You should read the following discussion in conjunction with the "Selected Financial Data" included in Item 6 of this Annual Report on Form 10-K and our consolidated financial statements and related notes included in Item 15 of this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. The cautionary statements discussed in "Cautionary Notice Regarding Forward-Looking Statements" and elsewhere in this Annual Report on Form 10-K should be read as applying to all forward-looking statements wherever they appear in this Annual Report on Form 10-K. Our actual results could differ materially from those discussed here. Factors that could cause or contribute to these differences include, without limitation, those discussed in "Risk Factors" included in Item 1A of this Annual Report on Form 10-K.

Overview

We derive our revenues principally from:

• Meeting fees. Members pay us fees to attend our weekly meetings.

• Internet revenues. We generate revenue from our Internet subscription products and from the sale of third-party Internet advertising.

• In-meeting product sales. We sell a range of products that complement our weight management plans, such as bars, snacks, cookbooks, food and restaurant guides with PointsPlus values, Weight Watchers magazines, PointsPlus calculators and ActiveLink activity monitors, to members in our meetings.

• Licensing, franchise royalties and other. We license the Weight Watchers brand and our other intellectual property in certain categories of foods and other relevant consumer products. We also endorse carefully selected branded consumer products. In addition, our franchisees typically pay us a royalty fee of 10% of their meeting fee revenues as well as purchase products for sale in their meetings. We also generate revenues from subscriptions for our magazines and third-party advertising in our publications.

We currently have two reporting segments: Weight Watchers International and WeightWatchers.com. All sources of revenue, other than Internet revenues, are included in our Weight Watchers International reporting segment. Over the past several years the mix of our revenues has shifted more toward our WeightWatchers.com reporting segment and away from our Weight Watchers International reporting segment. Revenues from our Weight Watchers International reporting segment contributed 72.2% of our total revenues in fiscal 2012, 77.8% of our total revenues in fiscal 2011, and 83.4% of our total revenues in fiscal 2010. Revenues from our WeightWatchers.com reporting segment contributed 27.8% of our total revenues in fiscal 2012, 22.2% of our total revenues in fiscal 2011, and 16.6% of our total revenues in fiscal 2010.

The following table sets forth our revenues by category for the past five fiscal years.

                                Revenue Sources

                                 (in millions)



                                  Fiscal 2012       Fiscal 2011       Fiscal 2010       Fiscal 2009       Fiscal 2008
                                  (52 weeks)        (52 weeks)        (52 weeks)        (52 weeks)        (53 weeks)
Meetings fees                    $       934.9     $       990.3     $       819.6     $       817.5     $       908.1
Internet revenues                        504.3             399.5             238.8             196.0             185.8
In-meeting product sales                 253.2             281.8             260.5             251.3             285.6
Licensing, franchise royalties
and other                                134.4             147.6             133.1             134.1             156.3

Total                            $     1,826.8     $     1,819.2     $     1,452.0     $     1,398.9     $     1,535.8

From fiscal 2008 through fiscal 2012, our revenues increased at a compound annual growth rate of 4.4% primarily driven by paid weeks growth in the WeightWatchers.com business Additional revenue details are as follows:.

• Meeting fees. From fiscal 2008 through fiscal 2012, meeting fees grew at a compound annual growth rate of 0.7%, with growth in our UK and NACO meetings businesses being partially offset by declines in our Continental European meetings business. This increase was driven by growth in our meeting paid weeks, which grew on a global basis at a compound annual growth rate of 2.1%. The decline in meeting fees from 2008 to 2009 primarily reflected the impact of the global recession on our ability to enroll new members. Beginning in NACO in the second quarter of fiscal 2010, year-over-year growth in recruitment trends, driven by strong new marketing and further fueled by the soft launch in the fourth quarter of fiscal 2010 of PointsPlus and ProPoints in our English-speaking markets, drove global meeting fees by the fourth quarter to once again increase versus the comparable prior year period. The momentum of the new program launches in our English-speaking markets accelerated our recruitment trends in the first quarter of fiscal 2011, and, supported by strong marketing and public relations, resulted in global meeting fees that increased in every quarter of fiscal 2011 as compared to the prior year period. Fiscal 2012 had the challenge of being compared against the high levels of recruitment growth we experienced in fiscal 2011. Although we entered fiscal 2012 with a higher meeting membership base than we had at the beginning of fiscal 2011, lower enrollments in all 2012 fiscal quarters resulted in lower meeting fees for the year as compared to the prior year. Lower enrollments in the meetings business in fiscal 2012 were primarily driven by a decline in the English-speaking markets as we cycled against the momentum of their program innovations in the prior year.

