Ladies and gentlemen, welcome to the Weight Watchers International Third Quarter 2010 Earnings Teleconference Call. (Operator Instructions)

Thank you. And thank you to everyone for joining us today for Weight Watchers International’s third quarter 2010 conference call. With us on the call are David Kirchhoff, President and Chief Executive Officer; and Ann Sardini, Chief Financial Officer. At about 4 PM Eastern Time today, the company issued a press release reporting its financial results for the third quarter 2010. 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 on the company’s corporate website located at www.weightwatchersinternational.com. Reconciliations of non-GAAP measures disclosed on this conference call to the most directly comparable GAAP financial measure are also available as part of the press release. Before we begin, let me remind everyone 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. Please refer to these filings, our more detailed discussion of forward-looking statements and risks and certainties of such statements. All forward-looking statements are made as of today and except as required by law, the company undertakes no obligations 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. Please go ahead, David.

Good afternoon and thank you for joining us we review Weight Watchers International’s performance for the third quarter of fiscal year 2010. Our business continued to show encouraging signs during the third quarter, particularly in our WeightWatchers.com and NACO meetings business. Overall participation of our brand in our critical North American market significantly exceeded the levels of this time last year with solid growth in total paid weeks fueled by our Weight Watchers online product and improving trends in our meeting business. On the constant currency basis, Q3 revenues grew 3.5% over the prior year period with meetings fees up slightly at 1% and meeting product sales up 1%, internet revenues growing 22% and other revenues declining 9%. This overall increase in revenue was a slight improvement over the term we saw in Q2. From a volume perspective, combined global, online and meetings paid weeks grew by 11% in the third quarter versus the prior year period. This 11% growth compares to 8% year-over-year growth in Q2 and 1 % growth in Q1. The improvement in paid weeks trends has been driven by improvements in both our meetings and online business as we progress through the year. Global paid weeks and our meetings were up 3% versus the prior year period in Q3, while paid weeks for Weight Watchers Online accelerated further to a robust 26%. Q3 2010 EPS was $0.59, compared to $0.68 for the same period in 2009. Included in the Q3 2010 result was a $0.05 reserve taken in the quarter for the pending settlement of litigation in California. Without the impact of this reserve, Q3 EPS would’ve have been $0.64. I will now briefly review our results in our major geographies and business units. First, our North America meetings business, total NACO revenue were $169 million…

Thank you, David and good afternoon, everyone. Recapping our financial results for the third quarter. Third quarter revenues of $330.6 million increased 1.9% on an as reported basis and we’re up 3.5% on a comparable constant currency basis. Constant currency revenues grew 0.4% in the meeting business and 22.5% in the WeightWatchers.com business. Net income of $44.4 million in the quarter, was 15.5% or $8.1 million below the Q3 2009 level. For comparability, there’s an adjustment to last year’s third quarter expense, which should be noted. The adjustment relates to the adverse court ruling we received with regards to the leader self-employment status in the U.K. The ruling, which resulted in a charge to last year’s fourth quarter, $1.1 million of which related to the third quarter of last year has a similar ongoing impact for each quarter going forward. After making these adjustments to the third quarter 2009 for comparability, net income in the third quarter of 2010 declined by 14.3%. Third quarter net income was negatively impacted by a $6.5 million of pre-tax expense associated with the pending settlement of litigation in California and by $2.4 million pre-tax of incremental interest expense versus the prior year quarter resulting from the debt extension that we undertook earlier this year. These items together accounts for 73% of the net income decline versus the prior year quarter. Reported EPS was $0.59 versus $0.68 in last year’s third quarter, a decline of $0.09. Adjusting the third quarter 2009 for the U.K. self-employment charge reduces Q3 ‘09 EPS by $0.01 to $0.67. Third quarter 2010 EPS of $0.59 is $0.08 behind the prior year adjusted level with $0.05 of the difference resulting from the charge taken in anticipation of settlement of the California litigation, $0.03 related to expenses associated with the upcoming fulcrum…

