-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EkBUiE7dTxluDg2DN8XOty5j5B7Ta88i+9M2CgPzMFP5NMn4Rsp/eEwlcfhk1FvX svocaP0TcsL4vIcsY9GXUA== /in/edgar/work/20000912/0000950123-00-008458/0000950123-00-008458.txt : 20000922 0000950123-00-008458.hdr.sgml : 20000922 ACCESSION NUMBER: 0000950123-00-008458 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000729 FILED AS OF DATE: 20000912 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEIGHT WATCHERS INTERNATIONAL INC CENTRAL INDEX KEY: 0000105319 STANDARD INDUSTRIAL CLASSIFICATION: [ ] IRS NUMBER: 116040273 STATE OF INCORPORATION: VA FISCAL YEAR END: 0429 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-03389 FILM NUMBER: 721310 BUSINESS ADDRESS: STREET 1: 175 CROSSWAYS PARK WEST CITY: WOODBURY STATE: NY ZIP: 11797 BUSINESS PHONE: 5163901400 MAIL ADDRESS: STREET 1: 175 CROSSWAYS PARK WEST CITY: WOODBURY STATE: NY ZIP: 11797 10-Q 1 y40246e10-q.txt WEIGHT WATCHERS INTERNATIONAL, INC. 1 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 year ended July 29, 2000 Commission File no 000-03389 ----------- WEIGHT WATCHERS INTERNATIONAL, INC. - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Virginia 11-6040273 - ---------------------------------- ---------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 175 Crossways Park West, Woodbury, New York 11797-2055 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (516) 390-1400 --------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ----- The number of common shares outstanding as of July 29, 2000 was 23,800,000. PART I - - FINANCIAL INFORMATION 2 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES INDEX - --------------------------------------------------------------------------------
Part I. FINANCIAL INFORMATION PAGE NO. - ------------------------------ -------- Item 1. Financial Statements Unaudited Consolidated Balance Sheets as of July 29, 2000 and April 29, 2000 2 Unaudited Consolidated Statements of Operations and Comprehensive Income for the three months ended July 29, 2000 and July 24, 1999 3 Unaudited Consolidated Statements of Cash Flows for the three months ended July 29, 2000 and July 24, 1999 4 Notes to Unaudited Consolidated Financial Statements 5-13 Item 2. Management's Discussion and Analysis of Financial Condition 14-15 and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk 16-18 Part II. OTHER INFORMATION 18-19 - --------------------------- 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
3 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 2 CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) - --------------------------------------------------------------------------------
JULY 29, APRIL 29, ASSETS 2000 2000 (UNAUDITED) Current assets Cash and cash equivalents $ 57,166 $ 44,043 Receivables, net 8,321 12,877 Notes receivable, current 3,111 2,791 Inventories 10,945 9,328 Prepaid expenses, other 8,130 8,454 ---------- ---------- Total current assets 87,673 77,493 Property and equipment, net 6,595 7,001 Notes and other receivables, noncurrent 6,680 7,045 Goodwill, net 151,139 152,565 Trademarks and other intangible assets, net 7,024 7,163 Deferred income taxes 68,268 67,574 Deferred financing costs, other 15,028 15,366 ---------- ---------- Total assets $ 342,407 $ 334,207 ========== ========== LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT Current liabilities Short-term borrowings due to related party $ 1,707 $ 1,489 Portion of long-term debt due within one year 14,120 14,120 Accounts payable 7,675 12,362 Accrued liabilities 41,537 39,062 Income taxes 8,759 6,786 Deferred revenue 4,596 4,632 ---------- ---------- Total current liabilities 78,394 78,451 Long-term debt 458,200 460,510 Deferred income taxes 2,569 2,941 Other 312 546 ---------- ---------- Total long-term debt and other liabilities 461,081 463,997 Redeemable preferred stock 26,250 25,875 Stockholders' deficit Common stock, par value $0 per share, 23,800 shares authorized, issued and outstanding - - Accumulated deficit (219,978) (231,663) Accumulated other comprehensive loss (3,340) (2,453) ---------- ---------- Total stockholders' deficit (223,318) (234,116) ---------- ---------- Total liabilities, redeemable preferred stock, and stockholders' deficit $ 342,407 $ 334,207 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 4 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 3 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME (IN THOUSANDS) - --------------------------------------------------------------------------------
