-----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, KtkNh8+DRVEhdOPC6406FTMba6rFlXesiuMSh+KQmm1MqRJ/CiXrfS/e/BovISnV ydkkndUP/+w2QwjsMyII0Q== 0000950123-01-002870.txt : 20010402 0000950123-01-002870.hdr.sgml : 20010402 ACCESSION NUMBER: 0000950123-01-002870 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010116 ITEM INFORMATION: FILED AS OF DATE: 20010330 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: 1230 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-03389 FILM NUMBER: 1584812 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 8-K/A 1 y47152e8-ka.txt WEIGHT WATCHERS INTERNATIONAL INC 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A [X] CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported): January 16, 2001 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 --------------- Not Applicable - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report) ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS This current report on Form 8-K/A amends the Company's Current Report on Form 8-K dated January 16, 2001 related to the Company's acquisition of Weighco Enterprises, Incorporated and Subsidiaries ("Weighco") to file historical financial statements of the business being acquired and the pro forma statements related to this acquisition. 1 2 (a) FINANCIAL STATEMENTS OF THE BUSINESS ACQUIRED. Report of Independent Accountants Consolidated Balance Sheet as of December 30, 2000 Consolidated Statement of Operations for the Year Ended December 30, 2000 Consolidated Statement of Changes in Stockholders' Equity for the Year Ended December 30, 2000 Consolidated Statement of Cash Flows for the Year Ended December 30, 2000 Notes to Consolidated Financial Statements (b) PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION. The following unaudited pro forma condensed combined financial information of the Company and Weighco is submitted herewith. Pro Forma Condensed Combined Balance Sheet as of December 30, 2000 Pro Forma Condensed Combined Statement of Operations For the Eight Months Period Ended December 30, 2000. Pro Forma Condensed Combined Statement of Operations For the Year Ended April 29, 2000. Notes to Pro Forma Condensed Combined Financial Statements PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION OF WEIGHT WATCHERS INTERNATIONAL, INC. AND WEIGHCO ENTERPRISES INCORPORATED AND SUBSIDIARIES On January 16, 2001, the Company acquired franchised territories and certain business assets, including inventory and property and equipment, of Weighco Enterprises, Incorporated and Subsidiaries ("Weighco") for $83.8 million. The acquisition was financed with available cash of $23.8 million and additional borrowings of $60.0 million. Weighco's balance sheet has been combined with the Company's as of December 30, 2000. The pro forma condensed combined balance sheet and statements of operations assume the acquisition had occurred on May 1, 1999. The pro forma condensed combined balance sheets and statements of operations do not give effect to any synergies that might result from the acquisition of Weighco. Accordingly, the pro forma condensed combined balance sheet and statements of operations are not necessarily indicative of what actually would have occurred if the acquisition had been consummated on May 1, 1999, nor are they necessarily indicative of future combined operating results. Certain amounts included in the Weighco historical consolidated statements of operations for the eight months ended December 30, 2000 and for the year ended April 29, 2000 have been reclassified to conform with the Company's presentation on the pro forma condensed combined balance sheet and statements of operations. The pro forma condensed combined balance sheet and statements of operations should be read in conjunction with the historical financial statements of the Company for the period ended December 30, 2000, filed with the Securities and Exchange Commission on the Company's Current Report of Form 10-K dated March 30, 2001 and the historical financial statements of Weighco for the year ended December 30, 2000, filed herein. 2 3 WEIGHT WATCHERS INTERNATIONAL, INC. AND WEIGHCO ENTERPRISES, INCORPORATED AND SUBSIDIARIES PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF DECEMBER 30, 2000 (In thousands) (Unaudited)