Thank you, Ann. As we begin to wrap up 2010, it has been a year of mixed results starting with a weak first quarter and then a stabilization and improvement of our NACO meetings businesses in Q2 and Q3 and an acceleration of our online business during the same period. All of our research continues to show that the consumer is still under considerable stress and remains highly anxious about the economy and their ability to make ends meet. Accordingly, they continue to be incredibly cautious with discretionary spending of across categories including weight loss. In that context, the improve trends of Q2 and Q3 have been heartening as we believe that they are reflection of our improving level of execution in our business and a strong testimony to the inherent appeal of our online business. We began this year with a series of initiatives to transform our business over the next three to four years. Step one, marketing. A North American team did an excellent job in significantly improving the impact of our advertising campaigns with the launch of the Jennifer Hudson theme marketing for the meetings business as well as our new Weight Watchers Online spots. This advertising taps into the power source of the Weight Watchers brand are members in the way that clearly communicates our uniqueness and our relevance in dealing with weight and lifestyle issues. We have numerous opportunities now to build on this success in the U.S. market to make similar gains in our international businesses. This starts with the upcoming January campaigns. Step two, transform our retail infrastructure. Beginning this year, the U.S. took a significant opportunity to change the face of Weight Watchers on the ground. There was the time that a hidden Weight Watchers made sense, when obesity affected 10% of…

Thank you. (Operator Instructions) First question is from Bob Craig from Stifel Nicolaus. Please, go ahead. Robert Craig – Stifel Nicolaus & Co.: Thank you, operator. Good evening, everybody. Hey, Bob. Just a couple of questions on a monthly pass to start off. I wonder if you could update penetration rates by geography and also comment on any disengagement that you’d be experiencing there.

Well, in terms of the penetration rates, they’ve gone up kind of across the world. As I’m looking at NACO, they’ve gone through up 65% to about 70% of our attendances monthly pass. The U.K. has gone about five points and kind of the rest of the world as well. As we’re looking at the U.K., we’re in around 65% range, and if you’re looking at the major European countries, you’re about 80% penetration of the [inaudible] for monthly pass. We haven’t seen any decline in retention at all. It’s actually doing very well. Robert Craig – Stifel Nicolaus & Co.: Okay. Would you expect that 80% level that you’d achieved in Continental Europe? Is that a pretty good target for your other geographies or is there some limiting factor to some of the other geographies that may not exist there.

As we’ve always said, the theoretical limiting factors on monthly pass is one internet access and two the willingness to use in a credit card and a recurrent billing model. I think each year what we’ve seen is to varying different levels, increasing penetration rates. With the U.S. being how it is right now and frankly, with a lot of European countries being at similar and sometimes higher ranges, we feel pretty good about the penetration we’re achieving but we’ve always frankly surprised ourselves a little bit with the fact that the penetration seems to keep pushing its self-up. So, on one hand, it’s difficult for me to imagine, obviously, 100% penetration given some of the aforementioned constraints that I just mentioned. But I don’t have any specific data that would necessarily put an absolute feeling on this, above and beyond say I don’t know 90 or 95%. How long it takes to get there, I think, is to be determined. Robert Craig – Stifel Nicolaus & Co.: Okay. I know you don’t want to divulge a lot of information about the innovations. But it was certainly been on the U.K. website looking at the ProPoint’s information there. is it a more accurate way or an accurate way of describing of what you might be doing here that really revolves around the more accurate way to assess points values based on food characteristics and how the body processes foods. Is that the general gist of what you’re going to be doing in terms of the innovation?

I appreciate and understand the desire for additional clarity behind it. I think that it’s very important to us that we make our first priority to get the launches as strong as we possibly can and to get messages out the best way possible. Given that this is a public forum, that’s why we really don’t want to use this as a way of talking about the value proposition of the innovation. So, I apologize terribly with the fact that I can’t go into greater detail in terms of what I see as sort of the underlying ump [ph] behind this. But we’re not too many weeks away from that. Robert Craig – Stifel Nicolaus & Co.: Okay, that’s understandable. Last one, I’ll turn it over. Can you give some sort of guidance here as to what your plan is in terms of marketing spend at least as a percentage of revenue as we head into the launch here in the fourth quarter.