THREE MONTHS ENDED ---------------------------- JULY 29, JULY 24, 2000 1999 (UNAUDITED) Revenues, net $ 103,542 $ 92,174 Cost of revenues 47,786 42,709 ---------- ---------- Gross profit 55,756 49,465 Marketing expenses 10,085 8,769 Selling, general and administrative expenses 11,419 12,394 ---------- ---------- Operating income 34,252 28,302 Interest income 881 3,124 Interest expense 14,976 1,454 Other expenses, net 4,260 1,165 ---------- ---------- Income before income taxes and minority interest 15,897 28,807 Provision for income taxes 3,833 11,338 ---------- ---------- Income before minority interest 12,064 17,469 Minority interest 95 374 ---------- ---------- Net income 11,969 17,095 Other comprehensive income: Foreign currency translation adjustment (887) 9,946 ---------- ---------- Comprehensive income $ 11,082 $ 27,041 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 5 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 4 CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) - --------------------------------------------------------------------------------
THREE MONTHS ENDED --------------------------- JULY 29, JULY 24, 2000 1999 (UNAUDITED) Operating activities: Net income $ 11,969 $ 17,095 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 2,921 2,301 Deferred tax provision (benefit) (1,068) 382 Accounting for equity investment 6,800 - Allowance for doubtful accounts 66 (200) Reserve for inventory obsolescence 641 1,020 Other items, net (803) (129) Changes in cash due to: Receivables 2,535 5,398 Inventories (2,255) (1,141) Prepaid expense 326 472 Due to related parties 218 132,601 Accounts payable (2,249) (4,246) Accrued liabilities 2,480 (3,308) Deferred revenue (37) (4,160) Income taxes 1,945 2,021 ---------- ---------- Cash provided by operating activities 23,489 148,106 ---------- ---------- Investing activities: Capital expenditures (445) (301) Advances to equity investment (4,800) - Other items, net 178 81 ---------- ---------- Cash used for investing activities (5,067) (220) ---------- ---------- Financing activities: Net decrease in short-term borrowings (2,435) (8,059) Payment of dividends - (1,923) Payments on long-term debt (3,530) - Net Parent (settlements) advances 93 (130,345) ---------- ---------- Cash used for financing activities (5,872) (140,327) ---------- ---------- Effect of exchange rate changes on cash and cash equivalents 573 (1,040) Net increase in cash and cash equivalents 13,123 6,519 Cash and cash equivalents, beginning of period 44,043 19,515 ---------- ---------- Cash and cash equivalents, end of period $ 57,166 $ 26,034 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 6 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 5 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. GENERAL The accompanying consolidated financial statements include the accounts of Weight Watchers International, Inc. and Subsidiaries (the "Company"). The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and include amounts that are based on management's best estimates and judgments. While all available information has been considered, actual amounts could differ from those estimates. The consolidated financial statements are unaudited but, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation. This report should be read in conjunction with the Company's annual report filed on Form 10K for the fiscal year ending April 29, 2000. 2. RECAPITALIZATION On September 29, 1999, the Company effected a recapitalization and stock purchase agreement, (the "Transaction") with its former parent, H.J. Heinz Company ("Heinz"). The Company redeemed shares of common stock from Heinz for $349.5 million. The $349.5 million consisted of $324.5 million of cash and $25.0 million of the Company's redeemable Series A Preferred Stock. After the redemption, Artal Luxembourg S.A. purchased 94% of the Company's remaining common stock from Heinz for $223.7 million. The Transaction was financed through borrowings under credit facilities amounting to approximately $237.0 million and by issuing Senior Subordinated Notes amounting to $255.0 million, due 2009. The balance of the borrowings was utilized to refinance debt incurred prior to the Transaction relating to the transfer of ownership and acquisition of the minority interest in the Weight Watchers businesses that operate in Australia and New Zealand. The acquisition of the minority interest resulted in approximately $15.9 million of goodwill. In connection with the Transaction, the Company incurred approximately $8.3 million in transaction costs and $15.9 million in deferred financing costs. For U.S. Federal and State tax purposes, the Transaction is being treated as a taxable sale under Section 338(h)(10) of the Internal Revenue Code of 1986 as amended. As a result, for tax purposes, the Company will record a step-up in the tax basis of net assets. For financial reporting purposes, a valuation allowance of approximately $72.1 million had been established against the corresponding deferred tax asset as management has concluded it is more likely than not that this amount will not be utilized to reduce future tax payments. 