UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 1, 2006

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                           to                          

Commission File No. 000-03389

WEIGHT WATCHERS INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

11 Madison Avenue, 17^th Floor, New York, New York 10010

(Address of principal executive offices)          (Zip code)

Registrant’s telephone number, including area code: (212) 589-2700

(Former name, former address and former fiscal year, if changed since last report)

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.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Ruler 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

The number of common shares outstanding as of April 30, 2006 was 100,617,298.

WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES

INDEX

PART I–FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS AT

(IN THOUSANDS)

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

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WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

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

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WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES

IN SHAREHOLDERS’ EQUITY/(DEFICIT)

(IN THOUSANDS)

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

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WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

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

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WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1.             Basis of Presentation

The accompanying consolidated financial statements include the accounts of Weight Watchers International, Inc., and its wholly-owned subsidiaries, which effective December 16, 2005 includes WeightWatchers.com, Inc. and its subsidiaries (collectively, “WeightWatchers.com” or “WW.com”). The term “the Company” as used throughout this document is used to indicate Weight Watchers International, Inc. and its wholly owned subsidiaries. The term “WWI” as used throughout this document is used to indicate Weight Watchers International and its wholly-owned subsidiaries other than WeightWatchers.com.

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and include amounts that are based on management’s best estimates and judgments. While all available information has been considered, actual amounts could differ from those estimates. The consolidated financial statements are unaudited but, in the opinion of management, reflect all adjustments necessary for a fair statement.

These statements should be read in conjunction with the Company’s Annual Report on Form 
10-K for the fiscal year ended December 31, 2005, which includes additional information about the Company, its results of operations, its financial position and its cash flows.

2.             Summary of Significant Accounting Policies

The Company adopted the provisions of SFAS No. 123(R) “Share-Based Payment” on January 1, 2006. This standard requires the Company to recognize the cost of all stock-based awards based on their grant-date fair value over the related service period of such awards. Determining the fair value of options at the grant date requires judgment, including estimating the expected term that stok options will be outstanding prior to exercise, the associated volatility and the expected dividends. Prior to adopting SFAS No.123(R), the Company applied the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” and related Interpretations, in accounting for its stock-based compensation plans. All employee stock options were granted with an exercise price equal to the market price on the date of grant. Accordingly, no compensation expense was recognized for stock option grants in prior periods. In accordance with SFAS No. 123(R), judgment is required in estimating the amount of share-based awards expected to be forfeited prior to vesting. If actual forfeitures differ significantly from these estimates, share-based compensation expense could be materially impacted.

For a discussion of the Company’s other significant accounting policies, see “Summary of Significant Accounting Policies” beginning on page F-8 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005.

3.             Acquisitions

On June 13, 2005, WWI entered into an agreement to acquire its affiliate WW.com. As a result, WWI increased its ownership interest in WW.com from approximately 20% to approximately 53% as follows: on July 1, 2005, WWI exercised its 6,395 warrants to purchase WW.com common stock for a total price of $45,660; and on July 2, 2005, WWI acquired through a merger of a subsidiary of WWI with WW.com (the “Merger”), 1,126 shares of WW.com common stock owned by the employees of WW.com and other parties not related to Artal Luxembourg S.A. (together with its affiliates, “Artal”) for a total price of $28,383, and acquired an additional 2,759 shares of WW.com common stock, representing outstanding stock options then held by WW.com employees, for a total price of $62,342.

The acquisition of the 1,126 shares represented shares owned outright by the employees of WW.com and other parties not related to Artal. This component of the transaction has been accounted for under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations,” (“FAS 141”). The acquisition of these shares resulted in an increase to goodwill of $26,185 and an increase to finite-lived intangible assets of $1,161, primarily customer relations and information technology. These amounts represent the excess of the purchase price of $28,383 over the net book value of the assets acquired plus transaction costs.

The acquisition of the 2,759 shares represented vested and unvested options owned by employees of WW.com. Because at the time of the acquisition of these shares Artal owned approximately 47% of WW.com and is the parent company to WWI, the acquisition of these shares is considered to be a transaction between entities under common control, and therefore, the provisions of FAS 141 are not applicable.

