Ladies and gentlemen, welcome to Weight Watchers International's fourth quarter and full year 2010 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. And thank you to everyone for joining us today for Weight Watchers International’s fourth quarter and full year 2010 conference call. With us on the call are David Kirchhoff, president and chief Executive Officer; and Ann Sardini, chief financial officer. At about 7 a.m. Eastern Time today, the company issued a press release reporting its financial results for the fourth quarter and full year 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 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 for a 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 morning, and thank you for joining us as we review Weight Watchers International's performance for the fourth quarter and full year of fiscal 2010. While we began 2010 with a weak first quarter, we steadily improved results each subsequent quarter, and I'm pleased to report that we ended the year on a much more positive note. Benefitting from the successful launch of an important new program in North America, the weightwatchers.com business, we saw meaningful acceleration of our business in Q4 2010. Our North American business showed procession began in late 2008. It is worth noting that we saw solid growth in both our North American meetings enrollments and online signups. On a constant currency basis, Q4 revenues grew 15.6% over the prior-year period, with meeting fees up 8% and meeting product sales up 25%, and internet revenues growing 32%. This increase compares very favorably to the 3.5% total revenue growth we saw in Q3 of 2010. From a volume perspective, combined global online and meetings paid weeks grew by 13% in the fourth quarter versus the prior-year period. This 13% growth is a further acceleration to the plus 11% year-over-year growth we reported in Q3. The increase in Q4 paid weeks was driven principally by rapid growth in our Weight Watchers Online subscription business, as well as further strengthening in our North American meetings business. Global paid weeks in our meetings were up about 3% versus the prior-year period in Q4, while paid weeks for Weight Watchers Online accelerated further for the third consecutive quarter to plus 33% versus prior. Q4 2010 EPS was $0.66 compared to $0.24 for the same period in 2009. Included in the Q4 2010 result was $0.02 of benefit from the reversal of a prior-year VAT accrual. Included in the Q4 2009 result…

Thank you David. Good morning everyone. As you've heard, we've exceeded the top end of our guidance range provided during our third quarter call by $0.07 on an adjusted basis, and $0.09 on an as-reported basis. The increase is attributable to the new Points Plus program's success in driving enrollments, online signups, and product sales beyond our expectations during the soft launch stage in North America and the other English-speaking countries. Before reviewing some of the details of our fourth quarter results, I'll provide a recap of our full year 2010 performance. On a full year reported basis, 2010 revenues were $1.45 billion, a 3.8% increase versus 2009. Paid weeks rose 7.8% over the prior-year level. The monthly pass global installed base rose 16.5% to over 1.2 million members by year end, and online end of year actives grew 38.2% to 1.05 million. From a global perspective, the 2010 year, which got off to a slow start, began to see improving trends in the second quarter. The strengthening was driven by the NACO meeting business and accelerating growth in WeightWatchers.com. Both of these businesses saw success in driving membership growth from their spring and fall advertising campaigns. Partially offsetting growth in these businesses was weak performance in the UK and a slowdown in growth in continental Europe. As noted by David, the fourth quarter saw a surge in performance on the strength of the program innovation launches in meetings and online in North America, UK, and Australia. On a full year basis, 2010 operating income as reported rose 9.4% to $390.3 million, including a $6.5 million charge related to the settlement of the California labor litigation. But there are certain adjustments required to present these results on a more comparable basis. In 2009, there were two significant nonrecurring items, which…

Thank you Ann. This time last year, we knew that we were facing a weak first quarter, but we also knew that we had a coherent strategy for revitalizing the business. Starting with the spring marketing campaign, the NACO meetings business was stabilized and the WeightWatchers.com business started accelerating. We finished the year with robust growth, both in our NACO and dotcom businesses as well as building momentum in the UK. We've entered 2011 with our best January in years. We're seeing terrific enrollment volumes in our NACO, UK, and Australian businesses and we've seen even further acceleration of the WeightWatchers.com business. In short, the Weight Watchers brand is showing a level of vitality and resonance in these markets that we have not seen in years. As we look forward, we're very much focused on building on momentum in this business by continuing to press forward on our strategy to bring Weight Watchers to a new level of performance. To this end, our strategy in 2011 will focus on one, building on our marketing success. The fundamental goal of our collective marketing effort is to allow us to build social relevance. What we mean by social relevance is a state in which Weight Watchers is always top of mind in conversations that the average consumer has about weight loss. This will come from continuing to have a combination of high-impact advertising, integrated PR, product news and innovation, and effective promotions. As we're successful in bringing more new members and subscribers into the brand, and as they experience weight loss success, our word of mouth should build and further help us to bring more people into the brand. Two, rolling out our retail transformation. In 2010, we completed the full market transformations of two major metro markets, Tampa and St. Louis,…

