Ladies and gentlemen, welcome to the Weight Watchers International second quarter 2008 earnings teleconference call. (Operator Instructions) At this time, I would like to turn the call over to Sarika Sahni of Weight Watchers International; please go ahead.

Thank you to everyone for joining us today for Weight Watchers International second quarter earnings conference call. With us on the call are David Kirchhoff, President and Chief Executive Officer and Ann Sardini, Chief Financial Officer. At about 4:00 p.m. Eastern Time today the company issued a press release reporting its financial results for the second quarter of fiscal 2008. The purpose of this call is to provide investors with some further details regarding the company’s financial results as well as to provide a general update on the company’s progress. The press release is available at www.weightwatchersinternational.com. Before we begin, let me remind everybody that this call will contain forward-looking statements. Investors should be aware that any forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those discussed here today. These risk factors are explained in detail in the company’s filings with the Securities and Exchange Commission. The company does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. I would now like to turn the call over to Mr. Kirchhoff.

Good afternoon and thank you for joining us as we review Weight Watchers International’s performance for the second quarter of 2008. The second quarter despite increasingly difficult economic conditions in some of our major markets largely delivered to our expectations and to the guidance we provided on our last call. Across our business units NACO’s Q2 volume results were at the lower end of our expectation in the UK and Continental Europe did somewhat better. As awareness of the Weight Watchers online product grows our weightwatchers.com business shows continuing strength. Total company Q2 revenues grew by 12% with meeting fees up 11%, internet revenues up 28% and product sales and other revenues up 9%. Excluding foreign currency adjustments total revenues were up 9%. Global paid weeks for our meetings and Weight Watchers online offerings were up a combined 15%. Global paid weeks and our meetings were up 9.5% while global attendances were down 2.6%. As we discussed in the call Q2 benefited from the timing of an earlier Easter. We would estimate on a holiday adjusted basis that Q2 attendances were down about 6% versus prior. Weightwatchers.com had another outstanding quarter with internet revenues up 28% versus prior year and global end of period Weight Watchers online active subscribers up 27%. Excluding the impact of the recent adverse UK VAT ruling Q2 2008 EPS was $0.87, an increase of $0.14 over Q2 2007. The recent UK VAT ruling which we disclosed in a press release we issued on June 30, had the affect of lowering our reported EPS for Q2 2008 by $0.28, from $0.87 to $0.59 per fully diluted share. Of this $0.28 charge, $0.24 related to an additional reserve for the potential of owing higher UK VAT for the prior years, 2005 through 2007. The remaining $0.04 charge…

Thanks David, good afternoon everyone. Before getting into the ongoing business results, I’ll just take a few minutes to recap the components of our reported second quarter 2008 earnings per share. Our ongoing operations generated $0.87 of EPS in the quarter comparable to $0.73 last year and an increase of 19.2%. There was however a charge in the 2008 quarter which was not present in 2007 and which resulted in a reduction of 2008 Q2 EPS of $0.28 bringing our reported EPS to $0.59. This charge was the consequence of an adverse UK court ruling that we received in the quarter with respect to the imposition of value added tax, or VAT. The ruling which resulted in 100% of our UK meeting fees being subject to VAT starting in 2005 caused the charge for prior years which we recorded in the second quarter and which reduced our second quarter earnings per share by $0.24. On a going forward basis the 2008 annualized charges resulting from the ruling are now estimated to have the impact of reducing full year earnings per share by approximately $0.07, $0.04 of which has been reflected in our second quarter earning representing the first and second quarter amounts. Let me also remind you that beginning first quarter this year our reported results include the impact of our China joint venture start-up for which we consolidate 100% of the results into our operating income in accordance with GAAP and back out DANONE’s 49% ownership on a minority interest line item below operating income. Year-to-date the joint venture has incurred $2.2 million of operating expense, $1.4 million of which were in Q2. In the second quarter we recorded an operating loss for the venture of $0.6 million net of first half tax benefits which was then reduced by…