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Under the guidance of FASB Interpretation No. 44, “Accounting for Certain Transactions involving Stock Compensation,” (“FIN 44”), and Emerging Issues Task Force Issue No. 00-23, “Issues Related to the Accounting for Stock Compensation under APB Opinion No. 25 and FIN 44,” (“EITF 00-23”), the Company was required to record a compensation charge related to the 2,293 vested options of $39,647 in the second quarter 2005. This amount represents the difference between the purchase price per share and the exercise price per share of the vested options. The 466 unvested options were exchanged for 134 restricted stock units of WWI, resulting in deferred compensation of $7,214, which is being recorded as compensation expense in future periods as the restricted stock units vest.

In connection with the acquisition of the WW.com shares, WWI also purchased and canceled all 103 outstanding WW.com options held by WWI employees for a total settlement price of $2,415. Under the guidance of FIN 44 and EITF 00-23, the Company was required to record the full settlement price as a compensation charge in the second quarter 2005. This charge, coupled with the aforementioned $39,647 compensation charge recorded in connection with the vested options held by WW.com employees, resulted in a total compensation charge of $42,062, which was recorded as a component of selling, general and administrative expenses in the second quarter of 2005.

On June 13, 2005, WW.com entered into a redemption agreement with Artal (the “Redemption”) to purchase the 12,092 shares of WW.com then owned by Artal. Pursuant to the Redemption on December 16, 2005, WW.com redeemed the remaining 47% of its outstanding shares of common stock held by Artal for the aggregate cash consideration of $304,835, the same purchase price per share as that paid by WWI in the merger. WW.com used cash on hand of approximately $89,800 and the proceeds from its two credit facilities (see Note 5) which totaled $215,000. In accordance with the provisions of SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,” because at the time of the Redemption Artal owned approximately 47% of WW.com and is the parent company of WWI, the Redemption was considered to be a transaction between entities under common control. Therefore, the Redemption was recorded as a dividend to Artal in the shareholders’ deficit section of the balance sheet.

4.             Goodwill and Intangible Assets

In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company no longer amortizes goodwill or other indefinite lived intangible assets. The Company performed its annual fair value impairment testing as of December 31, 2005 on its goodwill and other indefinite lived intangible assets and determined that no impairment existed. Unamortized goodwill is due mainly to the acquisition of the Company by the H.J. Heinz Company in 1978 and the aforementioned transactions with WW.com. Franchise rights acquired are due mainly to acquisitions of the Company’s franchised territories. For the three months ended April 1, 2006, goodwill and franchise rights acquired decreased due to foreign currency fluctuations.

In accordance with SFAS No. 142, aggregate amortization expense for finite lived intangible assets was recorded in the amounts of $1,485 and $755 for the three months ended April 1, 2006 and April 2, 2005, respectively.

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The carrying amount of the amortized intangible assets as of April 1, 2006 and December 31, 2005 was as follows:

Estimated amortization expense of existing finite lived intangible assets for the next five fiscal years is as follows:

5.             Long-Term Debt

WWI Credit Facility

As of April 1, 2006, WWI’s Credit Agreement dated as of January 16, 2001 and amended and restated as of January 21, 2004, as supplemented on October 19, 2004 and as amended on June 24, 2005 (the “Credit Facility”) consisted of a Term Loan B, Additional Term Loan B and a revolving line of credit (the “Revolver”).

WWI’s Term Loan B and the Revolver bear interest at a rate equal to LIBOR plus 1.75% per annum or, at WWI’s option, the alternate base rate (as defined in the Credit Facility) plus 0.75% per annum. The Additional Term Loan B bears interest at a rate equal to LIBOR plus 1.50% per annum, or at WWI’s option, the alternative base rate (as defined in the Credit Facility), plus 0.50% per annum. In addition to paying interest on outstanding principal under the Credit Facility, WWI is required to pay a commitment fee to the lenders under the Revolver with respect to the unused commitments at a rate equal to 0.375% per year.

