UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended July 2, 2016
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-16769
WEIGHT WATCHERS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Virginia | 11-6040273 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
675 Avenue of the Americas, 6th Floor, New York, New York 10010
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: (212) 589-2700
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares of common stock outstanding as of July 29, 2016 was 63,862,207.
WEIGHT WATCHERS INTERNATIONAL, INC.
Page No. | ||||||
Item 1. |
Financial Statements | |||||
Unaudited Consolidated Balance Sheets at July 2, 2016 and January 2, 2016 |
2 | |||||
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5 | ||||||
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23 | ||||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
25 | ||||
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 48 | ||||
Item 4. |
Controls and Procedures | 48 | ||||
Item 1. |
Legal Proceedings | 48 | ||||
Item 1A. |
Risk Factors | 49 | ||||
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds | 49 | ||||
Item 3. |
Defaults Upon Senior Securities | 49 | ||||
Item 4. |
Mine Safety Disclosures | 49 | ||||
Item 5. |
Other Information | 49 | ||||
Item 6. |
Exhibits | 50 | ||||
51 | ||||||
52 |
ITEM 1. | FINANCIAL STATEMENTS |
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS AT
(IN THOUSANDS)
July 2, 2016 |
January 2, 2016 |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
$ | 114,498 | $ | 241,526 | ||||
Receivables (net of allowances: July 2, 2016 - $1,859 and January 2, 2016 - $2,226) |
28,830 | 29,281 | ||||||
Inventories |
29,010 | 27,838 | ||||||
Prepaid income taxes |
22,255 | 15,436 | ||||||
Prepaid expenses and other current assets |
21,613 | 37,376 | ||||||
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TOTAL CURRENT ASSETS |
216,206 | 351,457 | ||||||
Property and equipment, net |
51,861 | 58,186 | ||||||
Franchise rights acquired |
751,849 | 747,326 | ||||||
Goodwill |
168,482 | 159,331 | ||||||
Trademarks and other intangible assets, net |
64,067 | 66,339 | ||||||
Other noncurrent assets |
13,339 | 11,577 | ||||||
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TOTAL ASSETS |
$ | 1,265,804 | $ | 1,394,216 | ||||
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LIABILITIES AND TOTAL DEFICIT |
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CURRENT LIABILITIES |
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Portion of long-term debt due within one year |
$ | 69,000 | $ | 213,323 | ||||
Accounts payable |
31,238 | 38,225 | ||||||
Salaries and wages payable |
42,967 | 47,042 | ||||||
Accrued marketing and advertising |
7,728 | 21,554 | ||||||
Accrued interest |
20,357 | 20,739 | ||||||
Other accrued liabilities |
53,545 | 56,477 | ||||||
Derivative payable |
62,212 | 44,170 | ||||||
Deferred revenue |
75,278 | 61,597 | ||||||
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TOTAL CURRENT LIABILITIES |
362,325 | 503,127 | ||||||
Long-term debt |
1,988,885 | 1,996,296 | ||||||
Deferred income taxes |
158,041 | 156,625 | ||||||
Other |
22,912 | 23,876 | ||||||
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TOTAL LIABILITIES |
2,532,163 | 2,679,924 | ||||||
Redeemable noncontrolling interest |
4,859 | 4,450 | ||||||
TOTAL DEFICIT |
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Common stock, $0 par value; 1,000,000 shares authorized; 118,947 shares issued at July 2, 2016 and at January 2, 2016 |
0 | 0 | ||||||
Treasury stock, at cost, 55,093 shares at July 2, 2016 and 55,301 shares at January 2, 2016 |
(3,239,940 | ) | (3,247,406 | ) | ||||
Retained earnings |
2,010,395 | 1,994,513 | ||||||
Accumulated other comprehensive loss |
(41,673 | ) | (37,265 | ) | ||||
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TOTAL DEFICIT |
(1,271,218 | ) | (1,290,158 | ) | ||||
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TOTAL LIABILITIES AND TOTAL DEFICIT |
$ | 1,265,804 | $ | 1,394,216 | ||||
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The accompanying notes are an integral part of these consolidated financial statements.
2
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF NET INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended | Six Months Ended | |||||||||||||||
July 2, | July 4, | July 2, | July 4, | |||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Service revenues, net |
$ | 251,550 | $ | 250,377 | $ | 495,318 | $ | 500,342 | ||||||||
Product sales and other, net |
58,211 | 59,377 | 121,353 | 131,515 | ||||||||||||
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Revenues, net |
309,761 | 309,754 | 616,671 | 631,857 | ||||||||||||
Cost of services |
119,758 | 119,954 | 244,430 | 250,267 | ||||||||||||
Cost of product sales and other |
28,955 | 30,436 | 61,520 | 64,923 | ||||||||||||
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Cost of revenues |
148,713 | 150,390 | 305,950 | 315,190 | ||||||||||||
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Gross profit |
161,048 | 159,364 | 310,721 | 316,667 | ||||||||||||
Marketing expenses |
41,199 | 40,328 | 127,714 | 127,611 | ||||||||||||
Selling, general and administrative expenses |
46,118 | 48,456 | 95,720 | 100,432 | ||||||||||||
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Operating income |
73,731 | 70,580 | 87,287 | 88,624 | ||||||||||||
Interest expense |
28,609 | 30,460 | 58,634 | 61,564 | ||||||||||||
Other expense, net |
607 | 344 | 542 | 919 | ||||||||||||
Gain on early extinguishment of debt |
0 | (6,700 | ) | 0 | (11,476 | ) | ||||||||||
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Income before income taxes |
44,515 | 46,476 | 28,111 | 37,617 | ||||||||||||
Provision for income taxes |
14,034 | 18,696 | 8,431 | 15,321 | ||||||||||||
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Net income |
30,481 | 27,780 | 19,680 | 22,296 | ||||||||||||
Net loss attributable to the noncontrolling interest |
13 | 97 | 61 | 148 | ||||||||||||
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Net income attributable to Weight Watchers International, Inc. |
$ | 30,494 | $ | 27,877 | $ | 19,741 | $ | 22,444 | ||||||||
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Earnings Per Share attributable to Weight Watchers International, Inc. |
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Basic |
$ | 0.48 | $ | 0.49 | $ | 0.31 | $ | 0.39 | ||||||||
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Diluted |
$ | 0.46 | $ | 0.49 | $ | 0.30 | $ | 0.39 | ||||||||
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Weighted average common shares outstanding |
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Basic |
63,740 | 57,085 | 63,644 | 56,946 | ||||||||||||
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Diluted |
65,934 | 57,155 | 65,890 | 57,035 | ||||||||||||
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The accompanying notes are an integral part of these consolidated financial statements.
3
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
Three Months Ended | Six Months Ended | |||||||||||||||
July 2, | July 4, | July 2, | July 4, | |||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Net income |
$ | 30,481 | $ | 27,780 | $ | 19,680 | $ | 22,296 | ||||||||
Other comprehensive income (loss): |
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Foreign currency translation gain (loss) |
1,742 | (1,467 | ) | 11,661 | (13,988 | ) | ||||||||||
Income tax (expense) benefit on foreign currency translation gain (loss) |
(680 | ) | 572 | (4,518 | ) | 5,455 | ||||||||||
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Foreign currency translation gain (loss), net of taxes |
1,062 | (895 | ) | 7,143 | (8,533 | ) | ||||||||||
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Changes in (loss) gain on derivatives |
(3,849 | ) | 14,776 | (18,117 | ) | (1,093 | ) | |||||||||
Income tax benefit (expense) on changes in (loss) gain on derivatives |
1,501 | (5,763 | ) | 7,036 | 426 | |||||||||||
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Changes in (loss) gain on derivatives, net of taxes |
(2,348 | ) | 9,013 | (11,081 | ) | (667 | ) | |||||||||
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Total other comprehensive (loss) gain |
(1,286 | ) | 8,118 | (3,938 | ) | (9,200 | ) | |||||||||
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Comprehensive income |
29,195 | 35,898 | 15,742 | 13,096 | ||||||||||||
Less: Net loss attributable to the noncontrolling interest |
13 | 97 | 61 | 148 | ||||||||||||
Less: Foreign currency translation (gain) loss, net of taxes attributable to the noncontrolling interest |
(228 | ) | 1 | (470 | ) | 449 | ||||||||||
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Comprehensive (income) loss attributable to the noncontrolling interest |
(215 | ) | 98 | (409 | ) | 597 | ||||||||||
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Comprehensive income attributable to Weight Watchers International, Inc. |
$ | 28,980 | $ | 35,996 | $ | 15,333 | $ | 13,693 | ||||||||
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The accompanying notes are an integral part of these consolidated financial statements.
4
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Six Months Ended | ||||||||
July 2, | July 4, | |||||||
2016 | 2015 | |||||||
Operating activities: |
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Net income |
$ | 19,680 | $ | 22,296 | ||||
Adjustments to reconcile net income to cash provided by operating activities: |
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Depreciation and amortization |
25,777 | 28,291 | ||||||
Amortization of deferred financing costs |
3,146 | 3,563 | ||||||
Impairment of intangible and long-lived assets |
93 | 1,873 | ||||||
Share-based compensation expense |
4,947 | 4,625 | ||||||
Deferred tax provision |
784 | 8,637 | ||||||
Allowance for doubtful accounts |
(471 | ) | (102 | ) | ||||
Reserve for inventory obsolescence |
2,496 | 5,562 | ||||||
Foreign currency exchange rate loss |
445 | 957 | ||||||
Gain on early extinguishment of debt |
0 | (12,667 | ) | |||||
Changes in cash due to: |
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Receivables |
(155 | ) | 2,999 | |||||
Inventories |
(3,296 | ) | 8,145 | |||||
Prepaid expenses |
8,919 | 5,804 | ||||||
Accounts payable |
(7,080 | ) | (11,986 | ) | ||||
Accrued liabilities |
(22,747 | ) | (43,179 | ) | ||||
Deferred revenue |
12,921 | 7,643 | ||||||
Other long term assets and liabilities, net |
(498 | ) | 84 | |||||
Income taxes |
1,405 | (6,251 | ) | |||||
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Cash provided by operating activities |
46,366 | 26,294 | ||||||
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Investing activities: |
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Capital expenditures |
(1,693 | ) | (3,820 | ) | ||||
Capitalized software expenditures |
(15,185 | ) | (19,352 | ) | ||||
Cash paid for acquisitions |
(2,898 | ) | (3,128 | ) | ||||
Other items, net |
(88 | ) | (383 | ) | ||||
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Cash used for investing activities |
(19,864 | ) | (26,683 | ) | ||||
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Financing activities: |
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Payments on long-term debt |
(154,823 | ) | (147,613 | ) | ||||
Tax benefit of restricted stock units vested and stock options exercised |
945 | 0 | ||||||
Proceeds from stock options exercised |
10 | 0 | ||||||
Payment of dividends |
(10 | ) | (14 | ) | ||||
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Cash used for financing activities |
(153,878 | ) | (147,627 | ) | ||||
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Effect of exchange rate changes on cash and cash equivalents |
348 | (3,474 | ) | |||||
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Net decrease in cash and cash equivalents |
(127,028 | ) | (151,490 | ) | ||||
Cash and cash equivalents, beginning of period |
241,526 | 301,212 | ||||||
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Cash and cash equivalents, end of period |
$ | 114,498 | $ | 149,722 | ||||
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The accompanying notes are an integral part of these consolidated financial statements.
5
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. | Basis of Presentation |
The accompanying consolidated financial statements include the accounts of Weight Watchers International, Inc. and all of its subsidiaries. The terms Company and WWI as used throughout these notes is used to indicate Weight Watchers International, Inc. and all of its operations consolidated for purposes of its financial statements. The Companys meetings business refers to providing access to meetings to the Companys monthly commitment plan subscribers, pay-as-you-go members, Total Access subscribers and other meetings members. Online refers to Weight Watchers Online, Weight Watchers OnlinePlus, Personal Coaching and other digital subscription products.
As a result of the acquisition of an additional equity interest in Vigilantes do Peso Marketing Ltda. (VPM) in March 2014, the Company gained a direct controlling financial interest in VPM and began to consolidate this entity as of the date of acquisition and as a result of the acquisition of Knowplicity, Inc., d/b/a Wello, in April 2014, Wello became a wholly owned subsidiary of the Company and the Company began to consolidate this entity as of the date of acquisition. As further discussed in Note 5, as a result of the acquisition of Weilos, Inc. (Weilos), in March 2015, Weilos became a wholly owned subsidiary of the Company and the Company began to consolidate this entity as of the date of acquisition. All intercompany accounts and transactions have been eliminated in consolidation.
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and include amounts that are based on managements best estimates and judgments. While all available information has been considered, actual amounts could differ from those estimates. The Companys operating results for any interim period are not necessarily indicative of future or annual results. The consolidated financial statements are unaudited and, accordingly, they do not include all of the information necessary for a comprehensive presentation of results of operations, financial position and cash flow activity required by GAAP for complete financial statements but, in the opinion of management, reflect all adjustments including those of a normal recurring nature necessary for a fair statement of the interim results presented.
These statements should be read in conjunction with the Companys Annual Report on Form 10-K for fiscal 2015 filed on March 2, 2016, which includes additional information about the Company, its results of operations, its financial position and its cash flows.
Out-of-Period Adjustments:
In the second quarter of fiscal 2015, the Company identified and recorded out-of-period adjustments related to immaterial errors in prior period financial statements that impacted income before income taxes and net income attributable to the Company by $1,650 and $420, respectively.
2. | Recently Issued Accounting Standards |
In February 2016, the Financial Accounting Standards Board (the FASB) issued updated guidance regarding leases, requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases with the exception of short-term leases. For lessees, leases will continue to be classified as either operating or finance leases in the income statement. Lessor accounting is similar to the current model but will be updated to align with certain changes to the lessee model. Lessors will continue to classify leases as operating, direct financing or sales-type leases. The effective date of the new guidance for public companies is for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. The new guidance must be adopted using a modified retrospective transition and requires application of the new guidance at the beginning of the earliest comparative period presented. The updated guidance is effective for the Company beginning in the first quarter of fiscal 2019. The Company is currently evaluating the effect that the updated guidance will have on the consolidated financial statements and related disclosures of the Company.
6
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
In March 2016, the FASB issued updated guidance on revenue from contracts with customers, which is intended to clarify the implementation guidance on principal versus agent considerations. The amendments in this update do not change the core principle of the guidance, but are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations by including indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customer. In April 2016, the FASB issued updated guidance on revenue from contracts with customers, which is intended to clarify guidance related to identifying performance obligations and licensing implementation guidance contained in the new revenue recognition standard. In May 2016, the FASB issued updated guidance on revenue from contracts with customers, which is intended to provide narrow scope guidance and practical expedients contained in the new revenue standard. The amendments in this update are effective for annual periods beginning after December 15, 2017 and interim periods within those fiscal years, with early adoption not permitted. The Company is currently evaluating the effect that the updated guidance will have on the consolidated financial statements and related disclosures of the Company.
In March 2016, the FASB issued updated guidance on stock compensation which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those fiscal years. Early application is permitted. The Company is currently evaluating the effect that the updated guidance will have on the consolidated financial statements and related disclosures of the Company.
For a discussion of the Companys other significant accounting policies, see Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements of the Companys Annual Report on Form 10-K for fiscal 2015. For a discussion of accounting standards adopted in the current year, see Note 3.
3. | Accounting Standards Adopted in Current Year |
In April 2015, the FASB issued updated guidance to simplify the presentation of debt issuance costs. The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB issued updated guidance which clarifies the treatment of debt issuance costs from line-of-credit arrangements. In particular, this guidance clarifies that the Securities and Exchange Commission Staff would not object to an entity deferring and presenting debt issuance costs related to a line-of-credit arrangement as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of such arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. As further reflected in Note 7, the Company adopted this guidance during the first quarter of fiscal 2016 on a retrospective basis to simplify the presentation of debt issuance costs during the first quarter of fiscal 2016. As shown in the table below, pursuant to the guidance and a change in accounting principle applied on a retrospective basis, the Company has reclassified unamortized debt issuance costs associated with Term Facilities (defined hereafter) in the Companys previously reported Consolidated Balance Sheet in the Companys Annual Report on Form 10-K for fiscal 2015.
In November 2015, the FASB issued updated guidance on the classification of deferred tax assets. This accounting standard requires deferred tax assets and liabilities, along with related valuation allowances, to be classified as noncurrent on the balance sheet. As a result, each tax jurisdiction will now only have one net noncurrent deferred tax asset or liability. The new guidance does not change the existing requirement that prohibits offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. The Company adopted this guidance during the first quarter of fiscal 2016 on a retrospective basis. As shown in the table below, pursuant to the guidance and a change in accounting principle applied on a retrospective basis, the Company has reclassified current deferred tax assets in the Companys previously reported Consolidated Balance Sheet in the Companys Annual Report on Form 10-K for fiscal 2015.
7
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
January 2, 2016 | ||||||||||||||||
As Filed | Deferred Financing |
Current Deferred Tax Asset |
As Adjusted | |||||||||||||
Deferred income taxes |
$ | 7,516 | $ | 0 | $ | (7,516 | ) | $ | 0 | |||||||
Total current assets |
$ | 358,973 | $ | 0 | $ | (7,516 | ) | $ | 351,457 | |||||||
Deferred financing costs, net |
$ | 25,209 | $ | (25,209 | ) | $ | 0 | $ | 0 | |||||||
Other noncurrent assets |
$ | 6,720 | $ | 255 | $ | 4,602 | $ | 11,577 | ||||||||
Total assets |
$ | 1,422,084 | $ | (24,954 | ) | $ | (2,914 | ) | $ | 1,394,216 | ||||||
Long-term debt |
$ | 2,021,250 | $ | (24,954 | ) | $ | 0 | $ | 1,996,296 | |||||||
Deferred income taxes |
$ | 159,539 | $ | 0 | $ | (2,914 | ) | $ | 156,625 | |||||||
Total liabilities |
$ | 2,707,792 | $ | (24,954 | ) | $ | (2,914 | ) | $ | 2,679,924 |
4. | Winfrey Transaction |
On October 18, 2015 (the Agreement Date), the Company entered into the following agreements with Oprah Winfrey: the Strategic Collaboration Agreement, the Winfrey Purchase Agreement (defined below), and the Winfrey Option Agreement (defined below). The transactions contemplated by these agreements are collectively referred to herein as the Winfrey Transaction. Details of the Strategic Collaboration Agreement, Winfrey Purchase Agreement and Winfrey Option Agreement are below. See Note 17 for related party transactions with Ms. Winfrey.
Strategic Collaboration Agreement
The Company and Ms. Winfrey granted each other certain intellectual property rights under the Strategic Collaboration Agreement. The agreement has an initial term of five years, with additional successive one-year renewal terms. During the term of this agreement, Ms. Winfrey will consult with the Company and participate in developing, planning, executing and enhancing the Weight Watchers program and related initiatives, and provide it with services in her discretion to promote the Company and its programs, products and services.
Winfrey Purchase Agreement
On October 19, 2015, pursuant to the Share Purchase Agreement between the Company and Ms. Winfrey (the Winfrey Purchase Agreement), the Company issued and sold to Ms. Winfrey an aggregate of 6,362 shares of the Companys common stock (the Purchased Shares) at a price per share of $6.79 for an aggregate cash purchase price of $43,199. The Company recorded fees related to the issuance of the Purchased Shares totaling $2,315, of which $1,700 was recorded as a reduction of equity in the fourth quarter of fiscal 2015. The Purchased Shares are subject to certain demand registration rights and piggyback rights held by Ms. Winfrey under the Winfrey Purchase Agreement.
The Purchased Shares may not be transferred by Ms. Winfrey within the first two years of the Agreement Date, subject to certain limited exceptions. Thereafter, Ms. Winfrey may generally transfer up to 15% of the Purchased Shares prior to the third anniversary of the Agreement Date, up to 30% prior to the fourth anniversary of the Agreement Date and up to 60% prior to the fifth anniversary of the Agreement Date. On or after the fifth anniversary of the Agreement Date, Ms. Winfrey will be permitted to transfer all of the Purchased Shares. In the event that Ms. Winfrey proposes to transfer any Purchased Shares or Winfrey Option Shares (defined below), the Company will have (a) a right of first offer with respect to such shares if such transfer is (i) for 1% or more of the Companys issued and outstanding common stock that is proposed to be made pursuant to Rule 144 under the Securities Act of 1933, as amended or (ii) proposed to be sold under a resale shelf registration statement or (b) a right of first refusal with respect to such shares if such transfer is (i) for 1% or more of the Companys issued and outstanding common stock and is proposed to be made to a competitor of the Company or (ii) for 5% or more of the Companys issued and outstanding common stock. Such transfer restrictions, right of first offer and right of first refusal terminate if Ms. Winfrey then has the right to be nominated as a director and has met certain eligibility requirements under the Winfrey Purchase Agreement, but is not elected as a director of the Company. If Ms. Winfrey is elected as a director of the Company, she shall receive compensation for her services as a director consistent with that of other non-executive directors of the Company. Such transfer restrictions also terminate if there is a change of control, including if another person (or group), other than Artal Luxembourg S.A. and Ms. Winfrey and their respective affiliates, acquires more than 50% of the total voting power of the Company.
8
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Winfrey Option Agreement
In consideration of Ms. Winfrey entering into the Strategic Collaboration Agreement and the performance of her obligations thereunder, on the Agreement Date, the Company granted Ms. Winfrey a fully vested option (the Winfrey Option) to purchase 3,513 shares of common stock at an exercise price of $6.97 per share. The term sheet, and related terms and conditions, for the Winfrey Option are referred to herein as the Winfrey Option Agreement. Based on the Black Scholes option pricing method, the Company recorded $12,759 of compensation expense in the fourth quarter of fiscal 2015 for the Winfrey Option. At the date of the grant, the Company used a dividend yield of 0.0%, 63.88% volatility and a risk-free interest rate of 1.36%. Compensation expense is included as a component of selling, general and administrative expenses.
Subject to certain limited exceptions, shares of common stock issuable upon exercise of the Winfrey Option (the Winfrey Option Shares) generally may not be transferred by Ms. Winfrey within the first year of the Agreement Date. Thereafter, Ms. Winfrey generally may transfer up to 20% of the Winfrey Option Shares prior to the second anniversary of the Agreement Date, up to 40% prior to the third anniversary of the Agreement Date, up to 60% prior to the fourth anniversary of the Agreement Date and up to 80% prior to the fifth anniversary of the Agreement Date. On or after the fifth anniversary of the Agreement Date, Ms. Winfrey will be permitted to transfer all of the Winfrey Option Shares. Pursuant to the Winfrey Purchase Agreement, in the event that Ms. Winfrey proposes to transfer any Winfrey Option Shares, the Company will have a right of first offer or a right of first refusal with respect to such shares as described above. Such transfer restrictions terminate under the same director service and change of control circumstances that would result in the termination of the transfer restrictions relating to the Purchased Shares as described above.
5. | Acquisitions of Weilos and Miami Franchise |
On March 11, 2015, the Company acquired for a purchase price of $6,674 Weilos, a California-based startup with an online social platform that provides a mobile health and weight loss community. Payment was in the form of common stock issued ($2,810), restricted stock issued ($114) and cash ($2,775) plus cash in reserves ($975). The total purchase price of Weilos has been allocated to goodwill ($5,588), identifiable intangibles ($1,741) and other assets ($24) offset by deferred tax liabilities ($679). Restricted shares with a fair value at the date of grant ($908) were issued to key employees, contingent upon 18 months post-combination employment, and are accounted for as stock compensation cost in the post-combination financial statements. As a result of the acquisition, Weilos became a wholly owned subsidiary of the Company and the Company began to consolidate the entity as of the date of acquisition. The acquisition resulted in goodwill related to, among other things, expected synergies in operations. The goodwill is not deductible for tax purposes.
On June 27, 2016, the Company acquired substantially all of the assets of its franchisee for certain territories in South Florida, Weight Watchers of Greater Miami, Inc., for a purchase price of $3,250. Payment was in the form of cash of ($2,898) plus cash in reserves ($300) and assumed net liabilities of ($52). The total purchase price of the franchisee has been preliminarily allocated to franchise rights acquired ($114), goodwill ($2,945), and customer relationship value ($191). The acquisition of franchisee has been accounted for under the purchase method of accounting and, accordingly, earnings of acquired franchisee has been included in the consolidated operating results of the Company since the date of acquisition. The goodwill is expected to be deductible for tax purposes.
6. | Franchise Rights Acquired, Goodwill and Other Intangible Assets |
Franchise rights acquired are due to acquisitions of the Companys franchised territories as well as the acquisition of franchise promotion agreements and other factors associated with the acquired franchise territories. For the six months ended July 2, 2016, the change in the carrying value of indefinite-lived franchise rights acquired is due to the franchisee acquisition as described in Note 5, and the effect of exchange rate changes.
Goodwill primarily relates to the acquisition of the Company by H.J. Heinz Company in 1978, the acquisition of WeightWatchers.com, Inc. in 2005, the acquisitions of the Companys franchised territories, the acquisitions of the majority interest in VPM and of Wello in fiscal 2014 and the acquisition of Weilos in fiscal 2015. See Note 5 for further information on the Weilos acquisition. For the six months ended July 2, 2016, the change in the carrying amount of goodwill is due to the franchise acquisition as described in Note 5, and the effect of exchange rate changes as follows:
9
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
North America |
United Kingdom |
Continental Europe |
Other | Total | ||||||||||||||||
Balance as of January 2, 2016 |
$ | 133,408 | $ | 1,370 | $ | 7,260 | $ | 17,293 | $ | 159,331 | ||||||||||
Goodwill acquired during the period |
2,945 | 2,945 | ||||||||||||||||||
Effect of exchange rate changes |
2,820 | (139 | ) | 98 | 3,427 | 6,206 | ||||||||||||||
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|
|
|
|
|
|
|
|
|
|||||||||||
Balance as of July 2, 2016 |
$ | 139,173 | $ | 1,231 | $ | 7,358 | $ | 20,720 | $ | 168,482 | ||||||||||
|
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|
|
|
|
|
|
|
|
The Company reviews goodwill and other indefinite-lived intangible assets, including franchise rights acquired with indefinite lives, for potential impairment on at least an annual basis or more often if events so require.
In the second quarter of 2016 the Company changed the timing to perform its annual impairment review of goodwill and other indefinite-lived intangible assets to the first day of fiscal May whereas it had previously performed the test as of the last day of the Companys fiscal year-end. This accounting change is preferable because it provides the Company time to obtain the data from the Winter Season results which includes the first fiscal quarter, which represents approximately 40% of the full year recruitments, and incorporates this data into the current and future year performance estimates. The Company believes the resulting change in accounting principle related to changing the annual impairment testing date did not delay, accelerate, or avoid an impairment charge.
In performing the impairment analysis for goodwill, the fair value for our reporting units is estimated using a discounted cash flow approach. For all of the Companys reporting units except for Brazil (see below), we estimated future cash flows by utilizing the historical debt-free cash flows (cash flows provided by operating activities less capital expenditures) attributable to that country and then applied expected future operating income growth rates for such country. We utilized operating income as the basis for measuring our potential growth because we believe it is the best indicator of the performance of our business. We then discounted the estimated future cash flows utilizing a discount rate which was calculated using the average cost of capital, which includes the cost of equity and the cost of debt. The cost of equity was determined by combining a risk-free rate of return and a market risk premium for the Companys peer group. The risk-free rate of return was determined based on the average rate of long-term U.S. Treasury securities. The market risk premium was determined by reviewing external market data. The cost of debt was determined by estimating the Companys current borrowing rate.