3. RECENTLY ISSUED ACCOUNTING STANDARDS: In June 1998, the FASB issued SFAS No. 133, "Accounting for the Derivative Instruments and Hedging Activities". This statement established accounting and reporting standards for derivative instruments. The statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. In June 1999, the FASB issued SFAS No.137, "Accounting for Derivative instruments and Hedging Activities-Deferral of the Effective Date of Statement 133, "which postponed to the adoption date of SFAS No. 133. As such, the Company is not required to adopt the statement until fiscal year ended 2002. The Company does not believe this standard will have material impact on its financial statements. 7 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 6 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 4. LONG-TERM DEBT In connection with the Transaction, the Company entered into a credit facility ("Credit Facility") with The Bank of Nova Scotia, Credit Suisse First Boston and certain other lenders providing (i) a $75.0 million term loan A facility ("Term Loan A"), (ii) a $75.0 million term loan B facility ("Term Loan B"), (iii) an $87.0 million transferable loan certificate ("TLC") and (iv) a revolving credit facility with borrowings up to $30.0 million ("Revolving Credit Facility"). Borrowings under the Credit Facility are paid quarterly and initially bear interest at a rate equal to LIBOR plus (a) in the case of Term Loan A and the Revolving Credit Facility, 3.25% or, at the Company's option, the alternate base rate, as defined, plus 2.25% or (b) in the case of Term Loan B and the TLC, 4.00% or, at the Company's option, the alternate base rate plus 3.00%. At July 29, 2000, the interest rates were 9.745% for Term Loan A and 10.870% for Term Loan B and the TLC. Borrowings under Term Loan A and the Revolving Credit Facility mature in six years and Term Loan B and the TLC mature in seven years. Assets of the Company collateralize the Credit Facility. In addition, the Company issued $150.0 million USD denominated and 100.0 million EUR denominated principal amount of 13% Senior Subordinated Notes due 2009 (the "Notes") to qualified institutional buyers under a private placement offering pursuant to Rule 144A. At July 29, 2000, the 100.0 million EUR notes translated into $92.4 million USD denominated equivalent. The impact of the change in foreign exchange rates related to euro denominated debt are reflected in the income statement. Interest is payable on the Notes semi-annually on April 1 and October 1 of each year, commencing April 1, 2000. The Company uses interest rate swaps and foreign currency forward contracts in association with its debt. The Notes are uncollateralized senior subordinated obligations of the Company, subordinated in right of payment to all existing and future senior indebtedness of the Company, including the Credit Facility. Each of the aforementioned debt facilities contains restrictive covenants and requires the Company to maintain certain financial ratios, as defined. The aggregate amounts of existing long-term debt maturing in each of the next five years and thereafter are as follows:
(IN THOUSANDS) 2001 $ 10,590 2002 14,120 2003 14,120 2004 14,120 2005 15,683 2006 and thereafter 403,687 ---------- $ 472,320 ==========
5. WEIGHT WATCHERS.COM NOTE The Company has agreed to advance to WeightWatchers.com up to an aggregate principal amount of $10.0 million at any time or from time to time prior to October 31, 2000. The unpaid principal amount under the note will bear interest at a rate of 11% per year. All principal and interest 8 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 7 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- outstanding under the note will be payable on December 30, 2000. The note may be prepaid at any time, in whole or in part, without premium or penalty. As of July 29, 2000, the Company has advanced WeightWatchers.com $6.8 million pursuant to the note. The $6.8 million in advances were classified in Other expenses, net. 6. LEGAL Due to the nature of its activities, the Company is, at times, subject to pending and threatened legal actions that arise out of the normal course of business. In the opinion of management, based in part upon advice of legal counsel, the disposition of such matters will not have a material effect on the consolidated financial statements. 7. GUARANTOR SUBSIDIARIES The Company's payment obligations under the Senior Subordinated Notes are fully and unconditionally guaranteed on a joint and several basis by the following wholly-owned subsidiaries: 58 WW Food Corp.; Waist Watchers, Inc.; Weight Watchers Camps, Inc.; W.W. Camps and Spas, Inc.; Weight Watchers Direct, Inc.; W/W Twentyfirst Corporation; W.W. Weight Reduction Services, Inc.; W.W.I. European Services Ltd.; W.W. Inventory Service Corp.; Weight Watchers North America, Inc.; Weight Watchers UK Holdings Ltd.; Weight Watchers International Holdings Ltd.; Weight Watchers (U.K.) Limited; Weight Watchers (Accessories & Publication) Ltd.; Weight Watchers (Food Products) Limited; Weight Watchers New Zealand Limited; Weight Watchers International Pty Limited; Fortuity Pty Ltd.; and Gutbusters Pty Ltd. (collectively, the "Guarantor Subsidiaries"). The obligations of each Guarantor Subsidiary under its guarantee of the Notes are subordinated to such subsidiary's obligations under its guarantee of the new senior credit facility. The following presentations are 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. 9 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 8 SUPPLEMENTAL UNAUDITED CONSOLIDATING BALANCE SHEET AS OF JULY 29, 2000 (IN THOUSANDS) - --------------------------------------------------------------------------------