WWI’s Credit Facility contains customary covenants including covenants that in certain circumstances restrict WWI’s ability to incur additional indebtedness, pay dividends on and redeem capital stock, make other restricted payments, including investments, sell its assets and enter into consolidations, mergers and transfers of all or substantially all of its assets. The Credit Facility also requires WWI to maintain specified financial ratios and satisfy financial condition tests. At April 1, 2006, WWI complied with all of the required financial ratios and also met all of the financial condition tests and is expected to continue to do so. The Credit Facility contains customary events of default. Upon the occurrence of an event of default under the Credit Facility, the lenders thereunder may cease making loans and declare amounts outstanding to be immediately due and payable. The Credit Facility is guaranteed by certain of the Company’s existing and future subsidiaries, other than WW.com and its subsidiaries.

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Substantially all the assets of WWI and its subsidiaries collateralize the Credit Facility.

On November 4, 2005, Standard & Poor’s confirmed its “BB” rating for WWI’s corporate credit and WWI’s Credit Facility. On March 11, 2005, Moody’s assigned a “Ba1” rating for WWI’s Term Loan B and Additional Term Loan B and confirmed its “Ba1” rating for WWI’s Credit Facility.

WW.com Credit Facilities

On December 16, 2005, WW.com borrowed $215,000 pursuant to two credit facilities (the “WW.com Credit Facilities”), consisting of (i) a five year, senior secured first lien term loan facility in an aggregate principal amount of $170,000 (the “First Lien Term Credit Facility”) and (ii) a five and one-half year, senior secured second lien term loan facility in an aggregate principal amount of $45,000 (the “Second Lien Term Credit Facility”). The WW.com Credit Facilities are governed by two credit agreements among WW.com, Credit Suisse, as administrative agent and collateral agent, and the lenders party thereto.

The First Lien Term Credit Facility bears an interest rate equal to LIBOR plus 2.25% per annum, or, at WW.com’s option, the alternate base rate, (as defined in the First Lien Term Credit Facility), plus 1.25% per annum. The Second Lien Term Credit Facility bears an interest rate equal to LIBOR plus 4.75% per annum or, at WW.com’s option, the alternate base rate, (as defined in the Second Lien Term Credit Facility), plus 3.75% per annum.

Loans outstanding under the WW.com Credit Facilities (i) must be prepaid with certain percentages of excess cash flow and net cash proceeds of asset sales, issuances, offerings or placements of debt obligations of WW.com and issuances of equity securities of WW.com, and (ii) may be voluntarily prepaid at any time in whole or in part without premium or penalty, with certain exceptions depending upon the date of payment. The rights and priorities of the lenders under the WW.com Credit Facilities are governed by an inter-creditor agreement.

The WW.com Credit Facilities contain customary covenants, including affirmative and negative covenants that, in certain circumstances, restrict WW.com’s ability to incur additional indebtedness, pay dividends on and redeem capital stock, make other restricted payments, including investments, sell WW.com assets and enter into consolidations, mergers and transfers of all or substantially all of WW.com’s assets. The WW.com Credit Facilities also require WW.com to maintain specified financial ratios and satisfy financial condition tests, which become more restrictive over time. At April 1, 2006, WW.com complied with all of the required financial ratios and also met all of the financial condition tests and is expected to continue to do so. The WW.com Credit Facilities contain customary events of default. Upon the occurrence of an event of default under the WW.com Credit Facilities, the lenders thereunder may cease making loans and declare amounts outstanding to be immediately due and payable. Each of WW.com’s existing and future domestic subsidiaries have guaranteed the Credit Facilities and the WW.com Credit Facilities are secured by substantially all the assets of WW.com and these subsidiaries. WWI has not guaranteed the WW.com Credit Facilities.

On November 4, 2005, Standard & Poor’s assigned its “B+” corporate credit rating to WeightWatchers.com. In addition, Standard & Poor’s assigned ratings of “B+” to the First Lien Term Credit Facility and “B-” to the Second Lien Term Credit Facility. On November 2, 2005, Moody’s assigned ratings of “Ba3” to the First Lien Term Credit Facility and “B1” to the Second Lien Term Credit Facility.