As it relates to our impairment analysis for Brazil, we estimated future debt free cash flows in contemplation of our growth strategies for that market. In developing these projections, we considered the historical impact of similar growth strategies in other markets as well as the current market conditions in Brazil. We then discounted the estimated future cash flows utilizing a discount rate which was calculated using the average cost of capital, which included the cost of equity and the cost of debt. The cost of equity was determined by combining a risk-free rate of return and a market risk premium for the Companys peer group. The risk-free rate of return was determined based on the average rate of long-term U.S. Treasury securities. The market risk premium was determined by reviewing external market data including the current economic conditions in Brazil and the country specific risk thereon. A further risk premium was included to reflect the risk associated with the rate of growth projected in the analysis. The cost of debt was determined by estimating the Companys current borrowing rate.
In performing the impairment analysis for our indefinite-lived franchise rights acquired, the fair value for our franchise rights acquired is estimated using a discounted cash flow approach referred to as the hypothetical start-up approach for our franchise rights related to our meetings business and a relief from royalty methodology for our franchise rights related to our Online business. The aggregate estimated fair value for these rights is then compared to the carrying value of the unit of account for those franchise rights. We have determined the appropriate unit of account for purposes of assessing impairment to be the combination of the rights in the meetings and Online businesses in the country in which the acquisitions have occurred. In our hypothetical start-up approach analysis we assumed that the year of maturity was reached after 7 years. Subsequent to the year of maturity, we estimated future cash flows for the meetings business in each country based on assumptions regarding revenue growth and operating income margins. We then discounted the estimated future cash flows utilizing discount rates consistent with those used in our goodwill impairment analysis as discussed above.
10
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
In performing our annual impairment analysis as of May 8, 2016, the Company determined that the carrying amounts of its goodwill reporting units and franchise rights acquired with indefinite lives units of account did not exceed their respective fair values and therefore, no impairment existed. Except for Brazil, there is significant headroom in our impairment analysis. Based on the results of this test for Brazil, the fair value of this reporting unit exceeds the carrying value by approximately 10%, and accordingly a relatively small change in the underlying assumptions would likely cause a change in the results of the impairment assessment and, as such, could result in an impairment of the goodwill related to Brazil, for which the carrying amount is $18,045.
The carrying values of finite-lived intangible assets as of July 2, 2016 and January 2, 2016 were as follows:
July 2, 2016 | January 2, 2016 | |||||||||||||||
Gross | Gross | |||||||||||||||
Carrying | Accumulated | Carrying | Accumulated | |||||||||||||
Amount | Amortization | Amount | Amortization | |||||||||||||
Capitalized software costs |
$ | 124,809 | 94,279 | $ | 119,658 | $ | 86,134 | |||||||||
Website development costs |
109,734 | 77,438 | 100,105 | 68,673 | ||||||||||||
Trademarks |
11,036 | 10,542 | 10,960 | 10,435 | ||||||||||||
Other |
8,003 | 7,257 | 7,976 | 7,118 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Trademarks and other intangible assets |
$ | 253,583 | $ | 189,516 | $ | 238,699 | $ | 172,360 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Franchise rights acquired |
4,558 | 4,444 | 4,182 | 4,059 | ||||||||||||
Total finite-lived intangible assets |
$ | 258,141 | $ | 193,960 | $ | 242,881 | $ | 176,419 |
Aggregate amortization expense for finite-lived intangible assets was recorded in the amounts of $8,603 and $17,023 for the three and six months ended July 2, 2016, respectively. Aggregate amortization expense for finite-lived intangible assets was recorded in the amounts of $9,810 and $19,028 for the three and six months ended July 4, 2015, respectively. The franchise rights acquired related to the VPM acquisition were amortized ratably over a 2 year period. The franchise rights acquired related to the Miami acquisition are being amortized ratably over a 3 month period.
Estimated amortization expense of existing finite-lived intangible assets for the next five fiscal years and thereafter is as follows:
Remainder of fiscal 2016 |
$ | 17,628 | ||
Fiscal 2017 |
$ | 29,570 | ||
Fiscal 2018 |
$ | 13,502 | ||
Fiscal 2019 |
$ | 3,399 | ||
Fiscal 2020 and thereafter |
$ | 82 |
11
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7. | Long-Term Debt |
The components of the Companys long-term debt were as follows:
July 2, 2016 | January 2, 2016 | |||||||||||||||||||||||
Principal Balance |
Unamortized Deferred Financing Costs |
Effective Rate (1) |
Principal Balance |
Unamortized Deferred Financing Costs |
Effective Rate (1) |
|||||||||||||||||||
Revolving Facility due April 2, 2018 |
$ | 48,000 | $ | 0 | 3.16 | % | $ | 48,000 | $ | 0 | 3.25 | % | ||||||||||||
Tranche B-1 Term Facility due April 2, 2016 |
0 | 0 | 3.90 | % | 144,323 | 177 | 3.87 | % | ||||||||||||||||
Tranche B-2 Term Facility due April 2, 2020 |
2,031,750 | 21,865 | 4.34 | % | 2,042,250 | 24,777 | 4.40 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
2,079,750 | $ | 21,865 | 4.30 | % | 2,234,573 | $ | 24,954 | 4.34 | % | ||||||||||||||
Less: Current Portion |
69,000 | 213,323 | ||||||||||||||||||||||
Unamortized Deferred Financing Costs |
21,865 | 24,954 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Total Long-Term Debt |
$ | 1,988,885 | $ | 1,996,296 | ||||||||||||||||||||
|
|
|
|
(1) | Includes amortization of deferred financing costs. |
Pursuant to the retrospective adoption of FASB guidance on debt issuance costs, the Company has reclassified unamortized debt issuance costs associated with Term Facilities (defined hereafter) in the Companys previously reported Consolidated Balance Sheet in the Companys Annual Report on Form 10-K for fiscal 2015.
The Companys credit facilities at the end of the first quarter of fiscal 2013 consisted of the following term loan facilities and revolving credit facilities: a tranche B loan (Term B Loan), a tranche C loan (Term C Loan), a tranche D loan (Term D Loan), a tranche E loan (Term E Loan), a tranche F loan (Term F Loan), revolving credit facility A-1 (Revolver A-1 ) and revolving credit facility A-2 (Revolver A-2).
On April 2, 2013, the Company refinanced its credit facilities pursuant to a new Credit Agreement (as amended, supplemented or otherwise modified, the Credit Agreement) among the Company, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent and an issuing bank, The Bank of Nova Scotia, as revolving agent, swingline lender and an issuing bank, and the other parties thereto. The Credit Agreement provides for (a) a revolving credit facility (including swing line loans and letters of credit) in an initial aggregate principal amount of $250,000 that will mature on April 2, 2018 (the Revolving Facility), (b) an initial term B-1 loan credit facility in an aggregate principal amount of $300,000 that matured on April 2, 2016 (the Tranche B-1 Term Facility) and (c) an initial term B-2 loan credit facility in an aggregate principal amount of $2,100,000 that will mature on April 2, 2020 (the Tranche B-2 Term Facility, and together with the Tranche B-1 Term Facility, the Term Facilities; the Term Facilities and Revolving Facility collectively, the WWI Credit Facility). In connection with this refinancing, the Company used the proceeds from borrowings under the Term Facilities to pay off a total of $2,399,904 of outstanding loans, consisting of $128,759 of Term B Loans, $110,602 of Term C Loans, $117,612 of Term D Loans, $1,125,044 of Term E Loans, $817,887 of Term F Loans, $21,247 of loans under the Revolver A-1 and $78,753 of loans under the Revolver A-2. Following the refinancing of a total of $2,399,904 of loans, at April 2, 2013, the Company had $2,400,000 debt outstanding under the Term Facilities and $248,848 of availability under the Revolving Facility. The Company incurred fees of $44,817 during the second quarter of fiscal 2013 in connection with this refinancing.
On September 26, 2014, the Company and certain lenders entered into an agreement amending the Credit Agreement that, among other things, eliminated the Financial Covenant (as defined in the Credit Agreement) with respect to the Revolving Facility. In connection with this amendment, the Company wrote-off deferred financing fees of approximately $1,583 in the third quarter of fiscal 2014. Concurrently with and in order to effect this amendment, the Company reduced the amount of the Revolving Facility from $250,000 to $50,000.
Under the terms of the Credit Agreement, depending on the Companys Consolidated Leverage Ratio (as defined in the Credit Agreement), the Company is obligated to offer to prepay the Term Facilities in an aggregate amount determined by its excess cash flow (as defined in the Credit Agreement). On March 13, 2015, the Company commenced an offer to prepay at a discount to par up to $75,000 in aggregate principal amount of term loans outstanding under the Tranche B-1 Term Facility. On March 20, 2015, the Company accepted offers with a discount equal to or greater than 9.00% in respect of such term loans. On March 25, 2015, the Company paid an aggregate amount of cash proceeds totaling $57,389 plus an amount sufficient to pay accrued and unpaid interest on
12
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
the amount prepaid to prepay $63,065 in aggregate principal amount of such term loans under the Tranche B-1 Term Facility. This expenditure reduced, on a dollar for dollar basis, the Companys $59,728 obligation to make a mandatory excess cash flow prepayment offer to the term loan lenders under the terms of the Credit Agreement. In addition, the Company made a voluntary prepayment at par on March 25, 2015 of $2,500 in respect of such term loans under the Tranche B-1 Term Facility to reduce the remaining excess cash flow prepayment obligation for fiscal 2014. As a result of this prepayment, the Company wrote-off fees of $326, incurred fees of $601 and recorded a gain on early extinguishment of debt of $4,749, inclusive of these fees, in the first quarter of fiscal 2015.
On June 17, 2015, the Company commenced another offer to prepay at a discount to par up to $229,000 in aggregate principal amount of term loans outstanding under the Tranche B-1 Term Facility. On June 22, 2015, the Company accepted offers with a discount equal to or greater than 9.00% in respect of such term loans. On June 26, 2015, the Company paid an aggregate amount of cash proceeds totaling $77,225 plus an amount sufficient to pay accrued and unpaid interest on the amount prepaid to prepay $84,862 in aggregate principal amount of such term loans under the Tranche B-1 Term Facility. As a result of this prepayment, the Company wrote-off fees of $321, incurred fees of $641 and recorded a gain on early extinguishment of debt of $6,677, inclusive of these fees, in the second quarter of fiscal 2015.
On July 14, 2015, the Company drew down $48,000 on its Revolving Facility in order to enhance its cash position and to provide additional financial flexibility. The revolver borrowing has been classified as a short-term liability in consideration of the fact that the terms of the Revolving Facility require an assessment as to whether there have been any material adverse changes with respect to the Company in connection with the Companys monthly interest elections. Although the revolver borrowing has been classified as a short-term liability, absent any change in fact and circumstance, the Company has the ability to extend and not repay the Revolving Facility until its due date of April 2, 2018.
On April 1, 2016, the Company paid in full, with cash on hand, a principal amount of loans equal to $144,323, which constituted the entire remaining principal amount of loans outstanding under the Tranche B-1 Term Facility due April 2, 2016.
At July 2, 2016, under the WWI Credit Facility, the Company had $2,031,750 outstanding consisting entirely of a term loan under the Tranche B-2 Term Facility, and borrowings of $48,000 outstanding under the Revolving Facility. In addition, at July 2, 2016, the Revolving Facility had $1,819 in issued but undrawn letters of credit outstanding thereunder and $181 in available unused commitments thereunder. The proceeds from borrowings under the Revolving Facility (including swing line loans and letters of credit) are available to be used for working capital and general corporate purposes.
On July 29, 2016, the Company paid down, with cash on hand, a principal amount of $25,000 of the $48,000 outstanding on its Revolving Facility.
Borrowings under the Credit Agreement bear interest at a rate equal to, at the Companys option, LIBOR plus an applicable margin or a base rate plus an applicable margin. LIBOR under the Tranche B-2 Term Facility is subject to a minimum interest rate of 0.75% and the base rate under the Tranche B-2 Term Facility is subject to a minimum interest rate of 1.75%. Under the terms of the Credit Agreement, in the event the Company receives a corporate rating of BB- (or lower) from S&P and a corporate rating of Ba3 (or lower) from Moodys, the applicable margin relating to both of the Term Facilities would increase by 25 basis points. On February 21, 2014, both S&P and Moodys issued revised corporate ratings of the Company of B+ and B1, respectively. As a result, effective February 21, 2014, the applicable margin on borrowings under the Tranche B-1 Term Facility went from 2.75% to 3.00% and on borrowings under the Tranche B-2 Term Facility went from 3.00% to 3.25%. The applicable margin relating to the Revolving Facility will fluctuate depending upon the Companys Consolidated Leverage Ratio. At April 1, 2016, the date of payment of the principal amount of loans outstanding thereunder and discussed above, borrowings under the Tranche B-1 Term Facility bore interest at LIBOR plus an applicable margin of 3.00%. At July 2, 2016, borrowings under the Tranche B-2 Term Facility bore interest at LIBOR plus an applicable margin of 3.25%. Based on the Companys Consolidated Leverage Ratio as of July 2, 2016, borrowings under the Revolving Facility bore interest at LIBOR plus an applicable margin of 2.50%. On a quarterly basis, the Company will pay a commitment fee to the lenders under the Revolving Facility in respect of unutilized commitments thereunder, which commitment fee will fluctuate depending upon the Companys Consolidated Leverage Ratio. Based on the Companys Consolidated Leverage Ratio as of July 2, 2016 and January 2, 2016, the commitment fee was 0.50% per annum. For the six months ended July 2, 2016, the Company paid a de minimis amount in commitment fees. For the fiscal year ended January 2, 2016, the Company paid $186 in commitment fees. The Company also will pay customary letter of credit fees and fronting fees under the Revolving Facility, which totaled $12 and $24 for the three and six months ended July 2, 2016, respectively, and $48 for the fiscal year ended January 2, 2016.
13
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Credit Agreement contains customary covenants including covenants that, in certain circumstances, restrict the Companys ability to incur additional indebtedness, pay dividends on and redeem capital stock, make other payments, including investments, sell its assets and enter into consolidations, mergers and transfers of all or substantially all of its assets. The WWI Credit Facility does not require the Company to meet any financial maintenance covenants and is guaranteed by certain of the Companys existing and future subsidiaries. Substantially all of the Companys assets secure the WWI Credit Facility.
At July 2, 2016 and January 2, 2016, the Companys debt consisted entirely of variable-rate instruments. Interest rate swaps were entered into to hedge a portion of the cash flow exposure associated with the Companys variable-rate borrowings. The weighted average interest rate (which includes amortization of deferred financing costs) on the Companys debt, exclusive of the impact of swaps, was approximately 4.31% and 4.34% per annum based on interest rates at July 2, 2016 and January 2, 2016, respectively. The weighted average interest rate (which includes amortization of deferred financing costs) on the Companys debt, including the impact of swaps, was approximately 5.25% and 5.45% per annum based on interest rates at July 2, 2016 and January 2, 2016, respectively.
8. | Earnings Per Share Data |
Basic earnings per share (EPS) are calculated utilizing the weighted average number of common shares outstanding during the periods presented. Diluted EPS is calculated utilizing the weighted average number of common shares outstanding during the periods presented adjusted for the effect of dilutive common stock equivalents.
The following table sets forth the computation of basic and diluted earnings per share data:
Three Months Ended | Six Months Ended | |||||||||||||||
July 2, | July 4, | July 2, | July 4, | |||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Numerator: |
||||||||||||||||
Net income attributable to |
||||||||||||||||
Weight Watchers International, Inc. |
$ | 30,494 | $ | 27,877 | $ | 19,741 | $ | 22,444 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Denominator: |
||||||||||||||||
Weighted average shares of common stock outstanding |
63,740 | 57,085 | 63,644 | 56,946 | ||||||||||||
Effect of dilutive common stock equivalents |
2,194 | 70 | 2,246 | 89 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average diluted common shares outstanding |
65,934 | 57,155 | 65,890 | 57,035 | ||||||||||||
|
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|
|
|
|
|
|
|||||||||
Net income per share attributable to Weight Watchers International, Inc. |
||||||||||||||||
Basic |
$ | 0.48 | $ | 0.49 | $ | 0.31 | $ | 0.39 | ||||||||
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|
|
|
|
|
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Diluted |
$ | 0.46 | $ | 0.49 | $ | 0.30 | $ | 0.39 | ||||||||
|
|
|
|
|
|
|
|
The number of anti-dilutive common stock equivalents excluded from the calculation of the weighted average number of common shares for diluted EPS was 1,265 and 1,911 for the three months ended July 2, 2016 and July 4, 2015, respectively, and 1,205 and 1,995 for the six months ended July 2, 2016 and July 4, 2015, respectively.
14
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9. | Stock Plans |
On May 6, 2008 and May 12, 2004, respectively, the Companys shareholders approved the 2008 Stock Incentive Plan (the 2008 Plan) and the 2004 Stock Incentive Plan (the 2004 Plan). On May 6, 2014, the Companys shareholders approved the 2014 Stock Incentive Plan (as amended, the 2014 Plan and together with the 2004 Plan and the 2008 Plan, the Stock Plans), which replaced the 2008 Plan and 2004 Plan for all equity-based awards granted on or after May 6, 2014. The 2014 Plan is designed to promote the long-term financial interests and growth of the Company by attracting, motivating and retaining employees with the ability to contribute to the success of the business and to align compensation for the Companys employees over a multi-year period directly with the interests of the shareholders of the Company. The Companys Board of Directors or a committee thereof administers the 2014 Plan.
Pursuant to the option components of the Stock Plans, the Companys Board of Directors authorized the Company to enter into agreements under which certain employees received stock options with (i) time vesting criteria and/or (ii) both time and performance vesting criteria (T&P Options). On May 7, 2015, the Companys shareholders approved an amendment to the 2014 Plan to permit a one-time stock option exchange program under which the Company would offer eligible employees the opportunity to exchange certain eligible T&P Options on a (a) two-for-one basis for new stock options for all eligible employees, other than the Companys Chief Executive Officer (i.e., so that the new stock options would cover half as many shares as the corresponding surrendered options) and (b) 3.5-for-one basis for new stock options for the Companys Chief Executive Officer (i.e., so that the new stock options would cover a number of shares equal to the quotient of the number of shares covered by the corresponding surrendered options divided by 3.5). The option exchange program was designed to create better incentives for employees to remain with the Company and contribute to the attainment of its business and financial objectives.
On May 22, 2015, the Company launched a tender offer in connection with the option exchange program which expired on June 22, 2015. Pursuant to the offer, employees tendered options to purchase 1,700 shares of common stock (representing 99.6% of the total shares of common stock underlying the options eligible for exchange) with a weighted-average exercise price of $24.68 per share. The Company cancelled and replaced those options on June 22, 2015 with options to purchase 734 shares of common stock with an exercise price of $5.25 per share, which was the closing price per share of the Companys common stock on the New York Stock Exchange on June 22, 2015. The replacement options vest over three years, with 25% vesting on each of the first and second anniversaries of the date of grant and 50% vesting on the third anniversary of the date of grant. The option exchange resulted in an incremental stock option expense of $1,599, which was determined by comparing the fair value of the T&P Option as calculated based on a Monte Carlo simulation, to the fair value of the replacement options, as calculated using the Black-Scholes option pricing model, for the eligible options at the time of exchange. This incremental expense, along with the unamortized expense associated with the cancelled options, is being recognized ratably over the new vesting period of the replacement options, which is three years. As of the end of fiscal 2015, there were no outstanding T&P Options.
During the first quarter of 2016, the Company granted 1 share of stock options with a vesting period of three years, with a total fair value of $6, or a weighted average fair value of $6.41 per share.
During the second quarter of 2016, the Company granted 4 shares of stock options with a vesting period of three years, with a total fair value of $25, or a weighted average fair value of $6.58 per share. During the second quarter of 2016, the Company also granted 434 shares of restricted stock with a vesting period of three years, with a total fair value of $5,730, or a weighted average fair value of $13.20 per share. During the second quarter of 2016, the Company also granted 289 shares of restricted stock, subject to certain performance conditions, with a vesting period of three years and a fair value of $3,819, or a weighted average fair value of $13.20 per share. These grants are subject to the minimum achievement of a year-end 2018 Net Debt/EBITDAS ratio of less than 4.5x. Depending upon the level of achievement above this minimum level, the amount of shares that can vest ranges from 96, or 33.33% of outstanding shares, to 482, or 166.67% of outstanding shares. The Company is currently accruing compensation expense to what we believe is the probable outcome upon vesting.
15
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
10. | Income Taxes |
The effective tax rates for the three and six months ended July 2, 2016 were 31.5% and 30.0%, respectively. The effective tax rates for the three and six months ended July 4, 2015 were 40.2% and 40.7%, respectively. For both the three and six months ended July 2, 2016, the primary difference between the US federal statutory tax rate and the Companys consolidated effective tax rate was due to the reversal of a $2.5 million valuation allowance related to tax benefits for foreign losses that are now expected to be realized. For both the three and six months ended July 4, 2015, the primary differences between the US federal statutory tax rate and the Companys consolidated effective tax rate were state income taxes, increases in valuation allowances and tax reserves.
11. | Legal |
In re Weight Watchers International, Inc. Securities Litigation
In March 2014, two substantially identical putative class action complaints alleging violation of the federal securities laws were filed by individual shareholders against the Company, certain of the Companys current and former officers and directors, and Artal Group S.A. (Artal) in the United States District Court for the Southern District of New York. The complaints were purportedly filed on behalf of all purchasers of the Companys common stock, no par value per share, between February 14, 2012 and October 30, 2013, inclusive (the Class Period). The complaints alleged that, during the Class Period, the defendants disseminated materially false and misleading statements and/or concealed material adverse facts. The complaints alleged claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 thereunder. The plaintiffs sought to recover unspecified damages on behalf of the class members. In June 2014, the Court consolidated the cases and appointed lead plaintiffs and lead counsel. On August 12, 2014, the plaintiffs filed an amended complaint that, among other things, reduced the Class Period to between February 14, 2012 and February 13, 2013 and dropped all current officers and certain directors previously named as defendants. On October 14, 2014, the defendants filed a motion to dismiss. The plaintiffs filed an opposition to the defendants motion to dismiss on November 24, 2014 and the defendants filed a reply in support of their motion to dismiss on December 23, 2014. On May 11, 2016, the court issued a decision granting the motion to dismiss the case. Plaintiffs did not appeal the decision and the matter is now closed.
Tracey Mead, Derivatively on Behalf of Weight Watchers International, Inc. vs. Artal Group et. al. and Weight Watchers International, Inc.
On May 29, 2014 and June 23, 2014, the Company received shareholder litigation demand letters alleging breaches of fiduciary duties and unjust enrichment by Company officers and directors and Artal, to the alleged injury of the Company. The allegations in the letters relate to those contained in the ongoing federal securities litigation described above. In response to the letters, pursuant to Virginia law, the Board of Directors has created a special committee to review and evaluate the facts and circumstances surrounding the claims made in the demand letters. The special committee has decided to undertake its review after receiving a decision on defendants motion to dismiss in the federal securities litigation given the overlapping issues.
On August 11, 2015, a purported shareholder derivative lawsuit was filed in New York State Court in Westchester County. The complaint alleges that certain Company directors and executive officers breached their various fiduciary duties by knowingly causing the Company to repurchase shares from Artal and from certain executive officers at artificially inflated prices in connection with a tender offer made to all shareholders. The complaint seeks an order for the defendants to disgorge all profits made from selling Company stock between March 16, 2012 and April 9, 2012, as well as an award for damages sustained by the alleged breaches of fiduciary duty. The parties sought to stay this suit pending a decision on defendants motion to dismiss in the federal securities litigation asserting similar allegations. The Court denied the stay, but at the preliminary court conference on December 17, 2015, the Court granted an adjournment. At the most recent court conference on July 27, 2016, the Court set a deadline of November 4, 2016 by which the Company must answer or otherwise respond to the complaint. The Company believes that the suit is without merit and intends to defend it vigorously.
Raymond Roberts v. Weight Watchers International, Inc.
On January 7, 2016, an OnlinePlus member filed a putative class action complaint against the Company in the Supreme Court of New York, New York County, asserting class claims for breach of contract and violations of the New York General Business Law. On February 5, 2016, the Company removed the case to the United States District Court, Sothern District of New York. On March 18, 2016, the plaintiff filed an amended complaint, alleging that, as a result of the temporary glitches in the Companys website and app in November and December 2015, the Company has: (1) breached its Subscription Agreement with its OnlinePlus members; and (2) engaged in deceptive acts and practices in violation of Section 350 of the New York General Business Law. The plaintiff is seeking unspecified actual, punitive and statutory damages, as well as his attorneys fees and costs incurred in connection with this
16
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
action. The Company filed a motion to dismiss on May 6, 2016. The plaintiff filed his opposition papers on June 9, 2016 and the Company filed its reply papers on June 23, 2016. The Company believes that the suit is without merit and intends to defend it vigorously.
Other Litigation Matters
Due to the nature of the Companys activities, it is also, at times, subject to pending and threatened legal actions that arise out of the ordinary course of business. In the opinion of management, the disposition of any such matters is not expected to have a material effect on the Companys results of operations, financial condition or cash flows.
12. | Derivative Instruments and Hedging |
As of July 2, 2016 and January 2, 2016, the Company had in effect an interest rate swap with a notional amount totaling $1,500,000.
On July 26, 2013, in order to hedge an additional portion of its variable rate debt, the Company entered into a forward-starting interest rate swap with an effective date of March 31, 2014 and a termination date of April 2, 2020. The initial notional amount of this swap was $1,500,000. During the term of this swap, the notional amount will decrease from $1,500,000 effective March 31, 2014 to $1,250,000 on April 3, 2017 with a further reduction to $1,000,000 on April 1, 2019. This interest rate swap effectively fixes the variable interest rate on the notional amount of this swap at 2.38%. This swap qualifies for hedge accounting and, therefore, changes in the fair value of this swap have been recorded in accumulated other comprehensive loss.
As of July 2, 2016 and January 2, 2016, cumulative unrealized losses for qualifying hedges were reported as a component of accumulated other comprehensive loss in the amounts of $34,216 ($56,095 before taxes) and $23,135 ($38,053 before taxes), respectively.
The Company is hedging forecasted transactions for periods not exceeding the next four years. The Company expects approximately $11,133 ($18,251 before taxes) of derivative losses included in accumulated other comprehensive loss at July 2, 2016, based on current market rates, will be reclassified into earnings within the next 12 months.
13. | Fair Value Measurements |
Accounting guidance on fair value measurements for certain financial assets and liabilities requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
| Level 1 Quoted prices in active markets for identical assets or liabilities. |
| Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
When measuring fair value, the Company is required to maximize the use of observable inputs and minimize the use of unobservable inputs.
Fair Value of Financial Instruments
The Companys significant financial instruments include long-term debt and interest rate swap agreements as of July 2, 2016 and January 2, 2016. The fair value of the Companys borrowings under the Revolving Facility approximated a carrying value of $48,000 due to the nature of the debt (Level 2 input).
17
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The fair value of the Companys Term Facilities is determined by utilizing average bid prices on or near the end of each fiscal quarter (Level 2 input). As of July 2, 2016 and January 2, 2016, the fair value of the Companys long-term debt was approximately $1,515,482 and $1,664,393, respectively, as compared to carrying value (net of deferring financing costs) of $2,009,885 and $2,161,619, respectively.
Derivative Financial Instruments
The fair values for the Companys derivative financial instruments are determined using observable current market information such as the prevailing LIBOR interest rate and LIBOR yield curve rates and include consideration of counterparty credit risk. See Note 12 for disclosures related to derivative financial instruments.