Thank you Ann, like most consumer product and service companies, we’re seeing some affect on our business from the difficult economic environment. We don’t have a crystal ball into the environment that lies before us but we believe that our operating stance should be to assume that conditions will stay the same and possibly get worse over the coming 12 months. Our operating philosophy during this time will be to focus our messages and communications to reflect the same reality consumers are seeing. We much continue to focus on the value and underlying efficacy of our approach and to convince consumers that staying healthy is not a luxury but a necessity. Our fall NACO promotion and our new program for January, 2009 are very much in sync with this philosophy. During this time we will of course prudently manager our cost base. We will continue to invest in marketing but we will focus behind those vehicles that have a proven ROI. We will also seek opportunities to closely manage labor expense and related G&A. Beyond all these basis tactics our focus as an organization remains unchanged. We are in the business of helping people lose weight and keep it off by adopting a healthier lifestyle. That philosophy has never been more important and more relevant to the consumer of today and tomorrow. When I assumed the role of CEO of Weight Watchers in January last year, I spoke of the need to increase the relevance and delivery of our products and services to a broader segment of the overweight population. We know we have a highly respected brand and a uniquely effective approach to helping consumers adopt a healthy lifestyle. But we also know that if we’re to build on our position as the leading global weight management company we…

(Operator Instructions) Your first question comes from the line of Alvin Concepcion - Citigroup Alvin Concepcion – Citigroup: I just wanted to get your thoughts on how you are positioned from a pricing perspective on your pay as you go and monthly pass in light of the tough consumer environment.

If you look at our price point for Weight Watchers compared to other commercial offerings we have an advantageous price point. It’s much less expensive to participate in Weight Watchers then other commercial weight loss programs. Furthermore with Weight Watchers because you don’t have to eat any Weight Watchers food the consumer has the opportunity to continue to participate in retail and look for good values in their grocery store as part of maintaining and sustaining a healthy lifestyle and so in that context from a competitive perspective we think that we’ve got a very good price position. Certainly our real job if you think about it is 80% by our own surveys, 80% of weight loss attempts have been on a self help basis, people trying to do their own thing. Clearly the appeal of that in an economy like this is that doing your own program is technically speaking free. The issue is is that for too many it doesn’t work. They start the program on Monday and by Thursday you’ve quit. Weight Watchers through basically its ability to provide a much higher level of efficacy and remember through clinical studies people that participate with Weight Watchers lose three times more weight then people that do it their own, we think that we have a very meaningful way of convincing those self help dieters that Weight Watchers is actually quite good value because it is the approach that is most reliably going to lead to good and sustained weight loss. And those are exactly the types of messages that we think we really have to drive as we continue to muscle through this economy. Alvin Concepcion – Citigroup: How would you characterize the current ad market in terms of how the ad rates are trending and how should we look at that going forward in light of the elections?

Most of our television advertising for North America is purchased in the up front market. We do have some direct response TV. But the majority of our spend is in the up front market which is already locked and loaded per se. And so we’re not seeing the likelihood of a significant impact on our advertising rates or our dollar per GRP rate in the fall campaign although obviously in an election year things can definitely get a little bit challenging. We think that we have the right set up to manage our way through that. Alvin Concepcion – Citigroup: Was there an impact on the North American organic attendance trend from an early Easter, did you quantify that?

Give or take it would be about another 2.5% to 3%. Alvin Concepcion – Citigroup: And that was a benefit?

That was a benefit to us this quarter so if you subtract that 2.5% you get to an apples to apples basis. But of course when we provided guidance on the last call we were factoring in Easter so in that sense if you’re comparing what we said in the last call versus this call, that’s where we were talking about the mid single-digit including the benefit of Easter.