WEIGHT WATCHERS PROFORMA PROFORMA ASSETS INTERNATIONAL WEIGHCO ADJUSTMENTS COMBINED Current assets Cash and cash equivalents $44,501 $6,172 $(6,172) 1 $20,701 (23,800) 1 Notes and other receivables, current 22,148 25 2,695 2 24,868 Inventories 15,044 2,139 17,183 Prepaid expenses 11,099 970 (493) 1 11,576 Deferred income tax 648 648 -------- ------- ------- -------- Total current assets 93,440 9,306 (27,770) 74,976 Property and equipment, net 8,145 1,554 9,699 Goodwill, net 150,901 80,805 1 231,706 Trademarks and other intangible assets, net 6,648 35,647 (35,647) 1 6,648 Deferred income taxes 67,207 67,207 Other noncurrent assets 20,454 707 (707) 1 20,454 -------- ------- ------- -------- Total assets $346,795 $47,214 $16,681 $410,690 ======== ======= ======= ======== LIABILITIES, REDEEMABLE PREFERRED STOCK AND PARENT COMPANY'S INVESTMENT/ STOCKHOLDERS' DEFICIT Current liabilities Portion of long-term debt due within one year $ 15,850 $ 4,080 $ (4,080) 1 $ 15,850 Accounts payable, other 38,918 2,502 (2,502) 1 38,918 Other accrued liabilities 23,215 7,455 (7,455) 1 23,215 Deferred revenue 5,836 2,695 8,531 -------- ------- ------- -------- Total current liabilities 83,819 16,732 (14,037) 86,514 Long-term debt 456,530 21,203 (21,203) 1 516,530 60,000 1 Deferred income taxes 3,107 3,107 Other 121 1,200 1 1,321 -------- ------- ------- -------- Total long-term debt and other liabilities 459,758 21,203 39,997 520,958 Redeemable preferred stock 25,996 25,996 Stockholders' deficit - Common stock 6 (6) 1 - Additional paid-in capital 3,108 (3,108) 1 - Treasury Stock (2) 2 1 - Accumulated (deficit) equity (216,507) 6,167 (6,167) 1 (216,507) Accumulated other comprehensive loss (6,271) (6,271) -------- ------- ------- -------- Tota stockholders' (deficit)/equity (222,778) 9,279 (9,279) (222,778) -------- ------- ------- -------- Total liabilities, redeemable preferred stock, and stockholders' deficit $346,795 $47,214 $16,681 $410,690 ======== ======= ======= ========
See Notes to Pro Forma Condensed Combined Financial Statements 3 4 WEIGHT WATCHERS INTERNATIONAL, INC. AND WEIGHCO ENTERPRISES, INCORPORATED AND SUBSIDIARIES PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED APRIL 29, 2000 (In thousands) (Unaudited)
WEIGHT WATCHERS PROFORMA PROFORMA INTERNATIONAL WEIGHCO ADJUSTMENTS COMBINED ------------- ------- ----------- -------- Revenues, net $399,574 $44,949 $(7,998) 6 $436,525 Cost of revenues 201,389 23,443 (7,998) 6 216,834 -------- ------- ------- -------- Gross profit 198,185 21,506 - 219,691 Marketing expenses 51,453 3,452 54,905 Selling, general and administrative expenses 50,743 11,244 4,190 3 60,539 (5,638) 7 Transaction costs 8,345 - 8,345 -------- ------- ------- -------- Operating income 87,644 6,810 1,448 95,902 Interest income 5,792 225 (1,309) 5 4,708 Interest expense 36,871 2,175 5,700 4 44,746 Other (income) expense, net (10,351) (86) (10,437) -------- ------- ------- -------- Income before income taxes and minority interest 66,916 4,946 (5,561) 66,301 Provision for income taxes 28,323 1,830 (2,336) 8 27,817 -------- ------- ------- -------- Income before minority interest 38,593 3,116 (3,225) 38,484 Minority interest 834 - 834 -------- ------- ------- -------- Net income $37,759 $3,116 $(3,225) $37,650 ======= ====== ======= =======
See Notes to Pro Forma Condensed Combined Financial Statements 4 5 WEIGHT WATCHERS INTERNATIONAL, INC. AND WEIGHCO ENTERPRISES, INCORPORATED AND SUBSIDIARIES PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE EIGHT MONTH PERIOD ENDED DECEMBER 30, 2000 (In thousands) (Unaudited)
WEIGHT WATCHERS PROFORMA PROFORMA INTERNATIONAL WEIGHCO ADJUSTMENTS COMBINED ------------- ------- ----------- -------- Revenues, net $273,175 $39,916 $(6,582) 6 $306,509 Cost of revenues 139,283 20,967 (6,582) 6 153,668 ------- ------- ------ ------- Gross profit 133,892 18,949 - 152,841 Marketing expenses 26,986 2,049 29,035 Selling, general and administrative expenses 32,222 9,628 2,793 3 39,784 (4,859) 7 Transaction costs - - ------- ------- ------ ------- Operating income 74,684 7,272 2,066 84,022 Interest income 3,119 145 (873) 5 2,391 Interest expense 40,244 1,692 3,800 4 45,736 Other (income) expense, net 16,536 9,002 (8,584) 7 16,954 ------- ------- ------ ------- Income before income taxes and minority interest 21,023 (3,277) 5,977 23,723 Provision for income taxes 5,857 (1,212) 1,674 8 6,319 ------- ------- ------ ------- Income before minority interest 15,166 (2,065) 4,303 17,404 Minority interest 147 147 ------- ------- ------ ------- Net income $15,019 $(2,065) $4,303 $17,257 ======= ======= ====== =======