The following table presents the aggregate fair value of the Companys derivative financial instruments:
Fair Value Measurements Using: | ||||||||||||||||
Total Fair |
Quoted Prices in Active Markets for Identical Assets |
Significant Other Observable Inputs |
Significant Unobservable Inputs |
|||||||||||||
Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Interest rate swap liability at July 2, 2016 |
$ | 62,212 | $ | 0 | $ | 62,212 | $ | 0 | ||||||||
Interest rate swap liability at January 2, 2016 |
$ | 44,170 | $ | 0 | $ | 44,170 | $ | 0 |
The Company did not have any transfers into or out of Levels 1 and 2, and did not maintain any assets or liabilities classified as Level 3, during the six months ended July 2, 2016 and the fiscal year ended January 2, 2016.
14. | Accumulated Other Comprehensive Loss |
With respect to the disclosure of the amounts reclassified from accumulated other comprehensive loss for the three and six months ended July 4, 2015 the Company has revised the amounts previously disclosed to correct those amounts by increasing the amount reclassified related to the Loss on Qualifying Hedges from $(68) to $6,185 and $(41) to $3,773 on a pre- and after-tax basis, for the three months ended July 4, 2015, respectively, and from $(544) to $12,370 and $(332) to $7,546 on a pre- and after-tax basis, for the six months ended July 4, 2015, respectively.
18
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Amounts reclassified out of accumulated other comprehensive loss are as follows:
Changes in Accumulated Other Comprehensive Loss by Component (a)
Six Months Ended July 2, 2016 | ||||||||||||
Loss on Qualifying Hedges |
Loss on Foreign Currency Translation |
Total | ||||||||||
Beginning Balance at January 2, 2016 |
$ | (23,135 | ) | $ | (14,130 | ) | $ | (37,265 | ) | |||
|
|
|
|
|
|
|||||||
Other comprehensive (loss) income before reclassifications, net of tax |
(18,627 | ) | 7,143 | (11,484 | ) | |||||||
Amounts reclassified from accumulated other comprehensive loss, net of tax (b) |
7,546 | 0 | 7,546 | |||||||||
|
|
|
|
|
|
|||||||
Net current period other comprehensive loss including noncontrolling interest |
(11,081 | ) | 7,143 | (3,938 | ) | |||||||
|
|
|
|
|
|
|||||||
Less: net current period other comprehensive income attributable to the noncontrolling interest |
0 | (470 | ) | (470 | ) | |||||||
|
|
|
|
|
|
|||||||
Ending Balance at July 2, 2016 |
$ | (34,216 | ) | $ | (7,457 | ) | $ | (41,673 | ) | |||
|
|
|
|
|
|
(a) Amounts in parentheses indicate debits
(b) See separate table below for details about these reclassifications
Six Months Ended July 4, 2015 | ||||||||||||
Loss on Qualifying Hedges |
Loss on Foreign Currency Translation |
Total | ||||||||||
Beginning Balance at January 3, 2015 |
$ | (21,856 | ) | $ | 1,906 | $ | (19,950 | ) | ||||
|
|
|
|
|
|
|||||||
Other comprehensive loss before reclassifications, net of tax |
(8,213 | ) | (8,533 | ) | (16,746 | ) | ||||||
Amounts reclassified from accumulated other comprehensive loss, net of tax (b) |
7,546 | 0 | 7,546 | |||||||||
|
|
|
|
|
|
|||||||
Net current period other comprehensive loss including noncontrolling interest |
(667 | ) | (8,533 | ) | (9,200 | ) | ||||||
|
|
|
|
|
|
|||||||
Less: net current period other comprehensive loss attributable to the noncontrolling interest |
0 | 449 | 449 | |||||||||
|
|
|
|
|
|
|||||||
Ending Balance at July 4, 2015 |
$ | (22,523 | ) | $ | (6,178 | ) | $ | (28,701 | ) | |||
|
|
|
|
|
|
(a) Amounts in parentheses indicate debits
(b) See separate table below for details about these reclassifications
19
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Reclassifications out of Accumulated Other Comprehensive Loss (a)
Three Months Ended | Six Months Ended | |||||||||||||||||
July 2, 2016 |
July 4, 2015 |
July 2, 2016 |
July 4, 2015 |
|||||||||||||||
Details about Other Comprehensive |
Amounts Reclassified from Accumulated Other Comprehensive Loss |
Amounts Reclassified from Accumulated Other Comprehensive Loss |
Affected Line Item in the Statement Where Net Income is Presented | |||||||||||||||
Loss on Qualifying Hedges |
||||||||||||||||||
Interest rate contracts |
$ | (6,185 | ) | $ | (6,185 | ) | $ | (12,370 | ) | $ | (12,370 | ) | Interest expense | |||||
|
|
|
|
|
|
|
|
|||||||||||
(6,185 | ) | (6,185 | ) | (12,370 | ) | (12,370 | ) | Income before income taxes | ||||||||||
2,412 | 2,412 | 4,824 | 4,824 | Provision for income taxes | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
$ | (3,773 | ) | $ | (3,773 | ) | $ | (7,546 | ) | $ | (7,546 | ) | Net income | ||||||
|
|
|
|
|
|
|
|
(a) Amounts in parentheses indicate debits to profit/loss
15. | Segment Data |
The Company has four reportable segments based on an integrated geographical structure as follows: North America, United Kingdom, Continental Europe (CE) and Other. Other consists of Asia Pacific and emerging markets operations and franchise revenues and related costs, all of which have been grouped together as if they were a single reportable segment because they do not meet any of the quantitative thresholds and are immaterial for separate disclosure. To be consistent with the information that is presented to the chief operating decision maker, the Company does not include intercompany activity in the segment results.
20
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Information about the Companys reportable segments is as follows:
Total Revenue | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
July 2, 2016 | July 4, 2015 | July 2, 2016 | July 4, 2015 | |||||||||||||
North America |
$ | 211,545 | $ | 200,772 | $ | 420,388 | $ | 406,328 | ||||||||
United Kingdom |
27,702 | 32,785 | 56,613 | 67,155 | ||||||||||||
Continental Europe |
57,048 | 62,206 | 112,754 | 128,949 | ||||||||||||
Other |
13,466 | 13,991 | 26,916 | 29,425 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenue |
$ | 309,761 | $ | 309,754 | $ | 616,671 | $ | 631,857 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net Income | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
July 2, 2016 | July 4, 2015 | July 2, 2016 | July 4, 2015 | |||||||||||||
Segment operating income: |
||||||||||||||||
North America |
$ | 56,975 | $ | 51,000 | $ | 82,499 | $ | 69,020 | ||||||||
United Kingdom |
5,506 | 8,268 | 5,915 | 14,449 | ||||||||||||
Continental Europe |
19,523 | 22,582 | 20,729 | 32,639 | ||||||||||||
Other |
2,355 | 2,682 | 3,114 | 4,180 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total segment operating income |
84,359 | 84,532 | 112,257 | 120,288 | ||||||||||||
General corporate expenses |
(10,628 | ) | (13,952 | ) | (24,970 | ) | (31,664 | ) | ||||||||
Interest expense |
28,609 | 30,460 | 58,634 | 61,564 | ||||||||||||
Other expense, net |
607 | 344 | 542 | 919 | ||||||||||||
Gain on early extinguishment of debt |
0 | (6,700 | ) | 0 | (11,476 | ) | ||||||||||
Provision for taxes |
14,034 | 18,696 | 8,431 | 15,321 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
30,481 | 27,780 | 19,680 | 22,296 | ||||||||||||
Net loss attributable to noncontrolling interest |
13 | 97 | 61 | 148 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income attributable to Weight Watchers International, Inc. |
$ | 30,494 | $ | 27,877 | $ | 19,741 | $ | 22,444 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Depreciation and Amortization | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
July 2, 2016 | July 4, 2015 | July 2, 2016 | July 4, 2015 | |||||||||||||
North America |
$ | 10,894 | $ | 11,866 | $ | 21,779 | $ | 23,341 | ||||||||
United Kingdom |
299 | 195 | 517 | 382 | ||||||||||||
Continental Europe |
428 | 476 | 884 | 961 | ||||||||||||
Other |
170 | 360 | 469 | 744 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total segment depreciation and amortization |
11,791 | 12,897 | 23,649 | 25,428 | ||||||||||||
General corporate depreciation and amortization |
2,601 | 3,202 | 5,274 | 6,426 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Depreciation and amortization |
$ | 14,392 | $ | 16,099 | $ | 28,923 | $ | 31,854 | ||||||||
|
|
|
|
|
|
|
|
21
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
16. | Restructuring Charges |
As previously disclosed, the Company established a new cost savings initiative and, as part of this cost savings initiative, in fiscal 2015, the Company undertook a plan of reduction in force which resulted in the elimination of certain positions and termination of employment for certain employees worldwide. In connection with this plan, the Company recorded restructuring charges in connection with employee termination benefit costs of $232 ($142 after tax) during the three months ended July 4, 2015 and $5,993 ($3,656 after tax) during the six months ended July 4, 2015. For the three months ended July 4, 2015, these charges impacted cost of revenues by $(311) and selling, general and administrative expense by $543. For the six months ended July 4, 2015, these charges impacted cost of revenues by $1,698 and selling, general and administrative expense by $4,295. For the three and six months ended July 4, 2015 all restructuring charges were recorded to general corporate expense and therefore there was no impact to the segments.
As of January 2, 2016, the balance of the liability for restructuring was $1,809. For the six months ended July 2, 2016, the Company made payments of $1,036 and lowered provision estimates by $72. The Company expects the remaining liability of $701 as of July 2, 2016 to be paid in fiscal 2016.
17. | Related Party |
As more fully described in Note 4, on October 18, 2015, the Company entered into the Strategic Collaboration Agreement with Ms. Winfrey, under which she will consult with the Company and participate in developing, planning, executing and enhancing the Weight Watchers program and related initiatives, and provide it with services in her discretion to promote the Company and its programs, products and services.
In addition to the Strategic Collaboration Agreement, Ms. Winfrey and her related entities provided services to the Company totaling $542 and $1,685 during the three and six months ending July 2, 2016, which services included advertising, production and related fees.
The Companys accounts payable to parties related to Ms. Winfrey at July 2, 2016 and January 2, 2016 was $557 and $574, respectively.
22
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, this Quarterly Report on Form 10-Q includes forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, including, in particular, the statements about our plans, strategies and prospects under the heading Managements Discussion and Analysis of Financial Condition and Results of Operations. We have generally used the words may, will, could, expect, anticipate, believe, estimate, plan, intend and similar expressions in this Quarterly Report on Form 10-Q to identify forward-looking statements. We have based these forward-looking statements on our current views with respect to future events and financial performance. Actual results could differ materially from those projected in these forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions, including, among other things:
| competition from other weight management industry participants or the development of more effective or more favorably perceived weight management methods; |
| our ability to continue to develop new, innovative services and products and enhance our existing services and products or the failure of our services and products to continue to appeal to the market, or our ability to successfully expand into new channels of distribution or respond to consumer trends; |
| the ability to successfully implement new strategic initiatives; |
| the effectiveness of our advertising and marketing programs, including the strength of our social media presence; |
| the impact on the Weight Watchers brand of actions taken by our franchisees, licensees, suppliers and other partners; |
| the impact of our debt service obligations and restrictive debt covenants; |
| the inability to refinance our debt obligations on favorable terms or at all; |
| uncertainties regarding the satisfactory operation of our information technology or systems; |
| the impact of security breaches or privacy concerns; |
| the recognition of asset impairment charges; |
| the loss of key personnel, strategic partners, or consultants or failure to effectively manage and motivate our workforce; |
| the inability to renew certain of our licenses, or the inability to do so on terms that are favorable to us; |
| the expiration or early termination by us of leases; |
| risks and uncertainties associated with our international operations, including regulatory, economic, political and social risks and foreign currency risks; |
| uncertainties related to a downturn in general economic conditions or consumer confidence; |
| our ability to successfully make acquisitions or enter into joint ventures, including our ability to successfully integrate, operate or realize the anticipated benefits of such businesses; |
| the seasonal nature of our business; |
| the impact of events that discourage or impede people from gathering with others or accessing resources; |
| our ability to enforce our intellectual property rights both domestically and internationally, as well as the impact of our involvement in any claims related to intellectual property rights; |
| the outcomes of litigation or regulatory actions; |
| the impact of existing and future laws and regulations; |
| our failure to maintain effective internal control over financial reporting; |
| the possibility that the interests of Artal Group S.A., or Artal Group, which together with its parents and its subsidiaries is referred to in this Quarterly Report on Form 10-Q as Artal, who effectively controls us, will conflict with other holders of our common stock; and |
| other risks and uncertainties, including those detailed from time to time in our periodic reports filed with the Securities and Exchange Commission. |
23
You should not put undue reliance on any forward-looking statements. You should understand that many important factors, including those discussed herein, could cause our results to differ materially from those expressed or suggested in any forward-looking statement. Except as required by law, we do not undertake any obligation to update or revise these forward-looking statements to reflect new information or events or circumstances that occur after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events or otherwise.
24
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Weight Watchers International, Inc. is a Virginia corporation with its principal executive offices in New York, New York. In this Quarterly Report on Form 10-Q unless the context indicates otherwise: we, us, our, the Company and WWI refer to Weight Watchers International, Inc. and all of its operations consolidated for purposes of its financial statements; North America refers to our North American Company-owned operations; United Kingdom refers to our United Kingdom Company-owned operations; Continental Europe refers to our Continental Europe Company-owned operations; and Other refers to Asia Pacific and emerging markets operations and franchise revenues and related costs. Each of North America, United Kingdom, Continental Europe and Other is also a reportable segment. Our meetings business refers to providing access to meetings to our monthly commitment plan subscribers, pay-as-you-go members, Total Access subscribers and other meetings members. Online refers to Weight Watchers Online, Weight Watchers OnlinePlus, Personal Coaching and other digital subscription products.
Our fiscal year ends on the Saturday closest to December 31st and consists of either 52- or 53-week periods. In this Quarterly Report on Form 10-Q:
| fiscal 2013 refers to our fiscal year ended December 28, 2013; |
| fiscal 2014 refers to our fiscal year ended January 3, 2015 (included a 53rd week); |
| fiscal 2015 refers to our fiscal year ended January 2, 2016; |
| fiscal 2016 refers to our fiscal year ended December 31, 2016; |
| fiscal 2017 refers to our fiscal year ended December 30, 2017; |
| fiscal 2018 refers to our fiscal year ended December 29, 2018; |
| fiscal 2019 refers to our fiscal year ended December 28, 2019; and |
| fiscal 2020 refers to our fiscal year ended January 2, 2021. |
The following terms used in this Quarterly Report on Form 10-Q are our trademarks: Weight Watchers® and SmartPoints®.
You should read the following discussion in conjunction with our Annual Report on Form 10-K for fiscal 2015 that includes additional information about us, our results of operations, our financial position and our cash flows, and with our unaudited consolidated financial statements and related notes included in Item 1 of this Quarterly Report on Form 10-Q (collectively referred to as the Consolidated Financial Statements).
NON-GAAP FINANCIAL MEASURES
To supplement our consolidated results presented in accordance with accounting principles generally accepted in the United States, or GAAP, we have disclosed non-GAAP financial measures of operating results that exclude or adjust certain items. Gross profit and gross profit margin, operating income and operating income margin, and selling, general and administrative expenses, including components thereof, are discussed in this Quarterly Report on Form 10-Q both as reported (on a GAAP basis) and, with respect to the second quarter and first six months of fiscal 2015, as adjusted (on a non-GAAP basis), as applicable, to exclude the impact of charges associated with our previously disclosed 2015 plan to restructure our organization. Earnings before interest, taxes, depreciation, amortization and stock-based compensation (EBITDAS) is also presented within this Quarterly Report on Form 10-Q. See Liquidity and Capital Resources for the calculation. We generally refer to such non-GAAP measures as excluding or adjusting for the impact of the expenses associated with the restructuring charges. Our management believes these non-GAAP financial measures and EBITDAS provide supplemental information to investors regarding the performance of our business and are useful for period-over-period comparisons of the performance of our business. While we believe that these financial measures are useful in evaluating our business, this information should be considered as supplemental in nature and is not meant to be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similarly entitled measures reported by other companies.
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USE OF CONSTANT CURRENCY
As exchange rates are an important factor in understanding period-to-period comparisons, we believe in certain cases the presentation of results on a constant currency basis in addition to reported results helps improve investors ability to understand our operating results and evaluate our performance in comparison to prior periods. Constant currency information compares results between periods as if exchange rates had remained constant period-over-period. We use results on a constant currency basis as one measure to evaluate our performance. In this Quarterly Report on Form 10-Q, we calculate constant currency by calculating current-year results using prior-year foreign currency exchange rates. We generally refer to such amounts calculated on a constant currency basis as excluding or adjusting for the impact of foreign currency or being on a constant currency basis. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not measures of performance presented in accordance with GAAP.
CRITICAL ACCOUNTING POLICIES
Goodwill, and Franchise Rights Acquired Annual Impairment Test
Finite-lived intangible assets are amortized using the straight-line method over their estimated useful lives of 3 to 20 years or, in the case of amortizable franchise rights acquired, over the remaining contractual period, which is generally less than one year.
In the second quarter of 2016 the Company changed the timing to perform its annual impairment review of goodwill and other indefinite-lived intangible assets to the first day of fiscal May whereas it had previously performed the test as of the last day of the Companys fiscal year-end. This accounting change is preferable because it provides the Company time to obtain the data from the Winter Season results which includes the first fiscal quarter, which represents approximately 40% of the full year recruitments, and incorporates this data into the current and future year performance estimates. The Company believes the resulting change in accounting principle related to changing the annual impairment testing date did not delay, accelerate, or avoid an impairment charge.
We review goodwill and other indefinite-lived intangible assets, including franchise rights acquired with indefinite lives, for potential impairment on at least an annual basis or more often if events so require. In performing our goodwill impairment analysis for our reporting units for fiscal 2016 and 2015, no impairment was identified as the fair value of those units exceeded their carrying value. In performing the impairment analysis for franchise rights acquired with indefinite lives for fiscal 2016 and 2015, we determined that the carrying amounts did not exceed their respective fair values and therefore, no impairment existed.
Although there is generally significant headroom in our impairment analysis (except for Brazil as discussed below), a change in the underlying assumptions would cause a change in the results of the tests and, as such, could result in an impairment of those assets, which would impact earnings. We would also be required to reduce the carrying amounts of the related assets on our balance sheet. We continue to evaluate these estimates and assumptions and believe that these assumptions are appropriate.
In performing our annual impairment analysis, we also considered the trading value of both our equity and debt. We continue to believe that these trading values do not reflect the anticipated positive impact of our transformation plan. For additional information on our transformation plan, see Transformation Plan. However, if our transformation plan does not meet our expectations, or the trading values of both our equity and debt were to significantly decline from their current levels, we may have to take an impairment charge at the appropriate time, which could be material. For additional information on risks associated with our recognizing asset impairment charges, see Item 1A. Risk Factors on Form 10-K for fiscal 2015.
The following is a more detailed discussion of our goodwill and franchise rights acquired impairment analysis.
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Goodwill
In performing the impairment analysis for goodwill, the fair value for our reporting units is estimated using a discounted cash flow approach. This approach involves projecting future cash flows attributable to the reporting unit and discounting those estimated cash flows using an appropriate discount rate. The estimated fair value is then compared to the carrying value of the reporting unit. We have determined the appropriate reporting unit for purposes of assessing annual impairment to be the country for all reporting units. The values of goodwill in the United States, Canada, Brazil and other countries at July 2, 2016 were $97.8 million, $41.4 million, $19.3 million and $10.0 million, respectively.
Based on the results of our second quarter of fiscal 2016 impairment analysis, we estimated that approximately 89.1% of our reporting units had a fair value at least 50% higher than the respective reporting units carrying amount. In Brazil, which holds 10.9% of the Companys goodwill, the fair value of this reporting unit exceeded its carrying value by approximately 10%.
For all of the Companys reporting units except for Brazil (see below), we estimated future cash flows by utilizing the historical debt-free cash flows (cash flows provided by operating activities less capital expenditures) attributable to that country and then applied expected future operating income growth rates for such country. We utilized operating income as the basis for measuring our potential growth because we believe it is the best indicator of the performance of our business. We then discounted the estimated future cash flows utilizing a discount rate which was calculated using the average cost of capital, which includes the cost of equity and the cost of debt. The cost of equity was determined by combining a risk-free rate of return and a market risk premium for the Companys peer group. The risk-free rate of return was determined based on the average rate of long-term U.S. Treasury securities. The market risk premium was determined by reviewing external market data. The cost of debt was determined by estimating the Companys current borrowing rate.
The following are the more significant assumptions utilized in our impairment analysis for the second quarter of fiscal 2016:
July 2, | ||
2016 | ||
Debt-Free Cumulative Annual Cash Flow Growth Rate |
3.1% to 4.9% | |
Discount Rate |
9.4% |
As it relates to our impairment analysis for Brazil, we estimated future debt free cash flows in contemplation of our growth strategies for that market. In developing these projections, we considered the historical impact of similar growth strategies in other markets as well as the current market conditions in Brazil. We then discounted the estimated future cash flows utilizing a discount rate which was calculated using the average cost of capital, which included the cost of equity and the cost of debt. The cost of equity was determined by combining a risk-free rate of return and a market risk premium for the Companys peer group. The risk-free rate of return was determined based on the average rate of long-term U.S. Treasury securities. The market risk premium was determined by reviewing external market data including the current economic conditions in Brazil and the country specific risk thereon. A further risk premium was included to reflect the risk associated with the rate of growth projected in the analysis. The cost of debt was determined by estimating the Companys current borrowing rate. In our fiscal 2016 annual impairment analysis, we assumed a cumulative annual growth rate for our revenues of approximately 19.0%, an average operating income margin of approximately 20.0% with a range from -6.9% to 31.0% and a discount rate of 16.8%.
Franchise Rights Acquired
In performing the impairment analysis for our indefinite-lived franchise rights acquired, the fair value for our franchise rights acquired is estimated using a discounted cash flow approach referred to as the hypothetical start-up approach for our franchise rights related to our meetings business and a relief from royalty methodology for our franchise rights related to our Online business. The aggregate estimated fair value for these rights is then compared to the carrying value of the unit of account for those franchise rights. We have determined the appropriate unit of account for purposes of assessing impairment to be the combination of the rights in the meetings and Online businesses in the country in which the acquisitions have occurred. The values of these franchise rights in the United States, Canada, United Kingdom, Australia, and New Zealand at July 2, 2016 were $675.6 million, $52.2 million, $12.2 million, $6.7 million, and $5.1 million, respectively.
Based on the results of our fiscal 2016 annual impairment analysis, we estimated that approximately 99.4% of our franchise rights acquired had a fair value at least 40% higher than their carrying amount.
In our hypothetical start-up approach analysis for fiscal 2016 we assumed that the year of maturity was reached after 7 years. Subsequent to the year of maturity, we assumed debt-free cash flow growth rates based on our expected future operating income growth rates for such country. Subsequent to the year of maturity, we estimated future cash flows for the meetings business in each country based on assumptions regarding revenue growth and operating income margins. We then discounted the estimated future cash flows utilizing discount rates consistent with those used in our goodwill impairment analysis as discussed above.
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In performing this analysis for fiscal 2016, for the year of maturity we assumed revenue growth of 15.1% to 63.9%, versus meetings revenues earned in that country for fiscal 2015, and assumed cumulative annual revenue growth rates for the years beyond the year of maturity of 1.9%. In the year of maturity and beyond we assumed operating income margin rates of 6.6% to 22.7%.
For information on risks associated with our recognizing asset impairment charges, see Item 1A. Risk Factors in our Annual Report on Form 10-K for fiscal 2015.
Other Critical Accounting Policies
For a discussion of the other critical accounting policies affecting us, see Item 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsCritical Accounting Policies of our Annual Report on Form 10-K for fiscal 2015. Subject to the foregoing, our critical accounting policies have not changed since the end of fiscal 2015.
PERFORMANCE INDICATORS
Our management reviews and analyzes several key performance indicators in order to manage our business and assess the quality and potential variability of our cash flows and earnings. These key performance indicators include:
| RevenuesOur Service Revenues consist of Meeting Fees and Online Subscription Revenues. Meeting Fees consist of the fees associated with our monthly commitment plans for unlimited access to meetings and other payment arrangements for access to meetings, including our pay-as-you-go payment arrangement and fees associated with our Total Access product. Online Subscription Revenues consist of the fees associated with subscriptions for our Online subscription products, including our Personal Coaching product. |
| Paid WeeksThe Paid Weeks metric reports paid weeks by Weight Watchers customers in Company-owned operations for a given period as follows: (i) Meeting Paid Weeks is the sum of total paid commitment plan weeks (including Total Access) and total pay-as-you-go weeks; (ii) Online Paid Weeks is the total paid subscription weeks for our digital subscription products (including Personal Coaching); and (iii) Total Paid Weeks is the sum of Meeting Paid Weeks and Online Paid Weeks, in each case for a given period. |
| Incoming SubscribersSubscribers refer to meetings members and Online subscribers who participate in recurring billing programs, such as our monthly commitment plans for our meetings business. The Incoming Subscribers metric reports Weight Watchers subscribers in Company-owned operations at a given period start as follows: (i) Incoming Meeting Subscribers is the total Weight Watchers monthly commitment plan subscribers (including Total Access); (ii) Incoming Online Subscribers is the total number of Weight Watchers Online, Weight Watchers OnlinePlus and Personal Coaching subscribers; and (iii) Incoming Subscribers is the sum of Incoming Meeting Subscribers and Incoming Online Subscribers, in each case at a given period start. |
| End of Period SubscribersThe End of Period Subscribers metric reports Weight Watchers subscribers in Company-owned operations at a given period end as follows: (i) End of Period Meeting Subscribers is the total Weight Watchers monthly commitment plan subscribers (including Total Access); (ii) End of Period Online Subscribers is the total number of Weight Watchers Online, Weight Watchers OnlinePlus and Personal Coaching subscribers; and (iii) End of Period Subscribers is the sum of End of Period Meeting Subscribers and End of Period Online Subscribers, in each case at a given period end. |
| recruitments |
| attendance |
| Meeting Fees per Paid Week and in-meeting product sales per attendee |
| gross profit and operating expenses as a percentage of revenue |
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TRANSFORMATION PLAN
As previously disclosed, the Company is currently executing a multi-year transformation plan. The four strategic areas of focus of this transformation plan are as follows: improving near-term performance, including strong cost management; repositioning our brand and improving our service and product offerings; targeting new channel growth in healthcare; and building organizational capabilities. As part of our focus on strong cost management, we are committed to maintaining stringent expense disciplines. We successfully reduced our gross annualized expenses by $250 million as of the end of fiscal 2015 versus our fiscal 2012 cost base, with $150 million coming out of marketing and the balance split between cost of sales and general and administrative expenses. See Note 16 of our consolidated financial statements, contained in Part I, Item 1 of this Quarterly Report on Form 10-Q, for additional details on our cost-savings initiative. The December 2015 launch of our comprehensive program innovation, Beyond the Scale, is a key component of our strategy to reposition our brand and improve our service and product offerings. This innovation expands our purpose from weight loss alone to more broadly helping people lead healthier, more active, happier lives. Management is confident this new holistic consumer program, together with our groundbreaking partnership with Ms. Winfrey, will continue to accelerate the successful repositioning of our brand. As part of our partnership, and in furtherance of this repositioning of our brand, Ms. Winfrey was featured in our 2016 winter season television advertising in certain key markets. She will also continue to be a member and may, from time to time, continue to candidly share her experiences and perspectives along the way of her weight loss journey as she has done by her participation in our Connect social media platform and her sharing her experiences in mega conference calls with members. The successful launch of the Beyond the Scale program has resulted in three consecutive quarters of member recruitment growth with End of Period Subscribers up 5.0% in the second quarter of fiscal 2016 as compared to the prior year period. End of period subscribers were positive in the first quarter of fiscal 2016, for the first time since 2012, which clearly demonstrates our transformation progress. A key component of the organizational capabilities upgrade is our technology transformation, whereby we are replacing legacy technology systems and architecture to enable us to deliver product and program enhancements in a more agile, cost-effective manner. To date, we achieved significant milestones in this arena. For additional details on our investments to date related to this technology transformation, see Liquidity and Capital ResourcesInvesting Activities. As we execute this transformation plan, management, from time to time, reviews the resulting revenues and associated costs to refine the plan in order to ensure resources are allocated efficiently and optimized. As management determines resources should be reallocated, they refine the transformation plan accordingly. For example, our investment strategy in the healthcare channel and related technology has evolved to focus on proving our internal capabilities to deliver against healthcare market needs. Management continues to believe that the Company has sufficient liquidity to execute the transformation plan and does not believe the Company is constrained by its capital structure. See Liquidity and Capital Resources.