Your next question comes from the line of Michael Binetti - UBS Michael Binetti – UBS: I’m assuming your expecting people to check in the $0.87 to first call for the quarter but when a lot of us have to base our price targets on 2009 and the out year, when you say there’s probably $0.02 of VAT tax as a going forward number is it fair to say 2Q 2009 we’re going to want to compare it to $0.85 with the $0.02 of the VAT tax in this quarter?

Yes. That’s a good assumption. I would look at it as about $0.02 a quarter. Michael Binetti – UBS: You mentioned your NACO attendance for the second half and I’m guessing there’s going to be some volatility in there, is there any way you can break that down between the quarters and you also mentioned that gas prices are showing some kind of correlation and I’m wondering with the high gas prices that we started out the quarter with is that more of a back weighted guidance on the mid to high single-digit?

I think the volume guidance that we give between Q3 and Q4 also reflected the fact that again NACO has the benefit, typically when we do a soft launch of a new innovation we often see a little pop from a volume point of view through December and we would assume that we’re getting some benefit from that. And then of course this 53rd week which happens every four years, is happening this year and there’s a little bit of benefit there so if you were going to be weighting between Q3 and Q4, Q4 on a relative versus prior basis is going to look a bit stronger then Q3. But the overall guidance that I gave was for the full second half and so then you can just apportion between the two quarters based on that feedback. Michael Binetti – UBS: It seems like there’s pretty clearly a trade out from consumers to self dieting over the last few years and certainly that comes into focus in times of more difficult economy, how sustainable is it to have 20% online growth with negative meeting trends supporting what you’ve been doing in double-digit EPS growth in the US and I’m just looking at the profit dollars and it looks like more then 100% of the profit dollar growth in the first half of the year has come from the online business and if the answer is that the new diet coming up and if you have it tested, I’m wondering what kind of data points you can give us around, that gives you the confidence in that innovation and perhaps why you wouldn’t be able to bring it out earlier then even December if it’s a fairly strong innovation.

First off I’ve seen conflicting data about whether or not the consumers’ propensity to do weight loss efforts on their own is actually increasing or not increasing. From some of the other data we’ve seen we have not seen a significant change from year to year. I know that there is some MPD data; I believe that’s where it came from to suggest that maybe it is increasing but we’ve seen data from other places that have suggested the contrary, that actually it’s been fairly stable. We would hypothesize that during times like this that maybe the likelihood that somebody is going to try to lose weight on their own might in fact be somewhat higher during a tough economy but I would also suggest to you that those people, that many of those people when they try to do that are not going to be met with success ultimately and are still going to be in a position of having to deal with the weight issue as we come out of the economy. And anecdotally some of the feedback, when we do hear feedback from the field, there are quotations like my family is just having a really hard time right now, I just don’t feel like I can spend the money but I promise you I’m coming back as soon as things loosen up, which is why we believe that some of the activity we’re seeing is affectively a deferral if you will. In terms of the long range trends with meetings I think that our point of view is that there’s nothing structurally wrong with the fundamental premise of delivering weight management through group support and through meetings. I don’t believe that there’s anything out there that would suggest that somehow in this new age of becoming…

Just let me clarify one thing going back to what you said earlier, while we don’t breakout the operating income from meeting business versus dot com business, both businesses experienced profit increases in the quarter and in the first half.

Your next question comes from the line of Karen Howland - Lehman Brothers

I know you’re not giving a lot of details as far as the new program that will be launched this upcoming winter but you did indicate that you’re at the stage now where you’re running pilot programs and you’re testing the program, can you give some additional color, you obviously sound very confident about the new program to launch but to give us the comfort that you’re seeing the right trends that this could really drive further attendance to your meetings.