See Notes to Pro Forma Condensed Combined Financial Statements 5 6 WEIGHT WATCHERS INTERNATIONAL, INC AND WEIGHCO ENTERPRISES, INCORPORATED AND SUBSIDIARIES NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS FOR THE EIGHT MONTH PERIOD ENDED DECEMBER 30, 2000 AND THE YEAR ENDED APRIL 29, 2000 (Unaudited) The pro forma condensed combined balance sheet and statements of operations assume that the acquisition of Weighco occurred at December 20, 2000, and at the beginning of the periods presented, respectively. The pro forma condensed combined balance sheet and statements of operations do not give any effect to the synergies that might result from the acquisition of Weighco's operations. Accordingly, the pro forma results are not indicative of what would have occurred if the acquisition had been consummated on May 1, 1999, nor are they necessarily indicative of future combined results. The following is a summary of the estimated adjustments, based upon available information and upon certain assumptions that management believes are reasonable, that are reflected in the pro forma condensed combined statements of operations. (1) Represents the acquisition of inventory, property and equipment and other assets and the elimination of non-assumed liabilities for $83.8 million, which was financed with $23.8 million of existing cash and additional borrowings of $60.0 million. The excess of the total purchase price over assets acquired and liabilities assumed has been recorded as goodwill. (2) Represents a receivable due to the Company from Weighco for the assumption of deferred revenue.
December 30 April 29 2000 2000 ------- ------- (3) Represents the amortization of acquisition goodwill of $80.8 million $ 2,793 $ 4,190 over 20 years utilizing the straight-line method. (4) Acquisition borrowings of $60 million at an average interest $ 3,800 $ 5,700 rate of 9.5%. (5) Cash used to fund acquisition of $23.8 million at 5.5%. $ 873 $ 1,309 (6) Represents the elimination of royalty revenue $ 6,582 $ 7,998 and expense and products sales to Weighco. (7) The elimination of non-recurring costs and charges incurred by Weighco relating to the sale to Weight Watchers: General & Administrative Expenses $ 4,859 $ 5,638 Other (Income) Expense $ 8,584 (8) Recognition of income taxes at 28% of the pre-tax income $ 1,674 $(2,336) for the eight months ended December 30, 2000 and 42% for the year ended April 29, 2000.
(c) EXHIBITS (i) Exhibit 99 (a): Weighco Consolidated Balance Sheet as of December 30, 2000, Consolidated Statement of Operations For the Year Ended December 30, 2000, Consolidated Statement of Changes in Stockholders' Equity For the Year Ended December 30, 2000, Consolidated Statement of Cash Flows and Report of PricewaterhouseCoopers LLP, Independent Accountants. 6 7 SIGNATURE 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: March 30, 2001 By: /s/ LINDA HUETT ------------------------------------------- Linda Huett President and Director (Principal Executive Officer) Date: March 30, 2001 By: /s/ THOMAS S. KIRITSIS ------------------------------------------- Thomas S. Kiritsis Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 7 EX-99.A 2 y47152ex99-a.txt WEIGHCO CONSOLIDATED BALANCE SHEET 1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Weight Watchers International, Incorporated In our opinion, the accompanying consolidated balance sheet and the related consolidated statement of operations, changes in stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Weighco Enterprises, Incorporated and Subsidiaries (the "Company") at December 30, 2000, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. On December 11, 2000, the Company entered into an Asset Purchase Agreement with Weight Watchers International, Incorporated ("WWI"), under which WWI was to acquire substantially all of the assets of the Company. The acquisition was completed on January 16, 2001 and is more fully described in Note 15 to the consolidated financial statements. Pricewaterhousecoopers, LLP March 3, 2001 Charlotte, NC 1 2 WEIGHCO ENTERPRISES, INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET DECEMBER 30, 2000
ASSETS Current assets: Cash $ 6,172,489 Accounts receivable 25,226 Inventories 2,139,007 Prepaid member materials 476,619 Prepaid consulting and other expenses 492,996 ------------ Total current assets 9,306,337 ------------ Property and equipment, net 1,553,703 ------------ Other assets: Cash surrender value - life insurance 511,319 Intangible assets, net 35,647,444 Other non-current assets 196,254 ------------ Total other assets 36,355,017 ------------ Total assets $ 47,215,057 ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable - current portion $ 4,080,000 Accounts payable 2,156,604 Accrued expenses 6,456,142 Interest payable 345,434 Deferred income 2,694,820 Deferred compensation 1,000,000 ------------ Total current liabilities 16,733,000 ------------ Long-term liabilities: Notes payable - net of current portion 21,203,345 ------------ Stockholders' equity: Common stock - $.331/3 par value, 30,000 shares authorized; shares issued and 16,783 outstanding 5,593 Additional paid-in capital 3,107,941 Treasury stock - at cost, 2,189 shares (2,189) Retained earnings 6,167,367 ------------ Total stockholders' equity 9,278,712 ------------ Total liabilities and stockholders' equity $ 47,215,057 ============