ANTICIPATED BUSINESS METRICS, TRENDS AND OTHER EVENTS
We expect that our fiscal 2016 revenues will be slightly below $1.2 billion, driven by higher recruitments and stable retention that will establish a strong foundation for revenue growth and increased profitability in fiscal 2016. Given the nature of our subscription-based payment model, revenue growth typically lags recruitment growth. We expect an increase in revenues despite the approximately $20.0 million negative impact of the lower number of fiscal 2016 Incoming Subscribers versus the prior year and an anticipated $15.0 million negative impact of foreign currency on fiscal 2016 revenues based on current rates.
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RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 2, 2016 COMPARED TO THE THREE MONTHS ENDED JULY 4, 2015
The table below sets forth selected financial information for the second quarter of fiscal 2016 from our consolidated statements of net income for the three months ended July 2, 2016 versus selected financial information for the second quarter of fiscal 2015 from our consolidated statements of net income for the three months ended July 4, 2015:
Summary of Selected Financial Data
(In millions, except per share amounts) | ||||||||||||||||||||
For the Three Months Ended | ||||||||||||||||||||
July 2, |
July 4, |
Increase/ |
% |
% Change | ||||||||||||||||
Revenues, net |
$ | 309.8 | $ | 309.8 | $ | 0.0 | 0.0 | % | 0.7 | % | ||||||||||
Cost of revenues |
148.7 | 150.4 | (1.7 | ) | (1.1 | %) | (0.2 | %) | ||||||||||||
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Gross profit |
161.0 | 159.4 | 1.6 | 1.1 | % | 1.6 | % | |||||||||||||
Gross Margin % |
52.0 | % | 51.4 | % | ||||||||||||||||
Marketing expenses |
41.2 | 40.3 | 0.9 | 2.2 | % | 2.7 | % | |||||||||||||
Selling, general & administrative expenses |
46.1 | 48.5 | (2.3 | ) | (4.8 | %) | (4.0 | %) | ||||||||||||
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Operating income |
73.7 | 70.6 | 3.2 | 4.5 | % | 4.9 | % | |||||||||||||
Operating Income Margin % |
23.8 | % | 22.8 | % | ||||||||||||||||
Interest expense |
28.6 | 30.5 | (1.9 | ) | (6.1 | %) | (6.1 | %) | ||||||||||||
Other expense, net |
0.6 | 0.3 | 0.3 | 76.5 | % | 76.5 | % | |||||||||||||
Early extinguishment of debt |
| (6.7 | ) | 6.7 | (100.0 | %) | (100.0 | %) | ||||||||||||
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Income before income taxes |
44.5 | 46.5 | (2.0 | ) | (4.2 | %) | (3.6 | %) | ||||||||||||
Provision for income taxes |
14.0 | 18.7 | (4.7 | ) | (24.9 | %) | (24.4 | %) | ||||||||||||
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Net income |
30.5 | 27.8 | 2.7 | 9.7 | % | 10.5 | % | |||||||||||||
Net loss attributable to the noncontrolling interest |
| 0.1 | (0.1 | ) | (86.3 | %) | (84.6 | %) | ||||||||||||
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Net income attributable to |
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Weight Watchers International, Inc. |
$ | 30.5 | $ | 27.9 | $ | 2.6 | 9.4 | % | 10.2 | % | ||||||||||
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Weighted average diluted shares outstanding |
65.9 | 57.2 | 8.8 | 15.4 | % | 15.4 | % | |||||||||||||
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Diluted earnings per share |
$ | 0.46 | $ | 0.49 | $ | (0.03 | ) | (5.2 | %) | (4.5 | %) | |||||||||
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Note: Totals may not sum due to rounding.
Certain results for the second quarter of fiscal 2015 are adjusted to exclude the impact of the $0.2 million of restructuring charges associated with our previously disclosed 2015 restructuring plan. See Non-GAAP Financial Measures above. The table below sets forth a reconciliation of certain of those components of our selected financial data for the three months ended July 4, 2015 which have been adjusted.
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(in millions, except per share amounts) | Gross Profit |
Gross Profit Margin |
Operating Income |
Operating Income Margin |
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Second quarter of fiscal 2015 |
$ | 159.4 | 51.4% | $ | 70.6 | 22.8% | ||||||||||
Adjustments to Reported Amounts |
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2015 Restructuring charges (1) |
(0.3) | 0.2 | ||||||||||||||
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(0.3) | 0.2 | ||||||||||||||
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Second quarter of fiscal 2015, as adjusted (1) |
$ | 159.1 | 51.3% | $ | 70.8 | 22.9% | ||||||||||
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(1) | As adjusted is a non-GAAP financial measure that adjusts the consolidated statements of net income for the second quarter of fiscal 2015 to exclude the impact of the $0.2 million of restructuring charges associated with our previously disclosed 2015 restructuring plan. See Non-GAAP Financial Measures above for an explanation of our use of non-GAAP financial measures. |
Consolidated Results
Revenues
Revenues in the second quarter of fiscal 2016 remained at $309.8 million versus the second quarter of fiscal 2015. Excluding the impact of foreign currency, which negatively impacted our revenues for the second quarter of fiscal 2016 by $2.3 million, revenues in the second quarter of fiscal 2016 would have increased 0.7% versus the prior year period. Growth in North American was almost fully offset by declines in the UK, Continental Europe and Other segments. See Segment Results for additional details on revenues.
Cost of Revenues and Gross Profit
Total cost of revenues in the second quarter of fiscal 2016 declined $1.7 million, or 1.1 %, versus the prior year period. Excluding the impact of the 2015 restructuring charges, total cost of revenues in the second quarter of fiscal 2016 would have declined $2.0 million, or 1.3%, versus the prior year period. Excluding the impact of the 2015 restructuring charges, gross profit for the second quarter of fiscal 2016 would have increased by $2.0 million, or 1.3%, from the second quarter of fiscal 2015. Excluding the impact of foreign currency, which negatively impacted our gross profit for the second quarter of fiscal 2016 by $0.9 million, gross profit in the second quarter of fiscal 2016 would have increased 1.6% versus the prior year period. Excluding the impact of the 2015 restructuring charges, gross margin in the second quarter of fiscal 2016 would have been 52.0%, as compared to gross margin of 51.3% in the second quarter of fiscal 2015. Gross margin expansion was driven by expansion in North America partially offset by declines in both Continental Europe and the UK. The expansion in gross margin was driven primarily by lower costs to support 24/7 Expert Chat and operating efficiencies in the United States, fixed cost leverage in North America (and an improved product margin globally). This expansion in gross margin was partially offset by promotions of our service offerings and the worldwide decline in the high margin licensing business.
Marketing
Marketing expenses for the second quarter of fiscal 2016 increased $0.9 million, or 2.2%, versus the second quarter of fiscal 2015. Excluding the impact of foreign currency, which decreased marketing expenses for the second quarter of fiscal 2016 by $0.2 million, marketing expenses in the second quarter of fiscal 2016 would have increased 2.7% versus the prior year period. The increase in marketing expense was primarily driven by higher production and national promotion costs in the United States and higher investment in Online media. Marketing expenses as a percentage of revenue were 13.3% in the second quarter of fiscal 2016 as compared to 13.0% in the prior year period.
Selling, General and Administrative
Selling, general and administrative expenses for the second quarter of fiscal 2016 decreased $2.3 million, or 4.8%, versus the second quarter of fiscal 2015. Excluding the impact of foreign currency, which decreased selling, general and administrative expenses for the second quarter of fiscal 2016 by $0.4 million, selling, general and administrative expenses in the second quarter of fiscal 2016 would have declined 4.0% versus the prior year period. The decrease in selling, general and administrative expenses in the second quarter of fiscal 2016 was driven primarily by lower technology related expenses. Selling, general and administrative expenses as a percentage of revenue for the second quarter of fiscal 2016 decreased to 14.9% from 15.6% for the second quarter of fiscal 2015.
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Operating Income
Operating income for the second quarter of fiscal 2016 increased $3.2 million, or 4.5%, versus the second quarter of fiscal 2015. Excluding the impact of foreign currency, which negatively impacted operating income for the second quarter of fiscal 2016 by $0.3 million, operating income in the second quarter of fiscal 2016 would have increased 4.9% versus the prior year period. This increase in operating income was predominately the result of higher operating income in North America offset by lower operating income in Continental Europe, the UK and Other in the second quarter of fiscal 2016 as compared to the prior year period. Excluding the impact of the 2015 restructuring charges, our operating income margin in the second quarter of fiscal 2016 would have increased to 23.8%, or 23.7% on a constant currency basis, from 22.9% in the second quarter of fiscal 2015. This increase in operating income margin was driven primarily by the increase in gross margin expansion and a reduction in marketing as a percentage of revenue partially offset by an increase in selling, general and administrative expenses as a percentage of revenue as compared to the prior year period.
Interest Expense
Interest expense in the second quarter of fiscal 2016 decreased $1.9 million, or 6.1%, versus the second quarter of fiscal 2015. The decrease in interest expense was primarily driven by the decrease in our average debt outstanding, which decreased to $2.1 billion in the second quarter of fiscal 2016 from $2.2 billion in the second quarter of fiscal 2015. This decrease was primarily due to the debt payment on April 1, 2016 and the debt prepayment in June of fiscal 2015 partially offset by the draw down on our Revolving Facility in July of fiscal 2015. The effective interest rate on our debt, based on interest incurred (which includes amortization of our deferred financing costs) and our average borrowings during the second quarter of fiscal 2016 and the second quarter of fiscal 2015 and excluding the impact of our interest rate swap, was 4.32% per annum at the end of the second quarter of fiscal 2016 and at the end of the second quarter of fiscal 2015. Including the impact of our interest rate swap, our effective interest rate on our debt, based on interest incurred (which includes amortization of our deferred financing costs) and our average borrowings during the second quarter of fiscal 2016 and the second quarter of fiscal 2015, increased to 5.51% per annum at the end of the second quarter of fiscal 2016 from 5.42% per annum at the end of the second quarter of fiscal 2015. See Liquidity and Capital ResourcesLong-Term Debt for additional details regarding interest rates on our debt outstanding, the Revolving Facility and payments on our debt. For additional details on our interest rate swap see Item 3. Quantitative and Qualitative Disclosures about Market Risk in Part I of this Quarterly Report on Form 10-Q.
Early Extinguishment of Debt
In June 2015, we paid an aggregate amount of cash proceeds totaling $77.2 million plus an amount sufficient to pay accrued and unpaid interest on the amount prepaid to prepay $84.9 million in aggregate principal amount of term loans under the Tranche B-1 Term Facility (defined hereafter). As a result of this prepayment, we wrote-off fees of $0.3 million, incurred fees of $0.6 million and recorded a gain on early extinguishment of debt of $6.7 million, inclusive of these fees, in the second quarter of fiscal 2015.
Other Expense, Net
Other expense, net, which consists primarily of the impact of foreign currency on intercompany transactions, increased by $0.3 million in the second quarter of fiscal 2016 as compared to the second quarter of fiscal 2015.
Tax
Our effective tax rate was 31.5% for the second quarter of fiscal 2016 as compared to 40.2% for the second quarter of fiscal 2015. The decrease was mainly due to the reversal of a $2.5 million valuation allowance related to tax benefits for foreign losses that are now expected to be realized and to a lesser extent an increase in tax reserves and valuation allowances in 2015.
Net Income Attributable to the Company and Earnings Per Share
Net income attributable to the Company in the second quarter of fiscal 2016 reflected a $2.6 million, or 9.4%, increase over the second quarter of fiscal 2015. Excluding the impact of foreign currency, which negatively impacted net income attributable to the Company in the second quarter of fiscal 2016 by $0.2 million, net income attributable to the Company in the second quarter of fiscal 2016 would have increased by 10.2% versus the prior year period. Net income attributable to the Company in the second quarter of fiscal 2016 includes the reversal of a $2.5 million valuation allowance related to tax benefits for foreign losses that are now expected to be realized. Net income attributable to the Company in the second quarter of fiscal 2015 is impacted by two items that affect year-over-year comparability: (i) $0.1 million of restructuring charges associated with our previously disclosed 2015 restructuring plan and (ii) $4.1 million gain on early extinguishment of debt. This increase in net income attributable to the Company was primarily driven by lower tax expense, an increase in operating income and to a lesser extent the decline in interest expense in the second quarter of fiscal 2016 versus the prior year period.
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Earnings per fully diluted share, or EPS, in the second quarter of fiscal 2016 was $0.46 compared to $0.49 per share in the second quarter of fiscal 2015. For the second quarter of fiscal 2016, EPS includes a $0.04 benefit in connection with the release of a valuation allowance related to tax benefits for foreign losses that are now expected to be realized. The higher share count, driven primarily by the October fiscal 2015 Winfrey Transaction, dilutes EPS by $0.07 in the second quarter of fiscal 2016. For the second quarter of fiscal 2015, EPS includes a $0.07 benefit in connection with the gain on early extinguishment of debt.
Segment Results
Metrics and Business Trends
The following tables set forth key metrics by reportable segment for the second quarter of fiscal 2016 and the percentage change in those metrics versus the prior year period:
(in millions unless otherwise stated)
Q2 2016 | ||||||||||||||||||||||||||||||||||||
GAAP | Constant Currency | |||||||||||||||||||||||||||||||||||
Service Revenues |
Product Sales & Other |
Total Revenues |
Service Revenues |
Product Sales & Other |
Total Revenues |
Total Paid Weeks |
Incoming Subscribers |
EOP Subscribers |
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North America |
$ | 177.9 | $ | 33.6 | $ | 211.5 | $ | 178.6 | $ | 33.7 | $ | 212.3 | 27.0 | 2,023.7 | 1,919.6 | |||||||||||||||||||||
UK |
20.1 | 7.6 | 27.7 | 21.6 | 8.1 | 29.7 | 4.3 | 305.5 | 300.1 | |||||||||||||||||||||||||||
CE |
44.8 | 12.3 | 57.0 | 44.0 | 12.1 | 56.1 | 8.7 | 652.8 | 642.1 | |||||||||||||||||||||||||||
Other (1) |
8.8 | 4.7 | 13.5 | 9.2 | 4.8 | 14.0 | 1.2 | 81.3 | 75.1 | |||||||||||||||||||||||||||
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Total |
$ | 251.6 | $ | 58.2 | $ | 309.8 | $ | 253.3 | $ | 58.7 | $ | 312.0 | 41.1 | 3,063.3 | 2,937.0 | |||||||||||||||||||||
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% Change Q2 2016 vs. Q2 2015 | ||||||||||||||||||||||||||||||||||||
North America |
4.4% | 10.6% | 5.4% | 4.8% | 10.9% | 5.7% | 8.1% | 11.2% | 8.6% | |||||||||||||||||||||||||||
UK |
-12.7% | -22.0% | -15.5% | -6.5% | -16.5% | -9.4% | -7.0% | -8.5% | -5.3% | |||||||||||||||||||||||||||
CE |
-6.5% | -14.2% | -8.3% | -8.1% | -15.6% | -9.8% | -1.9% | -6.7% | -1.2% | |||||||||||||||||||||||||||
Other (1) |
-3.5% | -4.4% | -3.8% | 1.0% | -2.5% | -0.2% | 10.6% | 18.9% | 16.7% | |||||||||||||||||||||||||||
Total |
0.5% | -2.0% | 0.0% | 1.2% | -1.1% | 0.7% | 4.2% | 4.8% | 5.0% |
Note: Totals may not sum due to rounding
(1) | Represents Asia Pacific and emerging markets operations and franchise revenues. |
33
(in millions unless otherwise stated)
Q2 2016 | ||||||||||||||||||||||||||||||||||||||||
Meeting Fees | Meeting Paid Weeks |
Incoming Meeting Subscribers |
EOP Meeting Subscribers |
Online Subscription Revenues |
Online Paid Weeks |
Incoming Online Subscribers |
EOP Online Subscribers |
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GAAP | Constant Currency |
GAAP | Constant Currency |
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(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||||||||||
North America |
$ | 114.9 | $ | 115.3 | 12.2 | 868.1 | 843.3 | $ | 63.0 | $ | 63.2 | 14.7 | 1,155.5 | 1,076.3 | ||||||||||||||||||||||||||
UK |
15.1 | 16.1 | 2.7 | 187.0 | 178.0 | 5.1 | 5.4 | 1.6 | 118.5 | 122.1 | ||||||||||||||||||||||||||||||
CE |
24.7 | 24.3 | 3.0 | 219.7 | 208.4 | 20.1 | 19.7 | 5.7 | 433.1 | 433.7 | ||||||||||||||||||||||||||||||
Other (1) |
6.0 | 6.3 | 0.6 | 35.7 | 33.0 | 2.8 | 2.9 | 0.6 | 45.6 | 42.1 | ||||||||||||||||||||||||||||||
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Total |
$ | 160.6 | $ | 162.1 | 18.5 | 1,310.5 | 1,262.8 | $ | 90.9 | $ | 91.2 | 22.6 | 1,752.7 | 1,674.2 | ||||||||||||||||||||||||||
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% Change Q2 2016 vs. Q2 2015 | ||||||||||||||||||||||||||||||||||||||||
North America |
9.2% | 9.6% | 11.9% | 17.4% | 13.9% | -3.3% | -3.0% | 5.2% | 6.9% | 4.8% | ||||||||||||||||||||||||||||||
UK |
-11.7% | -5.4% | -5.7% | -4.6% | -5.2% | -15.6% | -9.5% | -9.2% | -13.9% | -5.4% | ||||||||||||||||||||||||||||||
CE |
-9.7% | -11.1% | -6.1% | -13.0% | -8.6% | -2.2% | -4.1% | 0.4% | -3.1% | 2.9% | ||||||||||||||||||||||||||||||
Other (1) |
-5.2% | 0.0% | 3.5% | 19.4% | 16.0% | 0.5% | 3.2% | 19.7% | 18.6% | 17.2% | ||||||||||||||||||||||||||||||
Total |
3.0% | 4.0% | 5.5% | 7.6% | 6.6% | -3.7% | -3.4% | 3.1% | 2.9% | 3.8% |
Note: Totals may not sum due to rounding
(1) | Represents Asia Pacific and emerging markets operations and franchise revenues. |
North America Performance
The increase in North America revenues in the second quarter of fiscal 2016 versus the prior year period was driven by the increase in Service Revenues. The increase in North America Total Paid Weeks primarily resulted from the higher number of Incoming Subscribers at the beginning of the second quarter of fiscal 2016 as compared to the beginning of the second quarter of fiscal 2015 and higher recruitments in the second quarter of fiscal 2016 versus the prior year period. Recruitments in the second quarter of fiscal 2016 were driven by the successful launch of our new Beyond the Scale program, which included the launch of SmartPoints late in fiscal 2015. This new launch, coupled with the successful response to our strategic collaboration with Ms. Winfrey, are driving momentum in our North America business.
The increase in North America product sales and other in the second quarter of 2016 versus the prior year period was driven primarily by an increase of $3.6 million or 21.0% in in-meeting product sales and partially offset by a decline in Online advertising revenue of $1.3 million or, 90.9%.
United Kingdom Performance
The decline in UK revenues in the second quarter of fiscal 2016 versus the prior year period was driven by the decline in Service Revenues. The decline in UK Total Paid Weeks was driven by the lower number of Incoming Subscribers at the beginning of the second quarter of fiscal 2016 versus the beginning the second quarter of fiscal 2015 coupled with lower recruitments in the second quarter of fiscal 2016 as compared to the prior year period as this market remains highly competitive.
The decline in UK product sales and other in the second quarter of fiscal 2016 versus the prior year period was driven largely by the decline in licensing revenue of $1.5 million, or 46.4% (42.4% on a constant currency basis) and to a lesser extent the decline in in-meeting product sales of $0.9 million, or 14.2%.
34
Continental Europe Performance
The decline in Continental Europe revenues in the second quarter of fiscal 2016 versus the prior year period was driven by the decline in Service Revenues. The decline in Service Revenues was driven by a 1.9% decline in total paid weeks in the second quarter of fiscal 2016 versus the prior year period, but has improved from the 5.9% decline experienced in the first quarter fiscal 2016 versus the prior year period. The decrease in Continental Europe Service Revenues in the second quarter of fiscal 2016 versus the prior year period was primarily the result of a decrease in Meeting Fees and to a lesser extent by a decrease in Online Subscription Revenues. This decrease in Meeting Fees was driven by the lower number of Incoming Subscribers at the beginning of the second quarter of fiscal 2016 versus the beginning of the second quarter of fiscal 2015 coupled with lower recruitments in the second quarter of fiscal 2016 as compared to the prior year period. The decrease in Online Subscription Revenues was driven by the lower number of Incoming Online Subscribers at the beginning of the second quarter of fiscal 2016 versus the beginning of the second quarter of fiscal 2015, but benefited from higher Online recruitments in the quarter which resulted in a shift so that the number of End of Period Subscribers at the end of the second quarter of fiscal 2016 was above that of the prior year period. In response to soft performance in our largest CE markets at the beginning of fiscal 2016, we changed our advertising creative and approach, which had an immediate effect on improving trends in those markets.
Continental Europe product sales and other in the second quarter of fiscal 2016 was driven primarily by a decline in in-meeting product sales of $1.9 million, or 19.0%, versus the second quarter of fiscal 2015.
Other Performance
Other revenues declined in the second quarter of fiscal 2016 versus the prior year period. Growth in revenue from our franchisees and growth from Asia Pacific Service Revenues were more than offset by declines in other product sales and other in the second fiscal quarter of fiscal 2016 as compared to the prior year period. Total Paid Weeks in the second quarter of fiscal 2016 versus the second quarter of fiscal 2015 was driven by recruitment growth in Asia Pacific in the second quarter of fiscal 2016 versus the prior year period. Despite entering the quarter with a lower number of Incoming Subscribers at the beginning of the second quarter of fiscal 2016 versus the beginning of fiscal 2015, higher recruitments in the quarter resulted in a shift so that the number of End of Period Subscribers at the end of the second quarter of fiscal 2016 was above that of the prior year period which resulted in an increase in Other Total Paid Weeks. A change in promotional activities that negatively impacted the Service Revenues per paid week in both the Meetings and Online businesses was partially offsetting.
The decline in Other product sales and other in the second quarter of fiscal 2016 versus the second quarter of fiscal 2015 was driven by a decline in Asia Pacific publishing and magazine business of $0.3 million or 18.6% (16.1% on a constant currency basis) and in-meeting product sales of $0.3 million, or 23.1% (20.0% on a constant currency basis), partially offset by an increase in revenue from our franchisees of $0.2 million, or 9.7%.
35
RESULTS OF OPERATIONS
SIX MONTHS ENDED JULY 2, 2016 COMPARED TO THE SIX MONTHS ENDED JULY 4, 2015
The table below sets forth selected financial information for the first six months of fiscal 2016 from our consolidated statements of net income for the six months ended July 2, 2016 versus selected financial information for the first six months of fiscal 2015 from our consolidated statements of net income for the six months ended July 4, 2015:
Summary of Selected Financial Data
(In millions, except per share amounts) | |||||||||||||||||||||||||
For the Six Months Ended | |||||||||||||||||||||||||
July 2, |
July 4, |
Increase/ |
% |
% Change | |||||||||||||||||||||
Revenues, net |
$ | 616.7 | $ | 631.9 | $ | (15.2 | ) | (2.4 | %) | (1.2 | %) | ||||||||||||||
Cost of revenues |
306.0 | 315.2 | (9.2 | ) | (2.9 | %) | (1.6 | %) | |||||||||||||||||
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Gross profit |
310.7 | 316.7 | (5.9 | ) | (1.9 | %) | (0.8 | %) | |||||||||||||||||
Gross Margin % |
50.4 | % | 50.1 | % | |||||||||||||||||||||
Marketing expenses |
127.7 | 127.6 | 0.1 | 0.1 | % | 1.8 | % | ||||||||||||||||||
Selling, general & administrative expenses |
95.7 | 100.4 | (4.7 | ) | (4.7 | %) | (3.5 | %) | |||||||||||||||||
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Operating income |
87.3 | 88.6 | (1.3 | ) | (1.5 | %) | (1.6 | %) | |||||||||||||||||
Operating Income Margin % |
14.2 | % | 14.0 | % | |||||||||||||||||||||
Interest expense |
58.6 | 61.6 | (2.9 | ) | (4.8 | %) | (4.8 | %) | |||||||||||||||||
Other expense, net |
0.5 | 0.9 | (0.4 | ) | (41.0 | %) | (41.0 | %) | |||||||||||||||||
Early extinguishment of debt |
| (11.5 | ) | 11.5 | (100.0 | %) | (100.0 | %) | |||||||||||||||||
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Income before income taxes |
28.1 | 37.6 | (9.5 | ) | (25.3 | %) | (25.5 | %) | |||||||||||||||||
Provision for income taxes |
8.4 | 15.3 | (6.9 | ) | (45.0 | %) | (45.1 | %) | |||||||||||||||||
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Net income |
19.7 | 22.3 | (2.6 | ) | (11.7 | %) | (12.0 | %) | |||||||||||||||||
Net loss attributable to the noncontrolling interest |
0.1 | 0.1 | (0.1 | ) | (58.9 | %) | (46.5 | %) | |||||||||||||||||
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Net income attributable to |
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Weight Watchers International, Inc. |
$ | 19.7 | $ | 22.4 | $ | (2.7 | ) | (12.0 | %) | (12.2 | %) | ||||||||||||||
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Weighted average diluted shares outstanding |
65.9 | 57.0 | 8.9 | 15.5 | % | 15.5 | % | ||||||||||||||||||
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Diluted earnings per share |
$ | 0.30 | $ | 0.39 | $ | (0.09 | ) | (23.9 | %) | (24.0 | %) | ||||||||||||||
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Note: Totals may not sum due to rounding
Certain results for the first six months of fiscal 2015 are adjusted to exclude the impact of the $6.0 million of restructuring charges associated with our previously disclosed 2015 restructuring plan. See Non-GAAP Financial Measures above. The table below sets forth a reconciliation of certain of those components of our selected financial data for the six months ended July 4, 2015 which have been adjusted.