So a few notes on 2011 for those of you who are modeling our business. I'll first recap David's guidance on revenues. We expect 15-20% revenue growth in 2011, driven by full year paid weeks growth in each of our businesses as follows. In online, 40-50% paid weeks growth. In the meetings business, paid weeks growth of mid-teens for NACO, and positive low to mid-teens for the UK, but high single to low double-digit declines in the continental Europe meeting business. We expect gross margin expansion in the range of 200 basis points this year, from a combination of three drivers: higher meeting averages and the lack of innovation-related costs in the meeting business, higher relative growth in the high gross margin WeightWatchers.com business, and gross margin expansion within the highly scalable dotcom business. In terms of marketing, we plan to continue to invest through the year and anticipate full-year marketing as a percent of revenues to be similar to prior year, following roughly the same quarterly pattern. G&A expense as a percent of revenues for the year should be only slightly below prior-year levels. We plan to reinvest the benefits of scale into new initiatives and capabilities, such as developing our selling infrastructure to support our healthcare initiatives. And finally, we're projecting interest expense of $63 million for the year, with $18 million in Q1 and approximately $15 million in each subsequent quarter. So I'll turn it back to David.

Thank you Ann. At this time, operator, we would like to take questions.

Thank you. [Operator Instructions.] And the first question is from Chris Ferrara from Bank of America Merrill Lynch. Please go ahead. Chris Ferrara – Bank of America: So North American attendance, I think you said high teens attendance in Q1. I guess first off, how much visibility do you have into that number at this point? And what do you think the weather effect was in the first quarter? Because it really was pretty nasty. And I know the year-ago comp weather was pretty nasty too, but if you could just give a little insight into how much visibility you have on that and what the weather impact was, that would be great.

First off, the guidance for Q1 was high teens to low 20s. In terms of the visibility we have to that attendance forecast, we now have the benefits of six weeks of volume numbers kind of in our back pocket. So we feel very good about the visibility we have for the first quarter. To your point, January was a pretty rough weather situation with one storm in particular knocking out half the country. Honestly, we actually had enrollment growth in that week, despite horrific weather conditions. So it's indicative of the kind of quarter NACO's having right now.

There was some weather in the prior year as well, but -

More of the weather that we saw in 2010 was in February, and so the weather story for Q1 was bad weather in 2011 in January, comping not much bad weather in the previous January, and relatively better weather in February, so far anyway, of 2011, comping worse weather in February 2010. Chris Ferrara – Bank of America: And I guess in the UK, the numbers - it looks like you're looking for a pretty big inflection point and I understand, I guess, what you're saying, what's going on in the business, but can you talk a little bit about - I guess a little more color on why the UK will inflect so much over the next quarter?

It's really the same story. The UK, one of the things coming out of when we did the program launch in CE, and having the benefit of our experience and our learning in that market is that we really did come to the conclusion that we needed to be much more aggressive, much louder, much more forceful about the combination of both injecting energy into the brand more aggressively, and doing a better job of tying that into this news of a significant program change and program improvement. So the UK really followed the same script as NACO. And they did a really nice job in terms of using the grass roots to kind of build excitement about the new program during their soft launch. But then they came out with a really good and aggressive advertising message beginning of the new year, and what we've seen is therefore response on enrollment activity. And we believe that's going to be both in the form of rejoins as well as nevers. Chris Ferrara – Bank of America: And just on product sales also, is there any way to parse out how sustainable - obviously very big numbers this quarter for a lot of the product sales per attendee. I get why, with the new innovation. Is that going to continue the whole year through? And then not to get too far ahead of ourselves, but how should we think about next year? This is going to be an unusually high product sales per attendee year, I suspect, right? And maybe that higher year-over-year trend moderates through the rest of the year? Is that the right way to think about it?

Yeah, I mean I think the biggest pop that we got in product sales per attendance was frankly in Q4. And that's really where you're selling products, both to people who are enrolling in the program in December, which was really good enrollment growth, but it's a relatively smaller number of people given our seasonality, but also selling enrollment products to our existing member base. And so I think if there's an aspect of product sales that is specifically associated with the launch of the new program, it's most noticeable in Q4 of 2010. Really the enrollment growth, the product sales growth that we're expecting to see throughout 2011 is more a direct function of our ability to drive enrollments. And so to the extent that we're able to be successful in continuing to build momentum and look to drive up enrollments again in 2012, product sales would actually follow that.