The accompanying notes are an integral part of these consolidated financial statements. 2 3 WEIGHCO ENTERPRISES, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 30, 2000
REVENUES: Meeting income $ 51,661,934 Product sales 8,027,742 ------------ Total revenue 59,689,676 ------------ COST OF REVENUE: Meeting and facility expenses 20,579,961 Cost of products sold 3,889,031 Franchise royalty fees 5,959,779 ------------ Total cost of revenue 30,428,771 ------------ Gross profit 29,260,905 OPERATING EXPENSES: General and administrative expenses 5,934,717 Marketing expense 4,114,108 Management and incentive compensation (Note 13) 3,786,749 Amortization expense 3,307,040 Acquisition related expenses (Note 15) 8,929,493 ------------ Income from operations 3,188,798 ------------ Other income (expense): Interest income 238,858 Interest expense (2,430,107) Loss on sale of franchise (226,945) Other (24,154) ------------ Total other expense (2,442,348) ------------ Net income $ 746,450 ============
The accompanying notes are an integral part of these consolidated financial statements. 3 4 WEIGHCO ENTERPRISES, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY YEAR ENDED DECEMBER 30, 2000
ADDITIONAL TOTAL COMMON COMMON PAID-IN TREASURY RETAINED STOCKHOLDERS' SHARES STOCK CAPITAL STOCK EARNINGS EQUITY BALANCES, DECEMBER 25, 1999 16,400 $5,466 $2,954,534 $(2,189) $7,485,343 $10,443,154 Shares issued 383 127 153,407 - - 153,534 Net income - - - - 746,450 746,450 Stockholder distributions - - - - (2,064,426) (2,064,426) ------ ------ ---------- ------- ---------- ----------- BALANCES, DECEMBER 30, 2000 16,783 $5,593 $3,107,941 $(2,189) $6,167,367 $9,278,712 ====== ====== ========== ======= ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 4 5 WEIGHCO ENTERPRISES, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 30, 2000 OPERATING ACTIVITIES: Net income $ 746,450 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 6,847,022 Loss from sale of franchise 226,945 Changes in: Accounts receivable 6,313 Prepaid member materials and expenses (249,376) Inventories (695,099) Other non-current assets (168,986) Accounts payable and accrued expenses 4,175,075 Deferred compensation and revenue 1,435,243 ------------ Net cash provided by operating activities 12,323,587 ------------ INVESTING ACTIVITIES: Acquisition of franchises (7,262,815) Purchase of property and equipment (793,316) Proceeds from sale of franchise 365,000 ------------ Net cash used by investing activities (7,691,131) ------------ FINANCING ACTIVITIES: Stockholder distributions (2,064,426) Repayment of borrowings and line of credit (6,026,914) Proceeds from borrowings and line of credit 3,976,462 Proceeds from common shares issued 153,534 ------------ Net cash used by financing activities (3,961,344) ------------ Net increase in cash 671,112 Cash, beginning of year 5,501,377 ------------ Cash, end of year $ 6,172,489 ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 2,227,423 ============ Cash paid for franchise taxes $ 120,039 ============
The accompanying notes are an integral part of these consolidated financial statements. 5 6 WEIGHCO ENTERPRISES, INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 30, 2000 1. NATURE OF BUSINESS Weighco Enterprises, Incorporated (the "Company") was incorporated on January 26, 1988 and was organized under the laws of the State of Delaware. Weighco Enterprises, Incorporated, prior to April 28, 2000 was previously known as Weighco of Florida, Incorporated. The Company operates and conducts meetings as a Weight Watchers International ("WWI") franchise in the states of Florida, Georgia, Alabama, Texas, Oklahoma, North and South Carolina, Washington and Alaska. On December 11, 2000, the Company entered into an Asset Purchase Agreement with Weight Watchers International, Incorporated ("WWI"), under which WWI was to acquire substantially all of the assets of the Company. The acquisition was completed on January 16, 2001 and is further described in Note 15. 