36
(in millions, except per share amounts) | Gross Profit |
Gross Profit Margin |
Operating Income |
Operating Income Margin |
||||||||||||
First six months of fiscal 2015 |
$ | 316.7 | 50.1% | $ | 88.6 | 14.0% | ||||||||||
Adjustments to Reported Amounts (1) 2015 Restructuring charges (1) |
1.7 | 6.0 | ||||||||||||||
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Total Adjustments (1) |
1.7 | 6.0 | ||||||||||||||
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First six months of fiscal 2015, as adjusted(1) |
$ | 318.4 | 50.4% | $ | 94.6 | 15.0% | ||||||||||
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Note: Totals may not sum due to rounding
(1) | As adjusted is a non-GAAP financial measure that adjusts the consolidated statements of net income for the first six months of fiscal 2015 to exclude the impact of the $6.0 million of restructuring charges associated with our previously disclosed 2015 restructuring plan. See Non-GAAP Financial Measures above for an explanation of our use of non-GAAP financial measures. |
Consolidated Results
Revenues
Revenues in the first six months of fiscal 2016 declined by $15.2 million, or 2.4%, to $616.7 million versus the first six months of fiscal 2015. Excluding the impact of foreign currency, which negatively impacted our revenues for the first six months of fiscal 2016 by $7.7 million, revenues in the first six months of fiscal 2016 would have declined 1.2% versus the prior year period. Despite revenue growth in North America, declines in the remaining segments, particularly Continental Europe and the UK, were more than offsetting. See Segment Results for additional details on revenues.
Cost of Revenues and Gross Profit
Total cost of revenues in the first six months of fiscal 2016 declined $9.2 million, or 2.9%, versus the prior year period. Excluding the impact of the 2015 restructuring charges, total cost of revenues in the first six months of fiscal 2016 would have declined $7.5 million, or 2.4%, versus the prior year period. Excluding the impact of the 2015 restructuring charges, gross profit for the first six months of fiscal 2016 would have decreased by $7.6 million, or 2.4%, from the first six months of fiscal 2015. Excluding the impact of foreign currency, which negatively impacted our gross profit for the first six months of fiscal 2016 by $3.4 million, gross profit in the first six months of fiscal 2016 would have decreased 0.8% versus the prior year period. Excluding the impact of the 2015 restructuring charges, gross margin in the first six months of fiscal 2016 and the first six months of fiscal 2015 would have been 50.4%. Gross margin compression was driven primarily by declines in both Continental Europe and the UK partially offset by gross margin expansion in North America. The decline in gross margin was driven primarily by promotions of our service offerings, and the worldwide decline in the high margin licensing business partially offset by lower costs to support 24/7 Expert Chat in the United States and improved fixed cost leverage in North America.
Marketing
Marketing expenses for the first six months of fiscal 2016 increased $0.1 million, or 0.1%, versus the first six months of fiscal 2015. Excluding the impact of foreign currency, which decreased marketing expenses for the first six months of fiscal 2016 by $2.2 million, marketing expenses in the first six months of fiscal 2016 would have increased 1.8% versus the prior year period. The increase in marketing expense was primarily driven by higher TV media in some of our markets and higher investment in Online media partially offset by lower production costs in the United States. Marketing expenses as a percentage of revenue were 20.7% in the first six months of fiscal 2016 as compared to 20.2% in the prior year period.
Selling, General and Administrative
Selling, general and administrative expenses for the first six months of fiscal 2016 decreased $4.7 million, or 4.7%, versus the first six months of fiscal 2015. Excluding the impact of foreign currency, which decreased selling, general and administrative expenses for the first six months of fiscal 2016 by $1.2 million, selling, general and administrative expenses in the first six months of fiscal 2016 would have declined 3.5% versus the prior year period. Excluding the impact of the 2015 restructuring charges, selling, general and administrative expenses for the first six months of fiscal 2016 would have decreased by $0.4 million, or 0.4%, (but increased by 0.8% on a constant currency basis), versus the prior year period. The decrease in selling, general and administrative
37
expenses in the first six months of fiscal 2016 was driven primarily by lower technology expenses partially offset by higher incentive compensation costs. Selling, general and administrative expenses as a percentage of revenue for the first six months of fiscal 2016 decreased to 15.5% from 15.9% for the first six months of fiscal 2015. Excluding the impact of the 2015 restructuring charges, selling, general and administrative expenses as a percentage of revenue for the first six months of fiscal 2016 would have increased to 15.5%, from 15.2% for the first six months of fiscal 2015.
Operating Income
Operating income for the first six months of fiscal 2016 decreased $1.3 million, or 1.5%, versus the first six months of fiscal 2015. Excluding the impact of foreign currency, which positively impacted operating income for the first six months of fiscal 2016 by $0.1 million, operating income in the first six months of fiscal 2016 would have declined 1.6% versus the prior year period. This decrease in operating income was predominately the result of lower operating income in both Continental Europe and the UK partially offset by higher operating income in North America and Other in the first six months of fiscal 2016 as compared to the prior year period. Excluding the impact of the 2015 restructuring charges, our operating income margin in the first six months of fiscal 2016 would have decreased to 14.2%, or 14.0% on a constant currency basis, from 15.0% in the first six months of fiscal 2015. This decline in operating income margin was driven primarily by the increase in marketing and selling, general and administrative expenses as a percentage of revenue and to a lesser extent by the decline in gross profit margin as compared to the prior year period.
Interest Expense
Interest expense in the first six months of fiscal 2016 decreased $2.9 million, or 4.8%, versus the first six months of fiscal 2015. The decrease in interest expense was primarily driven by the decrease in our average debt outstanding, which decreased to $2.1 billion in the first six months of fiscal 2016 from $2.3 billion in the first six months of fiscal 2015. This decrease was primarily due to the debt payment in April 2016 and the debt prepayments in March and June of fiscal 2015 partially offset by the draw down on our Revolving Facility in July of fiscal 2015. The effective interest rate on our debt, based on interest incurred (which includes amortization of our deferred financing costs) and our average borrowings during the first six months of fiscal 2016 and the first six months of fiscal 2015 and excluding the impact of our interest rate swap, decreased 0.01% per annum to 4.30% per annum at the end of the six months of fiscal 2016 compared to 4.31% per annum at the end of the six months of fiscal 2015. Including the impact of our interest rate swap, our effective interest rate on our debt, based on interest incurred (which includes amortization of our deferred financing costs) and our average borrowings during the first six months of fiscal 2016 and the first six months of fiscal 2015, increased to 5.45% per annum at the end of the six months of fiscal 2016 from 5.39% per annum at the end of the six months of fiscal 2015. See Liquidity and Capital ResourcesLong-Term Debt for additional details regarding interest rates on our debt outstanding, the Revolving Facility and payments on our debt. For additional details on our interest rate swap see Item 3. Quantitative and Qualitative Disclosures about Market Risk in Part I of this Quarterly Report on Form 10-Q.
Early Extinguishment of Debt
In March 2015, we paid an aggregate amount of cash proceeds totaling $57.4 million plus an amount sufficient to pay accrued and unpaid interest on the amount prepaid to prepay $63.1 million in aggregate principal amount of term loans under the Tranche B-1 Term Facility. In June 2015, we paid an aggregate amount of cash proceeds totaling $77.2 million plus an amount sufficient to pay accrued and unpaid interest on the amount prepaid to prepay $84.9 million in aggregate principal amount of term loans under the Tranche B-1 Term Facility. As a result of these prepayments, we wrote-off fees of $0.6 million, incurred fees of $1.2 million and recorded a gain on early extinguishment of debt of $11.5 million, inclusive of these fees, in the first six months of fiscal 2015.
Other Expense, Net
Other expense, net, which consists primarily of the impact of foreign currency on intercompany transactions, decreased by $0.4 million in the first six months of fiscal 2016 as compared to the first six months of fiscal 2015.
Tax
Our effective tax rate was 30.0% for the first six months of fiscal 2016 as compared to 40.7% for the first six months of fiscal 2015. The decrease was due mainly to the reversal of a $2.5 million valuation allowance related to tax benefits for foreign losses that are now expected to be realized and to a lesser extent an increase in tax reserves and valuation allowances in 2015.
38
Net Income Attributable to the Company and Earnings Per Share
Net income attributable to the Company in the first six months of fiscal 2016 reflected a $2.7 million, or 12.0% decline from the first six months of fiscal 2015. Excluding the impact of foreign currency, which positively impacted net income attributable to the Company in the first six months of fiscal 2016 by $0.03 million, net income attributable to the Company in the first six months of fiscal 2016 would have declined by 12.2% versus the prior year period. Net income attributable to the Company in the first six months of fiscal 2016 includes reversal of a $2.5 million valuation allowance related to tax benefits for foreign losses that are now expected to be realized. Net income attributable to the Company in the first six months of fiscal 2015 is impacted by two items that affect year-over-year comparability: (i) $3.7 million of restructuring charges associated with our previously disclosed 2015 restructuring plan and (ii) $7.0 million of the gain on early extinguishment of debt. This increase in net income attributable to the Company was primarily driven by lower tax expense, an increase in operating income and to a lesser extent the decline in interest expense in the first six months of fiscal 2016 versus the prior year period.
EPS in the first six months of fiscal 2016 was $0.30 compared to $0.39 per share in the first six months of fiscal 2015. For the first six months of fiscal 2016, EPS includes a $0.04 benefit in connection with the release of a valuation allowance related to tax benefits for foreign losses that are now expected to be realized. The higher share count, driven primarily by the October fiscal 2015 Winfrey Transaction, dilutes EPS by $0.05 in the first six months of fiscal 2016. For the first six months of fiscal 2015, EPS includes $0.06 charge in connection with the impact of the 2015 restructuring charges and a $0.12 benefit related to the gain on early extinguishment of debt.
Segment Results
Metrics and Business Trends
The following tables set forth key metrics by reportable segment for the first six months of fiscal 2016 and the percentage change in those metrics versus the prior year period:
(in millions unless otherwise stated) | ||||||||||||||||||||||||||||||||||||
First Half 2016 | ||||||||||||||||||||||||||||||||||||
GAAP | Constant Currency | |||||||||||||||||||||||||||||||||||
Product | Product | Total | ||||||||||||||||||||||||||||||||||
Service | Sales & | Total | Service | Sales & | Total | Paid | Incoming | EOP | ||||||||||||||||||||||||||||
Revenues | Other | Revenues | Revenues | Other | Revenues | Weeks | Subscribers | Subscribers | ||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||||||
North America |
$ | 352.3 | $ | 68.1 | $ | 420.4 | $ | 354.2 | $ | 68.3 | $ | 422.5 | 52.5 | 1,531.5 | 1,919.6 | |||||||||||||||||||||
UK |
40.4 | 16.2 | 56.6 | 43.0 | 17.2 | 60.2 | 8.5 | 263.1 | 300.1 | |||||||||||||||||||||||||||
CE |
86.0 | 26.7 | 112.8 | 86.0 | 26.9 | 112.8 | 17.0 | 530.7 | 642.1 | |||||||||||||||||||||||||||
Other (1) |
16.6 | 10.3 | 26.9 | 18.0 | 10.7 | 28.7 | 2.4 | 64.3 | 75.1 | |||||||||||||||||||||||||||
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Total |
$ | 495.3 | $ | 121.4 | $ | 616.7 | $ | 501.2 | $ | 123.2 | $ | 624.3 | 80.3 | 2,389.6 | 2,937.0 | |||||||||||||||||||||
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% Change First Half 2016 vs. First Half 2015 | ||||||||||||||||||||||||||||||||||||
North America |
3.5% | 3.1% | 3.5% | 4.1% | 3.5% | 4.0% | 7.0% | -5.3% | 8.6% | |||||||||||||||||||||||||||
UK |
-11.5% | -24.7% | -15.7% | -5.8% | -19.9% | -10.3% | -6.9% | -5.3% | -5.3% | |||||||||||||||||||||||||||
CE |
-10.2% | -19.3% | -12.6% | -10.3% | -18.9% | -12.5% | -3.9% | -3.8% | -1.2% | |||||||||||||||||||||||||||
Other (1) |
-10.8% | -4.7% | -8.6% | -3.0% | -1.2% | -2.3% | 7.9% | 3.7% | 16.7% | |||||||||||||||||||||||||||
Total |
-1.0% | -7.7% | -2.4% | 0.2% | -6.4% | -1.2% | 2.9% | -4.8% | 5.0% |
Note: Totals may not sum due to rounding
(1) | Represents Asia Pacific and emerging markets operations and franchise revenues. |
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(in millions unless otherwise stated) | ||||||||||||||||||||||||||||||||||||||||
First Half 2016 | ||||||||||||||||||||||||||||||||||||||||
Online Subscription Revenues |
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Meeting Fees | Meeting | Incoming | EOP | Online | Incoming | EOP | ||||||||||||||||||||||||||||||||||
Constant | Paid | Meeting | Meeting | Constant | Paid | Online | Online | |||||||||||||||||||||||||||||||||
GAAP | Currency | Weeks | Subscribers | Subscribers | GAAP | Currency | Weeks | Subscribers | Subscribers | |||||||||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||||||||||
North America |
$ | 226.6 | $ | 227.8 | 23.7 | 645.1 | 843.3 | $ | 125.7 | $ | 126.4 | 28.8 | 886.4 | 1,076.3 | ||||||||||||||||||||||||||
UK |
30.4 | 32.4 | 5.4 | 153.2 | 178.0 | 10.0 | 10.6 | 3.1 | 109.9 | 122.1 | ||||||||||||||||||||||||||||||
CE |
48.1 | 48.2 | 5.9 | 172.4 | 208.4 | 37.9 | 37.8 | 11.1 | 358.3 | 433.7 | ||||||||||||||||||||||||||||||
Other (1) |
11.2 | 12.4 | 1.3 | 27.2 | 33.0 | 5.3 | 5.6 | 1.1 | 37.2 | 42.1 | ||||||||||||||||||||||||||||||
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Total |
$ | 316.4 | $ | 320.7 | 36.2 | 997.9 | 1,262.8 | $ | 178.9 | $ | 180.5 | 44.1 | 1,391.8 | 1,674.2 | ||||||||||||||||||||||||||
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% Change First Half 2016 vs. First Half 2015 | ||||||||||||||||||||||||||||||||||||||||
North America |
6.9% | 7.5% | 9.9% | -6.9% | 13.9% | -2.0% | -1.5% | 4.7% | -4.2% | 4.8% | ||||||||||||||||||||||||||||||
UK |
-10.5% | -4.7% | -4.6% | -3.1% | -5.2% | -14.5% | -8.9% | -10.6% | -8.2% | -5.4% | ||||||||||||||||||||||||||||||
CE |
-12.4% | -12.3% | -7.5% | -3.2% | -8.6% | -7.3% | -7.6% | -1.9% | -4.1% | 2.9% | ||||||||||||||||||||||||||||||
Other (1) |
-13.0% | -4.2% | 2.1% | 2.7% | 16.0% | -5.9% | -0.3% | 15.2% | 4.4% | 17.2% | ||||||||||||||||||||||||||||||
Total |
0.8% | 2.2% | 4.1% | -5.4% | 6.6% | -4.1% | -3.3% | 2.0% | -4.3% | 3.8% |
Note: Totals may not sum due to rounding
(1) | Represents Asia Pacific and emerging markets operations and franchise revenues. |
North America Performance
The increase in North America revenues in the first six months of fiscal 2016 versus the prior year period was driven by the increase in Service Revenues. The increase in North America Total Paid Weeks primarily resulted from the higher recruitments in the first six months of fiscal 2016 versus the prior year period. Despite entering the first six months with a lower number of Incoming Subscribers at the beginning of fiscal 2016 versus the beginning of fiscal 2015, higher recruitments in the first six months resulted in a shift so that the number of End of Period Subscribers at the end of the first six months of fiscal 2016 was above that of the prior year period. Recruitments in the first six months of fiscal 2016 were driven by the successful launch of our new Beyond the Scale program, which included the launch of SmartPoints. This new launch, coupled with the successful response to our strategic collaboration with Ms. Winfrey, are driving momentum in our North America business.
The increase in North America product sales and other in the first six months of 2016 versus the prior year period was driven primarily by an increase in in-meeting product sales of $5.8 million, or 14.9% and partially offset by a decline in licensing revenue and Online advertising of $2.1 million, or 15.3%.
United Kingdom Performance
The decline in UK revenues in the first six months of fiscal 2016 versus the prior year period was driven by the decline in Service Revenues. The decline in UK Total Paid Weeks was driven by the lower number of Incoming Subscribers at the beginning of fiscal 2016 versus the beginning of fiscal 2015 coupled with lower recruitments in the first six months of fiscal 2016 as compared to the prior year period as this market remains highly competitive.
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The decline in UK product sales and other in the first six months of fiscal 2016 versus the prior year period was driven by both the decline in in-meeting product sales of $3.0 million, or 21.0%, and the decline in licensing revenue of $2.4 million, or 38.5% (34.5% on a constant currency basis).
Continental Europe Performance
The decline in Continental Europe revenues in the first six months of fiscal 2016 versus the prior year period was driven by the decline in Service Revenues. The decrease in Continental Europe Service Revenues in the first six months of fiscal 2016 versus the prior year period was primarily the result of a decrease in Meeting Fees and to a lesser extent by a decrease in Online Subscription Revenues. This decrease in Meeting Fees was driven by the lower number of Incoming Subscribers at the beginning of fiscal 2016 versus the beginning of fiscal 2015 coupled with lower recruitments in the first six months of fiscal 2016 as compared to the prior year period. The decrease in Online Subscription Revenues was driven by the lower number of Incoming Online Subscribers at the start of fiscal 2016 versus the start of fiscal 2015 partially offset by an increase in recruitments in the CE Online business in the first six months of fiscal 2016 versus the prior year period. In response to soft performance in our largest CE markets, we changed our advertising creative and approach, which had an immediate effect on improving trends in those markets.
Continental Europe product sales and other in the first six months of fiscal 2016 was driven primarily by a decline in in-meeting product sales of $5.7 million, or 25.1%, versus the first six months of fiscal 2015.
Other Performance
The decline in Other revenue in the first six months of fiscal 2016 versus the prior year period was primarily driven by revenue declines in Asia Pacific and to a lesser extent Emerging markets partially offset by growth in revenue from franchisees. The increase in Other Total Paid Weeks was driven primarily by higher recruitments in the first six months of fiscal 2016 as compared to the first six months of fiscal 2015 and also by the higher number of Incoming Subscribers at the beginning of fiscal 2016 versus the beginning of fiscal 2015. A change in promotional activities that negatively impacted the Service Revenues per paid week in both the Meetings and Online businesses was partially offset by the increase in Other Total Paid Weeks. The net impact of these items resulted in a slight decrease in Other Service Revenues in the first six months of fiscal 2016 versus the prior year period.
The decline in Other product sales and other in the first six months of fiscal 2016 versus the first six months of fiscal 2015 was driven by a decline in in-meeting product sales of $0.7 million, or 26.1% (19.8% on a constant currency basis) and a decline in licensing, publishing and magazines in Asia Pacific of $1.0 million or 29.6% (27.2% on a constant currency basis) partially offset by an increase in revenue from our franchisees of $1.1 million, or 22.0%.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities have historically supplied, and are expected to continue to supply, us with our primary source of liquidity. We use these cash flows, supplemented with long-term debt and short-term borrowings, to fund our operations and global initiatives, pay down debt and opportunistically engage in selective acquisitions. See Transformation Plan for a discussion of our strategic initiatives. On October 30, 2013, we announced that we suspended our quarterly cash dividend, as described below (see Dividends and Stock Transactions). We believe that cash generated by our revenue forecast for fiscal 2016 of slightly below $1.2 billion, our continued cost focus, the launch of our 2016 winter season program innovation, and our cash on hand of $114.5 million at the end of the first six months of fiscal 2016 will provide us with sufficient liquidity to meet our obligations for the next twelve months. On April 1, 2016 we paid in full, with cash on hand, a principal amount of loans equal to $144.3 million, which constituted the entire remaining principal amount of loans outstanding under the Tranche B-1 Term Facility due April 2, 2016.
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Subsequent to the quarter end, on July 29, 2016 we paid down, with cash on hand, a principal amount of $25.0 million of the $48.0 million outstanding on its Revolving Facility.
Balance Sheet Working Capital
The following table sets forth certain relevant measures of our balance sheet working capital at:
July 2, 2016 |
January 2, 2016 |
Increase/ (Decrease) |
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(in millions) | ||||||||||||
Total current assets |
$ | 216.2 | $ | 351.5 | $ | (135.3 | ) | |||||
Total current liabilities |
362.3 | 503.1 | (140.8 | ) | ||||||||
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Working capital deficit |
(146.1 | ) | (151.6 | ) | (5.5 | ) | ||||||
Cash and cash equivalents |
114.5 | 241.5 | (127.0 | ) | ||||||||
Current portion of long-term debt |
69.0 | 213.3 | (144.3 | ) | ||||||||
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Working capital deficit, excluding change in cash and cash equivalents and current portion of long-term debt |
$ | (191.6 | ) | $ | (179.8 | ) | $ | 11.8 | ||||
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We generally operate with negative working capital that is driven in part by our commitment and subscription plans which are our primary payment method. These plans require members and subscribers to pay us for meetings and Online subscription products, before we pay for our obligations in the normal course of business. These prepayments are recorded as a current liability on our balance sheet which has resulted in, and in certain circumstances has helped drive, negative working capital. This core characteristic of our business model is expected to continue. However, during a period in which revenue is declining, we get less working capital benefit from this deferred revenue.
Including cash and cash equivalents and the current portion of long-term debt, our working capital deficit decreased by $5.5 million to $146.1 million at July 2, 2016 from $151.6 million at January 2, 2016. This decrease in our working capital deficit was driven in large part by the principal debt maturity payment of $144.3 million (due April 2, 2016) paid in full, with cash on hand, April 1, 2016, thereby lowering cash by $127.0 million at the end of the first six months of fiscal 2016 from year-end fiscal 2015.
Excluding cash and cash equivalents and current portion of long-term debt at both dates, the working capital deficit at July 2, 2016 increased by $11.8 million to $191.6 million from $179.8 million at January 2, 2016. The factors contributing to this increase in our working capital deficit were: (i) a $13.7 million increase in deferred revenue driven by a combination of seasonality and improved business performance, (ii) an $18.0 million increase in the derivative payable, (iii) a $5.9 million decrease in prepaid income taxes as of July 2, 2016, and (iv) a $3.0 million decline in other current assets. These factors were offset by: (i) a $24.7 million decrease in operational liabilities and other arising primarily from higher accrued liability balances at fiscal year-end fiscal 2015 primarily driven by Winter season marketing spend and (ii) a $4.1 million decrease in accrued salaries and wages driven by the payout of the 2015 bonus.
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Cash Flows
The following table sets forth a summary of the Companys cash flows for the six months ended:
July 2, 2016 |
July 4, 2015 |
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(in millions) | ||||||||
Net cash provided by operating activities |
$ | 46.4 | $ | 26.3 | ||||
Net cash used for investing activities |
$ | (19.9 | ) | $ | (26.7 | ) | ||
Net cash used for financing activities |
$ | (153.9 | ) | $ | (147.6 | ) |
Operating Activities
First Six Months of Fiscal 2016
Cash flows provided by operating activities of $46.4 million for the first six months of fiscal 2016 reflected an increase of $20.1 million from $26.3 million of cash flows used for operating activities in the first six months of fiscal 2015. The increase in cash provided by operating activities was primarily the result of $47.2 million of benefit from year-over-year change in working capital in the first six months of fiscal 2016 as compared to the prior year period.
First Six Months of Fiscal 2015
Cash flows provided by operating activities of $26.3 million for the first six months of fiscal 2015 reflected a decrease of $119.2 million from $145.5 million of cash flows provided by operating activities for the first six months of fiscal 2014. The decrease in cash provided by operating activities was primarily the result of $53.1 million of lower net income attributable to the Company in the first six months of fiscal 2015 as compared to the prior year period and year-over-year working capital deficit decreases of $59.0 million.
Investing Activities
First Six Months of Fiscal 2016
Net cash used for investing activities totaled $19.9 million in the first six months of fiscal 2016, a decrease of $6.8 million as compared to the first six months of fiscal 2015. Due to the significant progress against our transformation plan in fiscal 2015, our technology and operating infrastructure required less investment in the first six months of fiscal 2016 as compared to the first six months of fiscal 2015.
First Six Months of Fiscal 2015
Net cash used in investing activities totaled $26.7 million in the first six months of fiscal 2015, a decrease of $5.3 million as compared to the first six months of fiscal 2014. This decrease was primarily attributable to the lower investment in acquisitions in the first six months of fiscal 2015 versus the prior year period. For additional information on our acquisitions, see Item 6. Selected Financial Data of our Annual Report on Form 10-K for fiscal 2015.
Financing Activities
First Six Months of Fiscal 2016
Net cash used for financing activities totaled $153.9 million in the first six months of fiscal 2016, primarily due to a $144.3 million debt repayment in connection with the Tranche B-1 Term Facility and other scheduled debt repayments of $10.5 million in connection with the Tranche B-2 Term Facility, offset by a tax benefit for restricted stock units vested and stock options exercised of $0.9 million in the first six months of fiscal 2016.
First Six Months of Fiscal 2015
Net cash used in financing activities totaled $147.6 million in the first six months of fiscal 2015, primarily due to $137.1 million of debt prepayments in connection with the debt tender offers discussed below and scheduled debt repayments of $10.5 million in the first six months of fiscal 2015. For a discussion of the debt tender offers, see Long-Term Debt.
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Long-Term Debt
We currently plan to meet our long-term debt obligations by using cash flows provided by operating activities and opportunistically using other means to repay or refinance our obligations as we determine appropriate. On April 1, 2016, we paid in full, with cash on hand, a principal amount of loans equal to $144.3 million, which constituted the entire remaining principal amount of loans outstanding under the Tranche B-1 Term Facility due April 2, 2016. On July 29, 2016, we paid $25.0 million of the $48.0 million outstanding under the Revolving Facility, which is not due until April 2, 2018.
The following schedule sets forth our long-term debt obligations at July 2, 2016:
Long-Term Debt
At July 2, 2016
(Balances in millions)
Balance | ||||
Revolving Facility due April 2, 2018 |
$ | 48.0 | ||
Tranche B-2 Term Facility due April 2, 2020 |
2,031.8 | |||
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Total Debt |
2,079.8 | |||
Less: Current Portion |
69.0 | |||
Unamortized Deferred Financing Costs |
21.9 | |||
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Total Long-Term Debt |
$ | 1,988.9 | ||
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Pursuant to the retrospective adoption of FASB guidance on debt issuance costs, we reclassified unamortized debt issuance costs associated with Term Facilities (defined hereafter) in our previously reported Consolidated Balance Sheet in our Annual Report on Form 10-K for fiscal 2015.
Our credit facilities at the end of the first quarter of fiscal 2013 consisted of the following term loan facilities and revolving credit facilities: a tranche B loan, or Term B Loan, a tranche C loan, or Term C Loan, a tranche D loan, or Term D Loan, a tranche E loan, or Term E Loan, a tranche F loan, or Term F Loan, revolving credit facility A-1, or Revolver A-1, and revolving credit facility A-2, or Revolver A-2.