The way I look at the new program and it’s beyond testing right now. We’re literally in the process of putting the finishing touches on the program and getting ready to send it out for printing so its going into production as we speak and as I’ve been saying before all the research and feedback we’ve been getting on it has been very positive both in terms of we think there’s a real opportunity for us to enhance both simplicity and efficacy in ways that we haven’t done before. My confidence in terms of the potential for this to be a significant plus for next year comes from what I’ve already observe in our advertising trends. Because one of the questions I get is that if we believe that this advertising campaign Stop Dieting Start Living is a good campaign in NACO why aren’t we seeing more benefit from it on the enrollment line in the NACO business? And my view of that has been that the first thing we need to do in terms of getting this brand to the place it deserves to be is to create a foundation of differentiated brand equity by letting the country and the world know that what we offer is different from what everybody else offers and what we offer is sustainable and built around building a healthier lifestyle and that everything we hear is that those are exactly the messages the consumers want to hear and those are the messages that are resonating. And the scores that we’re now seeing on that and brand attribute scores are bearing that out. Now that kind of brand equity work is great in terms of positioning the overall brand but it doesn’t necessarily drive a sense of urgency to participate because its still what’s…

When you were testing the program I think you had some select test markets that you were trying it out in, did it run long enough that you could actually tell people were enthusiastic about it driving additional people to the meetings or is that just a sense you get from chatting with your members?

No it was a pilot and I sat through some of that research myself. It was a pilot where we had never members, we had lapsed members, both, actually were recruited in, were doing the program and we tracked them over four or five weeks. And at each point there was a check in and they would come back and talk through their experiences and that feedback in that particular pilot was important one in terms of helping us refine some key elements of the program and two confirming that some of the concepts that we’re starting to push through were having a significant impact on how people thought about their weight loss process and ultimately the way I judge an innovation is that if it provides meaningful help to someone who’s going through a weight loss process. In other words, if an additional light bulb goes over a member’s head because they have an epiphany or a revelation about how they can adopt a healthier lifestyle, if it causes them to reframe the way they think about food and the relationship with food and activity then if we’re able to do those things that fundamentally those are the types of things that are going to drive more success and that ultimately is what’s going to drive long-term enrollments.

About your marketing spend this quarter I think you shifted about $6 or $7 million from the second quarter to the first quarter of marketing spend because of the timing of Easter? I was a little surprised to see the acceleration if that was added back, was there anything specific about the marketing spend this quarter?

First of all we got a big hit from FX which was in the neighborhood of 3.5%, secondly we did some extended advertising, we did some continuity advertising over periods that we don’t always advertise. We extended TV in France and Germany and we did some radio advertising in some of our markets and that was pretty successful. We also extended our TV advertising in weightwatchers.com which obviously has been very successful as well. So those are the big pieces of what we added.

You said that the guidance previously was $2.85 to $3.00 that didn’t include the VAT or the JV for China, now it’s $2.85 to $2.96 and that does include the $0.10 hit from the VAT and China?

No think of it as a two step process. Step one is we took the $2.85 to $3.00 that did not include the VAT or the China JV, we took that range and we lowered the top end by $0.04. So that takes us from $2.85 to $2.96. Step two is we now recalibrated to reflect both VAT and the China JV which we had not been including in previous guidance and that had the affect of reducing both by $0.10. And so affectively we’ve just re-expressed guidance to now include both of those things which before we had said explicitly were not included.

So if you include them is it $2.75 to $2.86?

Yes.

Your next question comes from the line of Chris Ferrara - Merrill Lynch

On the guidance, the $2.75 to $2.86 that includes the ongoing $0.07 but excludes everything like the—excludes $0.24 out of the $0.28 that you recorded today.

Yes that’s right.

Obviously there’s a lot of commentary around the economy from you and from everywhere else, does it mean anything for the winter launch? Had you anticipated taking pricing around the new program? Does it change at all how you think about that new program if you think the consumer is going to be especially cash strapped as they’re seeing their heating bills?

