WW International Inc (WW) 2006 Q4 法說會逐字稿

Ladies and gentlemen, welcome to the Weight Watchers International fourth quarter and full year 2006 earnings teleconference call. [OPERATOR INSTRUCTIONS] As a reminder, this conference call is being recorded, today, February the 13th, 2007.

At this time, I would like to turn the call over to Sarika Sahni of Weight Watchers International.

Please go ahead.

Thanks, Lindsey, and thank you to everyone for joining us today for the Weight Watchers International fourth quarter and full-year 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 fourth quarter and full year 2006.

The purpose of this call, is to provide investors with some further details regarding both the company's financial results and the Management transition 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 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.

The company does not undertake any obligation to publicly update or revise any forward-looking statements whether as the 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 as we review Weight Watchers -- Weight Watcher International's performance for the fourth quarter and full year ending December 30, 2006.

First, I would like to say that it is an honor and a privilege for me to be able to represent this great company in my first earnings release communication to our shareholders.

Weight Watchers International means a lot to me both professionally and personally.

It is a unique company that I truly believe is doing important work in the world in helping to combat the obesity epidemic.

I would also like to thank a moment to thank my Board of Directors and my predecessor, Linda Huett, who have entrusted me with this responsibility.

I'll focus today's call on our fourth quarter and full year results.

While I will briefly preview my assessment and vision for the Company, I will be elaborating on it in much greater depth at our investor's conference tomorrow morning in New York City.

For those who will not be there, the conference will be simulcast and you can access it through our investor website at www.weightwatchersinternational.com.

It will also be available for replay for 30 days at the same website.

We will finish our call today with our guidance for 2007 and then open the call, the call up -- we will open the call up for questions.

While 2006 was not without its challenge, Weight Watchers made excellent progress on several fronts and has laid critical ground work for 2007 and beyond.

Looking at our overall financial results we grew full-year top line revenue by about 7%, and our bottom line EPS by about 10%, excluding last year's weightwatchers.com transaction expenses and this year's stock compensation expense as well as Q4 tax benefit.

Globally we grew our meeting room revenues by about 5% with North America up by about 13%, partially offset by a 5% decline in international meeting revenues.

For the year attendance growth in North America was almost totally offset by attendance declines in our international operations.

However, we continue to demonstrate our ability to grow our revenues at a faster rate than our volume.

We have been able to increase our average revenue per cycle through pricing, growth in product sales, and more recently through the successful implementation of commitment plans in the U.S.

Weightwatchers.com had a great year, growing its revenues approximately 20% over prior year to $131 million while generating operating margins of 44% of revenue, excluding inter company royalties.

In fact in 2006 the weightwatchers.com business unit become the second largest profit contributor to the company, trailing only our North American company-owned operating unit.

Our other businesses, primarily our global licensing and publishing businesses also had a great year with combined revenues up 23% to $68 million.

Allow me to provide an update on the full year and Q4 performance of each of our major business units.

First our North American meetings business. 2006 saw continued growth in NACOs as we successfully rolled our new commitment plan initiative with the introduction of season pass on the winter diet season and monthly pass on the fall diet season.

For the full year total North American revenues increased 13.6%, including 2.3% contributed by franchise acquisitions we completed in 2006.

For the year total NACO attendance was 35.4 million, a 5.7% increase over prior year, 2.9% without the benefit of acquisitions.

Our average income meeting fee per attendance increased 7.1% over the prior year as we benefited from our commitment plans and the continued flow through of our price increases.

Also our in-meeting product sales per attendance were up 5.2% in 2006.

In the fourth quarter our total North America revenues were up 18.6% and total attendance was 7.9 million, a 9.9% increase versus 2005.

Excluding the benefit of franchise acquisitions we completed during 2006, revenues increased 11.5% while our attendance grew by 1.1% in the quarter.

As you may recall, in 2006 we acquired the franchises for most of the state of Indiana, Eastern Canada, and Suffolk County, New York.

Most recently, in December 2006 we acquired the franchise for Western Michigan. from these figures, you can see that our revenue growth is far exceeding our attendance growth.

While our in-meeting product sales have been strong, the major factor driving the acceleration of our revenue growth are our commitment plans.

First, season pass last January, and then starting late August monthly pass.

Since Monthly Pass will be a continuing focus for us going forward, let me take a few minutes to explain some of the background and rationale for this offering.

As many of you know I was one of the first employees at Weightwatchers.com, where we designed and very successfully implemented a business built around a recurring revenue model.

Essentially, when a person subscribes to Weight Watchers Online they authorize us to charge our credit card on a monthly basis until that person elects to cancel.

Our average retention for Weight Watchers Online is about nine months and we know from our subscriber surveys the [top to back] satisfaction is over 90%.

We see these high satisfaction scores throughout the duration of the subscriptions and we have also seen very strong repeat behavior in the online basis.

We also have created a subscription product at Weightwatchers.com called Weight Watchers eTools, which has many of the same tools and resources as Weight Watchers Online but is packaged and sold exclusively to meeting members.

Members who purchased eTools have always expressed a very high level of satisfaction with the product and have highlighted its incremental benefit to their weight loss efforts.

Initial research has also suggested that members who attend meetings and subscribe to eTools can have greater success than those who go to meetings only.

Despite the high satisfaction and potential additional efficacy, penetration of this product within our member base has been low, very simply due to the fact that we charge on extra $12.95 per month for it above and beyond the meeting fee.

The traditional meeting business has been based on a very different payment model of pay as you go, with fees for missed weeks.

The vast majority of our members went through the weight loss process paying a weakly fee usually in cash.

If they missed a meeting and chose to come back the next week, they would pay both for the meeting they were attending as well as the meeting that they missed.

The idea behind this model was to encourage members to attend meetings regularly by providing a financial incentive to do so.

There's no doubt that this has worked for many members, but it is also true that other members either viewed it as a penalty or a reflection of their failure to stick with the program.

In this sense, we have asked members to make a decision each week whether or not they would stick with the plan.

Not wanting to pay missed weeks became an incentive not to rebound from a lapse or simply a short break, and inadvertently pushed members to quit.

We saw the opportunity to make a pretty radical improvement to the basic Weight Watchers meetings proposition.

Eliminate the missed meeting fee by providing the option to pre-commit on a recurring basis, and by providing the additional benefit of eTools for free.

Members simply have all automatically bill them $39.95 per month with a credit card, and this gives them the ability to attend as many meetings as they would like during that month.

By the way, we have also taken great strides to make it easy for them to cancel.

From the member's point of view, they get a very nice discount, roughly 23% versus the lowest pay as you go meeting price, along with all of the benefits of eTools for free.

In this sense the primarily objective of implementing Monthly Pass was to create a new offering to allow members to achieve greater success and thereby create a new gold standard in weight loss.

From a business point of view, we have been able to create a vehicle that allows us to significantly improve the average revenue per subscription cycle.

We know from the online business that the retention benefit of this model is very good and it creates a revenue base with excellent predictability and strong margins.

While it is still only five months since we launched Monthly Pass in the U.S., it's pretty clear that both our staff and our members have embraced it.