On April 2, 2013, we refinanced our credit facilities pursuant to a new Credit Agreement, or as amended, supplemented or otherwise modified, the Credit Agreement, among the Company, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent and an issuing bank, The Bank of Nova Scotia, as revolving agent, swingline lender and an issuing bank, and the other parties thereto. The Credit Agreement provides for (a) a revolving credit facility (including swing line loans and letters of credit) in an initial aggregate principal amount of $250.0 million that will mature on April 2, 2018, or the Revolving Facility, (b) an initial term B-1 loan credit facility in an aggregate principal amount of $300.0 million that matured on April 2, 2016, or Tranche B-1 Term Facility, and (c) an initial term B-2 loan credit facility in an aggregate principal amount of $2,100.0 million that will mature on April 2, 2020, or Tranche B-2 Term Facility. We refer herein to the Tranche B-1 Term Facility together with the Tranche B-2 Term Facility as the Term Facilities, and the Term Facilities and Revolving Facility collectively as the WWI Credit Facility. In connection with this refinancing, we used the proceeds from borrowings under the Term Facilities to pay off a total of $2,399.9 million of outstanding loans, consisting of $128.8 million of Term B Loans, $110.6 million of Term C Loans, $117.6 million of Term D Loans, $1,125.0 million of Term E Loans, $817.9 million of Term F Loans, $21.2 million of loans under the Revolver A-1 and $78.8 million of loans under the Revolver A-2. Following the refinancing of a total of $2,399.9 million of loans, at April 2, 2013, we had $2,400.0 million debt outstanding under the Term Facilities and $248.8 million of availability under the Revolving Facility. We incurred fees of $44.8 million during the second quarter of fiscal 2013 in connection with this refinancing. In the second quarter of fiscal 2013, we wrote-off fees associated with this refinancing which resulted in our recording a charge of $21.7 million in early extinguishment of debt.
On September 26, 2014, we entered into an agreement with certain lenders amending the Credit Agreement that, among other things, eliminated the Financial Covenant (as defined in the Credit Agreement) with respect to the Revolving Facility. In connection with this amendment, we wrote-off deferred financing fees of approximately $1.6 million in the third quarter of fiscal 2014. Concurrently with and in order to effect this amendment, we reduced the amount of the Revolving Facility from $250.0 million to $50.0 million.
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Under the terms of the Credit Agreement, depending on our Consolidated Leverage Ratio (as defined in the Credit Agreement), we are obligated to offer to prepay the Term Facilities in an aggregate amount determined by our excess cash flow (as defined in the Credit Agreement). On March 13, 2015, we commenced an offer to prepay at a discount to par up to $75.0 million in aggregate principal amount of term loans outstanding under the Tranche B-1 Term Facility. On March 20, 2015, we accepted offers with a discount equal to or greater than 9.00% in respect of such term loans. On March 25, 2015, we paid an aggregate amount of cash proceeds totaling $57.4 million plus an amount sufficient to pay accrued and unpaid interest on the amount prepaid to prepay $63.1 million in aggregate principal amount of such term loans under the Tranche B-1 Term Facility. This expenditure reduced, on a dollar for dollar basis, our $59.7 million obligation to make a mandatory excess cash flow prepayment offer to the term loan lenders under the terms of the Credit Agreement. In addition, we made a voluntary prepayment at par on March 25, 2015 of $2.5 million in respect of such term loans under the Tranche B-1 Term Facility to reduce the remaining excess cash flow prepayment obligation for fiscal 2014. As a result of this prepayment, we wrote-off fees of $0.3 million, incurred fees of $0.6 million and recorded a gain on early extinguishment of debt of $4.7 million, inclusive of these fees, in the first quarter of fiscal 2015.
On June 17, 2015, we commenced another offer to prepay at a discount to par up to $229.0 million in aggregate principal amount of term loans outstanding under the Tranche B-1 Term Facility. On June 22, 2015, we accepted offers with a discount equal to or greater than 9.00% in respect of such term loans. On June 26, 2015, we paid an aggregate amount of cash proceeds totaling $77.2 million plus an amount sufficient to pay accrued and unpaid interest on the amount prepaid to prepay $84.9 million in aggregate principal amount of such term loans under the Tranche B-1 Term Facility. As a result of this prepayment, we wrote-off fees of $0.3 million, incurred fees of $0.6 million and recorded a gain on early extinguishment of debt of $6.7 million, inclusive of these fees, in the second quarter of fiscal 2015.
On July 14, 2015, we drew down $48.0 million on our Revolving Facility in order to enhance our cash position and to provide additional financial flexibility. The revolver borrowing has been classified as a short-term liability in consideration of the fact that the terms of the Revolving Facility require an assessment as to whether there have been any material adverse changes with respect to the Company in connection with our monthly interest elections. Although the revolver borrowing has been classified as a short-term liability, absent any change in fact and circumstance, we have the ability to extend and not repay the Revolving Facility until its due date of April 2, 2018.
On April 1, 2016, we paid in full, with cash on hand, a principal amount of loans equal to $144.3 million, which constituted the entire remaining principal amount of loans outstanding under the Tranche B-1 Term Facility due April 2, 2016.
At July 2, 2016, under the WWI Credit Facility, we had $2,031.8 million outstanding consisting entirely of a term loan under the Tranche B-2 Term Facility, and borrowings of $48.0 million outstanding under the Revolving Facility. In addition, at July 2, 2016, the Revolving Facility had $1.8 million in issued but undrawn letters of credit outstanding thereunder and $0.2 million in available unused commitments thereunder. The proceeds from borrowings under the Revolving Facility (including swing line loans and letters of credit) are available to be used for working capital and general corporate purposes.
At July 2, 2016 and January 2, 2016, our debt consisted entirely of variable-rate instruments. Interest rate swaps were entered into to hedge a portion of the cash flow exposure associated with our variable-rate borrowings. The weighted average interest rate (which includes amortization of deferred financing costs) on our debt, exclusive of the impact of swaps, was approximately 4.31% and 4.34% per annum based on interest rates at July 2, 2016 and January 2, 2016, respectively. The weighted average interest rate (which includes amortization of deferred financing costs) on our debt, including the impact of swaps, was approximately 5.25% and 5.45% per annum based on interest rates at July 2, 2016 and January 2, 2016, respectively.
On July 29, 2016, we paid down, with cash on hand, a principal amount of $25.0 million of the $48.0 million outstanding on its Revolving Facility.
Borrowings under the Credit Agreement bear interest at a rate equal to, at our option, LIBOR plus an applicable margin or a base rate plus an applicable margin. LIBOR under the Tranche B-2 Term Facility is subject to a minimum interest rate of 0.75% and the base rate under the Tranche B-2 Term Facility is subject to a minimum interest rate of 1.75%. Under the terms of the Credit Agreement, in the event we receive a corporate rating of BB- (or lower) from S&P and a corporate rating of Ba3 (or lower) from Moodys, the applicable margin relating to both of the Term Facilities would increase by 25 basis points. On February 21, 2014, both S&P and Moodys issued revised corporate ratings of the Company of B+ and B1, respectively. As a result, effective February 21, 2014, the applicable margin on borrowings under the Tranche B-1 Term Facility went from 2.75% to 3.00% and on borrowings under the Tranche B-2 Term Facility went from 3.00% to 3.25%. The applicable margin relating to the Revolving Facility will fluctuate depending upon our Consolidated Leverage Ratio. At April 1, 2016, the date of payment of the principal amount of loans outstanding thereunder and discussed above, borrowings under the Tranche B-1 Term Facility bore interest at LIBOR plus an applicable margin of 3.00%. At July 2, 2016, borrowings under the Tranche B-2 Term Facility bore interest at LIBOR plus an applicable margin of 3.25%. Based on our Consolidated Leverage Ratio as of July 2, 2016, borrowings under the Revolving Facility bore interest at LIBOR plus an
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applicable margin of 2.50%. On a quarterly basis, we will pay a commitment fee to the lenders under the Revolving Facility in respect of unutilized commitments thereunder, which commitment fee will fluctuate, but in no event exceed 0.50% per annum, depending upon our Consolidated Leverage Ratio. At our Consolidated Leverage Ratio of 7:50:1.00 as of July 2, 2016, the commitment fee was 0.50% per annum. We also will pay customary letter of credit fees and fronting fees under the Revolving Facility.
The Credit Agreement contains customary covenants including covenants that, in certain circumstances, restrict our ability to incur additional indebtedness, pay dividends on and redeem capital stock, make other payments, including investments, sell our assets and enter into consolidations, mergers and transfers of all or substantially all of our assets. The WWI Credit Facility does not require us to meet any financial maintenance covenants and is guaranteed by certain of our existing and future subsidiaries. Substantially all of our assets secure the WWI Credit Facility.
The following schedule sets forth our year-by-year debt obligations at July 2, 2016:
Total Debt Obligation
(Including Current Portion)
At July 2, 2016
(in millions)
Remainder of fiscal 2016 |
$ | 58.5 | ||
Fiscal 2017 |
21.0 | |||
Fiscal 2018 |
21.0 | |||
Fiscal 2019 |
21.0 | |||
Fiscal 2020 |
1,958.3 | |||
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Total |
$ | 2,079.8 | ||
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Accumulated Other Comprehensive Loss
Our accumulated other comprehensive loss includes net loss, changes in the fair value of derivative instruments and the effects of foreign currency translations. At July 2, 2016 and July 4, 2015, the cumulative balance of changes in fair value of derivative instruments, net of taxes, was $(34,216) and $(22,523), respectively. At July 2, 2016 and July 4, 2015, the cumulative balance of the effects of foreign currency translations, net of taxes, was $(7,457) and $(6,178), respectively.
Dividends and Stock Transactions
On October 30, 2013, we announced that we suspended our quarterly cash dividend. We currently intend to use the related annual cash savings to preserve financial flexibility while funding our strategic growth initiatives and building cash for future debt repayments. Any future determination to declare and pay dividends will be made at the discretion of our Board of Directors, after taking into account our financial results, capital requirements and other factors it may deem relevant. The WWI Credit Facility also contains restrictions on our ability to pay dividends on our common stock.
On October 9, 2003, our Board of Directors authorized, and we announced, a program to repurchase up to $250.0 million of our outstanding common stock. On each of June 13, 2005, May 25, 2006 and October 21, 2010, our Board of Directors authorized, and we announced, adding $250.0 million to this program. The repurchase program allows for shares to be purchased from time to time in the open market or through privately negotiated transactions. No shares will be purchased from Artal Holdings Sp. z o.o., Succursale de Luxembourg and its parents and subsidiaries under this program. The repurchase program currently has no expiration date. During the six months ended July 2, 2016 and July 4, 2015, we repurchased no shares of our common stock in the open market under this program.
The WWI Credit Facility provides that we are permitted to pay dividends and extraordinary dividends, as well as repurchase shares of our common stock, so long as we are not in default under the Credit Agreement. However, payment of extraordinary dividends and stock repurchases shall not exceed $100.0 million in the aggregate in any fiscal year if our Consolidated Leverage Ratio is greater than 3.25:1. As of July 2, 2016, our Consolidated Leverage Ratio was greater than 3.25:1 and we expect that it will remain above 3.25:1 for the foreseeable future.
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EBITDAS
EBITDAS, defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation, in the three months ended July 2, 2016 and July 4, 2015 was $87.8 million, and $117.5 million, respectively and for the six months ended July 2, 2016 and July 4, 2015 was $93.7 million, and $132.2 million, respectively. The table below sets forth the calculation:
Three Months Ended | Six Months Ended | |||||||||||||||
July 2, | July 4, | July 2, | July 4, | |||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Net Income |
$ | 30.5 | $ | 27.9 | $ | 19.7 | $ | 22.4 | ||||||||
Interest |
28.6 | 30.5 | 58.6 | 61.6 | ||||||||||||
Taxes |
14.0 | 18.7 | 8.4 | 15.3 | ||||||||||||
Depreciation and Amortization |
12.9 | 14.4 | 25.8 | 28.3 | ||||||||||||
Stock-based Compensation |
1.7 | 2.3 | 4.9 | 4.6 | ||||||||||||
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EBITDAS |
$ | 87.8 | $ | 93.7 | $ | 117.5 | $ | 132.2 | ||||||||
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Note: | Totals may not sum due to rounding |
Reducing leverage is a clear capital structure priority for the Company. As part of our commitment to de-levering, we are targeting a year-end 2018 Net Debt/EBITDAS ratio of less than 4.5x, based on improved operating performance and cash generation. As of July 2, 2016, our Trailing Twelve Months EBITDA was $240.8 million and our Net Debt/EBITDAS ratio was 8.2x. We present EBITDAS because we consider this to be a useful supplemental measure of our performance. In addition, we believe EBITDAS is useful to investors, analysts and rating agencies in measuring the ability of a company to meet its debt service obligations.
OFF-BALANCE SHEET ARRANGEMENTS
As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes, such as entities often referred to as structured finance or special purpose entities.
SEASONALITY
Our business is seasonal due to the importance of the winter season to our overall recruitment environment. Our advertising schedule generally supports the three key recruitment-generating seasons of the year: winter, spring and fall, with winter having the highest concentration of advertising spending.
AVAILABLE INFORMATION
Corporate information and our press releases, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments thereto, are available free of charge on our website at www.weightwatchersinternational.com as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (i.e., generally the same day as the filing). Moreover, we also make available at that site the Section 16 reports filed electronically by our officers, directors and 10 percent shareholders. Usually these are publicly accessible no later than the business day following the filing.
We use our website at www.weightwatchersinternational.com and our corporate Facebook page (www.facebook.com/weightwatchers), Twitter account (@WeightWatchers), and Instagram account (Instagram.com/weightwatchers) as channels of distribution of Company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, Securities and Exchange Commission filings and public conference calls and webcasts. The contents of our website and social media channels shall not be deemed to be incorporated herein by reference.
47
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
As of July 2, 2016, the market risk disclosures appearing in Item 7A. Quantitative and Qualitative Disclosures about Market Risk of our Annual Report on Form 10-K for fiscal 2015 have not materially changed from January 2, 2016.
On April 1, 2016, we paid in full, with cash on hand, a principal amount of loans equal to $144.3 million, which amount constituted the entire remaining principal amount of loans outstanding under our Tranche B-1 Term Facility. At the end of the second quarter of fiscal 2016, borrowings under the Tranche B-2 Term Facility bore interest at LIBOR plus an applicable margin of 3.25%. For the Tranche B-2 Term Facility, the minimum interest rate for LIBOR applicable to such facility pursuant to the terms of the Credit Agreement is set at 0.75%, referred to herein as the B-2 LIBOR Floor. In addition, at the end of the second quarter of fiscal 2016, our interest rate swap in effect had a notional amount of $1.5 billion. Accordingly, as of the end of the second quarter of fiscal 2016, based on the amount of variable rate debt including the impact of the interest rate swap and the B-2 LIBOR Floor, a hypothetical 50 basis point increase in interest rates would increase annual interest expense by approximately $2.6 million and a hypothetical 50 basis point decrease in interest rates would decrease annual interest expense by approximately $0.2 million. This increase or decrease is primarily driven by our Tranche B-1 Term Facility which was paid in full during the first quarter of fiscal 2016. The change in market risk exposure from the end of fiscal 2015 was due to lower debt balance on the Tranche B-2 Term Facility.
ITEM 4. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of July 2, 2016, the end of the second quarter of fiscal 2016. Based upon that evaluation and subject to the foregoing, our principal executive officer and principal financial officer concluded that, as of the end of the second quarter of fiscal 2016, the design and operation of our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 1. | LEGAL PROCEEDINGS |
In re Weight Watchers International, Inc. Securities Litigation
In March 2014, two substantially identical putative class action complaints alleging violation of the federal securities laws were filed by individual shareholders against the Company, certain of the Companys current and former officers and directors, and Artal Group, in the United States District Court for the Southern District of New York. The complaints were purportedly filed on behalf of all purchasers of the Companys common stock, no par value per share, between February 14, 2012 and October 30, 2013, inclusive (referred to herein as the Class Period). The complaints allege that, during the Class Period, the defendants disseminated materially false and misleading statements and/or concealed material adverse facts. The complaints allege claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 thereunder. The plaintiffs seek to recover unspecified damages on behalf of the class members. In June 2014, the Court consolidated the cases and appointed lead plaintiffs and lead counsel. On August 12, 2014, the plaintiffs filed an amended complaint that, among other things, reduced the Class Period to between February 14, 2012 and February 13, 2013 and dropped all current officers and certain directors previously named as defendants. On October 14, 2014, the defendants filed a motion to dismiss. The plaintiffs filed an opposition to the defendants motion to dismiss on November 24, 2014 and the defendants filed a reply in support of their motion to dismiss on December 23, 2014. On May 11, 2016, the Court issued a decision granting the motion to dismiss and dismissed the case. Plaintiffs did not appeal the decision and the matter is now closed.
48
Tracey Mead, Derivatively on Behalf of Weight Watchers International, Inc. vs. Artal Group et. al. and Weight Watchers International, Inc.
On May 29, 2014 and June 23, 2014, the Company received shareholder litigation demand letters alleging breaches of fiduciary duties and unjust enrichment by Company officers and directors and Artal, to the alleged injury of the Company. The allegations in the letters relate to those contained in the ongoing federal securities litigation described above. In response to the letters, pursuant to Virginia law, the Board of Directors has created a special committee to review and evaluate the facts and circumstances surrounding the claims made in the demand letters. The special committee has decided to undertake its review after receiving a decision on defendants motion to dismiss in the federal securities litigation given the overlapping issues.
On August 11, 2015, a purported shareholder derivative lawsuit was filed in New York State Court in Westchester County. The complaint alleges that certain Company directors and executive officers breached their various fiduciary duties by knowingly causing the Company to repurchase shares from Artal and from certain executive officers at artificially inflated prices in connection with a tender offer made to all shareholders. The complaint seeks an order for the defendants to disgorge all profits made from selling Company stock between March 16, 2012 and April 9, 2012, as well as an award for damages sustained by the alleged breaches of fiduciary duty. The parties sought to stay this suit pending a decision on defendants motion to dismiss in the federal securities litigation asserting similar allegations. The Court denied the stay, but at the preliminary court conference on December 17, 2015, the Court granted an adjournment. At the most recent court conference on July 27, 2016, the court set a deadline of November 4, 2016 by which the Company must answer or otherwise respond to the complaint. The Company believes that the suit is without merit and intends to defend it vigorously.
Raymond Roberts v. Weight Watchers International, Inc.
On January 7, 2016, an OnlinePlus member filed a putative class action complaint against the Company in the Supreme Court of New York, New York County, asserting class claims for breach of contract and violations of the New York General Business Law.
On February 5, 2016, the Company removed the case to the United States District Court, Sothern District of New York. On March 18, 2016, the plaintiff filed an amended complaint, alleging that, as a result of the temporary glitches in the Companys website and app in November and December 2015, the Company has: (1) breached its Subscription Agreement with its OnlinePlus members; and (2) engaged in deceptive acts and practices in violation of Section 350 of the New York General Business Law. The plaintiff is seeking unspecified actual, punitive and statutory damages, as well as his attorneys fees and costs incurred in connection with this action. The Company filed a motion to dismiss on May 6, 2016. The plaintiff filed his opposition paper on June 9, 2016 and the Company filed its reply papers on June 23, 2016. The Company believes that the suit is without merit and intends to defend it vigorously.
Other Litigation Matters
Due to the nature of the Companys activities, it is also, at times, subject to pending and threatened legal actions, including patent and other intellectual property actions, that arise out of the ordinary course of business. In the opinion of management, the disposition of any such matters is not expected to have a material effect on the Companys results of operations, financial condition or cash flows. However, the results of legal actions cannot be predicted with certainty. Therefore, it is possible that the Companys results of operations, financial condition or cash flows could be materially adversely affected in any particular period by the unfavorable resolution of one or more legal actions.
ITEM 1A. | RISK FACTORS |
There have been no material changes in the risk factors from those detailed in our Annual Report on Form 10-K for fiscal 2015.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Nothing to report under this item.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
Nothing to report under this item.
ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
ITEM 5. | OTHER INFORMATION |
Nothing to report under this item.
49
ITEM 6. | EXHIBITS |
Exhibit Number |
Description | |
*Exhibit 31.1 | Rule 13a-14(a) Certification by James Chambers, Chief Executive Officer. | |
*Exhibit 31.2 | Rule 13a-14(a) Certification by Nicholas P. Hotchkin, Chief Financial Officer. | |
*Exhibit 32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
*Exhibit 101 | ||
*EX-101.INS *EX-101.SCH *EX-101.CAL *EX-101.DEF *EX-101.LAB *EX-101.PRE |
XBRL Instance Document XBRL Taxonomy Extension Schema XBRL Taxonomy Extension Calculation Linkbase XBRL Taxonomy Extension Definition Linkbase XBRL Taxonomy Extension Label Linkbase XBRL Taxonomy Extension Presentation Linkbase |
* | Filed herewith. |
50
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
WEIGHT WATCHERS INTERNATIONAL, INC. | ||||||
Date: August 9, 2016 | By: | /s/ James Chambers | ||||
James Chambers | ||||||
President, Chief Executive Officer and Director | ||||||
(Principal Executive Officer) | ||||||
Date: August 9, 2016 | By: | /s/ Nicholas P. Hotchkin | ||||
Nicholas P. Hotchkin | ||||||
Chief Financial Officer | ||||||
(Principal Financial and Accounting Officer) |
51
Exhibit Number |
Description | |
*Exhibit 31.1 | Rule 13a-14(a) Certification by James Chambers, Chief Executive Officer. | |
*Exhibit 31.2 | Rule 13a-14(a) Certification by Nicholas P. Hotchkin, Chief Financial Officer. | |
*Exhibit 32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
*Exhibit 101 | ||
*EX-101.INS *EX-101.SCH *EX-101.CAL *EX-101.DEF *EX-101.LAB *EX-101.PRE |
XBRL Instance Document XBRL Taxonomy Extension Schema XBRL Taxonomy Extension Calculation Linkbase XBRL Taxonomy Extension Definition Linkbase XBRL Taxonomy Extension Label Linkbase XBRL Taxonomy Extension Presentation Linkbase |
* | Filed herewith. |
52
EXHIBIT 31.1
CERTIFICATION
I, James Chambers, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Weight Watchers International, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the Audit Committee of the registrants Board of Directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: August 9, 2016 | Signature: | /s/ James Chambers | ||||
James Chambers | ||||||
President, Chief Executive Officer and Director | ||||||
(Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION
I, Nicholas P. Hotchkin, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Weight Watchers International, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the Audit Committee of the registrants Board of Directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: August 9, 2016 | Signature: | /s/ Nicholas P. Hotchkin | ||||
Nicholas P. Hotchkin | ||||||
Chief Financial Officer | ||||||
(Principal Financial and Accounting Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Weight Watchers International, Inc. (the Company) for the quarterly period ended July 2, 2016, as filed with the Securities and Exchange Commission on the date hereof (the Report), we, the undersigned officers of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 9, 2016 | Signature: | /s/ James Chambers | ||||
James Chambers | ||||||
President, Chief Executive Officer and Director | ||||||
(Principal Executive Officer) | ||||||
Signature: | /s/ Nicholas P. Hotchkin | |||||
Nicholas P. Hotchkin | ||||||
Chief Financial Officer | ||||||
(Principal Financial and Accounting Officer) |
Document and Entity Information - shares |
6 Months Ended | |
---|---|---|
Jul. 02, 2016 |
Jul. 29, 2016 |
|
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Jul. 02, 2016 | |
Document Fiscal Year Focus | 2016 | |
Document Fiscal Period Focus | Q2 | |
Trading Symbol | WTW | |
Entity Registrant Name | WEIGHT WATCHERS INTERNATIONAL INC | |
Entity Central Index Key | 0000105319 | |
Current Fiscal Year End Date | --01-02 | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 63,862,207 |
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands |
Jul. 02, 2016 |
Jan. 02, 2016 |
---|---|---|
Receivables, allowances | $ 1,859 | $ 2,226 |
Common stock, par value | $ 0 | $ 0 |
Common stock, shares authorized | 1,000,000,000 | 1,000,000,000 |
Common stock, shares issued | 118,947,000 | 118,947,000 |
Treasury stock, shares | 55,093,000 | 55,301,000 |
CONSOLIDATED STATEMENTS OF NET INCOME - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jul. 02, 2016 |
Jul. 04, 2015 |
Jul. 02, 2016 |
Jul. 04, 2015 |
|
Service revenues, net | $ 251,550 | $ 250,377 | $ 495,318 | $ 500,342 |
Product sales and other, net | 58,211 | 59,377 | 121,353 | 131,515 |
Revenues, net | 309,761 | 309,754 | 616,671 | 631,857 |
Cost of services | 119,758 | 119,954 | 244,430 | 250,267 |
Cost of product sales and other | 28,955 | 30,436 | 61,520 | 64,923 |
Cost of revenues | 148,713 | 150,390 | 305,950 | 315,190 |
Gross profit | 161,048 | 159,364 | 310,721 | 316,667 |
Marketing expenses | 41,199 | 40,328 | 127,714 | 127,611 |
Selling, general and administrative expenses | 46,118 | 48,456 | 95,720 | 100,432 |
Operating income | 73,731 | 70,580 | 87,287 | 88,624 |
Interest expense | 28,609 | 30,460 | 58,634 | 61,564 |
Other expense, net | 607 | 344 | 542 | 919 |
Gain on early extinguishment of debt | 0 | (6,700) | 0 | (11,476) |
Income before income taxes | 44,515 | 46,476 | 28,111 | 37,617 |
Provision for income taxes | 14,034 | 18,696 | 8,431 | 15,321 |
Net income | 30,481 | 27,780 | 19,680 | 22,296 |
Net loss attributable to the noncontrolling interest | 13 | 97 | 61 | 148 |
Net income attributable to Weight Watchers International, Inc. | $ 30,494 | $ 27,877 | $ 19,741 | $ 22,444 |
Earnings Per Share attributable to Weight Watchers International, Inc. | ||||
Basic | $ 0.48 | $ 0.49 | $ 0.31 | $ 0.39 |
Diluted | $ 0.46 | $ 0.49 | $ 0.30 | $ 0.39 |
Weighted average common shares outstanding | ||||
Basic | 63,740 | 57,085 | 63,644 | 56,946 |
Diluted | 65,934 | 57,155 | 65,890 | 57,035 |
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands |
6 Months Ended | |
---|---|---|
Jul. 02, 2016 |
Jul. 04, 2015 |
|
Operating activities: | ||
Net income | $ 19,680 | $ 22,296 |
Adjustments to reconcile net income to cash provided by operating activities: | ||
Depreciation and amortization | 25,777 | 28,291 |
Amortization of deferred financing costs | 3,146 | 3,563 |
Impairment of intangible and long-lived assets | 93 | 1,873 |
Share-based compensation expense | 4,947 | 4,625 |
Deferred tax provision | 784 | 8,637 |
Allowance for doubtful accounts | (471) | (102) |
Reserve for inventory obsolescence | 2,496 | 5,562 |
Foreign currency exchange rate loss | 445 | 957 |
Gain on early extinguishment of debt | 0 | (12,667) |
Changes in cash due to: | ||
Receivables | (155) | 2,999 |
Inventories | (3,296) | 8,145 |
Prepaid expenses | 8,919 | 5,804 |
Accounts payable | (7,080) | (11,986) |
Accrued liabilities | (22,747) | (43,179) |
Deferred revenue | 12,921 | 7,643 |
Other long term assets and liabilities, net | (498) | 84 |
Income taxes | 1,405 | (6,251) |
Cash provided by operating activities | 46,366 | 26,294 |
Investing activities: | ||
Capital expenditures | (1,693) | (3,820) |
Capitalized software expenditures | (15,185) | (19,352) |
Cash paid for acquisitions | (2,898) | (3,128) |
Other items, net | (88) | (383) |
Cash used for investing activities | (19,864) | (26,683) |
Financing activities: | ||
Payments on long-term debt | (154,823) | (147,613) |
Tax benefit of restricted stock units vested and stock options exercised | 945 | 0 |
Proceeds from stock options exercised | 10 | 0 |
Payment of dividends | (10) | (14) |
Cash used for financing activities | (153,878) | (147,627) |
Effect of exchange rate changes on cash and cash equivalents | 348 | (3,474) |
Net decrease in cash and cash equivalents | (127,028) | (151,490) |
Cash and cash equivalents, beginning of period | 241,526 | 301,212 |
Cash and cash equivalents, end of period | $ 114,498 | $ 149,722 |
Basis of Presentation |
6 Months Ended | ||
---|---|---|---|
Jul. 02, 2016 | |||
Basis of Presentation |
The accompanying consolidated financial statements include the accounts of Weight Watchers International, Inc. and all of its subsidiaries. The terms “Company” and “WWI” as used throughout these notes is used to indicate Weight Watchers International, Inc. and all of its operations consolidated for purposes of its financial statements. The Company’s “meetings” business refers to providing access to meetings to the Company’s monthly commitment plan subscribers, “pay-as-you-go” members, Total Access subscribers and other meetings members. “Online” refers to Weight Watchers Online, Weight Watchers OnlinePlus, Personal Coaching and other digital subscription products. As a result of the acquisition of an additional equity interest in Vigilantes do Peso Marketing Ltda. (“VPM”) in March 2014, the Company gained a direct controlling financial interest in VPM and began to consolidate this entity as of the date of acquisition and as a result of the acquisition of Knowplicity, Inc., d/b/a Wello, in April 2014, Wello became a wholly owned subsidiary of the Company and the Company began to consolidate this entity as of the date of acquisition. As further discussed in Note 5, as a result of the acquisition of Weilos, Inc. (“Weilos”), in March 2015, Weilos became a wholly owned subsidiary of the Company and the Company began to consolidate this entity as of the date of acquisition. All intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and include amounts that are based on management’s best estimates and judgments. While all available information has been considered, actual amounts could differ from those estimates. The Company’s operating results for any interim period are not necessarily indicative of future or annual results. The consolidated financial statements are unaudited and, accordingly, they do not include all of the information necessary for a comprehensive presentation of results of operations, financial position and cash flow activity required by GAAP for complete financial statements but, in the opinion of management, reflect all adjustments including those of a normal recurring nature necessary for a fair statement of the interim results presented. These statements should be read in conjunction with the Company’s Annual Report on Form 10-K for fiscal 2015 filed on March 2, 2016, which includes additional information about the Company, its results of operations, its financial position and its cash flows. Out-of-Period Adjustments: In the second quarter of fiscal 2015, the Company identified and recorded out-of-period adjustments related to immaterial errors in prior period financial statements that impacted income before income taxes and net income attributable to the Company by $1,650 and $420, respectively. |
Recently Issued Accounting Standards |
6 Months Ended | ||
---|---|---|---|
Jul. 02, 2016 | |||
Recently Issued Accounting Standards |
In February 2016, the Financial Accounting Standards Board (the “FASB”) issued updated guidance regarding leases, requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases with the exception of short-term leases. For lessees, leases will continue to be classified as either operating or finance leases in the income statement. Lessor accounting is similar to the current model but will be updated to align with certain changes to the lessee model. Lessors will continue to classify leases as operating, direct financing or sales-type leases. The effective date of the new guidance for public companies is for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. The new guidance must be adopted using a modified retrospective transition and requires application of the new guidance at the beginning of the earliest comparative period presented. The updated guidance is effective for the Company beginning in the first quarter of fiscal 2019. The Company is currently evaluating the effect that the updated guidance will have on the consolidated financial statements and related disclosures of the Company.