2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES BASIS OF CONSOLIDATION The consolidated financial statements include the accounts of Weighco Enterprises, Incorporated and its wholly-owned subsidiaries, Weighco of Southwest, Inc. and Weight Watchers Northwest, Inc., after elimination of all material intercompany accounts and transactions. CASH EQUIVALENTS The Company considers short-term, highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company invests excess cash reserves daily in Repurchase Agreements and Government Securities. PREPAID MEMBER MATERIALS Prepaid member materials consists of promotional and educational material provided to program participants. INVENTORIES Inventories, consisting principally of cookbooks, points managers, mugs and other resale items, are stated at the lower of cost, as determined on an average cost basis, or market. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost and depreciated on the straight-line method over the estimated useful lives of the assets. When assets are retired or otherwise disposed of, the cost and related depreciation are removed from the accounts and any related gains or losses are included in income. INTANGIBLES Goodwill, franchise costs and other intangibles arising from acquisitions are amortized on a straight-line basis over the estimated useful lives of the assets. The carrying values of intangible assets are reviewed for impairment by management at least annually, or whenever changes in circumstances or events indicate that such carrying values may not be recoverable, by assessing the recoverability of such assets through estimated undiscounted future net cash flows. REVENUE RECOGNITION The Company earns revenue by conducting meetings and by selling products and aids. Revenue is recognized when services are rendered and products are sold. Deferred revenue, consisting of prepaid lecture income, is recognized in income over the period earned. 6 7 WEIGHCO ENTERPRISES, INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 30, 2000 ADVERTISING COSTS It is the Company's policy to expense advertising costs as incurred. Advertising costs totaled approximately $3.4 million for the year ended December 30, 2000. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. ACQUISITIONS In December 1999, the Company acquired twenty-five (25%) percent of the outstanding stock of Weight Watchers of British Columbia, Ltd. ("British Columbia") for $25,000. In October 2000, this investment interest was sold at cost to a stockholder of the Company. On March 28, 2000, the Company purchased certain assets and franchise rights of Weight Watchers of Greater Washington State, Inc. and Weight Watchers of Alaska, Inc. The transaction was accounted for as a purchase, and accordingly, the consolidated financial statements of Weighco Enterprises, Inc. include the results of operations of Weight Watchers of Greater Washington State, Inc. and Weight Watchers of Alaska, Inc. from the date of acquisition. The franchises were purchased for $9,330,000 and $650,000, respectively, paid through a combination of cash ($6,500,000) and the issuance of a note payable to the seller ($3,480,000). The purchase price was allocated to current assets ($110,000) and intangibles and other assets ($9,870,000) based on the estimated fair values of assets acquired and liabilities assumed, if any, at the date of acquisition. Unaudited sales and operating income of the acquired franchises were approximately $2.3 million and $315,000, respectively, for the three months ended March 31, 2000. The Company capitalized professional fees totaling approximately $113,000 related to these acquisitions. Other expenses, including travel and meals, totaled approximately $77,000 and were recorded as general and administrative expenses in the statement of operations. 4. PROPERTY AND EQUIPMENT Property and equipment as of December 31, 2000 is summarized as follows:
USEFUL LIVES Furniture and fixtures 5 - 7 years $1,268,222 Machinery and equipment 5 - 10 years 880,544 Leasehold improvements Term of lease 833,664 --------- 2,982,430 Less accumulated depreciation (1,428,727) --------- $1,553,703 ==========
Depreciation expense totaled $164,648 for the year ended December 30, 2000. 7 8 WEIGHCO ENTERPRISES, INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 30, 2000 5. INTANGIBLES Intangibles as of December 31, 2000 are summarized as follows:
USEFUL LIVES Franchise costs and tradenames 30 - 40 years $41,003,392 Goodwill 40 years 905,129 Noncompete agreements Term of agreement 6,100,000 ----------- 48,008,521 Less accumulated amortization (12,361,077) ----------- $35,647,444 ===========