Our current trends show that almost half of our enrolling members are purchasing Monthly Pass on or within the first few weeks of joining us.

While we will need more time to fully understand Monthly Pass retention, we're comfortable in saying that we expect average retention to exceed six months.

Therefore, a $40 per month meeting fee revenue per enrollment cycle should be at least $240 compared to the $125 per enrollment cycle for the average pay as you go member.

We believe that members who avail themselves of Monthly Pass will attend more meetings per cycle than they would have had they chosen the traditional pay as you go model.

It is important to note that monthly pass gives members permission to miss a meeting if they need to, and we do not expect members on monthly pass to attend a meeting every single week.

We will actively encourage our members on Monthly Pass to attend every meeting they possibly can, but we are also thrilled to know they can stay with us even if they miss a few weeks, or if life just gets in the way for hopefully a brief period of time.

In this sense the definition of retention has changed from the number of meetings attended to the length of active engagement.

One financial implication of this is that we can expect to see Monthly Pass increase our average meeting revenue per attendance, reflecting the impact of these missed weeks.

While it is likely that members purchasing monthly pass does buy us towards those that have an intent to stay longer anyway, we like the trends that we are seeing and believe that monthly pass will be a big positive for both our members and our business in 2007 and beyond.

There is no doubt that Monthly Pass has already contributed to the NACO results as be seen in the higher meeting revenue per attendance.

As we go forward we fully expect monthly pass to contribute to both revenue growth and to attendance.

Despite the contribution that Monthly Pass had made both to our Q4 results and towards strengthening our foundation for the future, I am not satisfied with our meeting attendance results.

In my assessment, we do a pretty good job of convincing people who have been Weight Watchers members before to come back, but we can do a much better job of convincing never members, people who have never been to Weight Watchers before, to come to us.

Too often I hear the following quote from consumers in our market research. "I know Weight Watchers works, I know friends who have had great success with it, but I don't think it's for me."

We can and will do a much better job of telling people why Weight Watchers is for them in a way that can cut through the clutter of the barrage of today's dieting ads.

Too many people are making the decision to take some other weight loss approach without really understanding what we have to offer and that is our fault.

We know from our history in launching innovations that when we have something interesting to say and tell them something about us that they did not know, consumers will respond.

The most recent example of this is our launch this January of Weight Watchers Online's first broad off-line media campaign.

While we will not report any numbers until our first-quarter call, I can say that we are very pleased with the initial results of that advertising.

Simply stated, once we started telling them something about Weight Watchers they did not know, consumers proved incredibly receptive to the message.

It's a really good example of how we can take our advertising work much harder for us.

As I will discuss tomorrow, we need to find the right mix between emotional meetings-oriented advertising versus news features-oriented advertising.

In addition to our communication, we are very focused on making our service more relevant to market segments that historically would not have thought of us.

For instance, in California, we're working to better serve the growing Hispanic population by offering much-improved Spanish-language meeting materials as well as an offering increase in the number of Spanish-language meetings.

Many of you have asked when Weight Watchers was going to address the opportunity to help men, and I'm very happy to announce that we are launching a Weight Watchers product for men.

It will be available in two formats.

Weight Watchers Online for Men, for those who do not wish to attend meetings and eTools for Men, which will give our male monthly pass meeting members something much more relevant to them.

To be sure, a lot of the initiatives that I am speaking about will take time to drive results, so our operating objectives for North America for 2007 are modest in comparison to our potential.

While we made a number of improvements in the user-friendliness of our member materials we elected not to market these enhancements.

With relatively weak flow-through of attendances from Q4 and the lack of any new news in our meetings focused advertising, January meeting recruitments, particularly in the first two weeks, have come in at the low end of our expectations.

The trend has improved in recent weeks but I still expect first quarter attendance without our 2006 acquisitions, to be flat at best to prior, and mid-single-digit positive in total.

These trends should improve over the course of the year thanks to the monthly pass attendance patterns.

For the full year we expect the NACO meeting business to deliver mid-single-digit organic attendance growth.

For 2007, including the benefit of our '06 acquisitions, we expect NACO to deliver high single-digit to low double-digit attendance growth and high teens revenue growth.

Now on to the U.K..

For the full year U.K. revenues for 2006 declined 6.2% on a local currency basis driven by a 7.4% decrease in our U.K. attendance.

As you recall,l we have been struggling in the U.K. for the past two year as a result of negative member and leader reaction to the first version of our Switch program innovation launched in January 2005.

Despite a turbulent 18 months our very strong U.K. management team has worked incredibly hard to simplify the program, improve the meeting experience, and strengthen the quality of our field management and leader force.

I'm thrilled to announce that the U.K. business has fully turned the corner.

Over the course of the year our attendance trend went from a negative 17.2% year-over-year decline in Q1, to an 11.6% decline in Q2, to a modest 0.4% growth in Q3, and I'm pleased to report in Q4 attendance grew by 7%.

The stronger attendance flow-through from our fourth quarter into the new year will help set the stage for a strong year in the U.K. in 2007.

This January we introduced a simpler improved version of our U.K. program and rolled out season pass, which will benefit our U.K. retention and financial results.

We also introduced a new advertising campaign that was specifically designed to cut through the clutter of dieting advertising.

In the first few weeks of 2007, the U.K. is off to an encouraging start, and we expect to deliver solid revenue and attendance growth both in Q1 and throughout 2007.

Moving to Continental Europe, in 2006, revenues in continental Europe were down 2.7% excluding the impact of changes in foreign exchange rates and attendance declined by 4.4%.

Our performance in continental Europe deteriorated significantly as we moved through the year.

After good growth in Q1 continental Europe's results started to soften in Q2, particularly in Germany, our largest market.

As we indicated on the Q3 earnings call we had a disappointing fall marketing campaign that resulted in weak recruitments.

As a result Q4 local currency revenues and attendances were down 5.3% and 10.6% respectively.

Most of the negative results have been due to continued weakness in our German business.

I continue to believe that most of this weakness has been the result of ineffective marketing and the lack of news.

As you know, I took over responsibility for international operations in the fall of 2005.

This was an extremely useful way for me to learn the meeting side of the business as well as to engage in part of the business that should be in growth mode.

What I discovered in CE, in continental Europe, was that the business-- the businesses in many countries in this region has grown beyond the capabilities of the then current local management.

As a result both the marketing and operational execution was inconsistent at best, and in some countries our service execution seemed to be suffering.

In countries such as France, where we have had a strong country manager for several years, we're seeing much better and much less volatile results.

Therefore, the first step was to hire a new head of the continental Europe region in Q1, 2006.

The focus then shifted to putting in place new country managers and making selected upgrades to the next level down in each country's management team.

With the exception on an opening for a Country Manager in Germany, our senior European management team is nearly complete.

Certainly this new team will have to work hard as we have in the U.K. to turn around their business trends, but with the penetration on the continent generally much lower than in the U.S. and the U.K., I would argue that opportunities are even greater.

I believe we now have a team in place that can take advantage of these opportunities, and while results will not be instantaneous, I'm very confident that this team with deliver over the next two to three years.