• Internet Revenues. From fiscal 2008 through fiscal 2012, our Internet revenues grew at a compound annual growth rate of 28.4%. The increase was primarily due to growth in the number of WeightWatchers.com end of period active Online subscribers which grew by over 1.0 million subscribers from 678,700 at the end of fiscal 2008 to 1,871,400 at the end of fiscal 2012. This increase in Online subscribers drove growth in our Online paid weeks, which grew at a compounded annual growth rate of 30.1%. This increase in Online subscribers and paid weeks, which accelerated in fiscal 2011, was driven primarily by continued strong marketing campaigns which began in the second quarter of fiscal 2010 in the United States and the United Kingdom, and further benefited from the new program launches at the end of fiscal 2010. In addition, from fiscal 2008 through fiscal 2011, we had several new country launches which further drove growth in our subscriber base. In fiscal 2012, first-time dedicated television advertising coupled with effective marketing campaigns in Canada and Continental Europe primarily drove strong Online paid weeks growth in these markets.

• In-meeting product sales. Global product sales were down 3.5% on a compound annual growth rate from fiscal 2008 through fiscal 2012. Our average product sales per attendee in our meetings business grew from $4.76 to $4.99 at a compound annual growth rate of 1.2% during that period as a result of successful new product and program launches. However, we experienced a decline in the number of members attending meetings which drove a decline in our global product sales.

• Licensing revenues. Licensing revenues declined at a compound annual growth rate of 1.5% from fiscal 2008 through fiscal 2012. Despite our increased focus on expanding the number of Weight Watchers branded and endorsed products worldwide, this revenue category was and remains negatively impacted by the global economic downturn and the resulting decrease in discretionary spending by consumers and loss of consumer confidence.

Metrics and Business Trends

Performance Indicators and Market Trends

Our management reviews and analyzes several key performance indicators in order to manage our business and assess the quality and potential variability of our cash flows and earnings. These key performance indicators include:

• net revenues;

• paid weeks and attendance metrics;

• lecture income per paid week and in-meeting product sales per attendee;

• the number of end of period active Online subscribers; and

• gross profit and operating expenses as a percentage of revenue.

We believe that our revenues and profitability can be sensitive to major trends in the weight management industry. In particular, we believe that our business could be adversely impacted by:

• the temporary emergence of fad diets;

• increased competition from Internet, mobile and other electronic weight management approaches;

• a decrease in the effectiveness of our marketing and advertising programs;

• a failure to develop innovative new services and products;

• the development of more favorably perceived or more effective weight management methods, including pharmaceuticals;

• an impairment of the Weight Watchers brand and our other intellectual property;

• a failure of our technology or systems to perform as designed; and

• a downturn in general economic conditions or consumer confidence.

Global Operations

The following tables set forth our paid weeks and meeting attendance by
geography for the past five fiscal years:



                                                             Paid Weeks in Company-Owned Operations
                                                                          (in millions)
                                   Fiscal 2012         Fiscal 2011         Fiscal 2010         Fiscal 2009         Fiscal 2008
                                   (52 weeks)          (52 weeks)          (52 weeks)          (52 weeks)          (53 weeks)
Online Paid Weeks                         111.5                88.0                52.5                42.7                38.9

Meeting Paid Weeks:
North America                              66.0                69.9                55.3                55.8                61.0
United Kingdom                             16.9                19.1                16.1                16.2                15.0
Continental Europe                         13.4                12.2                13.6                12.7                12.5
Other International                         2.9                 3.6                 2.9                 2.9                 2.8

Total Meeting Paid Weeks                   99.2               104.8                87.9                87.6                91.3

Total Paid Weeks                          210.7               192.8               140.4               130.3               130.2

                                                          Meeting Attendance in Company-Owned Operations
                                                                           (in millions)
                                   Fiscal 2012          Fiscal 2011          Fiscal 2010         Fiscal 2009         Fiscal 2008
                                   (52 weeks)           (52 weeks)           (52 weeks)          (52 weeks)          (53 weeks)
North America                              31.9                 36.0                 30.3                32.1                36.5
United Kingdom                              9.7                 11.6                 10.2                11.4                11.6
Continental Europe                          7.4                  7.2                  8.5                 8.6                 9.8
Other International                         1.7                  2.2                  2.0                 2.2                 2.1

Total                                      50.7                 57.0                 51.0                54.3                60.0

The "paid week" metric reports total paid weeks by our customers in Company-owned operations for a given period. For Weight Watchers Online, paid weeks is the total paid Weight Watchers Online subscriber weeks for a given period. For meetings, paid weeks is the sum of total paid commitment plan weeks (e.g., Monthly Pass weeks) and total "pay-as-you-go" weeks for a given period. Before the launch of our commitment plans in the meetings business, our members were largely on a "pay-as-you-go" basis, and accordingly, growth in meeting attendance essentially approximated growth in meeting paid weeks. However, paid weeks and attendance are no longer directly correlated as the percentage of meeting paid weeks attributable to commitment plans far exceeds the percentage attributable to "pay-as-you-go".