In March 2016, the FASB issued updated guidance on revenue from contracts with customers, which is intended to clarify the implementation guidance on principal versus agent considerations. The amendments in this update do not change the core principle of the guidance, but are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations by including indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customer. In April 2016, the FASB issued updated guidance on revenue from contracts with customers, which is intended to clarify guidance related to identifying performance obligations and licensing implementation guidance contained in the new revenue recognition standard. In May 2016, the FASB issued updated guidance on revenue from contracts with customers, which is intended to provide narrow scope guidance and practical expedients contained in the new revenue standard. The amendments in this update are effective for annual periods beginning after December 15, 2017 and interim periods within those fiscal years, with early adoption not permitted. The Company is currently evaluating the effect that the updated guidance will have on the consolidated financial statements and related disclosures of the Company. In March 2016, the FASB issued updated guidance on stock compensation which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those fiscal years. Early application is permitted. The Company is currently evaluating the effect that the updated guidance will have on the consolidated financial statements and related disclosures of the Company. For a discussion of the Company’s other significant accounting policies, see “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for fiscal 2015. For a discussion of accounting standards adopted in the current year, see Note 3. |
Accounting Standards Adopted in Current Year |
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Accounting Standards Adopted in Current Year |
In April 2015, the FASB issued updated guidance to simplify the presentation of debt issuance costs. The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB issued updated guidance which clarifies the treatment of debt issuance costs from line-of-credit arrangements. In particular, this guidance clarifies that the Securities and Exchange Commission Staff would not object to an entity deferring and presenting debt issuance costs related to a line-of-credit arrangement as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of such arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. As further reflected in Note 7, the Company adopted this guidance during the first quarter of fiscal 2016 on a retrospective basis to simplify the presentation of debt issuance costs during the first quarter of fiscal 2016. As shown in the table below, pursuant to the guidance and a change in accounting principle applied on a retrospective basis, the Company has reclassified unamortized debt issuance costs associated with Term Facilities (defined hereafter) in the Company’s previously reported Consolidated Balance Sheet in the Company’s Annual Report on Form 10-K for fiscal 2015. In November 2015, the FASB issued updated guidance on the classification of deferred tax assets. This accounting standard requires deferred tax assets and liabilities, along with related valuation allowances, to be classified as noncurrent on the balance sheet. As a result, each tax jurisdiction will now only have one net noncurrent deferred tax asset or liability. The new guidance does not change the existing requirement that prohibits offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. The Company adopted this guidance during the first quarter of fiscal 2016 on a retrospective basis. As shown in the table below, pursuant to the guidance and a change in accounting principle applied on a retrospective basis, the Company has reclassified current deferred tax assets in the Company’s previously reported Consolidated Balance Sheet in the Company’s Annual Report on Form 10-K for fiscal 2015.
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Winfrey Transaction |
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Jul. 02, 2016 | |||
Winfrey Transaction |
On October 18, 2015 (the “Agreement Date”), the Company entered into the following agreements with Oprah Winfrey: the Strategic Collaboration Agreement, the Winfrey Purchase Agreement (defined below), and the Winfrey Option Agreement (defined below). The transactions contemplated by these agreements are collectively referred to herein as the “Winfrey Transaction”. Details of the Strategic Collaboration Agreement, Winfrey Purchase Agreement and Winfrey Option Agreement are below. See Note 17 for related party transactions with Ms. Winfrey. Strategic Collaboration Agreement The Company and Ms. Winfrey granted each other certain intellectual property rights under the Strategic Collaboration Agreement. The agreement has an initial term of five years, with additional successive one-year renewal terms. During the term of this agreement, Ms. Winfrey will consult with the Company and participate in developing, planning, executing and enhancing the Weight Watchers program and related initiatives, and provide it with services in her discretion to promote the Company and its programs, products and services. Winfrey Purchase Agreement On October 19, 2015, pursuant to the Share Purchase Agreement between the Company and Ms. Winfrey (the “Winfrey Purchase Agreement”), the Company issued and sold to Ms. Winfrey an aggregate of 6,362 shares of the Company’s common stock (the “Purchased Shares”) at a price per share of $6.79 for an aggregate cash purchase price of $43,199. The Company recorded fees related to the issuance of the Purchased Shares totaling $2,315, of which $1,700 was recorded as a reduction of equity in the fourth quarter of fiscal 2015. The Purchased Shares are subject to certain demand registration rights and piggyback rights held by Ms. Winfrey under the Winfrey Purchase Agreement. The Purchased Shares may not be transferred by Ms. Winfrey within the first two years of the Agreement Date, subject to certain limited exceptions. Thereafter, Ms. Winfrey may generally transfer up to 15% of the Purchased Shares prior to the third anniversary of the Agreement Date, up to 30% prior to the fourth anniversary of the Agreement Date and up to 60% prior to the fifth anniversary of the Agreement Date. On or after the fifth anniversary of the Agreement Date, Ms. Winfrey will be permitted to transfer all of the Purchased Shares. In the event that Ms. Winfrey proposes to transfer any Purchased Shares or Winfrey Option Shares (defined below), the Company will have (a) a right of first offer with respect to such shares if such transfer is (i) for 1% or more of the Company’s issued and outstanding common stock that is proposed to be made pursuant to Rule 144 under the Securities Act of 1933, as amended or (ii) proposed to be sold under a resale shelf registration statement or (b) a right of first refusal with respect to such shares if such transfer is (i) for 1% or more of the Company’s issued and outstanding common stock and is proposed to be made to a competitor of the Company or (ii) for 5% or more of the Company’s issued and outstanding common stock. Such transfer restrictions, right of first offer and right of first refusal terminate if Ms. Winfrey then has the right to be nominated as a director and has met certain eligibility requirements under the Winfrey Purchase Agreement, but is not elected as a director of the Company. If Ms. Winfrey is elected as a director of the Company, she shall receive compensation for her services as a director consistent with that of other non-executive directors of the Company. Such transfer restrictions also terminate if there is a change of control, including if another person (or group), other than Artal Luxembourg S.A. and Ms. Winfrey and their respective affiliates, acquires more than 50% of the total voting power of the Company.
Winfrey Option Agreement In consideration of Ms. Winfrey entering into the Strategic Collaboration Agreement and the performance of her obligations thereunder, on the Agreement Date, the Company granted Ms. Winfrey a fully vested option (the “Winfrey Option”) to purchase 3,513 shares of common stock at an exercise price of $6.97 per share. The term sheet, and related terms and conditions, for the Winfrey Option are referred to herein as the “Winfrey Option Agreement”. Based on the Black Scholes option pricing method, the Company recorded $12,759 of compensation expense in the fourth quarter of fiscal 2015 for the Winfrey Option. At the date of the grant, the Company used a dividend yield of 0.0%, 63.88% volatility and a risk-free interest rate of 1.36%. Compensation expense is included as a component of selling, general and administrative expenses. Subject to certain limited exceptions, shares of common stock issuable upon exercise of the Winfrey Option (the “Winfrey Option Shares”) generally may not be transferred by Ms. Winfrey within the first year of the Agreement Date. Thereafter, Ms. Winfrey generally may transfer up to 20% of the Winfrey Option Shares prior to the second anniversary of the Agreement Date, up to 40% prior to the third anniversary of the Agreement Date, up to 60% prior to the fourth anniversary of the Agreement Date and up to 80% prior to the fifth anniversary of the Agreement Date. On or after the fifth anniversary of the Agreement Date, Ms. Winfrey will be permitted to transfer all of the Winfrey Option Shares. Pursuant to the Winfrey Purchase Agreement, in the event that Ms. Winfrey proposes to transfer any Winfrey Option Shares, the Company will have a right of first offer or a right of first refusal with respect to such shares as described above. Such transfer restrictions terminate under the same director service and change of control circumstances that would result in the termination of the transfer restrictions relating to the Purchased Shares as described above. |
Acquisitions of Weilos and Miami Franchise |
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Acquisitions of Weilos and Miami Franchise |
On March 11, 2015, the Company acquired for a purchase price of $6,674 Weilos, a California-based startup with an online social platform that provides a mobile health and weight loss community. Payment was in the form of common stock issued ($2,810), restricted stock issued ($114) and cash ($2,775) plus cash in reserves ($975). The total purchase price of Weilos has been allocated to goodwill ($5,588), identifiable intangibles ($1,741) and other assets ($24) offset by deferred tax liabilities ($679). Restricted shares with a fair value at the date of grant ($908) were issued to key employees, contingent upon 18 months post-combination employment, and are accounted for as stock compensation cost in the post-combination financial statements. As a result of the acquisition, Weilos became a wholly owned subsidiary of the Company and the Company began to consolidate the entity as of the date of acquisition. The acquisition resulted in goodwill related to, among other things, expected synergies in operations. The goodwill is not deductible for tax purposes. On June 27, 2016, the Company acquired substantially all of the assets of its franchisee for certain territories in South Florida, Weight Watchers of Greater Miami, Inc., for a purchase price of $3,250. Payment was in the form of cash of ($2,898) plus cash in reserves ($300) and assumed net liabilities of ($52). The total purchase price of the franchisee has been preliminarily allocated to franchise rights acquired ($114), goodwill ($2,945), and customer relationship value ($191). The acquisition of franchisee has been accounted for under the purchase method of accounting and, accordingly, earnings of acquired franchisee has been included in the consolidated operating results of the Company since the date of acquisition. The goodwill is expected to be deductible for tax purposes. |
Franchise Rights Acquired, Goodwill and Other Intangible Assets |
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Franchise Rights Acquired, Goodwill and Other Intangible Assets |
Franchise rights acquired are due to acquisitions of the Company’s franchised territories as well as the acquisition of franchise promotion agreements and other factors associated with the acquired franchise territories. For the six months ended July 2, 2016, the change in the carrying value of indefinite-lived franchise rights acquired is due to the franchisee acquisition as described in Note 5, and the effect of exchange rate changes. Goodwill primarily relates to the acquisition of the Company by H.J. Heinz Company in 1978, the acquisition of WeightWatchers.com, Inc. in 2005, the acquisitions of the Company’s franchised territories, the acquisitions of the majority interest in VPM and of Wello in fiscal 2014 and the acquisition of Weilos in fiscal 2015. See Note 5 for further information on the Weilos acquisition. For the six months ended July 2, 2016, the change in the carrying amount of goodwill is due to the franchise acquisition as described in Note 5, and the effect of exchange rate changes as follows:
The Company reviews goodwill and other indefinite-lived intangible assets, including franchise rights acquired with indefinite lives, for potential impairment on at least an annual basis or more often if events so require. In the second quarter of 2016 the Company changed the timing to perform its annual impairment review of goodwill and other indefinite-lived intangible assets to the first day of fiscal May whereas it had previously performed the test as of the last day of the Company’s fiscal year-end. This accounting change is preferable because it provides the Company time to obtain the data from the Winter Season results which includes the first fiscal quarter, which represents approximately 40% of the full year recruitments, and incorporates this data into the current and future year performance estimates. The Company believes the resulting change in accounting principle related to changing the annual impairment testing date did not delay, accelerate, or avoid an impairment charge. In performing the impairment analysis for goodwill, the fair value for our reporting units is estimated using a discounted cash flow approach. For all of the Company’s reporting units except for Brazil (see below), we estimated future cash flows by utilizing the historical debt-free cash flows (cash flows provided by operating activities less capital expenditures) attributable to that country and then applied expected future operating income growth rates for such country. We utilized operating income as the basis for measuring our potential growth because we believe it is the best indicator of the performance of our business. We then discounted the estimated future cash flows utilizing a discount rate which was calculated using the average cost of capital, which includes the cost of equity and the cost of debt. The cost of equity was determined by combining a risk-free rate of return and a market risk premium for the Company’s peer group. The risk-free rate of return was determined based on the average rate of long-term U.S. Treasury securities. The market risk premium was determined by reviewing external market data. The cost of debt was determined by estimating the Company’s current borrowing rate. As it relates to our impairment analysis for Brazil, we estimated future debt free cash flows in contemplation of our growth strategies for that market. In developing these projections, we considered the historical impact of similar growth strategies in other markets as well as the current market conditions in Brazil. We then discounted the estimated future cash flows utilizing a discount rate which was calculated using the average cost of capital, which included the cost of equity and the cost of debt. The cost of equity was determined by combining a risk-free rate of return and a market risk premium for the Company’s peer group. The risk-free rate of return was determined based on the average rate of long-term U.S. Treasury securities. The market risk premium was determined by reviewing external market data including the current economic conditions in Brazil and the country specific risk thereon. A further risk premium was included to reflect the risk associated with the rate of growth projected in the analysis. The cost of debt was determined by estimating the Company’s current borrowing rate. In performing the impairment analysis for our indefinite-lived franchise rights acquired, the fair value for our franchise rights acquired is estimated using a discounted cash flow approach referred to as the hypothetical start-up approach for our franchise rights related to our meetings business and a relief from royalty methodology for our franchise rights related to our Online business. The aggregate estimated fair value for these rights is then compared to the carrying value of the unit of account for those franchise rights. We have determined the appropriate unit of account for purposes of assessing impairment to be the combination of the rights in the meetings and Online businesses in the country in which the acquisitions have occurred. In our hypothetical start-up approach analysis we assumed that the year of maturity was reached after 7 years. Subsequent to the year of maturity, we estimated future cash flows for the meetings business in each country based on assumptions regarding revenue growth and operating income margins. We then discounted the estimated future cash flows utilizing discount rates consistent with those used in our goodwill impairment analysis as discussed above. In performing our annual impairment analysis as of May 8, 2016, the Company determined that the carrying amounts of its goodwill reporting units and franchise rights acquired with indefinite lives units of account did not exceed their respective fair values and therefore, no impairment existed. Except for Brazil, there is significant headroom in our impairment analysis. Based on the results of this test for Brazil, the fair value of this reporting unit exceeds the carrying value by approximately 10%, and accordingly a relatively small change in the underlying assumptions would likely cause a change in the results of the impairment assessment and, as such, could result in an impairment of the goodwill related to Brazil, for which the carrying amount is $18,045. The carrying values of finite-lived intangible assets as of July 2, 2016 and January 2, 2016 were as follows:
Aggregate amortization expense for finite-lived intangible assets was recorded in the amounts of $8,603 and $17,023 for the three and six months ended July 2, 2016, respectively. Aggregate amortization expense for finite-lived intangible assets was recorded in the amounts of $9,810 and $19,028 for the three and six months ended July 4, 2015, respectively. The franchise rights acquired related to the VPM acquisition were amortized ratably over a 2 year period. The franchise rights acquired related to the Miami acquisition are being amortized ratably over a 3 month period. Estimated amortization expense of existing finite-lived intangible assets for the next five fiscal years and thereafter is as follows:
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Long-Term Debt |
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Long-Term Debt |
The components of the Company’s long-term debt were as follows:
Pursuant to the retrospective adoption of FASB guidance on debt issuance costs, the Company has reclassified unamortized debt issuance costs associated with Term Facilities (defined hereafter) in the Company’s previously reported Consolidated Balance Sheet in the Company’s Annual Report on Form 10-K for fiscal 2015. The Company’s credit facilities at the end of the first quarter of fiscal 2013 consisted of the following term loan facilities and revolving credit facilities: a tranche B loan (“Term B Loan”), a tranche C loan (“Term C Loan”), a tranche D loan (“Term D Loan”), a tranche E loan (“Term E Loan”), a tranche F loan (“Term F Loan”), revolving credit facility A-1 (“Revolver A-1” ) and revolving credit facility A-2 (“Revolver A-2”). On April 2, 2013, the Company refinanced its credit facilities pursuant to a new Credit Agreement (as amended, supplemented or otherwise modified, the “Credit Agreement”) among the Company, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent and an issuing bank, The Bank of Nova Scotia, as revolving agent, swingline lender and an issuing bank, and the other parties thereto. The Credit Agreement provides for (a) a revolving credit facility (including swing line loans and letters of credit) in an initial aggregate principal amount of $250,000 that will mature on April 2, 2018 (the “Revolving Facility”), (b) an initial term B-1 loan credit facility in an aggregate principal amount of $300,000 that matured on April 2, 2016 (the “Tranche B-1 Term Facility”) and (c) an initial term B-2 loan credit facility in an aggregate principal amount of $2,100,000 that will mature on April 2, 2020 (the “Tranche B-2 Term Facility”, and together with the Tranche B-1 Term Facility, the “Term Facilities”; the Term Facilities and Revolving Facility collectively, the “WWI Credit Facility”). In connection with this refinancing, the Company used the proceeds from borrowings under the Term Facilities to pay off a total of $2,399,904 of outstanding loans, consisting of $128,759 of Term B Loans, $110,602 of Term C Loans, $117,612 of Term D Loans, $1,125,044 of Term E Loans, $817,887 of Term F Loans, $21,247 of loans under the Revolver A-1 and $78,753 of loans under the Revolver A-2. Following the refinancing of a total of $2,399,904 of loans, at April 2, 2013, the Company had $2,400,000 debt outstanding under the Term Facilities and $248,848 of availability under the Revolving Facility. The Company incurred fees of $44,817 during the second quarter of fiscal 2013 in connection with this refinancing. On September 26, 2014, the Company and certain lenders entered into an agreement amending the Credit Agreement that, among other things, eliminated the Financial Covenant (as defined in the Credit Agreement) with respect to the Revolving Facility. In connection with this amendment, the Company wrote-off deferred financing fees of approximately $1,583 in the third quarter of fiscal 2014. Concurrently with and in order to effect this amendment, the Company reduced the amount of the Revolving Facility from $250,000 to $50,000. Under the terms of the Credit Agreement, depending on the Company’s Consolidated Leverage Ratio (as defined in the Credit Agreement), the Company is obligated to offer to prepay the Term Facilities in an aggregate amount determined by its excess cash flow (as defined in the Credit Agreement). On March 13, 2015, the Company commenced an offer to prepay at a discount to par up to $75,000 in aggregate principal amount of term loans outstanding under the Tranche B-1 Term Facility. On March 20, 2015, the Company accepted offers with a discount equal to or greater than 9.00% in respect of such term loans. On March 25, 2015, the Company paid an aggregate amount of cash proceeds totaling $57,389 plus an amount sufficient to pay accrued and unpaid interest on the amount prepaid to prepay $63,065 in aggregate principal amount of such term loans under the Tranche B-1 Term Facility. This expenditure reduced, on a dollar for dollar basis, the Company’s $59,728 obligation to make a mandatory excess cash flow prepayment offer to the term loan lenders under the terms of the Credit Agreement. In addition, the Company made a voluntary prepayment at par on March 25, 2015 of $2,500 in respect of such term loans under the Tranche B-1 Term Facility to reduce the remaining excess cash flow prepayment obligation for fiscal 2014. As a result of this prepayment, the Company wrote-off fees of $326, incurred fees of $601 and recorded a gain on early extinguishment of debt of $4,749, inclusive of these fees, in the first quarter of fiscal 2015. On June 17, 2015, the Company commenced another offer to prepay at a discount to par up to $229,000 in aggregate principal amount of term loans outstanding under the Tranche B-1 Term Facility. On June 22, 2015, the Company accepted offers with a discount equal to or greater than 9.00% in respect of such term loans. On June 26, 2015, the Company paid an aggregate amount of cash proceeds totaling $77,225 plus an amount sufficient to pay accrued and unpaid interest on the amount prepaid to prepay $84,862 in aggregate principal amount of such term loans under the Tranche B-1 Term Facility. As a result of this prepayment, the Company wrote-off fees of $321, incurred fees of $641 and recorded a gain on early extinguishment of debt of $6,677, inclusive of these fees, in the second quarter of fiscal 2015. On July 14, 2015, the Company drew down $48,000 on its Revolving Facility in order to enhance its cash position and to provide additional financial flexibility. The revolver borrowing has been classified as a short-term liability in consideration of the fact that the terms of the Revolving Facility require an assessment as to whether there have been any material adverse changes with respect to the Company in connection with the Company’s monthly interest elections. Although the revolver borrowing has been classified as a short-term liability, absent any change in fact and circumstance, the Company has the ability to extend and not repay the Revolving Facility until its due date of April 2, 2018. On April 1, 2016, the Company paid in full, with cash on hand, a principal amount of loans equal to $144,323, which constituted the entire remaining principal amount of loans outstanding under the Tranche B-1 Term Facility due April 2, 2016. At July 2, 2016, under the WWI Credit Facility, the Company had $2,031,750 outstanding consisting entirely of a term loan under the Tranche B-2 Term Facility, and borrowings of $48,000 outstanding under the Revolving Facility. In addition, at July 2, 2016, the Revolving Facility had $1,819 in issued but undrawn letters of credit outstanding thereunder and $181 in available unused commitments thereunder. The proceeds from borrowings under the Revolving Facility (including swing line loans and letters of credit) are available to be used for working capital and general corporate purposes. On July 29, 2016, the Company paid down, with cash on hand, a principal amount of $25,000 of the $48,000 outstanding on its Revolving Facility. Borrowings under the Credit Agreement bear interest at a rate equal to, at the Company’s option, LIBOR plus an applicable margin or a base rate plus an applicable margin. LIBOR under the Tranche B-2 Term Facility is subject to a minimum interest rate of 0.75% and the base rate under the Tranche B-2 Term Facility is subject to a minimum interest rate of 1.75%. Under the terms of the Credit Agreement, in the event the Company receives a corporate rating of BB- (or lower) from S&P and a corporate rating of Ba3 (or lower) from Moody’s, the applicable margin relating to both of the Term Facilities would increase by 25 basis points. On February 21, 2014, both S&P and Moody’s issued revised corporate ratings of the Company of B+ and B1, respectively. As a result, effective February 21, 2014, the applicable margin on borrowings under the Tranche B-1 Term Facility went from 2.75% to 3.00% and on borrowings under the Tranche B-2 Term Facility went from 3.00% to 3.25%. The applicable margin relating to the Revolving Facility will fluctuate depending upon the Company’s Consolidated Leverage Ratio. At April 1, 2016, the date of payment of the principal amount of loans outstanding thereunder and discussed above, borrowings under the Tranche B-1 Term Facility bore interest at LIBOR plus an applicable margin of 3.00%. At July 2, 2016, borrowings under the Tranche B-2 Term Facility bore interest at LIBOR plus an applicable margin of 3.25%. Based on the Company’s Consolidated Leverage Ratio as of July 2, 2016, borrowings under the Revolving Facility bore interest at LIBOR plus an applicable margin of 2.50%. On a quarterly basis, the Company will pay a commitment fee to the lenders under the Revolving Facility in respect of unutilized commitments thereunder, which commitment fee will fluctuate depending upon the Company’s Consolidated Leverage Ratio. Based on the Company’s Consolidated Leverage Ratio as of July 2, 2016 and January 2, 2016, the commitment fee was 0.50% per annum. For the six months ended July 2, 2016, the Company paid a de minimis amount in commitment fees. For the fiscal year ended January 2, 2016, the Company paid $186 in commitment fees. The Company also will pay customary letter of credit fees and fronting fees under the Revolving Facility, which totaled $12 and $24 for the three and six months ended July 2, 2016, respectively, and $48 for the fiscal year ended January 2, 2016. The Credit Agreement contains customary covenants including covenants that, in certain circumstances, restrict the Company’s ability to incur additional indebtedness, pay dividends on and redeem capital stock, make other payments, including investments, sell its assets and enter into consolidations, mergers and transfers of all or substantially all of its assets. The WWI Credit Facility does not require the Company to meet any financial maintenance covenants and is guaranteed by certain of the Company’s existing and future subsidiaries. Substantially all of the Company’s assets secure the WWI Credit Facility. At July 2, 2016 and January 2, 2016, the Company’s debt consisted entirely of variable-rate instruments. Interest rate swaps were entered into to hedge a portion of the cash flow exposure associated with the Company’s variable-rate borrowings. The weighted average interest rate (which includes amortization of deferred financing costs) on the Company’s debt, exclusive of the impact of swaps, was approximately 4.31% and 4.34% per annum based on interest rates at July 2, 2016 and January 2, 2016, respectively. The weighted average interest rate (which includes amortization of deferred financing costs) on the Company’s debt, including the impact of swaps, was approximately 5.25% and 5.45% per annum based on interest rates at July 2, 2016 and January 2, 2016, respectively. |
Earnings Per Share Data |
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Earnings Per Share Data |
Basic earnings per share (“EPS”) are calculated utilizing the weighted average number of common shares outstanding during the periods presented. Diluted EPS is calculated utilizing the weighted average number of common shares outstanding during the periods presented adjusted for the effect of dilutive common stock equivalents. The following table sets forth the computation of basic and diluted earnings per share data:
The number of anti-dilutive common stock equivalents excluded from the calculation of the weighted average number of common shares for diluted EPS was 1,265 and 1,911 for the three months ended July 2, 2016 and July 4, 2015, respectively, and 1,205 and 1,995 for the six months ended July 2, 2016 and July 4, 2015, respectively. |
Stock Plans |
6 Months Ended | ||
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Jul. 02, 2016 | |||
Stock Plans |