To get 2007 started we launched a new program enhancement called Power Start.

Power Start is designed to help our members achieve greater success during those critical first few weeks on the program, and by doing so to increase the likelihood that members will continue with us longer.

Through a combination of these program enhancements as well as improving advertising effectiveness over the course of '07, we expect our continental Europe trends to improve as we move through the year.

We believe that Continental Europe can regain its lost ground and low Q4 attendance flow through and return to positive attendance in the second half of the year.

Moving on to other businesses.

As I mentioned earlier weightwatchers.com had another strong year in 2006.

As of year end, dot-com's online subscriber base increased 15% to 460,000 end of period active subscribers, from 399,000 at the same point last year.

Weightwatchers.com revenue grew by approximately 20% to $131 million. [sic - see press release] In 2007, we expect weightwatchers.com to deliver revenue growth in the high teens, even with the significant loss of eTools revenue resulting from our decision to include it for free in the price paid by monthly pass subscribers.

As I mentioned, early consumer response to our first TV media advertising has been robust, and signups for weightwatchers.com are off to a very strong start.

By the end of 2007 we plan to launch our online subscription offering in at least one more European market, and in Q2 as I mentioned we will be leveraging the weightwatchers.com platform to launch an online offering specifically targeted at men.

Our men's product will provide men with an online product whose design and content speaks more directly to them.

Moving on, other revenues, which included global licensing and publishing businesses were up 23% from $56 million in 2005 to $68 million in 2006.

Our licensing revenues were up 28% in the year driven by strong growth globally.

We expect continued strong growth in our licensing revenue in 2007.

Now, I would like to turn the discussion over to Ann Sardini.

Thank you David.

Good afternoon, everyone.

Let me start by recapping last year.

Let me start by recapping last year.

For the 2006 year we delivered revenues of over $1.2 billion and gross margin of 54.8%.

Our operating income margin of 30.8% included incremental expense resulting from our January 2006 implementation of FAS 123R with respect to the expensing of options.

Excluding this impact adds 70 basis points to our operating income margin, raising it to 31.5%.

Net income for the year of $209.8 million, compared to $174.4 million in 2005, and EPS of $2.11, compared to $1.67 in 2005.

Both years included certain one time benefits and reductions, and to better understand our results these items should be adjusted out as follows.

In 2005, EPS was reduced by $0.27 in transaction related expenses associated with the acquisition of weightwatchers.com.

Adding this back moves 2005 EPS from $1.67 to $1.94, including $0.02 of non-cash stock-based compensation expense.

In 2006, EPS included a net positive impact of $0.05, resulting from the combination of a year-end reduction in tax reserves, net of a $0.01 charge for early extinguishment of debt.

Taking these into account, our 2006 EPS moved from $2.11 to an adjusted $2.06, which includes $0.07 of non-cash stock-based compensation expense.

Our 2006 EPS of $2.13 on a fully adjusted for comparability basis is up 9.8% over the 2005 adjusted level of $1.94.

In 2006, we delivered free cash flow of $253 million, which enabled us to fund $140 million of franchise acquisitions, to pay dividends of $52 million and to fund $61 million toward our $3.6 million free tender share buyback.

During 2006 we bought three franchises in the U.S., raising our ownership level to 83%, and we also purchased half of Canada through a single acquisition.

Revenues for the consolidated company increased 7.1% in 2006 to $1.2 billion even with flat attendance globally.

Now getting in to some of the details of our operations in the fourth quarter.

Consolidated company revenues were $285.5 million in the quarter, an increase of 13.7% and $34.3 million versus the 2005 quarter.

Operating income rose 16.3%, to $78.3 million on the strength of revenue, primarily lecture income per attendee, and despite the incremental expense from non-cash stock-based compensation triggered by the adoption of FAS 123R.

Net income for the quarter increased 14% or $5.4 million to $44.3 million.

Earnings per fully diluted share in the fourth quarter were up 18.4% to $0.45, as compared to $0.38 last year.

As indicated in our recap of the full year, our fourth quarter EPS included a reversal of $6.3 million of tax reserves, which added $0.06 to EPS.

Absent that our EPS was $0.39 in the quarter up a penny from the prior year level.

In the fourth quarter, our worldwide operation generated a 13.7% increase in revenues, 11.1% on a constant currency basis, with about 7.5% of the increase reflecting expansion of revenue per meeting attendee.

The weightwatchers.com online subscriber base increased by 15.3% and accounted for about 2% of the company's total revenue increase.

Weightwatchers.com entered the fourth quarter with 460,000 active online subscribers.

As we mentioned on our last conference call, given that many of our eToolers are now migrating to monthly pass, we are reporting only end of period active online subscribers for dot-com.

Globally, meeting attendance was up 3.9% in the fourth quarter to 13.4 million, with growth in North America and the U.K. partially diluted by continental Europe's underperformance.

Looking at North America in more depth, North America's fourth quarter meeting room revenue growth of 19.1% to $138.9 million [sic - see press release], outpaced its 9.9% attendance growth, reflecting accretion from 9.1% growth in average meeting revenue fee per attendee.

Product sales penetration increased and NACO benefited from monthly pass and pricing in the quarter.

In fact, about 80% of the increase in the average meeting fee per attendee can be attributed to monthly pass.

The penetration of this commitment plan has been above our expectations with over 50% of our December attendances coming from members on monthly pass.

As I mentioned in our last call, the economics of our new monthly pass are projected to be more accretive than either pay as you go or season pass, given the likelihood of expanded retention.

Our experience, based on those members who joined in August and September, suggests that we should see paid retention of over six months.

Internationally, our attendance was 5.5 million in the fourth quarter, down 3.7% from the prior year quarter despite strong growth in U.K. attendance in the quarter.

International revenues were $92.1 million [sic - see press release], up 6.3% as a result of favorable currency on a local currency basis revenues declined 1.2%.

U.K. attendance posted 7% growth in the quarter versus a year ago, solidifying it's upward trend.

Revenue growth for the quarter mirrored the attendance growth up 7.2% to $30 million on a constant currency basis.

Continental Europe's attendance shortfall versus prior year was 10.6% in the quarter.

Continental Europe's attendances totalled 2.4 million versus 2.6 million in the year-ago quarter and revenues of $46.1 million declined at a lesser rate than volume, up 5.3% on a local currency basis.

Revenues were somewhat bolstered by price rises in larger countries and higher licensing revenues.

In the weightwatchers.com business, revenue grew 16.6% in the fourth quarter 2006, from $27.3 million to $31.8 million [sic - see press release].

Revenue growth was driven by online subscription revenue up 19.4%, the results of that 15.3% increase in online active end of period subscribers to 460,000 in 2006, and to a lesser extent by online advertising.

These were partially offset by a decline in eTool subscription revenue as subscribers shifted to the monthly pass commitment plan.

Now moving to our other revenues.

Franchise commissions of $3.3 million in the quarter represent a 12.6% decline, driven by our recent acquisitions.

NACO now includes over 80% of U.S. attendances, as well as over 50% of Canada attendances.