Amortization expense totaled $6,682,374 for the year ended December 30, 2000. Of this amount, $3,375,334 related to write-offs of non-compete agreements (see Note 15) and has been classified as part of acquisition related expenses. 6. COMMITMENTS The Company entered into a management agreement with Weight Watchers of North Carolina, Inc. ("WWNC"). The agreement permits the Company to conduct all activities contained in the restated franchise agreement with Weight Watchers International, Inc. ("WWI"). This agreement provides for annual royalty fees of $350,000, payable in quarterly installments, without interest and secured by a bank letter of credit. The management agreement was terminated in conjunction with the acquisition, and WWNC was sold to the Company and included in assets purchased by WWI. The Company is obligated, under franchise agreements with WWI, to pay monthly royalty fees of 10% of the gross receipts from meeting and certain product sales of the Company. Total royalty fees were approximately $5,182,864 in the year ended December 30, 2000. These agreements were terminated upon the sale of the Company to WWI. The Company is obligated under various deferred compensation, incentive bonus and consulting agreements entered into as part of various franchise acquisitions. As discussed in Note 15, these agreements were terminated and settled through various payments upon the sale of the Company to WWI. 7. INCOME TAXES The Company has elected treatment as a small business corporation (S Corporation) for Federal and state income tax purposes and accordingly, the Company has not recorded an income tax provision for the year ended December 30, 2000 or for any prior periods. 8. CONCENTRATIONS The Company maintains cash and cash equivalents balances at various financial institutions, which are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $100,000. At certain times during the year, the Company's cash balances may exceed this limit. Cash and cash equivalents held with financial institutions exceeding FDIC limits was approximately $5,329,000 as of December 30, 2000. The Company has not experienced any losses associated with these balances. 8 9 WEIGHCO ENTERPRISES, INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 30, 2000 In the course of its operations, the Company grants trade credits to its customers. Due to the number and geographic dispersion of its customers, the Company does not have any significant concentrations of business transacted with a particular customer. However, the Company purchases substantially all of its inventory from WWI under the provisions of their various franchise agreements. 9. LINE OF CREDIT The Company has a revolving credit line of $2.1 million with a bank. Borrowings under the line of credit accrue interest at 3/4% below the prime rate (8.75% at December 30, 2000) and is payable on demand. The line of credit is collateralized by inventories, property and equipment, and customer contacts. The line of credit expires March 30, 2001. At December 30, 2000, the Company had no balances outstanding under the line of credit. 10. NOTES PAYABLE Notes payable consist of the following: Note payable - H.J. Heinz Company, interest payable annually each March at 9%, principal installments of $250,000 annually each March, note matures March 2003 $2,015,000 Bank note payable $33,333 per month, plus interest at prime minus 1/2% (9% at December 30, 2000), maturing January 2003 when all outstanding principal and interest are due 1,688,345 Bank notes payable in escalating monthly principal payments, plus interest at prime (9.5% at December 30, 2000), maturing in October 2005 14,500,000 Various bank notes payable in monthly installments ranging from $8,333 - $50,000, over their respective terms, plus interest at prime minus 1/2% (9% at December 30, 2000), maturing at various dates through August 2004 3,600,000 Note payable to former owners of acquired franchises in annual installments of $580,000 through March 2006, plus interest at 8% 3,480,000 ----------- 25,283,345 Less: current portion 4,080,000 ----------- Long-term portion $21,203,345 ===========
The various notes payable are collateralized by franchise agreements and various assets of the Company and certain guarantees as defined in the respective agreements. Certain of these notes contain restrictions, which include limitations on subsequent indebtedness, prohibitions against guarantees, limits on stockholder distributions, and future consolidation or merger of the Company. 9 10 WEIGHCO ENTERPRISES, INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 30, 2000 Following are the maturities of notes payable for each for the next five years and in the aggregate as of December 30, 2000: 2001 $4,080,000 2002 4,830,000 2003 6,683,337 2004 4,530,000 2005 4,580,008 Thereafter 580,000 ----------- $25,283,345 ===========
