Facility and the Notes were "Ba1" and "Ba3", respectively. The Company's credit ratings by Standard & Poor's at March 30, 2002 for the Credit Facility and the Notes were "BB - " and "B", respectively. <Page> 23 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following schedule sets forth the Company's year by year long term debt obligations as of March 30, 2002. LONG-TERM DEBT OBLIGATIONS (INCLUDING CURRENT PORTION) AS OF MARCH 30, 2002 (in millions) <Table> <Caption> Payments Due by Fiscal Year --------------------------- <S> <C> Remainder of Year 2002 $ 28.6 2003 20.2 2004 17.6 2005 17.0 2006 1.7 Thereafter 400.6 ----------- Total $ 485.7 =========== </Table> On January 18, 2002, the Company completed the acquisition of Weight Watchers of North Jersey, Inc. for a purchase price of $46.5 million. The acquisition was financed through additional borrowings under the Company's Revolving Credit Facility. On March 1, 2002, the Company redeemed all of the Company's Series A Preferred Stock held by Heinz for a redemption price of $25.0 million plus accrued and unpaid dividends. The redemption was financed through additional borrowings of $12.0 million under the Revolving Credit Facility and cash from operations. 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. Our expected capital expenditure requirements include, but are not limited to, leasehold improvements for meeting locations and administrative offices, computer equipment for field staff and call centers and 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. 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. <Page> 24 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. The related party transactions affecting the Company have not changed since December 29, 2001. 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 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 consolidated financial statements 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. <Page> 25 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 March 30, 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 March 30, 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 March 30, 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 (pound)59.2 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. <Page> 26 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 No exhibits are filed as part hereof. (b) Reports on Form 8-K No reports on Form 8-K were filed during the three months ended March 30, 2002. <Page> 27 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: May 14, 2002 By: /s/ LINDA HUETT ----------------------------------------------- Linda Huett President, Chief Executive Officer and Director (Principal Executive Officer) Date: May 14, 2002 By: /s/ ANN M. SARDINI ----------------------------------------------- Ann M. Sardini Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)