Excluding these recent acquisitions, franchise commissions grew 10% in the quarter.

Our other revenues of licensing and our publications were $18.9 million in the quarter, up 23.1% or $3.5 million over the year-ago level.

Licensing revenues across the world when looked at in aggregate were $12.7 million in the quarter, an increase of 27.4%.

The U.S. licensing business grew on the strength of increased distribution of existing licenses, including ice cream and cakes, while internationally revenues grew on the strength of both existing and new licenses.

Our consolidated gross margin was 51.7% in the fourth quarter, 20 basis points below the 51.9% delivered in the fourth quarter of 2005.

The slight margin erosion was primarily driven by higher expenses related to the startup of NACO's monthly pass.

Marketing expense for the quarter was $33.5 million, up $2.6 million from last year's level.

On a-- on a currency neutral basis, the increase was $1.9 million or 6.1%.

Driven primarily by end of quarter off-line advertising in support of weightwatchers.com business, and marketing across our newly acquired franchise territory.

As a percent of revenue, marketing decreased by 60 basis points, to 11.7% from 12.3% in the fourth quarter 2005.

G&A expense in the 2006 fourth quarter was $35.7 million, up 11.5% from prior year level and down 30 basis points as a percent of revenue from 12.8% in last year's fourth quarter versus 12.5% this year.

This year's G&A includes an incremental $1.8 million in non-cash stock-based compensation expense in the quarter, as well as G&A from our recent franchise acquisitions.

If you exclude these items, the G&A's flat year on year, and on this adjusted basis, G&A as a percent of revenue dropped an additional 80 basis points in the fourth quarter to 11.2%.

Our reported consolidated operating income in the fourth quarter was $78.3 million, up 16.3% from $67.3 million in the prior-year quarter.

Our consolidated operating income margin was 27.4%, 60 basis points higher than the prior year level of 26.8%.

Interest expense in the quarter increased by $7.1 million to $13.6 million as compared to $6.5 million last year.

There are two components that contributed to the increase.

Our combined term loan and revolver borrowings were up an average $223 million in the fourth quarter versus year-ago levels.

Given that throughout 2006 we were actively buying shares and at the same time reactivated our franchise acquisition program.

Further, as you'll recall, in December of last year, weightwatchers.com put credit facilities of $215 million in place in the final stage leading to acquisition by Weight Watchers International.

It's worth noting that while our interest expense increased as a result of the weightwatchers.com acquisition, we don't see the corresponding increase in income in the period because we had already been consolidating 100% of weightwatchers.com since 2004, in fact, in keeping with our required adoption of FIN46R at that time accounting for variable interest entities.

The consolidated company's average effective interest rate rose to 6.52% in the quarter from 5.67% in the prior year quarter.

As most of your know, in December of last year, we began the process of recapitalizing the company in conjunction with a sizable leveraged share repurchase.

The decision to change the capital structure is entirely consistent with our commitment to pursue our long-term goal of maximizing shareholder value.

There are a number of benefits to our shareholders that drove this decision.

The company was able to recapitalize efficiently, with a low cost of capital.

Our leverage pre-recap was below two times net debt to EBITDA.

With the transaction we were able to adopt a more appropriate leverage structure for the company, especially given its strong gen- cash flow generating characteristics.

With the share repurchases we created immediate EPS accretion.

We levered up, and as we delever over time, our significant free cash flow allows us to do this quickly, we have a built-in means to accelerate EPS growth into the future.

I'll provide a brief overview now of the details of the transaction.

On December 18 of last year, we announced a modified Dutch auction, self tender offer at a price range of $47 to $54.

The tender was completed in January 2007 at $54 per share resulting in a buyback of 19.1 million shares, reducing our outstanding common stock by approximately 19.4% from 98.1 million to 79.1 million shares.

To finance the buyback, we increased our debt capacity by $1.2 billion, including $200 million to refinance the dot-com debt, we increased the capacity with a new term loan A for $700 million, and a new term loan B for $500 million.

The initial blended interest rate for these is about 6.7%.

Our debt level at the end of January is approximately $1.86 billion at an average interest rate of 6.73%.

Now, moving to cash --consolidated company cash flow, the company generated $272 million in cash from operating activities in the 12 months ended December 30, 2006.

After CapEx of $19.4 million free cash flow was $252.6 million, well in excess of our net income for the period of $209.8 million.

Most of the cash flow in excess of net income arose from the increase in differences between book and cash taxes and the timing of payables.

At the end of '06, our debt increased $103.1 million versus the year end 2005 level to $849.2 million in 2006 from $746.1 million in 2005, and our cash balance increased by $6 million over the period.

The only other notable item is that on the balance sheet you'll see franchise rights acquired increasing by about $140 million, and this respects our recent acquisition.

So now I'll turn the discussion back to David.

Thanks, Ann.

The overweight and obesity epidemic problem is a worldwide epidemic whose importance is only increasing with time.

I firmly believe that Weight Watchers is ideally positioned to be a solution for this pressing global issue because we are the only clinically proven program for losing weight and keeping it off.

Sustained weight loss does not happen without behavior change.

And there is no company that is better positioned to provide behavior change for consumers than Weight Watchers.

There is simply no other brand in the world of weight loss with our credibility and our customer loyalty.

This did not happen over night.

It is a result of spending 40 years doing the right things and making the right decisions to help our members lose weight and keep it off.

Since my appointment as CEO on December 31, my team and I spent much time analyzing the business and developing our strategic plan and the vision going forward for this great business.

I will be presenting this in-depth at tomorrow's investor day conference.

When you listen to that presentation, you will hear me talk about our focus on executing against two key strategic planks, retention, the best measure of our member's success, and relevance, which is our ability to be an effective solution to all of those who are committed to moving toward a sustained healthy life-style.

I believe there is tremendous opportunity for us to improve and move from being a very good company to becoming an outstanding company.

There are several initiatives that we are working on, such as leader performance management, spreading best meeting practices, shifting to the commitment plan model, reinvigorating program development, stronger advertising and communication, and going after new market segments.

I will cover each of these in greater detail tomorrow.

Some of these opportunities, like our launch of monthly pass North America will help drive improved performance in '07 while others will set the table for continued growth in 2008 and beyond.

All of them offer us a great opportunity to transform our business in the years to come.

Which brings me to our guidance for 2007.

Year over year NACO will drive robust revenue growth, significantly outpacing modest attendance growth.

We expect the U.K. to have a solid year on most measures.

Continental Europe will continue to be a drag in our overall results but should slowly improve as we move through 2007.

Our weightwatchers.com business is well positioned for another excellent year in 2007, but our global licensing business should continue to deliver strong results.

In addition, we will be supporting all of our businesses through increased investment and marketing.

Finally, we should benefit by about $0.03 from our recent share tender and recapitalization.

When we put all of these puts and takes together, we expect to deliver a fully diluted 2007 EPS between $2.33 and $2.47 per share.

Our guidance assumes a tax rate of 38.5%, a weighted average share count for the year of 80.7 million shares, and a $3 million pre-tax charge in January 2007, associated with the early extinguishment of the weightwatchers.com debt.