NON- PARENT GUARANTOR GUARANTOR ASSETS COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------ ------------ ------------ ------------ Current assets Cash and cash equivalents $ 19,088 $ 27,037 $ 11,041 $ - $ 57,166 Receivables, net 3,411 3,819 1,091 - 8,321 Notes receivable, current 3,111 - - - 3,111 Inventories - 9,758 1,187 - 10,945 Prepaid expenses, other 3,181 3,321 1,628 - 8,130 Intercompany receivables (payables) (41,748) 39,670 2,078 - - --------- --------- --------- --------- --------- Total current assets (12,957) 83,605 17,025 - 87,673 Investment in consolidated subsidiaries 175,276 - - (175,276) - Property and equipment, net 1,783 3,658 1,154 - 6,595 Notes and other receivables, noncurrent 6,680 - - - 6,680 Goodwill, net 25,390 125,015 734 - 151,139 Trademarks and other intangible assets, net 1,920 5,094 10 - 7,024 Deferred income taxes (1,329) 69,597 - - 68,268 Deferred financing costs, other 14,420 430 178 - 15,028 --------- --------- --------- --------- --------- Total assets $ 211,183 $ 287,399 $ 19,101 $(175,276) $ 342,407 ========= ========= ========= ========= ========= LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS EQUITY (DEFICIT) Current liabilities Short-term borrowings due to related party $ 1,707 $ - $ - $ - $ 1,707 Portion of long-term debt due within one year 13,250 870 - - 14,120 Accounts payable 429 5,851 1,395 - 7,675 Accrued liabilities 18,032 17,446 6,059 - 41,537 Income taxes 425 6,192 2,142 - 8,759 Deferred revenue - 3,693 903 - 4,596 --------- --------- --------- --------- --------- Total current liabilities 33,843 34,052 10,499 - 78,394 Long-term debt 372,505 85,695 - - 458,200 Deferred income taxes 1,903 31 635 - 2,569 Other - - 312 - 312 --------- --------- --------- --------- --------- Total long term debt and other liabilities 374,408 85,726 947 - 461,081 Redeemable preferred stock 26,250 - - - 26,250 Stockholders' equity (deficit) (223,318) 167,621 7,655 (175,276) (223,318) --------- --------- --------- --------- --------- Total liabilities, redeemable preferred stock and stockholders' equity (deficit) $ 211,183 $ 287,399 $ 19,101 $(175,276) $ 342,407 ========= ========= ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 10 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 9 SUPPLEMENTAL UNAUDITED CONSOLIDATING BALANCE SHEET AS OF APRIL 29, 2000 (IN THOUSANDS) - --------------------------------------------------------------------------------
NON- PARENT GUARANTOR GUARANTOR ASSETS COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------ ------------ ------------ ------------ Current assets Cash and cash equivalents $ 10,984 $ 22,465 $ 10,594 $ - $ 44,043 Receivables, net 6,006 5,606 1,265 - 12,877 Notes receivable, current 2,791 - - - 2,791 Inventories - 7,827 1,501 - 9,328 Prepaid expenses, other 3,594 3,488 1,372 - 8,454 Intercompany receivables (payables) (32,114) 27,742 4,372 - - --------- --------- --------- --------- --------- Total current assets (8,739) 67,128 19,104 - 77,493 Investment in consolidated subsidiaries 162,320 - - (162,320) - Property and equipment, net 1,809 3,974 1,218 - 7,001 Notes and other receivables, noncurrent 7,045 - - - 7,045 Goodwill, net 25,833 125,977 755 - 152,565 Trademarks and other intangible assets, net 1,960 5,193 10 - 7,163 Deferred income taxes (9,854) 77,428 - - 67,574 Deferred financing costs, other 14,912 282 172 - 15,366 --------- --------- --------- --------- --------- Total assets $ 195,286 $ 279,982 $ 21,259 $(162,320) $ 334,207 ========= ========= ========= ========= ========= LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS EQUITY (DEFICIT) Current liabilities Short-term borrowings due to related party $ 1,489 $ - $ - $ - $ 1,489 Portion of long-term debt due within one year 13,250 870 - - 14,120 Accounts payable 1,438 9,084 1,840 - 12,362 Accrued liabilities 12,695 18,652 7,715 - 39,062 Income taxes (1,846) 5,965 2,667 - 6,786 Deferred revenue - 3,824 808 - 4,632 --------- --------- --------- --------- --------- Total current liabilities 27,026 38,395 13,030 - 78,451 Long-term debt 374,598 85,912 - - 460,510 Deferred income taxes 1,903 390 648 - 2,941 Other - - 546 - 546 --------- --------- --------- --------- --------- Total long term debt and other liabilities 376,501 86,302 1,194 - 463,997 Redeemable preferred stock 25,875 2,507 254 (2,761) 25,875 Stockholders' equity (deficit) (234,116) 152,778 6,781 (159,559) (234,116) --------- --------- --------- --------- --------- Total liabilities, redeemable preferred stock and stockholders' equity (deficit) $ 195,286 $ 279,982 $ 21,259 $(162,320) $ 334,207 ========= ========= ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 11 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 10 SUPPLEMENTAL UNAUDITED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED JULY 29, 2000 (IN THOUSANDS) - --------------------------------------------------------------------------------