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6.             Treasury Stock

On October 9, 2003, the Company, at the direction of WWI’s Board of Directors, authorized a program to repurchase up to $250,000 of the Company’s outstanding common stock. On June 13, 2005, the Company, at the direction of WWI’s Board of Directors, authorized adding an additional $250,000 to this program.

The repurchase program allows for shares to be purchased from time to time in the open market or through privately negotiated transactions. No shares will be purchased from Artal under the program.

From October 9, 2003 through December 31, 2005, the Company purchased 9,184 shares of common stock in the open market for a total cost of $381,877. During the three months ended April 1, 2006 and April 2, 2005, the Company purchased 148 and 356 shares of common stock, respectively, in the open market at a total cost of $6,809 and $14,997, respectively.

7.             Earnings Per Share

Basic earnings per share (“EPS”) computations are calculated utilizing the weighted average number of common shares outstanding during the periods presented. Diluted EPS is calculated utilizing the weighted average number of common shares outstanding adjusted for the effect of dilutive common stock equivalents.

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

The number of anti-dilutive common stock equivalents excluded from the calculation of weighted average shares for diluted EPS was 851 and 42 for the three months ended April 1, 2006 and April 2, 2005, respectively.

8.             Stock Plans

On May 12, 2004 and December 16, 1999, respectively, the Company’s stockholders approved the 2004 Stock Incentive Plan (the “2004 Plan”) and the 1999 Stock Purchase and Option Plan (the “1999 Plan”). These plans are designed to promote the long-term financial interests and growth of the Company by attracting and retaining management with the ability to contribute to the success of the business.  The Board of Directors or a committee thereof administers the plans.

Under the 2004 Plan, grants may take the following forms at the committee’s sole discretion: incentive stock options, stock appreciation rights, restricted stock units and other stock-based awards. The maximum number of shares available for grant under the 2004 Plan is 2,500 as of the plan’s effective date.

Under the 1999 Plan, grants may take the following forms at the committee’s sole discretion: incentive stock options, other stock options (other than incentive options), stock appreciation rights, restricted stock, purchase stock, dividend equivalent rights, performance units, performance shares and other stock-based grants.  The maximum number of shares available for grant under this plan was 5,647 shares of authorized common stock as of the plan’s effective date. In 2001, the number of shares available for grant was increased to 7,058 shares.

Through December 31, 2005, as permitted by SFAS No. 123, the Company applied the recognition and measurement principles of APB No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for these plans.

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As such, for all periods presented through fiscal 2005, no compensation expense for employee stock options was reflected in earnings as all options were granted with an exercise price equal to the market price on the date of grant.

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

The Company adopted the provisions of SFAS 123(R), “Share-Based Payment” on January 1, 2006. Upon adopting this standard, the Company began recognizing the cost of all stock-based awards based on their grant-date fair value over the related service period of such awards. For the quarter ended April 1, 2006, the impact of adopting SFAS 123(R) was to reduce income before income taxes and net income by $2,834 and $1,729, respectively, with a corresponding reduction in basic and diluted earnings per share of $.02. In accordance with SFAS 123(R), the Company has elected to apply the modified prospective transition method to all past awards outstanding and unvested as of the date of adoption and has begun to recognize the associated expense over the remaining vesting period based on the fair values previously determined and disclosed as part of its pro forma disclosures. The Company has not restated the results of prior periods.

The compensation cost that has been charged against income for these plans was $2,834 for the quarter ended April 1, 2006 and such amount has been included as a component of selling, general and administrative expenses. The total income tax benefit recognized in the income statement for share-based compensation arrangements was $1,105 for the quarter ended April 1, 2006. No compensation costs were capitalized. As of April 1, 2006, there was $26,144 of total unrecognized compensation cost related to stock options and restricted stock units (“RSUs”) granted under the plans. That cost is expected to be recognized over a weighted-average period of 3.1 years.