At this point I would like to answer any questions you may have about our Q4 or full-year 2006 performance.

We have reserved ample time for a good Q&A session tomorrow after you have had a chance to hear our future plans fleshed out by me, Thilo Semmelbauer our COO, and Ann.

[OPERATOR INSTRUCTIONS] Your first question is coming from Greg Cappelli from Credit Suisse, you may go ahead.

Hi, guys this is actually Chris on for Greg today.

Hi, Chris, how are you?

Hey.

Just a few questions here for you, first on the NACO front, really just trying to get a better understanding why it was flat year-over-year?

And maybe if you could talk just a little bit more about the trends there?

Which-- which attendances?

In NACO.

I guess I'm really just trying to figure out-- you know, if it's flat now, how do you expect it to get it back to plus 5% by the end of the year?

The reason we expect it to get back to plus 5% at the end of the year is that over the course of the year, Monthly Pass should contribute to growing attendances as the year goes on.

I think that if-- if you sort of look at the attendance patterns I think particularly during the slower months of the diet season you can see some good contribution of attendances, and I think it's also predicating on us continuing to make progress and improving the effectiveness of our marketing.

Okay.

Then on-- in terms of the U.K., you guys had a great quarter this quarter, exceeded our expectations.

Just wondering if you could maybe give us a little more details what is driving the positive growth there now?

Is it just easier comps?

Or are there some other sort of significant improvements going on there?

No, actually, I think though reason the U.K. is doing better is because the U.K. is doing better, and what I mean by that is that what I said before is the team has been laser focused for the past year and a half on doing a better job with the program materials, they have been very focused on making sure that we have the right leaders in the right meetings, and they've been spending a lot of time focusing on making operational improvements in 100 little places, and I think what we're starting to see is stronger retention, and I think what we're also starting to see is better word of mouth that goes with that.

Okay, great.

And just one final question, if you don't mind.

We saw on the news a couple of weeks ago that Weight Watchers and West Virginia are partnering together in a Medicaid program there.

And we've also seen it with some insurance companies.

I guess I'm just wondering if maybe you could comment a little bit on that and how that sort of thing might play in to your strategy going forward.

Thanks.

I mean, I think that in -- well first off just a minor point of clarification is that the specific effort you are referring to was a very successful partnership between our franchise in West Virginia and the insurance provider in that state.

So I don't want to steal their thunder or their credit.

Yes.

I would say that when we look at opportunities, such as insurance and even frankly going back to corporate solutions, is that we think-- we have seen enough data and effectively case studies, if you, will over the past few years that we think we're starting to get a better sense of the things that will work versus the things that won't work, and we do think this is a really good example of how an effective partnership can be created with an insurance company for the benefit of both consumers and obviously Weight Watchers is the beneficiary of that as well, so it will clearly a focus for us going forward.

Okay.

Thanks a lot, guys.

Thank you.

Your next question is coming from from Amy Chasen from Goldman Sachs.

You may go ahead.

Two questions.

First of all can you comment on the new Alli launch, the new OTC drug and how you think that may impact your business in the past when there have been products available like this it has had a negative impact on your attendance.

Sure, and for whatever it is worth, we will be spending a bunch more time tomorrow going through the competitive landscape, including the sort of coexistence of Weight Watchers and pharmaceutical solutions.

What I would say, just as a starting point, before we go in to it in more depth tomorrow, is that everything that you would hear about Alli is also true about Xenical, which is that it is a terribly unfortunate drug to take if you don't change behavior to go along with it.

In fact I think that when people who do take drugs like Alli, that if they are not participating in an approach such as Weight Watchers where they are changing what they eat, I think that what you see is that they will probably go off of it pretty quickly, and so I don't foresee a significant impact on our business as a result.

Nor have we seen, frankly any impact on our business resulting from Xenical, which is its predecessor and more powerful version.

Okay.

And can you just talk about cash flow, and I guess the plan would be to delever to some degree to pay down some of the debt from the tender, what kind of would be your long-term strategy for redeployment of cash?

I mean, will you continue to do aggressive share buybacks.

I think our share buybacks are on hold for the moment, which is not to say that we won't re-enter the market.

But for right now we're focusing on paying down some of the interest, which will accrete to everyone and on more franchise acquisitions and also on paying our dividend.

Okay.

So-- I mean, can you give us sort of like a target--?

It sounds like you are comfortable with a higher debt to EBITDA target than you have been historically.

Can you give a target where you want to be?

So we can get a sense for when you get there, or if you might get back in to the market?

Amy, as you know, we're a little below two times going in to this, and we're about 4.3, 4.4 times net debt to EBITDA now.

We probably not going to stay-- we're certainly not going to stay at that higher level, but we do have comfort at going above the two times.

You know, somewhere between two times and three times is probably what we're shooting for.

Okay.

Great thank you.

You're welcome.

Thank you.

Your next question is coming from Jerry Herman from Stifel Nicolaus.

Thanks, good evening everybody.

David, congratulations and best wishes.

Thanks, Joey.

The questions I have really relate to attendance.

The first is I was intrigued by our comment about never members and you mentioned the men opportunity, and I was looking for maybe an update on the corporate opportunity, and maybe is there some way at this juncture to quantify what impact you expect never member attendees to have on the long-term growth of the company?

Let me take those maybe in reverse order.

In terms of quantifying never impacts, we tend not to break out never versus rejoin, but clearly a focus for us going forward is-- as I said before-- I mean, you know, I think we do a very good job of marketing to people who have been with us before, so-called rejoins, but I think we could do a much better job of marketing to people who have never been with us before.

And it's a little bit of a shift in mindset and I'll spend more time tomorrow going in to that.

In terms of -- and in fact, you know, it's interesting to look at-- if you look at Continental Europe in the beginning of this year, what we're already seeing is that the rejoin performance is pretty good but it's again, it's the nevers that we're missing a little bit.

If I then move back to-- if I move back to what is happening with NACO, I think it's worth pointing out one other thing if you look at our results so far, is we made a decision by way of example, not to talk about some program enhancements that we had done in NACO.

We did that decision because frankly what we're, what we have always been cautious about is talking about new features with the program for concern of kind of overinflating consumer expectation for what they could expect from the program enhancement.

And I think in my judgment I think if anything we have perhaps been a little conservative in that respect.

As I'm going to talk a little bit about it tomorrow, I do believe that even never members care that the program they are participating in is modern and contemporary, and they like the idea that there's newness in sort of what they are doing, so I think there's a lot more we can do on that front to basically sort of jazz us up a little bit, if you will, to make us a little bit more intriguing and interesting to never members.

But I will go in to more depth on that tomorrow.

In terms of corporate solutions, I think that, you know, I think that there has been a lot of learning on corporate solutions that we have gained over the past couple of years, particularly the past year.

I think part of what we have learned is the importance of having the right relationship and construct set up with the customer, the account, if you, the corporation, in terms of how they get the world out about the program, and also how they do things such as create reimbursement programs and those types of things.