We’re looking at a higher percentage of revenues of course than what we’ve seen in the third quarter and it will exceed also what we spent last year in the fourth quarter. So, I think you probably looking at somewhere in the range of what we did in the second quarter, a little bit less than that as a percentage of revenue. Robert Craig – Stifel Nicolaus & Co.: Okay, that’s great. Thanks guys, I appreciate it.

Thank you. The next question is from Chris Ferrara from Bank of America. Please, go ahead. Chris Ferrara – Bank of America: Hey, guys. How are you?

Hey, Chris. How are you?

Hey, Chris. Chris Ferrara – Bank of America: Good, thanks. I guess can we start out with pricing. I know there is – there’s a couple of things going on, I guess, affecting product sales per attendee and one of them seems like it’s the monthly pass while another one is just promotion and pricing. I know I think you mentioned something about in the mix that more of your mix when we talk about monthly pass; we know it’s a little less expensive. There’s a discount on it, but you also mentioned something about promotion on it. So, I guess how do I think about that and how do I think about modeling that going forward. I mean this monthly pass hit sort of a high penetration rate in space there, will you then have sort of negative pricing effect from there or will that be the end of the positive pricing per meeting that we’ve seeing or I guess I’ll leave it up as you guys talk. But I’m just trying to think about how I think about meeting this per attendance going forward.

I mean like the product sales piece apart from the monthly pass fees. I think there is, of course, a difference in price from pay-as-you-go. But overall you get the longer, the much longer retention which of course that’s the customer value. But there’s also – we have not raised the price of monthly pass in any market to this point in any of our major markets at this point and so there’s always a component potentially of pricing there as well. In terms of the product sales, what we’re seeing a lot in the quarter is high product sales per attendee as a result of promotions to clear out inventory, so that’s really affecting what you’re seeing in terms of the growth in product sales for attendee in NACO and U.K. and some of the other markets. So, that will come down a bit as you go into the next quarter as we finish that process and start selling the innovation products.

Yes. Chris, a couple of points I would just add on top is that a number of the promotions that we have been running in NACO as well as Europe have been oriented around increasing penetration of monthly pass as well as driving an overall lift in enrollment levels and as a result of that, what you sometimes see is a sort of short-term degradation of price per paid week if you will. But over the life of a subscription as Ann noted earlier in her remarks, it is absolutely accretive if you want to think about it that way on the pricing point of view versus the pay-as-you-go model. So, you could look at price realization for attendance or price realization for per paid week, price realization per paid week in a world with greater monthly pass penetration will by definition be lower than it is, say pay-as-you-go because by definition its value price. But the flipside is that you have such longer retention over a base of attendances that your price per attendance actually expands. And so, my view is that we’re doing a better job capturing value in each enrollment cycle and so if one looks really sort of pricing, at sort of value achieved per enrollment cycle in revenue attrition, I think we’re doing much better. Chris Ferrara – Bank of America: That makes sense. Are you guys promoting, it sounds like I guess you just said that you’re promoting more around increasing penetration for monthly pass. I mean do you think also from a tool that you guys hadn’t use a lot in years past, is it sort of a new tool that you’re using and should we expect more of those promotional price points on monthly pass around the innovation in November as well. Is that a good way to think about it?