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While the plans permit various types of awards, grants under the plans have historically been either stock options or restricted stock units. The following describes some further details of these awards.

Stock Option Awards

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model with the weighted average assumptions noted in the following table. Expected volatility is based on the historical volatility of the Company’s stock with certain time periods excluded due to historical events which are not expected to recur. Since the Company’s option exercise history is limited, it has estimated the expected term of option grants to be the midpoint between the vesting period and the contractual term of each award, as is permitted under Staff Accounting Bulletin No. 107, “Share-Based Payment” (“SAB 107”). The risk free interest rate is based on the U.S. Treasury yield curve in effect on the date of grant which corresponds to the expected term of the option.

A summary of option activity under the plans for the three months ended April 1, 2006 is presented below:

The weighted-average grant-date fair value of options granted during the first quarter of 2006 and 2005 was $15.90 and $13.15, respectively. The total intrinsic value of options exercised during the first quarter of 2006 and 2005 was $4,175 and $34,815, respectively.

Cash received from options exercised during the quarter ended April 1, 2006 was $3,337. The actual tax benefit realized from options exercised and RSUs vested totaled $1,454 for the quarter ended April 1, 2006. With the adoption of SFAS 123(R), this amount is now shown as a cash inflow from financing activities. Prior to the adoption of SFAS 123(R), this amount was shown as a cash inflow from operating activities. Because the Company elected the modified prospective transition method of adoption, prior period financial statements have not been restated.

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Restricted Stock Units

The fair value of RSUs is determined using the market price of the Company’s common stock on the date of grant. A summary of RSU activity under the plans for the three months ended April 1, 2006 is presented below:

The total fair value of RSUs vested during the quarter ended April 1, 2006 was $938.  

9.             Income Taxes

Prior to December 16, 2005 WWI and WeightWatchers.com were separate tax paying entities. Effective with the completion of the Redemption (see Note 3) WW.com is included in WWI’s consolidated federal tax return.

The effective tax rate for the three months ended April 1, 2006 and April 2, 2005 was 38.6% and 39.0%, respectively, on the consolidated results of the Company. For the three months ended April 1, 2006 and April 2, 2005, 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.

10.          Legal

The Company has agreed to settle a litigation filed on behalf of a purported class of employees under the California Labor Code and the Federal Fair Labor Standards Act for $2.3 million plus other costs and expenses. The settlement is subject to approval and certification of the class status by the court.

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. We have had and continue to have disputes with certain of our franchisees. In the opinion of management, based in part upon advice of legal counsel, the disposition of all such matters is not expected to have a material effect on the Company’s results of operations, financial condition or cash flows.

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11.          Derivative Instruments and Hedging

The Company enters into interest rate swaps to hedge a substantial portion of its variable rate debt. These contracts are used primarily to reduce risk associated with variable interest rate debt obligations. As of April 1, 2006 and April 2, 2005, the Company held contracts for interest rate swaps with notional amounts totaling $257,500 and $150,000, respectively. The Company is hedging forecasted transactions for periods not exceeding the next three years. At April 1, 2006, given the current configuration of its debt, the Company estimates that no derivative gains or losses reported in accumulated other comprehensive income will be reclassified to the Statement of Operations within the next 12 months.

As of April 1, 2006 and April 2, 2005, cumulative gains/(losses) for qualifying hedges were reported as a component of accumulated other comprehensive income in the amounts of $1,894, or $3,109 before taxes, and $1,216, or $1,993 before taxes, respectively. For the three months ended April 1, 2006 and April 2, 2005 there were no fair value adjustments since all hedges are considered qualifying.

12.          Comprehensive Income

Comprehensive income for the Company includes net income, the effects of foreign currency translation and changes in the fair value of derivative instruments. Comprehensive income is as follows:

13.          Segment Data

The Company has two operating segments, each of which is a reportable segment: WWI and WeightWatchers.com. These are two separate and distinct businesses for which discrete financial information is available. This discrete financial information is maintained and managed separately and is reviewed regularly by the chief operating decision maker. All intercompany activity is eliminated in consolidation.

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