NON- PARENT GUARANTOR GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------ ------------ ------------ ------------ Revenues, net $ 7,927 $ 80,044 $ 15,571 $ - $103,542 Cost of revenues 265 38,247 9,274 - 47,786 -------- -------- -------- -------- -------- Gross profit 7,662 41,797 6,297 - 55,756 Marketing expense 1,100 7,705 1,280 - 10,085 Selling, general & administrative expenses 4,497 5,110 1,812 - 11,419 -------- -------- -------- -------- -------- Operating income 2,065 28,982 3,205 - 34,252 Interest income 456 335 90 - 881 Interest expense 9,843 5,121 12 - 14,976 Other (income) expenses, net 4,352 (99) 7 - 4,260 Equity in income of consolidated subsidiaries 15,298 - - (15,298) - Franchise commission income (loss) 2,202 (1,730) (472) - - -------- -------- -------- -------- -------- Income before income taxes and minority interest 5,826 22,565 2,804 (15,298) 15,897 Provision for (benefit from) income taxes (6,143) 9,532 444 - 3,833 -------- -------- -------- -------- -------- Income before minority interest 11,969 13,033 2,360 (15,298) 12,064 Minority interest - - 95 - 95 -------- -------- -------- -------- -------- Net income $ 11,969 $ 13,033 $ 2,265 $(15,298) $ 11,969 ======== ======== ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 12 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 11 SUPPLEMENTAL UNAUDITED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED JULY 24, 1999 (IN THOUSANDS) - --------------------------------------------------------------------------------
NON- PARENT GUARANTOR GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------ ------------ ------------ ------------ Revenues, net $ 7,889 $ 68,831 $ 15,454 $ - $ 92,174 Cost of revenues 745 32,948 9,016 - 42,709 -------- -------- -------- -------- -------- Gross profit 7,144 35,883 6,438 - 49,465 Marketing expense 1,591 5,829 1,349 - 8,769 Selling, general & administrative expenses 5,418 4,952 2,024 - 12,394 -------- -------- -------- -------- -------- Operating income 135 25,102 3,065 - 28,302 Interest income 617 781 1,726 - 3,124 Interest expense 721 10 723 - 1,454 Other expenses, net 377 730 58 - 1,165 Equity in income of consolidated subsidiaries 13,140 - - (13,140) - Franchise commission income (loss) 1,554 (996) (558) - - -------- -------- -------- -------- -------- Income before income taxes and minority interest 14,348 24,147 3,452 (13,140) 28,807 Provision for (benefit from) income taxes (308) 10,993 653 - 11,338 -------- -------- -------- -------- -------- Income before minority interest 14,656 13,154 2,799 (13,140) 17,469 Minority interest - 257 117 - 374 -------- -------- -------- -------- -------- Net income $ 14,656 $ 12,897 $ 2,682 $(13,140) $ 17,095 ======== ======== ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 13 Weight Watchers International, Inc. and Subsidiaries 12 Supplemental Unaudited Consolidating Statement of Cash Flows For the Three Months Ended July 29, 2000 (in thousands) - --------------------------------------------------------------------------------
Non- Parent Guarantor Guarantor Company Subsidiaries Subsidiaries Eliminations Consolidated -------- ------------ ------------ ------------ ------------ Operating activities: Net income $ 11,969 $ 13,033 $ 2,265 $(15,298) $ 11,969 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 1,110 1,670 141 - 2,921 Deferred tax provision (benefit) (8,525) 7,470 (13) - (1,068) Accounting for equity investment 6,800 - - - 6,800 Allowance for doubtful accounts - 66 - - 66 Reserve for inventory obsolescence - 632 9 - 641 Other items, net - (572) (231) - (803) Changes in cash due to: Receivables 640 1,721 174 - 2,535 Inventories - (2,560) 305 - (2,255) Prepaid expense 413 169 (256) - 326 Intercompany receivables/payables 9,634 (11,928) 2,294 - - Due to related parties 218 - - - 218 Accounts payable (1,205) (599) (445) - (2,249) Accrued liabilities 5,337 (1,203) (1,654) - 2,480 Deferred revenue - (132) 95 - (37) Income taxes 2,271 199 (525) - 1,945 -------- -------- -------- -------- -------- Cash provided by operating activities 28,662 7,966 2,159 (15,298) 23,489 -------- -------- -------- -------- -------- Investing activities: Capital expenditures (105) (236) (104) - (445) Advances to equity investment (4,800) - - - (4,800) Other items, net (92) 256 14 - 178 -------- -------- -------- -------- -------- Cash provided by (used for) investing activities (4,997) 20 (90) - (5,067) -------- -------- -------- -------- -------- Financing activities: Net increase (decrease) in short-term borrowings 196 (2,631) - - (2,435) Parent company investment