I think it’s a really astute observation. That in some sense we’re obviously have promotions in our tool kit, our marketing tool kit if you will typically in the form of free registration. But what has been important to us and one of our holy grail goals is to find a way of advertising more consistently over the course of the year and what we find is that increasingly we’ve come to the view that there’s this dimension of our business which is very similar to a classic retail model in which if you’re going to put advertisement out and marketing out, its substantially more effective when combine with a good clever promotional tag to drive action. By way of example, we were able to actually advertise for NACO meeting business this July, continuity advertising in a period that we traditionally have not been successful in advertising in. We were able to do it because we were able to come out with a good promotion; in that case it was Join for Dollar. And so one of the things we’re doing is we’re doing more promotion of some level that in a way that will allow us to stay on air longer and to keep our message out there longer because people are trying to lose weight all the time and so therefore, one of our objectives is to always be there whenever they have the impulse to take start of a weight management effort, and it’s therefore very necessary that we have some sort of promotional hook present. That said we’ve very careful in making sure that any promotion we do provides lift and excess of any discount given and so all of our promotions are going to be absolutely revenue accretive and margin accretive ultimately over the duration…

Yes. I mean call me a glass, 7/8 full kind of guy, but anytime I have a 200 or close to $250 million business unit that’s growing 20% a year with really high margins, it generally makes me pretty happy. So that’s kind of my starting point. With the specific question as to whether or not dotcom is cannibalizing the meeting business, this continues to be our view; we have segmented the weight-concerned consumer a 100 different ways to kingdom come and what we find consistently is that the relevant dimension of understanding different types of consumers is that different people need different things to make an obvious point. What we find is that there are those consumers out there that are interested in the benefit of a structured program like Weight Watchers, who want access to tools and things that will help them lose weight, but generally are looking for a less intensive form of help and these are people who otherwise wouldn’t have been in the Weight Watchers franchise at all, if you will. And these are the people that largely we believe are bringing into the Weight Watchers online business. Whereas what we find consistently is that people that are interested in a more intensive form of health that has the benefit of the accountability of an in-person weigh in, personal support by a person who’s face they can see and the supportive education that comes from the community experience, those people continue to gravitate towards meetings. Now, I look at the NACO results from the following way: First off, if I think about the less of the recession, the dotcom product, the online product has a relatively lower price point and $17.95 per month. therefore, those consumers that were predispose to the dotcom product, it was…

Yes, it’s about $4 million in the quarter and it ends in the quarter actually. So, it’s self-contained in the third quarter.

Yes, I mean Chris to build on Ann’s point, if you go back to the gross margin of the meeting business; there were three what I’ll call sort of one-time things that had a negative impact in comparing gross margin for Q3 of the meetings business. First is Q3 last year. Obviously, there’s the $4 million that Ann referenced, the program innovation. But there were also issues, as you heard her mentioned there were some impacts from the legal settlement as well as the comparability issue due to last year with the U.K. self-employed change of status. And so, if you take those things out, gross margin and the meeting business was effectively flat year-on-year. And then if you further look at gross margin within the meeting business, on the plus side you have the meeting average going up, which accreting gross margin. On the downside, you have product sales margin and Q3 was down, but a lot of that had to do with clearing inventory, again in preparation for the upcoming innovation. Chris Ferrara – Bank of America: Right, that’s helpful. And you guys, I guys you don’t want to give the breakout of the legal settlement by SG&A versus COGS.

Not at this point. Chris Ferrara – Bank of America: Well, I really appreciate all the time. Thanks, guys.

Thank you. The next question is from Ken Goldman from JP Morgan. Please, go ahead. Ken Goldman – JP Morgan: Hey good evening, everyone. WeightWatchers.com, I’m going to play double dab that I have a particular opinion on it, but I’m going to play the negative side of it. What bites is there, right? If there’s – you guys mentioned obviously it’s doing great and you mentioned that it’s doing better than you expect, what’s causing it to do better than you expect and we’re seeing great growth right now. What would cause that growth to slow down in the near-term or in the long-term, obviously there’s a law of large numbers. But just thinking about what’s driving that growth and what may stop that growth from moving up unless you guys some more marketing support behind it.