The outstanding notes payable were paid in full subsequent to year-end in conjunction with the acquisition of the Company. 11. LEASING ARRANGEMENTS The Company leases space for its executive offices and meeting facilities under operating leases expiring in various years through 2005. Certain of the leases contain provisions for renewal at the option of the Company upon expiration. Following are the approximate annual future minimum lease payments under noncancelable operating leases having a remaining term in excess of one year as of December 30, 2000: 2001 $2,476,760 2002 1,603,661 2003 967,129 2004 470,986 2005 163,029 ---------- $5,681,565 ==========
Rent expense was approximately $4,657,000 in the year ended December 30, 2000. 12. STOCK INCENTIVE PLAN The Company has 1995 and 1998 share appreciation plans whereby share appreciation rights ("SARs") may be granted to officers and others. Under the terms of the plans, SARs are valued as specified in the Stockholders' Agreement. The SARs may be exercised in exchange for cash or a combination of cash and the Company's stock, not to exceed 50% in Company stock (at a value also specified in the Stockholders' Agreement). Upon grant, the SARs vest at a rate of 20% per year. The 1995 SARs were fully vested as of December 31, 1999. The 1995 and 1998 SARs may be paid on or before March 31, 2003. In March 2000, settlement for 482 of the 1995 SARs was made in the form of both cash and Company stock. Compensation expense under the terms of the plans included in operating expenses totaled $636,724 in the year ended December 30, 2000. In conjunction with the acquisition of the Company and related termination of these plans, an additional lump-sum payment was made and included in acquisition related expenses, as described in Note 15. 10 11 WEIGHCO ENTERPRISES, INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 30, 2000 13. MANAGEMENT AND INCENTIVE COMPENSATION Management and incentive compensation consists primarily of amounts paid to or for a certain stockholder of the Company, certain current and former franchise owners and a certain officer of the Company. For the year ended December 30, 2000, management and incentive compensation included in operating expenses consists of the following: Office expense paid to a stockholder $ 139,737 Management fees paid to a stockholder and a former franchise owner 240,000 Rental fees paid to an owner of a Company managed franchise 350,004 Key man life insurance premiums 79,284 Stock Appreciation Rights compensation expense 636,724 Incentive compensation paid to a stockholder, a former franchise owner and an officer of the Company 2,341,000 ---------- $3,786,749 ==========
14. RELATED PARTY TRANSACTIONS The Company has a management agreement with Grant Peacock & Company, Inc. for financial, management, and administrative services. Grant Peacock & Company, Inc. is owned by a stockholder of the Company. This agreement has no expiration date and can be terminated by either party at the end of any fiscal year. Fees incurred under this agreement totaled $120,000 for the year ended December 30, 2000. The Company also reimburses Grant Peacock & Company for certain expenses in performing its management and administrative duties. Expenses reimbursed for the year ended December 30, 2000 totaled $139,737. The management agreement was terminated subsequent to year-end upon the acquisition of the Company by WWI. Grant Peacock & Company, Inc. is also entitled to an incentive management fee based on net income of the Company after certain adjustments. Incentive management fees included in operating results totaled $1,472,000 in the year ended December 30, 2000. No future payments will be made under this agreement. Purchases from WWI of inventory and member materials totaled $4.7 million in the year ended December 30, 2000. 15. ACQUISITION OF THE COMPANY On December 11, 2000, the Company entered into an Asset Purchase Agreement with Weight Watchers International, Incorporated ("WWI"), under which WWI was to acquire substantially all of the assets of the Company. In connection with this agreement, the Company agreed to settle and/or cancel various employment, compensation and non-compete agreements, the cost of which totaled approximately $8,929,493 and is included in acquisition related expenses in the statement of operations for the year ended December 30, 2000 as follows: Professional fees $ 167,638 Incentive compensation paid to an officer of the Company and a former franchise owner 5,386,521 Additional amortization expense related to termination of non-compete agreements 3,375,334 ---------- $8,929,493 ==========
The aforementioned acquisition was completed on January 16, 2001. 11 -----END PRIVACY-ENHANCED MESSAGE-----