And what we have seen is that we have a number of cases that I think show us, paint us a pretty clear path in terms of direction we need to go on that part of the equation.

On the other part of the equation, the other thing we have learned about corporate solutions is that when our first go around with it was really tying it in directly with our at-work meetings.

And as you recall, at-work meetings are meetings that basically take place on the work site.

I think what we learned in that is if you think about the at- work business and how that works, it's a very detailed and very operational business that requires a lot of legwork to get meetings set up, to get them staffed, and a lot of other operational aspects of it.

And that happens on sort of a location by location basis.

Corporate solutions is a top-down selling process.

And so if I go in and I talk to a corporate benefits manager primarily about at-work meetings, they might say that's great how do I get a at-work meeting set up in every one of my locations, and suddenly the discussion bones more complicated.

So I think the conclusion that we've reached is that the better approach to take with corporation solutions in selling to the corporate benefits manager because the need for this type of solution hasn't changed, is to take one in which we're encouraging them to get members in to local meetings, to get their employees to subscribe to Weight Watchers Online, or if appropriate to get an on-site meeting set up.

And I think that what we have now is an opportunity, basically to sort of go back to the drawing board, which is something that's in process as we speak, and develop kind of version 2.0 of corporate solutions.

In terms of men, we're going to get in to a little bit more detail on the men's initiative and specifically what it looks like.

I mean I'll kick it off briefly by saying I'm incredibly excited about it, and I'm excited about it not only because our male online subscribers have been begging for this for quite some time, which I think is a good indication of the underlying demand for it, but I'm also incredibly excited because I would remind everyone that a not insignificant number of our members are actually men who go to meetings.

I think it's roughly 10%.

What's exciting about this is is that by virtue of having eTools for men we effectively now are able to give a guy who is going to a meeting a very relevant experience, presuming he's subscribing to Monthly Pass, which a significant chunk of them are, and suddenly we're able to kind of redefine the business or redefine the proposition from their perspective.

I'll be talking about it more tomorrow and Thilo will actually be talking about it in even greater depth, but suffice to say we're excited about our ability to successfully build that business over time.

A related question about online, and I realize men touches on this.

But now that online is certainly growing and maturing, are you finding that those subscribers are predominantly incremental?

Or is there some good measure of a switching that takes place, opting in to online versus meetings?

We believe that the vast majority of people who subscribe to Weight Watchers Online are incremental, and we have always believed that and by all of the business trends that we ever observed.

I think that if you look at the online business and the value proposition it represents, it is-- and it's obviously a product that I feel incredibly proud of, particularly that being kind of my entry point in to Weight Watchers International.

But nonetheless, I recognize that online is a product that's very well suited to a self-help dieter, and somebody who is sort of disciplined to sticking with it, without the benefit of the accountability of somebody else, ie being weighed in by somebody else in a meeting.

Or without the support of a meeting environment.

And so I think for a lot of customers Online is a fantastic solution.

I think what's interesting is that the number one reason we see for canceling Weight Watchers Online, and keep in mind this is a product with absolutely fabulous retention.

When people do cancel the number one reason for doing so is to go to meetings.

And interestingly we saw some switching over from Weight Watchers Online subscribers when we launched the Monthly Pass proposition, they were flipping over into Monthly Pass, which is really what we're now considering kind of our new gold standard in weight loss.

So I don't actually view the growth of online as having any sort of negative incremental, or negative impact on the meeting business.

Quite frankly I have believed since 2000 when I first joined the company and I believe today that both businesses will grow faster by virtue of the other's existence.

Great.

Thanks so much.

I'll turn it over.

Thank you.

Your next question is coming from Kelly Flynn from UBS.

Hi, I'm sorry to waste a question on this, but you would talking so quickly I couldn't write it all down.

The guidance for each region, can you talk about that, attendance growth guidance for NACO, U.K., and Continental Europe for Q1 in the full year.

Yes, we can.

Sorry.

No, that's no problem at all.

You know, for NACO, including the benefit of the '06 acquisitions, you know, we're probably looking in Q1 at kind of a high single digits, and I think for the year, we're looking for, you know, high teens.

I think if you strip out acquisitions- - as I indicated before, we're looking for, you know, hopefully a flat, that's the flat Q1, but ultimately delivering low mid-single digits for the full year on an organic basis.

If you jump to the U.K., we're looking for high single digits, both for the first quarter as well as for the full year.

As we indicated before, Continental Europe is off, we expect it to be off to a bit of a slower start.

We would expect it to sort of start in the kind of the negative-low-middle single digits.

But end up at effectively a full year break even as we're looking for the first half to be positive and kind of balancing a somewhat decline in the first half.

Second half positive, decline by first half negative.

So flat on average for the year by the end of the year?

Flat in total but going into positive in the second half.

Okay.

And then you mentioned the marketing, you were going to, I think, step it up this year.

Can you give us any more help on sort of gross margin versus marketing as a percentage of sales and how that plays in to the EPS guidance for the year?

Yes.

We expect-- as I indicated in my remarks we do expect marketing -- we are planning on increasing marketing investment in a lot of different places.

I think it's fair to expect a little bit of an increase in marketing as a percentage of revenue, and I think that's going to be driven by two factors.

The first factor is that weightwatchers.com as I indicated is doing its first big offline campaign this winter diet season.

While the CPA is absolutely profitable and good, it is higher than what they typically see, and so dot-com -- and it's absolutely accretive, but I think dot-com will see a little bit of a bump up in marketing as percentage of revenue.

I think on NACO where as we indicated in previous calls we're going to be pushing out into sort of the more aggressive national marketing campaign, that's being done with a primary emphasis particularly in this winter diet season on maintaining our share of voice, and so that will have a little bit of effect in terms of increasing marketing as a percentage of NACO's revenue as well.

Okay.

And then what about gross margin?

I guess in light of what you said, Ann, about what it did in the quarter, and why?

Sure, yes, gross margin we could see a little accretion in 2007, as the Monthly Passes kind of, catch up with their increased retention.

There's not a significant expectation of the change.

I think probably a small bit of accretion in the year.

Okay.

And then just changing gears, the Michigan franchise, can you tell us, roughly how many you acquired with that?

Yes.

We acquired about 600,000 attendances in--

6-- sorry.

I missed the last part. 600,000 with?

Michigan.

Oh, okay.

All right.

Great.

Thanks.

I guess I can ask the rest tomorrow.

Thank you.

Your next question is coming from Chris Ferrera from Merrill Lynch.

You may go ahead.

Hi guys.

I just wanted to ask about gross margin again.

I guess, why wouldn't gross margin be up significantly in '07.

What is the drag when pricing is clearly such a big boost there and flows right through to gross margin theoretically?

We have still got the impact of Monthly Pass, which does have a higher commission structure, although as I said once the Monthly Pass-- Monthly Passers start to really show their retention, we'll start to see some improvements, so what you are probably looking at for 2007 is gross margin bumping up across the year, quarter to quarter, if you see what I mean.

Does that mean that it would be negative in the first couple of quarters of the year and then recovering from that?

No.

No.