As shown in the table above, our total paid weeks in our Company-owned operations grew from 130.2 million in fiscal 2008 to 210.7 million in fiscal 2012, or 12.8% on a compound annual growth basis. Weight Watchers Online paid weeks grew from 38.9 million in fiscal 2008 to 111.5 million in fiscal 2012, or 30.1% on a compound annual growth rate basis. Our total meeting paid weeks grew from 91.3 million in fiscal 2008 to 99.2 million in fiscal 2012, or 2.1% on a compound annual growth rate basis.

As shown in the table above, our worldwide annual meeting attendance in our Company-owned operations has declined from 60.0 million for fiscal 2008 to 50.7 million for fiscal 2012, a decline of 4.1% on a compound annual growth rate basis. Our worldwide average meeting revenue per attendee, however, has increased over the same period, largely as a result of Monthly Pass' growing penetration in NACO and other markets and growth in product sales per attendee.

WeightWatchers.com Metrics and Business Trends

The continued success of WeightWatchers.com resulted in Internet revenues growing at a compound annual growth rate of 28.4% from fiscal 2008 to fiscal 2012. This growth was primarily driven by growth in Online subscription revenue of 29.6% on a compound annual growth rate basis from fiscal 2008 to fiscal 2012. Subscription revenue growth was driven by an increase in Online paid weeks from 38.9 million in fiscal 2008 to 111.5 million in fiscal 2012, a compound annual growth rate of over 30%. End of period active Online subscribers grew from 0.7 million at the end of fiscal 2008 to 1.9 million at the end of fiscal 2012, a compound annual growth rate of 28.9%. This successful growth resulted primarily from a combination of new subscribers in our major markets and launches of WeightWatchers.com subscription products in new markets globally. In addition, WeightWatchers.com, like the meetings business, benefited from the new program launches of PointsPlus and ProPoints in fiscal 2010 and fiscal 2011 and the introduction of new products, including applications for mobile devices such as the iPhoneฎ, iPad ฎ and Android™ devices. Marketing, particularly first-time dedicated television advertising coupled with effective marketing campaigns in Canada and Continental Europe in the case of fiscal 2012, continued to drive subscription growth from fiscal 2008 through fiscal 2012.

In addition to generating revenues from its subscription based offerings, WeightWatchers.com also provides a means for companies to advertise on our websites. This advertising revenue increased at a compound annual growth rate of 13.3% from fiscal 2008 to fiscal 2012. This increase was driven in part by the introduction of advertising on the UK and German websites.

North America Meeting Metrics and Business Trends

In 2008 and 2009, the weak economy in the United States had a significant impact on our meetings business. The economic recession, coupled with reduced credit availability, adversely impacted consumer spending. We saw the impact most acutely in enrollments, particularly of new members who had never been to Weight Watchers. In fiscal 2008, we were able to maintain growth in paid weeks, which increased 4.5% over the prior year, largely as a result of increased Monthly Pass penetration, but in fiscal 2009, paid weeks declined by 8.4% versus fiscal 2008. Attendance also declined in both years versus the prior year.

In fiscal 2010, NACO meeting paid weeks declined 1.0% and attendance declined 5.7% versus the prior year as a result of performance weakness in the early part of the year. In the spring of fiscal 2010, NACO launched a new marketing strategy and campaign focused on member experience, featuring Jennifer Hudson as its new spokesperson. With this change, business performance began an improvement trend in the second quarter of fiscal 2010 that continued through the rest of the year. In addition, NACO initiated other growth strategies during fiscal 2010, including revamping the retail structure in select markets. These new strategies coupled with the launch of the PointsPlus program in late November resulted in a positive end to fiscal 2010, with solid growth in the fourth quarter in both paid weeks and attendance, up 4.2% and 6.8%, respectively, versus the fourth quarter of 2009.