No, we were never planning on taking pricing up with the new program. So it’s not like that was part of our plan so our intention is to continue to hold price where it is. Of course as you go into the next year one can only speculate, well on one hand home heating bills are likely to increase and that’s a good point, but maybe at the same time we’re going to continue to see some declines in gas prices. So you have these different things working against each other. Its sort of hard to predict what the consumer wallet size is going to be as we go into January as well as getting a better sense of when credit is going to start loosening up and everything else and so frankly your guess is probably better then mine but probably subject to all the other uncertainties that you might have. Nonetheless I think that if you come out with the new program in the winter the primary point in communicating the new program is all the ways we think its going to help people be more successful and that those are the types of messages that directly speak to value and efficacy and having something that works and the better job that we do with that the more likely the consumer is going to increasingly say that Weight Watchers is good value and that maybe I shouldn’t be thinking about it as something I should defer but actually something I should be excited about getting involved in right now.

Does monthly pass make you more cyclical then you would have been on pay as you go?

No it’s actually the opposite. Because pay as you go keep in mind the rhythm of pay as you go particularly from a seasonal point of view is that you would get this rash of enrollments and rapid re-joins that would come around free registration periods but then say after 10 to 14 weeks those people would disappear from the system again. They’d still be doing Weight Watchers by the way by pulling out their books and everything else but Weight Watchers monthly pass has the affect of resulting in a more continuous period of engagement and so I’m not sure that that’s going to have any, I think if anything its helped reduce volatility at least on the top line of our business.

I’m just assuming that you still have not seen, I’m sure you have some degree of attrition on monthly pass, but it hasn’t accelerated at all from what you can see.

No what I said in my prepared remarks is that we have seen some slight softening, not major not significant but we’ve seen a little slight softening of monthly pass retention rates in April, May, and June and of course that’s something we’re watching closely. Frankly my view is that if the recession was going to be really bad that was one of the things that we were more concerned about that we would have seen a greater degree of softening but we haven’t actually seen that kind of an impact. Again, the place, if there’s a place that we’ve really seen the bite on the economy it’s been much more on the enrollment side.

I didn’t hear you say that it was monthly pass related retention.

Well that’s about 60% of our revenue now in NACO so its sort of, I didn’t explicitly say monthly pass but that’s the majority of the revenue shortage in NACO.

Did you end up pulling some planned advertising in the spring campaign over the environment that you started to see in May?

No. In fact if anything as I mentioned before we were back on TV in July with Weight Watchers online based on good success we saw in June. Our view on advertising is what we were saying in our remarks is that if we have advertising that we know is paying out a good ROI we’re going to keep spending because we know that that’s all plus MPV. I think as we go into the second half of the year we have an opportunity to be more circumspect in terms of there might be something that would have been nice to have but less proved. I’ll give you an example of that, when we launched the Stop Dieting Start Living campaign we spent quite a bit of money doing an outdoor advertising campaign in December and January of last year which was quite good for creating buzz and interest and some preliminary, it was a nice way to kick off the campaign. But when we looked back at the results of that particular advertising it was clear to us that it wasn’t necessarily delivering enrollments and so as we think about the second half of the year that would be the kind of advertising that we would not be interested in pursuing in this kind of an economy because we just don’t think its prudent given the potential softness in demand. But on the other hand all the things that have been delivering for us which has been TV it’s been print and particularly online advertising if we think that we’re at the right levels we’re going to hold those.

Your final question comes from the line of Jerry Herman – Stifel Nicolaus Jerry Herman – Stifel Nicolaus: The end of the quarter monthly pass subscriber at 800,000 is down sequentially does that affectively reflect what you just said about some softening in retention or are there other seasonal issues that come into play and is there a penetration rate that you can offer?

Its normal seasonality. It doesn’t reflect anything in particular. Jerry Herman – Stifel Nicolaus: How about penetration rates at this point?

Penetration rates have been a little bit up this year although not massively. Jerry Herman – Stifel Nicolaus: Do you have any evidence of switching among users between seminars and online?