I wouldn't spend a ton of time on worrying about it.

I think if you use this year's pattern, I think you'll be fine.

I think the other point that's worth noting is that if you are comparing 2007 versus 2006, for sure commitment plans give you a little bit of that lift in terms of, you know, revenue per attendance.

I would remind everybody that we were running Season Pass for the majority of last year, so we don't get quite the same lift that you otherwise might have expected.

Say, for example, if we were going from purely pay as you go to purely Monthly Pass.

Right, but you are looking for a pretty significant increase in North American average meeting fees per attendee, right?

We are looking for some increase, that's correct.

I think that the other thing I should note about Monthly Pass is that it is a credit card process, and so as a result, that all of those payments will be made on credit cards that goes with all of the usual credit card processing fees.

Yes.

And I just one other, I guess.

On the overall guidance for '07 is, did you know-- back when you agreed I guess to buy out the sponsor at $54 did you expect your '07 guidance to below, I guess at the midpoint, what the Street looking for?

When we did the tender, I mean, let's just frame it up the right way.

The reason we did the tender is because we saw an opportunity to basically fulfill an obligation to our shareholders to get our capital structure right.

We did it for all of the reasons that Ann mentioned, such as, you know, getting to a more optimal cost of capital and basically creating a situation where our shareholders could benefit from earnings acceleration over the next X years.

We didn't do it with any mind toward timing the market.

By the way the other reason we did it was, frankly, to take advantage of the timing and the availability of good rates in the debt market.

Thank you.

Thank you.

Your next question come is coming from Scott Mushkin from Banc of America.

You may go ahead.

Hi, Scott.

Hi, Scott.

Hi, guys.

Kind of a similar line of questions, and I guess not to be too -- bone to pick here, but you know, Ann, and the leverage recap when it was done-- now that you guys are kind of saying hey, you're not that comfortable with 4.3, you need to pay it down, it seems like it wasn't 100% of capital decision just on the face of it.

But my real question I guess is more statement than a question.

My real question really goes to free cash flow expectations for '07.

I'm not sure if you gave those out.

I wonder if you could tell us and EBIT growth expectations would be great as well.

Let me first respond to your first point.

With regard to the reasons that we-- our expectations and the reasons that we did the recap-- what it does as I said earlier, is it gives you immediate accretion and as you pay down debt it also gives you accretion over time of gross [inaudible] over time.

That's a strategy, that is not a perspective of we didn't-- we really aren't comfortable with the 4.3.

It says a at the 4.3 level, we can afford to pay down some of that debt to a lower level of net debt to EBITDA, and everybody will benefit from doing that.

So I think, you know, that's-- that's probably a better way to frame it.

The rest of your question, sorry, was?

Oh, I was just looking for--

Free cash flow?

Free cash flow and EBIT growth.

You can look for '07 to be similar to the '06 level, probably a little bit higher, as the, a larger and larger proportion of our membership not only in North America but as we build our commitment plans around the world, that will benefit our free cash.

And then as we look at how this-- you know, the Monthly Pass, you know, goes through and works its way through obviously it will be higher revenue per attendee, is it-- you are paying-- I know there's a little more commission but the leaders, the classroom leaders only pay when someone actually sits down in their seat, isn't that correct?

That's correct.

So, okay, so then I guess what I'm trying to understand and you said I think also there's six months the retention we get 50% uptick and they are staying on for six months, it seems to me given those facts and, I haven't put a pen to paper, is we get in to the second quarter, you guys should see very, very strong attendance growth, and I guess as a follow up to that is, if you saw 50% uptick, why didn't we see that in the 4Q if people are staying on six months?

It seems like it would have had a lot of spill through quarter.

You mean to the fourth quarter or to the first quarter.

To the fourth quarter, because I believe September was the-- was the big push in the Monthly Pass, so as we rotated people -- if the uptick is strong and we rotate in for the fourth quarter, it seems that, so I guess my question is-- are people actually sitting down in the seat or just forgetting to cancel their credit card?

No. it's a great question, and let me answer it directly.

First off, as I was saying before, and I may not have done a good job articulating it.

If I'm a monthly pass member, I think it would be an unreasonable expectation and nor do we want to have the expectation if I'm in my fourth or sixth month that we assume that everybody is going to absolutely every meeting.

We want them to go to as many meetings as they can get to, but keep in mind one of the benefits of this approach is that during nose months into their process, they can from time to time take weeks off in going to meetings, and you would not have seen that behavior in a typical pay-as-you-go model.

So I think that's the first thing that's going to have some impact, in terms of, you know, how you think about projecting out attendances.

I think the second thing to consider is that -- as I mentioned before, to a certain extent there was also a little bit of an effect that there's some sort of built-in sample bias, which is that people who basically were most likely to be the most synergized and the most interested in really sticking with the program are going to be some of the people that are going to be most likely to subscribe to Monthly Pass.

And so it's not really going to be a one for one change.

And so I think as I result of that we would sort of temper our expectations.

The last thing that I'll get to is that, you know, as I sort of said before, is that Monthly Pass did contribute to Q4, and it is going to contribute to Q1 as well as I think increasing its contribution over the course of the year.

I think that the issue we have is what I referenced before, which is those first few weeks of January we just were not getting people in at the level that we were expecting to.

Although as I indicated that gap is now starting to close.

Great.

Yes, I'll turn it over.

Thank you so much for answering my questions.

Absolutely.

Look forward to getting this tomorrow.

Thank you.

Your next question is coming from Greg Badishkanian from Citigroup.

You may go ahead.

Great.

Thank you.

Just a question regarding your licensing opportunities.

It was up, you know, pretty nicely, and I'm just wondering, you know, what other opportunities that you have, you know, in that particular business area.

What I would love to do if it's okay with you, is, I'm assuming that you are going to be there tomorrow?

Sure.

If it would be okay, I would love to be able to cover it at that time, and we'll have a good dedicated slide or two on licensing.

Excellent, sounds good.

Good, that's a fair point.

Look forward to hearing that.

And so maybe just moving over to advertising, marketing, you know, you have had-- you have had a bit of a change in your strategy this year in terms of how you have advertised, can you just talk about how you think that's --you know, how that's impacted NACO, which hasn't started off all that well, but you do expect a nice improvement throughout the year.

Oh, you mean the national advertising in the first quarter?

Uh-huh.

I think it helped.

I think that it allowed us to basically keep pace in a share of voice point of view.

And I think having those additional GRPs was beneficial us to.

I think the issue is, and what we're going to talk about more tomorrow, is that we have our opportunity to make our GRPs work a lot harder for us and I think that comes down to the sort of fundamental approach to the communication strategy that I referenced in my remarks that we're going to go in to greater depth on tomorrow.

Very good.

Thank you.

Thanks.

Thank you.

Your next question is come from Michael Lasser from Lehman Brothers.

You may go ahead.

Hi, and welcome forward in to your new role, David.

Thanks.

We saw more of the members on subscription plans.

Have you thought about perhaps providing different metrics to help investors understand what is driving-- what is happening in the business?