I think it’s a great question. In terms of you look at these growth rates and you say, “Gee, that’s pretty impressive. What do you do for an encore, if you will?” Certainly, there’s going to continue to be an opportunity to continue to press against marketing both in terms of makes it more effective as well as where we can get the right kind of efficiency to increase and continue to increase and weight against it. My starting point is I always go back to the fact that the share population, a 135 million people in this country has a weight issue. And so, even as excited as I am by how big this 1 million global subscriber base is, in so many ways I feel like we’re still just scratching the surface in terms of the kind of the impact that we can have both in our online and the short-term, but also frankly in our meetings business going forward. I think for us to stay on our game, what we’re going to find is that the only space in theory is you can argue it’s a more competitive space. A little bit the way I look at that is a little bit different because it’s not like other people haven’t made a play for the online space. They generally haven’t been successfully because frankly they don’t really have a program and they don’t really have a brand that has a lot of credibility with consumers. The biggest thing that I’ve always have going for us with Weight Watchers Online is the Weight Watchers name. People come to our website on their own. It’s a significant part of our traffic. Its traffic that we don’t have to go out and buy, which has allowed us to maintain fairly…

Well, my general preference would be to talk about how wonderful I am and how much I’m making all this happen by myself, but certainly … Ken Goldman – JP Morgan: Of course.

It’s just not the case. Honestly, we really have an incredible and talented management team that makes us all look good. We’ve got a great team in international that’s making a lot of amazing things happens. They’ve been a serious force of innovation for us as an organization. As you readily pointed out, they made a major leap in their program which we’re now attempting to successfully build on in our English speaking markets. I’ve got a fantastic running North America. We hired Dave Burwick out of PepsiCo, who is now leading North America for us. He’s got a great team. He’s a fantastic leader. Melanie Stubbing is a great leader for International. Mike Basone is a great leader for dotcom and feels like an Oscar’s acceptance speech. But I guess my point is that we really do have the strongest management bench that we’ve ever had and that’s not just with just folks and the people who are running corporate, but it goes now layers down. And so, I feel that this is definitely an organization that’s pretty stretch in terms of the number of initiatives that it’s doing. But I also feel this is an organization that’s smart about where to add resources in places that can drive investment and performance in our business, so that we can maintain a grip on our cost structure while still making sure that we’re capturing all of our opportunities. Ken Goldman – JP Morgan: Okay, thanks. Ann, one quick one, can you – I know it’s maybe a little early. But can you give us some sense of cash used to pay down debt next year. I think there’s a little bit more coming due in 2011 and 2010, maybe just some parameters or some guidelines for that would be helpful.

Sure. Our kind of required pay down next year is about $166 million. Ken Goldman – JP Morgan: And do you expect to pay that plus or is that kind of what you’re thinking will be the number?

Well, as is kind of the always the case, we kind of weigh that the pay down against other opportunities that might come along, franchise acquisitions are always a question for us, share buyback program you know about. So, we’re kind of weighing our cash flow opportunities against those kinds of three things. So, I’m not ready to say at this time. Ken Goldman – JP Morgan: Okay, I tried. Thanks, guys.

Thanks, Ken.

Thank you. The next question is from Greg Badishkanian from Citigroup. Please, go ahead. Greg Badishkanian – Citigroup: Hey, great. Thanks. Hey, just wondering maybe if you could give us a little bit of color on kind of the trends that you’ve been seeing in October, early November, if you can versus that kind of that third quarter trend.

First off, great to hear from you, Greg. Greg Badishkanian – Citigroup: Yes.

It is November 9th, I think. So, it would be a little bit crazy for me to put too much about November time [ph], but excellent try. I think the October trends in the forecast that we gave for Q4 for each of the respective geographies were really done with the October trends in mind. So, what we’re seeing in NACO through October is very similar to what we’re seeing through the third quarter and that what gave us some comfort in making that prognosis, same with dotcom and same with U.K., same with CE. Frankly, what is unknown is the potential impact that this up launch is going to have as we put these programs out and start going into December. Now, that said, the percentages could look kind of interesting but the enrollment levels in December are just so low in our business that it would be nice some extra pop for it, but I think it’s sort of more appropriate for us to remain prudent as we look at our forecast for the duration of the year. Greg Badishkanian – Citigroup: Great. And just kind of on that lane, not to put you on the spot, but what type of kind of benefits would you see from the program in 2011 and if you don’t have maybe forecast for that, maybe as you look back over the last number of years, typically when you have an innovation at this level, what type of kind of bump up would you see in business trends?