The next question is from Greg Badishkanian from Citigroup. Please go ahead. Greg Badishkanian – Citigroup: You had great momentum with the new program, good success, and I'm just wondering maybe just a little color on when it first came out versus January - February. Has that momentum continued excluding the weather impacts? What type of trends have you seen there?

Honestly, if you're asking if you compare December versus January and February, the thing that's interesting when you look at December is that it's such a relatively low volume in absolute numbers in terms of enrollments, that you're going to see a little bit more volatility. But that being said, even with whatever pops, and we did see after then soft launch principally in December, frankly if anything that momentum has continued just as strongly in January and February. Because keeping in mind in January - February versus December we also had the benefit of all the advertising is now sort of hitting in full force. We made the decision to significantly invest in marketing, media weights, and so we're up give or take 15% media weights in January for example. And we're seeing an immediate return on that marketing investment. And so really what we have working for us in January - February is basically the customer acquisition engine firing on all cylinders, and so therefore we're seeing continued sustained momentum. Greg Badishkanian – Citigroup: Right. And I think you mentioned that marketing spend would be pretty consistent as a percentage of sales in 2011 and if you increased that do you think you'd get an even greater return? Or is it just conservative to kind of keep the marketing spending as a percentage of sales?

Well, I think if you think about the revenue forecast we gave of 15-20% for the year, and marketing staying consistent as a percentage of sales, that's a pretty sizable step up in marketing investment. And what we're doing is we're staying pretty focused and disciplined about making sure that we're spending marketing in a smart way that drives response and pays back against the standards that we've historically kept as a company that prides itself on sort of being good and disciplined in the way it approaches direct response marketing. To the extent we can find new ways of profitably investing in marketing, we'll always look for those opportunities. You saw that a little bit at the end of 2010 where we made the decision, even though we knew it was going to be a profit hit for 2010, we made the decision to step it up a bit toward the end of December, because we knew it would pay back and in fact it did. Greg Badishkanian – Citigroup: And just in terms of the incremental profitability for each new customer that you sign on, you don't have to necessarily set up a new meeting for that member, so how do you kind of think about the incremental profitability and contribution from those new customers?

There's a very different way of looking at incremental profitability, although they lead to the same result for Weight Watchers online, product versus meetings. But as you know, there's a variable cost component to Weight Watchers meeting, which would principally be the acquisition cost of the customer as well as variable expense related to compensating our service providers, etc. The contribution after that then works across a largely much more fixed cost base, which is rent for the meeting location, fixed overheads, field management costs, things like that. And so yes, in fact that's why Ann was guiding a 200 basis point improvement for the year in gross margin percentage to reflect those scale economics, in addition reflecting on the fact that the way to think about the incremental contribution of the Weight Watchers online product is you have revenue expected for the subscription cycle less acquisition cost, then goes to cover our largely fixed cost base of our software development company that's internal to us. And so on one hand we're looking to step up the pace of product innovation and technology investment, but whatever we step that up doesn't even come close to the fact that those incremental customers we're going to be bringing in through Weight Watchers online are going to be highly profitable to us.

[Operator Instructions.] The next question is from Jerry Herman from Stifel Nicolaus. Please go ahead.

First question is with regard to never-members, and I was hoping David that you could perhaps quantify what sort of influence they had in any way you choose, whether you talk about their contribution to paid weeks or attendances or some other metric that will help us frame that influence.

Let me speak to it first conceptually. Because again that is a very different story for example, than what we saw in CE. Never-members, you know, when you're getting those, the first thing is that it is indicative of effectively buzz that's happening around the brand. For example, I was in a meeting in Baltimore yesterday, a Weight Watchers meeting, and I met a woman who had never been to Weight Watchers before, but she had seen Jennifer Hudson on Oprah and she was just so blown away by her story, and the story of her family all doing Weight Watchers, that she came in and she's since lost a nice amount of weight, and now she has gotten a number of her friends to join with her. And so when you start seeing more and more of those stories anecdotally, to me it's a good indication of the fact that Weight Watchers is just being discussed a lot. Another indication I can give is that when we first launched this program in late November, the sheer number of calls I was getting from just random people I knew who were asking me about the new program, the fact that we got front page coverage in the New York Times and everything else, it all goes back to the fact that Weight Watchers has a lot of buzz and noise. And the best way I can kind of characterize our launch so far is that in a manner of speaking the new program and the brand kind of went viral. And so to us, that's a good indication of the momentum and sort of energy level coming behind it. In terms of the specific metrics around mix and everything else, and nevers versus rejoins, I think the most important thing for me to convey is that the growth rate on nevers was very high. And it was certainly higher than anything we had seen in many, many years. What I would say is that it's still relatively early days into the new year. As much as we have six weeks behind us, it's still going to take us a while to sort through data and impact and everything else, but all indications are quite positive right now.