We don’t think so. We think online is really going after a different market segment and in fact with online there’s a part of it where the world is our oyster. Now come back to the fact that the statistic I was referring to that 80% of weight loss efforts are done on a self help basis, that is the market that online is explicitly going after. But you mention that there’s actually an interesting example that I want to bring up with online which speaks to directly what I just mentioned. We do satisfaction studies all the time for online where we send out quantitatively a statistically valid survey to existing online subscribers and we measure their satisfaction on a large battery of different questions including some basic ones like did the product meet your expectations, was it a good value, would you recommend it to a friend. We recently started cutting that by age group. And we explicitly started looking at satisfaction scores for example for women who were 20 to 35 versus 35 to 45 or 45 plus but what was striking about that is that the satisfaction scores for young women, in other words women in their 20s and low 30s were frankly through the roof. Now if you think about it that makes sense because Weight Watchers online if you think about that age demographic this is the customer that is very comfortable doing things online, software is very intuitive to them and the scores we’re getting are tremendous. From our point of view this is kind of exciting because for the better part of 40 some odd years, Weight Watchers has frankly struggled with creating a product that has great appeal to women in their 20s and their low 30s, in other words this…

The good thing about this innovation is that the key benefits it’s attempting to deliver are the big ideas behind it. So therefore if I talk about specifically the problem it’s addressing its sort of testament to telling you what the innovation is. So I apologize for my continued diligence in being mysterious about it but when we do talk about it I think it will make more intuitive sense but I’m not quite ready to tip my hat in terms of exactly what it is. But that said I will call attention to the fact that the things that we’re aspiring to improve in our program in our service are elements obviously efficacy, we’re also trying to improve simplicity in a number of those different things and I do believe that the research we’ve done has given us pretty clear guidance that the benefits we’re going after on this new program innovations are significant and meaningful benefits and that’s why I take some comfort in thinking that this particular innovation is going to be a good source for improved member satisfaction. Jerry Herman – Stifel Nicolaus: Can you just talk about how you’re thinking about the business and any desires or motivations to move beyond the seminar business?

First off the meeting business for me is the business that again I believe the meeting business has significant growth opportunity in front of it. We’ve seen this before. If you go back to the 90s, the Weight Watchers meeting business in the mid 90s if you look at it on an attendance basis went through a period of decline. One could have looked at that at the time, in fact some people did including some of the people that elected not to acquire Weight Watchers from [Heinz] looked at that and said look it must be going through some sort of secular decline but in fact when Weight Watchers points was launched there was a resurgence and there was significant organic growth from 1998 through 2003 on enrollments and attendances which to me suggests that the underlying value proposition remains strong. You just have to have the right combination of good service delivered with program and service innovation to drive long-term growth. So therefore I don’t think it’s necessary for us to say that the core business doesn’t have the fundamental potential to be a significant growth vehicle in its own right. What I would say though to your point is that what you’re describing is exactly what we’ve been doing, we’ve been growing the heck out of Weight Watchers online for the past couple of years now and frankly if you look at Weight Watchers online as an internet business compared to any other internet business in terms of both top and bottom line delivery and the growth rates we’re seeing and everything else it is a business that in its own right would receive a substantial valuation in terms of the financials that its been delivering at the growth rates with which its been delivering. And so we look at that as a good example of extending success with the Weight Watchers brand into new places and we think that that’s going to, we’re going to continue through that in areas like licensing and everything else that we have room for growth and let’s not forget the fact that we’re still in the midst of building a joint venture and building a business in China and while we’re being circumspect about what that is we believe that emerging markets are going to represent an important source of long-term growth for us as well. And so when I look out into the world I’m not seeing any shortage of places where we can look to grow the business, in fact if anything I think the challenge for us as management is to pick the ones that are going to be the highest return, make those our priority and drive like heck against them.

There are no further questions at this time; I would now like to turn the meeting over to Mr. Kirchhoff.

Thank you for joining us today and I look forward to speaking with you at our next earnings release call.