I think one of the reasons why it’s always – as you know the practice we have in terms of providing trends and forecast for the following year is that the Q4 call is usually a pretty important and interesting call, I think for the investment community. Less obviously because of Q4 results and more frankly because it’s our opportunity to give you a sense of how things are going because at that point, we have January under our belt. Greg Badishkanian – Citigroup: Right.

In January, it’s just such a high – it’s such a high impact month that a lot of the year sort of ends up hanging on it, not completely but wide. Greg Badishkanian – Citigroup: Right.

And so for that reason, I could tell you that program innovations like this absolutely provide lift. One could look at the CE first quarter, albeit it was somewhat impacted by bad weather and you could look at different analogs if you go back in time. I really think that the best advice I could give you is to let’s wait for that Q4 call, when we can give you a good read on what’s going on because at that point we’ll have much better data that will allow us to guide you in terms of how to shape out the rest of 2011. Greg Badishkanian – Citigroup: Sure, yes. Absolutely. Just on the competitive landscape, any major changes [ph] in kind what you’re seeing on that landscape in the U.S., U.K., Europe, maybe kind of similar to, I’m assuming in France with the low carb. I’m assuming there’s nothing kind of major going on in the other markets like in France, right?

Yes. France has been a really interesting experience. I’ll tell you interesting, I think for the French team, it’s not been very interesting. It hasn’t been that much fun for them, although they’re doing a great job of doing and responding what – and soldering their way through. Greg Badishkanian – Citigroup: Right.

But it’s been interesting for me because I feel like I’ve seen a lot of different countries that there will be a big fat diet, almost always a low carb diet comes and takes the country by storm and then goes away, and then we tend not to see it get replaced by anything else. Greg Badishkanian – Citigroup: Right.

That was certainly the case with Atkins. We saw something similar, for example, in the Netherlands, of all places and we’ve seen this pop up in a number of different countries. What I would tell you is that, not one we have never seen a competitive threat in the U.S. in terms of direct impact on our business that rivals what low carb through Atkins and South Beach, the impact that had in 2003 and 2004 because ultimately, the underlying methodology although it was presented with scientific credence was ultimately rejected by the scientific community and certainly, was ultimate rejected by consumers because it ask them to cut out entire food groups for them life forever. So, what you found was that Americans were unwilling to do without bread and pasta and fruit for the rest of their life. So, they ultimately rejected extreme low carb diets and my guess is you’re going to see something similar in France. But France, they never had their Atkins and so I think that’s what’s going on in that country. We really have seen very little impact of that particular low carb diet outside of the country and in fact, if you look at a lot of these sorts of hot fad diets, most of them are spread by kind of PR and word of mouth, and PR and word of mouth, particularly in Europe from Dr. Dukan is going to be in the French language. So, you can imagine it doesn’t convey that well over borders. So, outside of France, I have to say, knock on wood, it’s been pretty quiet. Certainly in the U.S, if anything, it seems that there’s been kind of serial knocking down of obesity medications over the past couple of months. So, if anything, it kind of feels like we’re even more sort of left standing out there as the primary solution to addressing obesity. Greg Badishkanian – Citigroup: Right. I mean it’s interesting because as you were saying that I was looking at my model. We’re covering you back in ‘03 and ‘04, you had about eight quarters of negative attendance, organic attendance growth and then it turned positive again. In Continental Europe, actually never really felt the impact from Atkins. That’s why it’s a little bit surprised particularly in France, just given their culture that that would be, would’ve taken hold at this point.

Yes, I agree with you. Greg Badishkanian – Citigroup: Great. Hey, thanks for the time.

Absolutely.

Thank you. This concludes today’s question session. I would now like to turn the meeting back over to Mr. Kirchhoff.

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

Thank you. The conference has now ended. Please disconnect your line at this time. We thank you for your participation.

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