In fiscal 2011, NACO paid weeks increased 26.4% and attendances increased 18.8% versus the prior year level. We entered fiscal 2011 with more active members than at the beginning of fiscal 2010 driven by the momentum of the new program launch and supported by strong marketing and public relation activities. The quarterly growth trend in fiscal 2011 versus prior year quarters continued to be strong, albeit at a slightly slower pace, as we began to cycle against the highly successful marketing campaign in the second quarter of fiscal 2010 and the soft launch of our new program innovation in the fourth quarter of fiscal 2010. For the first, second, third and fourth quarters of fiscal 2011, paid weeks increased 32.6%, 31.9%, 25.9% and 15.0% and attendances increased 33.1%, 19.8%, 13.6% and 5.5%, respectively, as compared to the prior year periods.

In fiscal 2012, NACO paid weeks decreased 5.6% and attendances decreased 11.4% versus the prior year level. Although we entered fiscal 2012 with more active members than at the beginning of fiscal 2011, we experienced lower enrollments in the first quarter of fiscal 2012 as we cycled against the historically high levels of recruitment growth in the first quarter of fiscal 2011. The decline in enrollments in the first quarter of fiscal 2012, caused in part by lack of new program news and execution challenges associated with introducing Monthly Pass in the small accounts portion of its corporate business, drove a paid weeks decline of 6.0% and an attendance decline of 11.9%, and also resulted in entering the second quarter of fiscal 2012 with a lower meeting membership base, as compared to the prior year period. The declining trend in fiscal 2012 continued through the remainder of the year. For the second, third and fourth quarters of fiscal 2012, paid weeks decreased 5.5%, 3.6% and 7.3% and attendances decreased 9.9%, 9.4% and 14.5%, respectively, as compared to the prior year periods.

United Kingdom Meeting Metrics and Business Trends

In fiscal 2008, paid weeks grew 17.4% versus the prior year, on the strength of increasing Monthly Pass penetration. Although the United Kingdom launched a new program in January 2008, full year meeting attendance declined 2.4% versus the prior year. The UK market responded positively to its new program, but like the North American market, the United Kingdom experienced a worsening economy over the course of the year which negatively impacted meeting enrollment and attendance. Economic conditions worsened in 2009, although effective marketing and promotional activity helped mitigate the negative trend. As a result, paid weeks continued to improve, up 8.1% in fiscal 2009 as compared to the prior year, reflecting increased penetration of Monthly Pass in that market, and attendance declined slightly, down 1.5% versus the prior year.

In fiscal 2010, paid weeks growth decelerated by 0.4%, and meeting attendance declined 10.5%, compared to fiscal 2009. First quarter fiscal 2010 UK volumes were significantly impacted by weather and cycling against a program innovation in the prior year. The United Kingdom continued to experience steep declines in attendance in 2010 versus the prior year, down 8.5% in the second quarter and 9.4% in the third quarter. The United

Kingdom launched its new program, ProPoints, in early November 2010, and saw attendance growth as a result of the launch. However, because of limited marketing prior to the new program launch and bad weather during the launch period, fourth quarter 2010 attendances decreased 11.3% versus the fourth quarter of fiscal 2009.

In fiscal 2011, paid weeks grew 18.3% versus the prior year, benefiting from enrollment growth concurrent with the launch of ProPoints late in fiscal 2010 and early fiscal 2011 and an increase in Monthly Pass penetration. As with NACO, this growth in recruitment resulted in a larger customer base and as a result, attendances also grew, up 13.7% versus the prior year. For the first, second, third and fourth quarters of fiscal 2011, paid weeks grew 21.9%, 16.1%, 18.1% and 17.1%, and attendances grew 22.2%, 8.5% (impacted by the Royal Wedding and Easter timing), 10.1% and 13.0%, respectively, as compared to the prior year periods.

In fiscal 2012, paid weeks declined 11.3% and attendances decreased 16.5% versus the prior year level. As with NACO, the United Kingdom entered fiscal 2012 with more active members as compared to the beginning of fiscal 2011, but experienced lower enrollments in the first quarter of fiscal 2012 versus the prior year period. These lower enrollments were driven by cycling against the historically high recruitment levels in the first quarter of fiscal 2011 and resulted in a decline in paid weeks. This declining trend continued throughout the rest of fiscal 2012 and was negatively impacted by an advertising campaign that was ineffective at driving enrollment growth and weak macro-economic trends. For the first, second, third and fourth quarters of fiscal 2012, paid weeks declined 6.4%, 9.4%, 12.5% and 17.8%, and attendances declined 14.0%, 14.6%, 17.5% and 21.9%, respectively, as compared to the prior year periods.