in subsidiaries (12,956) - - 12,956 - Payment of dividends - - (1,603) 1,603 - Payments on long-term debt (3,313) (217) - - (3,530) Net parent settlements 93 - 146 (146) 93 -------- -------- -------- -------- -------- Cash used for financing activities (15,980) (2,848) (1,457) 14,413 (5,872) -------- -------- -------- -------- -------- Effect of exchange rate changes on cash and cash equivalents 419 (566) (165) 885 573 Net increase in cash and cash equivalents 8,104 4,572 447 - 13,123 Cash and cash equivalents, beginning of period 10,984 22,465 10,594 - 44,043 -------- -------- -------- -------- -------- Cash and cash equivalents, end of period $ 19,088 $ 27,037 $ 11,041 $ - $ 57,166 ======== ======== ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 14 Weight Watchers International, Inc. and Subsidiaries 13 Supplemental Unaudited Consolidating Statement of Cash Flows For the Three Months Ended July 24, 1999 (in thousands) - --------------------------------------------------------------------------------
Non- Parent Guarantor Guarantor Company Subsidiaries Subsidiaries Eliminations Consolidated --------- ------------ ------------ ------------ ------------ Operating activities: Net income $ 14,656 $ 12,897 $ 2,682 $ (13,140) $ 17,095 Adjustments to reconcile net income to cash provided by (used for) operating activities: Depreciation and amortization 515 1,656 130 - 2,301 Deferred tax provision (benefit) (2,287) 2,283 386 - 382 Allowance for doubtful accounts (86) (122) 8 - (200) Reserve for inventory obsolescence - 993 27 - 1,020 Other items, net (1) 163 (291) - (129) Changes in cash due to: Receivables 2,947 1,416 1,035 - 5,398 Inventories - (1,436) 295 - (1,141) Prepaid expense 131 (119) 460 - 472 Intercompany receivables/payables (6,736) 4,349 2,387 - - Due from related parties 52 243 132,306 - 132,601 Accounts payable (631) (2,444) (1,171) - (4,246) Accrued liabilities (3,259) (2,230) 2,181 - (3,308) Deferred revenue - (4,229) 69 - (4,160) Income taxes (7,177) 9,596 (398) - 2,021 --------- --------- --------- --------- --------- Cash provided by (used for) operating activities (1,876) 23,016 140,106 (13,140) 148,106 --------- --------- --------- --------- --------- Investing activities: Capital expenditures (57) (244) - - (301) Other items, net 26 53 2 - 81 --------- --------- --------- --------- --------- Cash provided by (used for) investing activities (31) (191) 2 - (220) --------- --------- --------- --------- --------- Financing activities: Net decrease in short-term borrowings (464) (1,292) (6,303) - (8,059) Payment of dividends (1,922) (2) (4,224) 4,225 (1,923) Net Parent (settlements) advances 4,717 (17,731) (126,000) 8,669 (130,345) --------- --------- --------- --------- --------- Cash provided by (used for) financing activities 2,331 (19,025) (136,527) 12,894 (140,327) --------- --------- --------- --------- --------- Effect of exchange rate changes on cash and cash equivalents (249) (842) (195) 246 (1,040) Net increase in cash and cash equivalents 175 2,958 3,386 - 6,519 Cash and cash equivalents, beginning of period (74) 12,376 7,213 - 19,515 --------- --------- --------- --------- --------- Cash and cash equivalents, end of period $ 101 $ 15,334 $ 10,599 $ - $ 26,034 ========= ========= ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 14 - -------------------------------------------------------------------------------- COMPARISON OF THREE MONTHS ENDED JULY 29, 2000 TO THREE MONTHS ENDED JULY 24, 1999 Net revenues were $103.5 million for the three months ended July 29, 2000, an increase of 12.3% from $92.2 million for the three months ended July 24, 1999. The increase in net revenues resulted from increased attendance in most of the Company's markets, strong growth in product sales, and an increase in domestic franchise commissions. Adjusting for discontinued food royalties of $0.8 million, net revenues were $103.5 million for the three months ended July 29, 2000, an increase of $12.2 million, or 13.2% from $91.4 million for the three months ended July 24, 1999. Cost of revenues was $47.8 million for the three months ended July 29, 2000, an increase of 11.9% from $42.7 million for the three months ended July 24, 1999. This increase resulted from an increase in product sales and the number of meetings held in Company-owned classrooms. Marketing expenses were $10.1 million for the three months ended July 29, 2000, an increase of 15.0% from $8.8 million for the three months ended July 24, 1999. The increase is primarily due to media expenses relating to new marketing programs. Selling, general and administrative expenses declined by 7.9% to $11.4 million for the three months ended July 29, 2000, as compared to $12.4 million for the three months ended July 24, 1999. The decrease was due to the continued benefit of the Company's restructuring and reorganization program. As a result of the above, operating income was $34.3 million for the three months ended July 29, 2000, an increase of 