When you look at your guidance for volume growth in the first part of the year and for the full year, is it in fact fair to say that the predominance of that growth is from never-members?

Let us let the year unfold a little bit and give you a little bit more specificity around that, particularly as we present our full Q1 results. But what I would say is absolutely the volume that we're showing is heavily influenced by nevers. But it also reflects a nice degree of rejoin in enrollment growth. The other point I would make about momentum in the business is that nevers we bring in this year are going to help us build our ability to bring in even more rejoins in subsequent years. So bringing in never-members is sort of the gift that keeps giving, both for 2011 but frankly for 2012 and beyond.

The answer here might be related to the question just discussed, but in particular it's about online and the huge acceleration there, and I'm wondering if you could give us some additional color in terms of what's driving that. It's always been a growth business, but now it's growing faster than ever from a larger base.

Yeah. It has been terrific to watch. The first thing I would say overall is that what's really been great to see is that all boats rising. So it's been terrific to see just really sort of vibrant, strong enrollment growth in meetings, combined with even faster growth in the online business. So I mean everything's sort of relative, but both those businesses are sort of pushing forward very nicely for the first six weeks of this year. And to me, the sort of interest and volume around both those lines of business is a reflection of the vitality around the brand itself and the fact that there's never been a time which I can remember with more people signing up to do the Weight Watchers program in a January than what we're seeing right now. So from that point of view, we feel very good about it. Now the fact that it's growing even at a faster pace against what was already a big business is terrific. I will point out the fact that if you look at Q1 of 2010 our volume growth for that quarter versus the prior year was 10%. Weight Watchers online does start having somewhat tougher comps as it goes into Q2, Q3, and Q4, but nonetheless we still see very good growth prospects for that business over the course of the year.

And is there a greater propensity of nevers to enroll online?

We're seeing great never participation both in meetings and with online.

Okay, great. And then a clarification on your comments about the revamped retail centers. I just want to be clear in so much as you said that the attendance, or the volume trends, increased 15-20% in those revamped centers. Did I hear that right?

That's correct.

And then just last final question and I'll turn it over. Can you give us an update on some of the corporate relationships, either for meetings delivered through corporate relationships, or maybe a little bit more color on Merck and CVS?

Yeah. Let me talk first off about our corporate business. And first off I'll mention the fact that our at-work business, which had also been a bit soft in terms of getting new at-work meetings started in 2009 and early 2010, is off to a great start this year. So we're seeing a very high level of interest by folks who are interested in bringing Weight Watchers into the work site. We have a nascent but we think very important new organization being built within NACO, which is going to be our healthcare organization that really focuses against this opportunity. We've got a couple of very strong executives who are leading the charge there, and I think as you heard Ann mention, some of the increases that we're forecasting, for example in G&A, while we expect to get a lot of scale benefit in our cost structure we will be reinvesting some of that for example in G&A back into additional selling resources so that we can really start to scale that business up. In terms of Merck, as I mentioned we started a pilot the beginning of this year that covers a sort of relatively smaller percentage of the country in which people from their sales organization are now actively calling on doctors and talking to the about first off how to talk to their patients about obesity and specifically the role that Weight Watchers can play, and the clinical evidence, and everything else around Weight Watchers. Doctors have always been very responsive to the uniqueness of the Weight Watchers approach, which is based on education and behavior modification with a compliance mechanism in the form of confidential weigh-ins. So that model has always had a lot of appeal to doctors, but I think giving them the clinical data, sharing with them the information, giving them then something they can turn around and hand to a patient, the initial receptivity that we're hearing is quite strong. So we're very excited about the start of this and the notion is that as we continue to sort of see the evidence of this first phase unfold, it creates the option to take this program national coming into the fall. And I think that the specifics around the press release that went out - I think it was yesterday - around CVS Caremark I think is a reflection of the fact that we see just so many different opportunities to work with different players in the healthcare space to find different ways of collectively having an impact that they want to see and that we want to see in terms of having a measurable push against obesity as a health issue in this country. We think there's numerous opportunities like that to partner up and to work with other people toward this greater good.

There are no further questions registered at this time. I'd like to turn the meeting back over to Mr. Kirchhoff.

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