Continental Europe Meeting Metrics and Business Trends

Monthly Pass drove an overall 16.5% increase in Continental Europe paid weeks in fiscal 2008 versus the prior year with its introduction in Germany in the third quarter of fiscal 2007 and then France in April 2008. Attendance in fiscal 2008 declined 4.1% versus the prior year.

In fiscal 2009, most of our Continental European markets were deeply affected by the difficult recessionary conditions. While Continental Europe experienced paid weeks growth of 1.6% versus the prior year as the market continued to benefit from increased Monthly Pass penetration, meeting attendance declined 11.8% versus the prior year. A major new innovative program, ProPoints, was launched in the fourth quarter of fiscal 2009.

In fiscal 2010, meeting paid weeks, benefiting from enrollment growth early in the year and an increase in Monthly Pass penetration, grew 6.9% versus the prior year, while attendance in Continental Europe declined 1.6% versus the prior year. In the first half of fiscal 2010, the Continental European market experienced meeting attendance growth as a result of the ProPoints program launch in 2009, which drove an influx of returning members to our meetings. The marketing of this new program, however, was not successful in capturing the attention of new members and, as a result, meeting attendance began to decline in the third quarter of fiscal 2010.

Entering fiscal 2011, Continental European performance continued its downward trend, with meeting paid weeks down 9.8% versus the prior year and attendances down 15.4% versus the prior year. In the first half of fiscal 2011, meeting paid weeks declined by 13.1% and attendance declined by 18.9% versus the prior year period, as the business lapped the momentum of its program launch in the prior year. While still negative versus the prior year period, the trend began to improve in the third quarter of fiscal 2011 with paid weeks down 6.0% and attendances down 15.1%. In the fourth quarter of fiscal 2011, Continental Europe soft launched its updated version of ProPoints in December, resulting in a less negative performance with paid weeks down 4.9% and attendances down 4.3% versus the prior year period.

In fiscal 2012, paid weeks grew 9.2%, and attendances grew 3.3%, versus the prior year. This growth was driven by entering fiscal 2012 with a higher active member base than the prior year and the benefit of higher enrollment growth from the launch of the updated version of ProPoints in late fiscal 2011 and early fiscal 2012, effective new marketing strategies and an increase in Monthly Pass penetration. For the first, second, third and fourth quarters of fiscal 2012, paid weeks grew 5.4%, 11.0%, 12.1% and 9.0%, and attendances grew 4.3%, 2.7%, 4.9% and 1.0%, respectively, as compared to the prior year periods.

Margins

Gross Margin

The following table sets forth our gross profit and gross margin for the past
five fiscal years, as adjusted to exclude the impact of the UK VAT and the UK
self-employment matters:



(in millions)                                2012            2011           2010          2009           2008
Gross Profit                               $ 1,082.8       $ 1,047.1       $ 790.6       $ 727.9        $ 835.0
Gross Margin                                    59.3 %          57.6 %        54.4 %        52.0 %         54.4 %
Adjustments to Reported Amounts
UK self-employment accrual(1)                  (14.5 )            -             -           32.5             -
UK VAT ruling accrual(2)                          -               -           (2.0 )          -            18.7

Gross Profit, as adjusted(1) (2)           $ 1,068.2       $ 1,047.1       $ 788.6       $ 760.4        $ 853.7

Gross Margin impact from above
adjustments(1) (2)                               0.8 %            -             -           (2.4 )%        (0.5 )%
Gross Margin, as adjusted(1) (2)                58.5 %          57.6 %        54.4 %        54.4 %         54.9 %

Note: Totals may not sum due to rounding

(1) "As adjusted" is a non-GAAP financial measure that adjusts the consolidated statements of net income for fiscal 2012 to exclude the impact of a $14.5 million decrease to cost of revenues related to the settlement of the UK self-employment matter and that adjusts the consolidated statements of net income for fiscal 2009 to exclude $32.5 million in cost of revenues for the impact of the UK self-employment matter.

(2) "As adjusted" is a non-GAAP financial measure that adjusts the consolidated statements of net income for fiscal 2010 to exclude the benefit of a $2.0 million increase to revenues from the reversal of an over-accrual related to the adverse UK VAT ruling and that adjusts the consolidated statements of net income for fiscal 2008 to include a net negative adjustment of $18.7 million to revenues as a result of the adverse UK VAT ruling pertaining to prior periods. The UK VAT ruling impact pertaining specifically to fiscal 2008 of $7.8 million has not been adjusted herein as the years presented include the . . .