It seems like total membership base would be a more useful indicator, rather than attendance, and perhaps if-- if you are not thinking about that, maybe you could describe where you see the down side would be?

It's almost like you are writing PowerPoint for Ann.

Absolutely we're thinking about that, it's absolutely the right point to make.

I'll give you a quick preview of it, which is that, you know, historically when Weight Watchers was a pay-as-you-go company, retention was really defined as the number of attendances somebody went through on a given cycle.

Because it was sort of our best way of looking at it.

Because effectively with the missed-week approach, if you stopped going to meetings, you were effectively off the program, and so literally the number of attendances was a pretty close approximation to how you stayed in the program.

It's not the best way of looking at it, particular in this new world in which we have people, you know, skipping the occasional meeting.

We're going to a place where you define retention as the length of engagement, so internally, kind of the day I start to the day that I'm sort of done with my process.

In driving an extended engagement is absolutely critical for our success, because we know the thing that is most tightly linked with our member's success which is what drives our business.

I think that your point in terms of how we look at, you know, volume I think is a very good one.

I think attendance has and will continue to have a role in terms of how we look at the business, but I think there's an opportunity to also introduce new ways of looking at it, specifically looking at things like the number of members.

So that I don't completely steal all of Ann's thunder, I would like to defer the specifics of that until tomorrow's presentation.

Sounds good.

Just a couple quick ones.

Do you want to clarify that including the benefit of accusations do you expect NACO to deliver high single digit and low double digit attendance growth and high teens revenue growth?

Correct.

And how much of the recent NACO attendance trends would you ascribe to an increasingly competitive marketplace?

It seems like there's a lot of advertising taking place and a lot of various products and services that customers can choose from, and so how much do you think you're losing out to your competition and that's impacting your attendance trends?

What I would say-- and again, I'm sorry for doing the broken record thing.

I mean, again, I'll be spending more time going in to depth on it tomorrow but to give you a preview, I think that if you look at the level of effectively advertising noise that's out there in our category right now, I think it would be disingenuous for me to suggest it has had absolutely no impact whatsoever.

I think when you have that much noise and that many advertisements that are going out, it becomes all the more critical to have advertising that's really cutting through as well as being supported by the right number of GRPs.

And I think as I had indicated we're not, internally we're not satisfied with the degree to which our advertising is cutting through.

So in that sense we haven't had our best foot forward, and I think that it's probably safe to say on some level that that has had a negative impact on our business.

If you look at just specifically, you know, customer choosing to go one way versus the other way.

We believe if you look at most of the competitors that are out there making noise, fundamentally, and I'll talk about this more tomorrow.

But fundamentally at their core they are in a different business than we are.

Most of the companies that are out there aggressively marketing are in the business of providing and delivering meals.

Weight Watchers is in the business of helping people change behavior.

So in that sense we're teaching people how to fish, and they are selling people fish.

I think that at the same time, one of the things about -- if I look at kind of this recent sort of surge of competition, is that we frankly, have also learned a lot, you know, I will continue to tip my hat to the folks over at Nutrisystem for what I think what I consider to be an absolutely top quality group of direct marketers.

And I think what we have seen them accomplish in terms of the marketing strategies they have taken and also what they accomplish in call centers in converting inquiries into customers, is that I think there's a lot that we have and can learn from them.

I think that what is exciting for us-- and this is, in a sense news-- is that Monthly Pass-- if you think about it before it was sort of hard for Weight Watchers to do from marketing point of view what somebody like a Nutrisystems would do, because when somebody called up to make an inquiry query there was no way to effectively sell them anything and to get them sort of pre-committed.

They had to make the decision to figure out where the meeting was, figure out what time the meeting was an whether or not that fit into their schedule, and then make a decision to actually go to the meeting.

I think that what Monthly Pass does is it actually give us a salable proposition.

Somebody coming to the website can buy Monthly Pass, somebody calling up to the call center can purchase Monthly Pass through the call center, and it's a way of making sure that that customer maintains momentum and gets their weight loss process started, and so I actually view this as ultimately turning in to a bit of a positive as time goes forward.

That's very helpful information, thank you.

Last question.

In the $0.03 of EPS accretion that you guided to from the repurchase, how much debt repayment what is the interest rate are you assuming in that?

We're assuming the interest-- an interest rate of approximately 7%, which will drop down when we drop our net debt to EBITDA below 3.5 times, and we think that that will happen sometime in 2007.

We're looking at a debt paydown of about-- about $150 million, but that is that's a working number.

In the event that a franchise acquisition comes along, it could be a little less.

It could actually even be a little more, if we generate a little more cash than we have in our plan, so at the end of the day we're around that figure, around $150 million.

Sounds great.

Thank you very much.

Our last question is coming from Jeff Stein from KeyBanc Capital.

You may go ahead.

I know that the fourth quarter isn't a big advertising quarter for you, but it would seem to me that perhaps if you look at it on an apples to apples basis, you really did underspend on advertising in the fourth quarter and I'm wondering if perhaps you had to do it over again, you would have perhaps spent a little bit more?

And what I'm talking about is if you look at -- if you back out the offline advertising that you did for your dot-com business and if you back out the advertising you did on your acquired franchisees, it looks like you were probably up just low single digit in your advertising, if I'm making the calculation correctly.

You know, that's an interesting question, and I think it's always an interesting question about what is exactly the right level of marketing spend?

You know, if you look at what is in fourth quarter to your point, it includes October, November, December, and so it's certainly going to be impacted by whatever we spend in that last week of December, and I think that--you know, I think in terms of October, we could sort of go back and forth and say do we have the right amount of spending allocated between September and October and would we do it differently if we had to do it again?

I don't know, it's possible.

I frankly think that there's a different question to ask, and it's one that we're starting to grapple with internally, and I'll sort of -- I'll use dot-com by way of example toward how we have taken a little bit of different approach than traditional business over the years that we've been around.

Is that dot-com has more of what I would argue is kind of a continuity approach to advertising.

In the sense that we're doing some level of advertising banners, and so forth, every single month of the year.

What we tend to do in the case of dot-com with their advertising is we tend to pull back on unprofitable placements, and effectively use that to ratchet back our spend to make sure that we're still managing to a good CPA, but we are nonetheless doing advertising in November and December and August.

I think what we're starting to look at in NACO as well as other markets around the world, but this is something that NACO started to do this year, is basically trying to get into a discipline of sort of doing some level of base advertising throughout the year, including months that we typically would have shied away from because they're relatively slower months.

And so I think there's opportunity for us to maybe get some additional incremental value for those customers, because let's be honest, there are people out there who are interested in starting a diet in November, and there are people out there that are interested in starting a diet in December, and it behooves us to make sure we're in front of them at the time they are making that decision.

And I think that really makes for a continuity approach to advertising.

Thank you.

There appears to be no further questions.

Okay.

Thank you for joining today.

I look forward to sharing more information with you at our Investors day tomorrow, and updating you on our Q1 27 -- 2007 performance on our next call.

Thanks, everybody.

Thank you.

This concludes tonight's conference call.

You may now disconnect.

Have a great afternoon.