21.0% from $28.3 million for the three months ended July 24, 1999. Adjusting for discontinued food royalties of $0.8 million, operating income was $34.3 million for the three months ended July 29, 2000, an increase of $6.8 million and 24.5% from $27.5 million for the three months ended July 24, 1999. Interest expense increased to $15.0 million for the three months ended July 29, 2000 from $1.5 million for the three months ended July 24, 1999 as a result of borrowings related to the Transaction. SUMMARY PRO FORMA INFORMATION The unaudited pro forma consolidated statement of operations' information for the three months ended July 29, 2000 and July 24, 1999 gives effect to the Transaction as if it had occurred at April 25, 1999. It does not purport to be indicative of, or a projection for, the Company's results of operations for any future period or date. The pro forma adjustments are based on available information and upon certain assumptions which the Company believes are reasonable. This pro forma information has been prepared consistent with the methodology used in the Company's S-4 registration statement. 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 15 - --------------------------------------------------------------------------------
(in thousands) --------------------------- Three Months Ended July 29, July 24, 2000 1999 Total pro forma revenues $ 103,542 $ 91,028 Pro forma net income $ 11,594 $ 8,413 --------- --------- Pro forma EBITDA $ 32,418 $ 31,006 Adjusted pro forma EBITDA $ 36,310 $ 31,518
EBITDA represents income before income taxes and minority interest, depreciation, amortization, and net interest expense. Pro forma EBITDA adds back transaction expenses and adjusts revenues and costs for the recapitalization agreement (e.g., elimination of food royalties), the fact that Weight Watchers is now a stand-alone entity, and management's planned restructurings. The exclusion of unrealized foreign currency gains or losses included in Other Expenses and an addback of the minimum Warnaco royalty payment, which had been booked in advance by Heinz but which the Company received during the period, are the major adjustments from the pro forma EBITDA to adjusted EBITDA. LIQUIDITY AND CAPITAL RESOURCES For the three months ended July 29, 2000, the Company's primary source of funds to meet working capital needs was cash from operations. Cash and cash equivalents increased $13.1 million during the three months ended July 29, 2000. Cash flows provided by operating activities of $23.5 million was in excess of cash flows used for investing activities of $5.1 million and financing activities of $5.9 million. Capital spending has averaged $2.9 million annually over the last three years and has consisted primarily of leasehold improvements for meeting locations and administrative offices, computer equipment for field staff and call centers and Year 2000 upgrades. Capital expenditures for the three months ended July 29, 2000 was $0.5 million. The Company is significantly leveraged. As of July 29, 2000, after reflecting the repurchase of common stock and related borrowings, there was outstanding $472.3 million in aggregate indebtedness, with approximately $30.0 million of additional borrowing capacity available under the revolving credit facility. As a result of the Transaction, the Company's liquidity requirements are significantly increased primarily due to increased debt service obligations. The Company believes that cash flows from operating activities, together with borrowings available under the revolving credit facility, will be sufficient to fund currently anticipated capital investment requirements, debt service requirements and working capital requirements. In addition, the Company has 1.0 million shares of Series A Preferred Stock issued and outstanding. Holders of Series A Preferred Stock are entitled to receive dividends at an annual rate of 6% payable annually in arrears. 17 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 16 - -------------------------------------------------------------------------------- FORWARD-LOOKING STATEMENTS The information contained in this report, other than historical information, includes forward-looking statements including, in particular, the statements about plans, strategies and prospects under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operation," "Industry" and "Business." Words such as "may," "will," "expect," "anticipate," "believe," "estimate," "plan," "intend" and similar expressions in this report identify forward-looking statements. These forward-looking statements are based on 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: - - risks associated with the Company's ability to meet the Company's debt obligations; - - risks associated with the relative success of marketing and advertising; - - risks associated with the continued attractiveness of the Company's diets; - - competition, including price competition and competition with self-help weight loss and medical programs; 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. The Company is exposed to foreign currency fluctuations and interest rate changes. Its exposure to market risk for changes in interest rates relates to the fair value of long-term fixed rate debt and interest expense of variable rate debt. The Company has historically managed interest rates through the use of, and its long-term debt is currently composed of, a combination of fixed and variable rate borrowings. Generally, the fair market value of fixed rate debt will increase as interest rates fall and decrease as interest rates rise. Based on the overall interest rate exposure on the Company's fixed rate borrowings at July 29, 2000 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. Other than intercompany transactions between its domestic and foreign entities and the portion of the notes which are denominated in euro dollars, the Company generally does not have significant transactions that are denominated in a currency other than the functional currency applicable to each entity. Fluctuations in currency exchange rates may also impact its stockholders' deficit. The assets and liabilities of its non-U.S. subsidiaries are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. Revenues and expenses are translated into U.S. dollars at the weighted average exchange rate for period. The resulting translation adjustments are recorded in stockholders' deficit as accumulated other comprehensive income (loss). In addition, fluctuations in the value of the euro will cause the U.S. dollar translated amounts to change in comparison to prior periods and may impact interest expense. Furthermore, the Company will revalue the outstanding euro notes at the end of each period, and the resulting change in value will be reflected in the income statement of the corresponding period. 18 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 17 - -------------------------------------------------------------------------------- Each of its subsidiaries derives revenues and incurs expenses primarily within a single country, and consequently, does not generally incur currency risks in connection with the conduct of normal business operations. The Company uses foreign currency forward contracts to more properly align the underlying sources of cash flow with debt servicing requirements. At July 29, 2000, the Company had long-term foreign currency forward contracts receivable with notional amounts of USD 44.0 million and EUR 76.0 million offset by foreign currency forward contracts payable with notional amounts of GBP 59.2 million and USD 21.9 million. 19 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 18 - -------------------------------------------------------------------------------- The Company's ability to fund capital investment requirements, interest, principal and dividend payment obligations and working capital requirements and to comply with all of the financial covenants under its 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 its control. 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 This report contains forward-looking statements regarding the Company's future performance. These forward-looking statements are based on management's views and assumptions, and involve unknown risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statement. These include, but are not limited to, sales, earnings and volume growth, competitive conditions, production costs, currency valuations, global economic and industry conditions, and the other factors described in "Forward-Looking Statements" in the Company's Form 10-K for the fiscal year ended April 29, 2000, as updated from time to time by the Company in its subsequent filings with the SEC. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits required to be furnished by Item 601 of Regulation S-K are listed below and are filed as part hereof. The paragraph numbers correspond to the exhibit numbers designated in Item 601 of Regulations S-K. 27. Financial Data Schedule. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended July 29, 2000. 20 19 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: September 12, 2000 By: /s/ LINDA HUETT -------------------------------------------- Linda Huett President and Director (Principal Executive Officer) Date: September 12, 2000 By: /s/ THOMAS S. KIRITSIS -------------------------------------------- Thomas S. Kiritsis Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) EX-27 2 y40246ex27.txt FINANCIAL DATA SCHEDULE
5 3-MOS 3-MOS JUL-29-2000 JUL-24-1999 APR-30-2000 APR-24-1999 JUL-29-2000 JUL-24-1999 57,166 0 0 0 15,796 0 675 0 10,945 0 94,473 0 49,003 0 42,408 0 344,089 0 78,394 0 0 0 0 0 26,250 0 0 0 221,636 0 344,089 0 103,542 92,174 103,542 92,174 47,786 42,709 69,290 63,872 (2,540) 1,165 66 (200) 14,976 1,454 22,697 28,807 8,951 11,338 13,651 17,095 0 0 0 0 0 0 13,651 17,095 0 0 0 0
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