On May 6, 2008 and May 12, 2004, respectively, the Company’s shareholders approved the 2008 Stock Incentive Plan (the “2008 Plan”) and the 2004 Stock Incentive Plan (the “2004 Plan”). On May 6, 2014, the Company’s shareholders approved the 2014 Stock Incentive Plan (as amended, the “2014 Plan” and together with the 2004 Plan and the 2008 Plan, the “Stock Plans”), which replaced the 2008 Plan and 2004 Plan for all equity-based awards granted on or after May 6, 2014. The 2014 Plan is designed to promote the long-term financial interests and growth of the Company by attracting, motivating and retaining employees with the ability to contribute to the success of the business and to align compensation for the Company’s employees over a multi-year period directly with the interests of the shareholders of the Company. The Company’s Board of Directors or a committee thereof administers the 2014 Plan. Pursuant to the option components of the Stock Plans, the Company’s Board of Directors authorized the Company to enter into agreements under which certain employees received stock options with (i) time vesting criteria and/or (ii) both time and performance vesting criteria (“T&P Options”). On May 7, 2015, the Company’s shareholders approved an amendment to the 2014 Plan to permit a one-time stock option exchange program under which the Company would offer eligible employees the opportunity to exchange certain eligible T&P Options on a (a) two-for-one basis for new stock options for all eligible employees, other than the Company’s Chief Executive Officer (i.e., so that the new stock options would cover half as many shares as the corresponding surrendered options) and (b) 3.5-for-one basis for new stock options for the Company’s Chief Executive Officer (i.e., so that the new stock options would cover a number of shares equal to the quotient of the number of shares covered by the corresponding surrendered options divided by 3.5). The option exchange program was designed to create better incentives for employees to remain with the Company and contribute to the attainment of its business and financial objectives. On May 22, 2015, the Company launched a tender offer in connection with the option exchange program which expired on June 22, 2015. Pursuant to the offer, employees tendered options to purchase 1,700 shares of common stock (representing 99.6% of the total shares of common stock underlying the options eligible for exchange) with a weighted-average exercise price of $24.68 per share. The Company cancelled and replaced those options on June 22, 2015 with options to purchase 734 shares of common stock with an exercise price of $5.25 per share, which was the closing price per share of the Company’s common stock on the New York Stock Exchange on June 22, 2015. The replacement options vest over three years, with 25% vesting on each of the first and second anniversaries of the date of grant and 50% vesting on the third anniversary of the date of grant. The option exchange resulted in an incremental stock option expense of $1,599, which was determined by comparing the fair value of the T&P Option as calculated based on a Monte Carlo simulation, to the fair value of the replacement options, as calculated using the Black-Scholes option pricing model, for the eligible options at the time of exchange. This incremental expense, along with the unamortized expense associated with the cancelled options, is being recognized ratably over the new vesting period of the replacement options, which is three years. As of the end of fiscal 2015, there were no outstanding T&P Options. During the first quarter of 2016, the Company granted 1 share of stock options with a vesting period of three years, with a total fair value of $6, or a weighted average fair value of $6.41 per share. During the second quarter of 2016, the Company granted 4 shares of stock options with a vesting period of three years, with a total fair value of $25, or a weighted average fair value of $6.58 per share. During the second quarter of 2016, the Company also granted 434 shares of restricted stock with a vesting period of three years, with a total fair value of $5,730, or a weighted average fair value of $13.20 per share. During the second quarter of 2016, the Company also granted 289 shares of restricted stock, subject to certain performance conditions, with a vesting period of three years and a fair value of $3,819, or a weighted average fair value of $13.20 per share. These grants are subject to the minimum achievement of a year-end 2018 Net Debt/EBITDAS ratio of less than 4.5x. Depending upon the level of achievement above this minimum level, the amount of shares that can vest ranges from 96, or 33.33% of outstanding shares, to 482, or 166.67% of outstanding shares. The Company is currently accruing compensation expense to what we believe is the probable outcome upon vesting. |
Income Taxes |
6 Months Ended | ||
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Jul. 02, 2016 | |||
Income Taxes |
The effective tax rates for the three and six months ended July 2, 2016 were 31.5% and 30.0%, respectively. The effective tax rates for the three and six months ended July 4, 2015 were 40.2% and 40.7%, respectively. For both the three and six months ended July 2, 2016, the primary difference between the US federal statutory tax rate and the Company’s consolidated effective tax rate was due to the reversal of a $2.5 million valuation allowance related to tax benefits for foreign losses that are now expected to be realized. For both the three and six months ended July 4, 2015, the primary differences between the US federal statutory tax rate and the Company’s consolidated effective tax rate were state income taxes, increases in valuation allowances and tax reserves. |
Legal |
6 Months Ended | ||
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Jul. 02, 2016 | |||
Legal |
In re Weight Watchers International, Inc. Securities Litigation In March 2014, two substantially identical putative class action complaints alleging violation of the federal securities laws were filed by individual shareholders against the Company, certain of the Company’s current and former officers and directors, and Artal Group S.A. (“Artal”) in the United States District Court for the Southern District of New York. The complaints were purportedly filed on behalf of all purchasers of the Company’s common stock, no par value per share, between February 14, 2012 and October 30, 2013, inclusive (the “Class Period”). The complaints alleged that, during the Class Period, the defendants disseminated materially false and misleading statements and/or concealed material adverse facts. The complaints alleged claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 thereunder. The plaintiffs sought to recover unspecified damages on behalf of the class members. In June 2014, the Court consolidated the cases and appointed lead plaintiffs and lead counsel. On August 12, 2014, the plaintiffs filed an amended complaint that, among other things, reduced the Class Period to between February 14, 2012 and February 13, 2013 and dropped all current officers and certain directors previously named as defendants. On October 14, 2014, the defendants filed a motion to dismiss. The plaintiffs filed an opposition to the defendants’ motion to dismiss on November 24, 2014 and the defendants filed a reply in support of their motion to dismiss on December 23, 2014. On May 11, 2016, the court issued a decision granting the motion to dismiss the case. Plaintiffs did not appeal the decision and the matter is now closed. Tracey Mead, Derivatively on Behalf of Weight Watchers International, Inc. vs. Artal Group et. al. and Weight Watchers International, Inc. On May 29, 2014 and June 23, 2014, the Company received shareholder litigation demand letters alleging breaches of fiduciary duties and unjust enrichment by Company officers and directors and Artal, to the alleged injury of the Company. The allegations in the letters relate to those contained in the ongoing federal securities litigation described above. In response to the letters, pursuant to Virginia law, the Board of Directors has created a special committee to review and evaluate the facts and circumstances surrounding the claims made in the demand letters. The special committee has decided to undertake its review after receiving a decision on defendants’ motion to dismiss in the federal securities litigation given the overlapping issues. On August 11, 2015, a purported shareholder derivative lawsuit was filed in New York State Court in Westchester County. The complaint alleges that certain Company directors and executive officers breached their various fiduciary duties by knowingly causing the Company to repurchase shares from Artal and from certain executive officers at artificially inflated prices in connection with a tender offer made to all shareholders. The complaint seeks an order for the defendants to disgorge all profits made from selling Company stock between March 16, 2012 and April 9, 2012, as well as an award for damages sustained by the alleged breaches of fiduciary duty. The parties sought to stay this suit pending a decision on defendants’ motion to dismiss in the federal securities litigation asserting similar allegations. The Court denied the stay, but at the preliminary court conference on December 17, 2015, the Court granted an adjournment. At the most recent court conference on July 27, 2016, the Court set a deadline of November 4, 2016 by which the Company must answer or otherwise respond to the complaint. The Company believes that the suit is without merit and intends to defend it vigorously. Raymond Roberts v. Weight Watchers International, Inc. On January 7, 2016, an OnlinePlus member filed a putative class action complaint against the Company in the Supreme Court of New York, New York County, asserting class claims for breach of contract and violations of the New York General Business Law. On February 5, 2016, the Company removed the case to the United States District Court, Sothern District of New York. On March 18, 2016, the plaintiff filed an amended complaint, alleging that, as a result of the temporary glitches in the Company’s website and app in November and December 2015, the Company has: (1) breached its Subscription Agreement with its OnlinePlus members; and (2) engaged in deceptive acts and practices in violation of Section 350 of the New York General Business Law. The plaintiff is seeking unspecified actual, punitive and statutory damages, as well as his attorneys’ fees and costs incurred in connection with this action. The Company filed a motion to dismiss on May 6, 2016. The plaintiff filed his opposition papers on June 9, 2016 and the Company filed its reply papers on June 23, 2016. The Company believes that the suit is without merit and intends to defend it vigorously. Other Litigation Matters Due to the nature of the Company’s activities, it is also, at times, subject to pending and threatened legal actions that arise out of the ordinary course of business. In the opinion of management, the disposition of any such matters is not expected to have a material effect on the Company’s results of operations, financial condition or cash flows. |
Derivative Instruments and Hedging |
6 Months Ended | ||
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Jul. 02, 2016 | |||
Derivative Instruments and Hedging |
As of July 2, 2016 and January 2, 2016, the Company had in effect an interest rate swap with a notional amount totaling $1,500,000. On July 26, 2013, in order to hedge an additional portion of its variable rate debt, the Company entered into a forward-starting interest rate swap with an effective date of March 31, 2014 and a termination date of April 2, 2020. The initial notional amount of this swap was $1,500,000. During the term of this swap, the notional amount will decrease from $1,500,000 effective March 31, 2014 to $1,250,000 on April 3, 2017 with a further reduction to $1,000,000 on April 1, 2019. This interest rate swap effectively fixes the variable interest rate on the notional amount of this swap at 2.38%. This swap qualifies for hedge accounting and, therefore, changes in the fair value of this swap have been recorded in accumulated other comprehensive loss. As of July 2, 2016 and January 2, 2016, cumulative unrealized losses for qualifying hedges were reported as a component of accumulated other comprehensive loss in the amounts of $34,216 ($56,095 before taxes) and $23,135 ($38,053 before taxes), respectively. The Company is hedging forecasted transactions for periods not exceeding the next four years. The Company expects approximately $11,133 ($18,251 before taxes) of derivative losses included in accumulated other comprehensive loss at July 2, 2016, based on current market rates, will be reclassified into earnings within the next 12 months. |
Fair Value Measurements |
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Fair Value Measurements |
Accounting guidance on fair value measurements for certain financial assets and liabilities requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
When measuring fair value, the Company is required to maximize the use of observable inputs and minimize the use of unobservable inputs. Fair Value of Financial Instruments The Company’s significant financial instruments include long-term debt and interest rate swap agreements as of July 2, 2016 and January 2, 2016. The fair value of the Company’s borrowings under the Revolving Facility approximated a carrying value of $48,000 due to the nature of the debt (Level 2 input). The fair value of the Company’s Term Facilities is determined by utilizing average bid prices on or near the end of each fiscal quarter (Level 2 input). As of July 2, 2016 and January 2, 2016, the fair value of the Company’s long-term debt was approximately $1,515,482 and $1,664,393, respectively, as compared to carrying value (net of deferring financing costs) of $2,009,885 and $2,161,619, respectively. Derivative Financial Instruments The fair values for the Company’s derivative financial instruments are determined using observable current market information such as the prevailing LIBOR interest rate and LIBOR yield curve rates and include consideration of counterparty credit risk. See Note 12 for disclosures related to derivative financial instruments. The following table presents the aggregate fair value of the Company’s derivative financial instruments:
The Company did not have any transfers into or out of Levels 1 and 2, and did not maintain any assets or liabilities classified as Level 3, during the six months ended July 2, 2016 and the fiscal year ended January 2, 2016. |
Accumulated Other Comprehensive Loss |
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Accumulated Other Comprehensive Loss |
With respect to the disclosure of the amounts reclassified from accumulated other comprehensive loss for the three and six months ended July 4, 2015 the Company has revised the amounts previously disclosed to correct those amounts by increasing the amount reclassified related to the Loss on Qualifying Hedges from $(68) to $6,185 and $(41) to $3,773 on a pre- and after-tax basis, for the three months ended July 4, 2015, respectively, and from $(544) to $12,370 and $(332) to $7,546 on a pre- and after-tax basis, for the six months ended July 4, 2015, respectively.
Amounts reclassified out of accumulated other comprehensive loss are as follows: Changes in Accumulated Other Comprehensive Loss by Component (a)
(a) Amounts in parentheses indicate debits (b) See separate table below for details about these reclassifications
(a) Amounts in parentheses indicate debits (b) See separate table below for details about these reclassifications
Reclassifications out of Accumulated Other Comprehensive Loss (a)
(a) Amounts in parentheses indicate debits to profit/loss |
Segment Data |
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Segment Data |
The Company has four reportable segments based on an integrated geographical structure as follows: North America, United Kingdom, Continental Europe (CE) and Other. Other consists of Asia Pacific and emerging markets operations and franchise revenues and related costs, all of which have been grouped together as if they were a single reportable segment because they do not meet any of the quantitative thresholds and are immaterial for separate disclosure. To be consistent with the information that is presented to the chief operating decision maker, the Company does not include intercompany activity in the segment results.
Information about the Company’s reportable segments is as follows:
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Restructuring Charges |
6 Months Ended | ||
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Jul. 02, 2016 | |||
Restructuring Charges |
As previously disclosed, the Company established a new cost savings initiative and, as part of this cost savings initiative, in fiscal 2015, the Company undertook a plan of reduction in force which resulted in the elimination of certain positions and termination of employment for certain employees worldwide. In connection with this plan, the Company recorded restructuring charges in connection with employee termination benefit costs of $232 ($142 after tax) during the three months ended July 4, 2015 and $5,993 ($3,656 after tax) during the six months ended July 4, 2015. For the three months ended July 4, 2015, these charges impacted cost of revenues by $(311) and selling, general and administrative expense by $543. For the six months ended July 4, 2015, these charges impacted cost of revenues by $1,698 and selling, general and administrative expense by $4,295. For the three and six months ended July 4, 2015 all restructuring charges were recorded to general corporate expense and therefore there was no impact to the segments. As of January 2, 2016, the balance of the liability for restructuring was $1,809. For the six months ended July 2, 2016, the Company made payments of $1,036 and lowered provision estimates by $72. The Company expects the remaining liability of $701 as of July 2, 2016 to be paid in fiscal 2016. |
Related Party |
6 Months Ended | ||
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Jul. 02, 2016 | |||
Related Party |
As more fully described in Note 4, on October 18, 2015, the Company entered into the Strategic Collaboration Agreement with Ms. Winfrey, under which she will consult with the Company and participate in developing, planning, executing and enhancing the Weight Watchers program and related initiatives, and provide it with services in her discretion to promote the Company and its programs, products and services. In addition to the Strategic Collaboration Agreement, Ms. Winfrey and her related entities provided services to the Company totaling $542 and $1,685 during the three and six months ending July 2, 2016, which services included advertising, production and related fees. The Company’s accounts payable to parties related to Ms. Winfrey at July 2, 2016 and January 2, 2016 was $557 and $574, respectively. |
Accounting Standards Adopted in Current Year (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 02, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Standards Adopted in Current Period | As shown in the table below, pursuant to the guidance and a change in accounting principle applied on a retrospective basis, the Company has reclassified current deferred tax assets in the Company’s previously reported Consolidated Balance Sheet in the Company’s Annual Report on Form 10-K for fiscal 2015.
|
Franchise Rights Acquired, Goodwill and Other Intangible Assets (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 02, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in Carrying Values of Goodwill | For the six months ended July 2, 2016, the change in the carrying amount of goodwill is due to the franchise acquisition as described in Note 5, and the effect of exchange rate changes as follows:
|
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Schedule of Finite-Lived Intangible Assets by Major Class | The carrying values of finite-lived intangible assets as of July 2, 2016 and January 2, 2016 were as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Expected Amortization Expense | Estimated amortization expense of existing finite-lived intangible assets for the next five fiscal years and thereafter is as follows:
|
Long-Term Debt (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 02, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Long-term Debt Instruments | The components of the Company’s long-term debt were as follows:
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Earnings Per Share Data (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 02, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Earnings Per Share, Basic and Diluted | The following table sets forth the computation of basic and diluted earnings per share data:
|
Fair Value Measurements (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 02, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value, Assets Measured on Recurring Basis | The following table presents the aggregate fair value of the Company’s derivative financial instruments:
|
Accumulated Other Comprehensive Loss (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 02, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in Accumulated Other Comprehensive Loss by Component | Changes in Accumulated Other Comprehensive Loss by Component (a)
(a) Amounts in parentheses indicate debits (b) See separate table below for details about these reclassifications
(a) Amounts in parentheses indicate debits (b) See separate table below for details about these reclassifications |
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Reclassifications out of Accumulated Other Comprehensive Loss | Reclassifications out of Accumulated Other Comprehensive Loss (a)
(a) Amounts in parentheses indicate debits to profit/loss |
Segment Data (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 02, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Information About Reportable Segments | Information about the Company’s reportable segments is as follows:
|
Basis of Presentation - Additional Information (Detail) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jul. 02, 2016 |
Jul. 04, 2015 |
Jul. 02, 2016 |
Jul. 04, 2015 |
|
Disclosure Basis Of Presentation Details [Line Items] | ||||
Income before income taxes | $ 44,515 | $ 46,476 | $ 28,111 | $ 37,617 |
Net income attributable to Weight Watchers International, Inc. | $ 30,494 | 27,877 | $ 19,741 | $ 22,444 |
Adjustments | ||||
Disclosure Basis Of Presentation Details [Line Items] | ||||
Income before income taxes | 1,650 | |||
Net income attributable to Weight Watchers International, Inc. | $ 420 |
Accounting Standards Adopted in Current Period (Detail) - USD ($) $ in Thousands |
Jul. 02, 2016 |
Jan. 02, 2016 |
---|---|---|
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Total current assets | $ 216,206 | $ 351,457 |
Other noncurrent assets | 13,339 | 11,577 |
Total assets | 1,265,804 | 1,394,216 |
Long-term debt | 1,988,885 | 1,996,296 |
Deferred income taxes | 158,041 | 156,625 |
Total liabilities | $ 2,532,163 | 2,679,924 |
Accounting Standards Update 2015-17 | ||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Deferred income taxes | 0 | |
Total current assets | 351,457 | |
Deferred financing costs, net | 0 | |
Other noncurrent assets | 11,577 | |
Total assets | 1,394,216 | |
Long-term debt | 1,996,296 | |
Deferred income taxes | 156,625 | |
Total liabilities | 2,679,924 | |
As Reported | Accounting Standards Update 2015-17 | ||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Deferred income taxes | 7,516 | |
Total current assets | 358,973 | |
Deferred financing costs, net | 25,209 | |
Other noncurrent assets | 6,720 | |
Total assets | 1,422,084 | |
Long-term debt | 2,021,250 | |
Deferred income taxes | 159,539 | |
Total liabilities | 2,707,792 | |
Adjustments | Deferred Financing | Accounting Standards Update 2015-17 | ||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Deferred income taxes | 0 | |
Total current assets | 0 | |
Deferred financing costs, net | (25,209) | |
Other noncurrent assets | 255 | |
Total assets | (24,954) | |
Long-term debt | (24,954) | |
Deferred income taxes | 0 | |
Total liabilities | (24,954) | |
Adjustments | Current Deferred Income Tax Assets | Accounting Standards Update 2015-17 | ||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Deferred income taxes | (7,516) | |
Total current assets | (7,516) | |
Deferred financing costs, net | 0 | |
Other noncurrent assets | 4,602 | |
Total assets | (2,914) | |
Long-term debt | 0 | |
Deferred income taxes | (2,914) | |
Total liabilities | $ (2,914) |
Winfrey Transaction - Additional Information (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | ||
---|---|---|---|
Oct. 19, 2015 |
Oct. 18, 2015 |
Jan. 02, 2016 |
|
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items] | |||
Stock option expense | $ 12,759 | ||
Share based compensation ,dividend yield | 0.00% | ||
Share based compensation ,volatility | 63.88% | ||
Share based compensation ,risk free rate | 1.36% | ||
Prior To Third Anniversary | |||
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items] | |||
Percentage of options shares to be transferred | 40.00% | ||
Prior To Fourth Anniversary | |||
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items] | |||
Percentage of options shares to be transferred | 60.00% | ||
Prior To Fifth Anniversary | |||
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items] | |||
Percentage of options shares to be transferred | 80.00% | ||
Prior To Second Anniversary | |||
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items] | |||
Percentage of options shares to be transferred | 20.00% | ||
Option | |||
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items] | |||
Common stocks to be purchased through options | 3,513 | ||
Options exercisable price per share | $ 6.97 | ||
Strategic Collaboration Agreement | |||
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items] | |||
Initial term of agreement | 5 years | ||
Additional renewal terms | 1 year | ||
Share Purchase Agreement | |||
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items] | |||
Purchased shares | 6,362 | ||
Purchased shares, price per share | $ 6.79 | ||
Aggregate purchase price | $ 43,199 | ||
Fees related to share issuance | 2,315 | ||
Fees related to share issuance, reduction of equity | $ 1,700 | ||
Share transfer restriction period | 2 years | ||
Minimum percentage of voting power transfer for change of control | 50.00% | ||
Share Purchase Agreement | Prior To Third Anniversary | Maximum | |||
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items] | |||
Percentage of shares transferable | 15.00% | ||
Share Purchase Agreement | Prior To Fourth Anniversary | Maximum | |||
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items] | |||
Percentage of shares transferable | 30.00% | ||
Share Purchase Agreement | Prior To Fifth Anniversary | Maximum | |||
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items] | |||
Percentage of shares transferable | 60.00% | ||
Share Purchase Agreement | Right of first offer, the "Securities Act" | Minimum | |||
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items] | |||
Percentage of Company's issued and outstanding Common Stock proposed for transfer | 1.00% | ||
Share Purchase Agreement | Right of first refusal, Competitor of the Company | Minimum | |||
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items] | |||
Percentage of Company's issued and outstanding Common Stock proposed for transfer | 1.00% | ||
Share Purchase Agreement | Right of first refusal | Minimum | |||
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items] | |||
Percentage of Company's issued and outstanding Common Stock proposed for transfer | 5.00% |
Acquisition of Weilos and Miami Franchise - Additional Information (Detail) - USD ($) $ in Thousands |
Jun. 27, 2016 |
Mar. 11, 2015 |
Jul. 02, 2016 |
Jan. 02, 2016 |
---|---|---|---|---|
Business Acquisition | ||||
Goodwill | $ 168,482 | $ 159,331 | ||
Weilos | ||||
Business Acquisition | ||||
Business acquisition, purchase price allocation, net purchase price | $ 6,674 | |||
Business acquisition, purchase price allocation, common stock issued | 2,810 | |||
Business acquisition, purchase price allocation, restricted stock issued | 114 | |||
Business acquisition, net purchase price | 2,775 | |||
Business acquisition, purchase price allocation, cash reserves | 975 | |||
Goodwill | 5,588 | |||
Business acquisition, purchase price allocation, finite lived intangible assets | 1,741 | |||
Business acquisition, purchase price allocation, fixed assets | 24 | |||
Business acquisition, purchase price allocation, deferred tax liabilities | 679 | |||
Restricted shares issued to key employees | $ 908 | |||
Weight Watchers of Greater Miami, Inc. | ||||
Business Acquisition | ||||
Business acquisition, purchase price allocation, net purchase price | $ 3,250 | |||
Business acquisition, net purchase price | 2,898 | |||
Goodwill | 2,945 | |||
Business acquisition, cash reserves | 300 | |||
Business acquisition, assumed net liabilities | 52 | |||
Weight Watchers of Greater Miami, Inc. | Customer Relationships | ||||
Business Acquisition | ||||
Business acquisition, purchase price allocation, finite lived intangible assets | 191 | |||
Weight Watchers of Greater Miami, Inc. | Franchise Rights | ||||
Business Acquisition | ||||
Business acquisition, purchase price allocation, indefinite lived intangible assets | $ 114 |
Changes in Carrying Values of Goodwill (Detail) $ in Thousands |
6 Months Ended |
---|---|
Jul. 02, 2016
USD ($)
| |
Goodwill [Line Items] | |
Beginning balance | $ 159,331 |
Goodwill acquired during the period | 2,945 |
Effect of exchange rate changes | 6,206 |
Ending balance | 168,482 |
Other | |
Goodwill [Line Items] | |
Beginning balance | 17,293 |
Effect of exchange rate changes | 3,427 |
Ending balance | 20,720 |
North America | |
Goodwill [Line Items] | |
Beginning balance | 133,408 |
Goodwill acquired during the period | 2,945 |
Effect of exchange rate changes | 2,820 |
Ending balance | 139,173 |
United Kingdom Segment | |
Goodwill [Line Items] | |
Beginning balance | 1,370 |
Effect of exchange rate changes | (139) |
Ending balance | 1,231 |
Continental Europe | |
Goodwill [Line Items] | |
Beginning balance | 7,260 |
Effect of exchange rate changes | 98 |
Ending balance | $ 7,358 |
Franchise Rights Acquired, Goodwill and Other Intangible Assets - Additional Information (Detail) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||||
---|---|---|---|---|---|---|
Jul. 02, 2016 |
Jul. 04, 2015 |
Jul. 02, 2016 |
Jul. 04, 2015 |
Jun. 27, 2016 |
Jan. 02, 2016 |
|
Goodwill and Intangible Assets Disclosure | ||||||
Recruitment percentage for change in impairment review | 40.00% | |||||
Franchise right maturity period | 7 years | |||||
Goodwill | $ 168,482 | $ 168,482 | $ 159,331 | |||
Finite-lived intangible assets, aggregate amortization expense | $ 8,603 | $ 9,810 | $ 17,023 | $ 19,028 | ||
Weight Watchers of Greater Miami, Inc. | ||||||
Goodwill and Intangible Assets Disclosure | ||||||
Goodwill | $ 2,945 | |||||
BRAZIL | ||||||
Goodwill and Intangible Assets Disclosure | ||||||
Reporting unit, percentage of fair value in excess of carrying amount | 10.00% | 10.00% | ||||
Goodwill | $ 18,045 | $ 18,045 | ||||
Franchise Rights | VPM | ||||||
Goodwill and Intangible Assets Disclosure | ||||||
Amortization period | 2 years | |||||
Franchise Rights | Weight Watchers of Greater Miami, Inc. | ||||||
Goodwill and Intangible Assets Disclosure | ||||||
Amortization period | 3 months |
Carrying Amount of Finite-Lived Intangible Assets (Detail) - USD ($) $ in Thousands |
Jul. 02, 2016 |
Jan. 02, 2016 |
---|---|---|
Finite-Lived Intangible Assets | ||
Gross Carrying Amount | $ 258,141 | $ 242,881 |
Accumulated Amortization | 193,960 | 176,419 |
Capitalized software costs | ||
Finite-Lived Intangible Assets | ||
Gross Carrying Amount | 124,809 | 119,658 |
Accumulated Amortization | 94,279 | 86,134 |
Trademarks | ||
Finite-Lived Intangible Assets | ||
Gross Carrying Amount | 11,036 | 10,960 |
Accumulated Amortization | 10,542 | 10,435 |
Website development costs | ||
Finite-Lived Intangible Assets | ||
Gross Carrying Amount | 109,734 | 100,105 |
Accumulated Amortization | 77,438 | 68,673 |
Other | ||
Finite-Lived Intangible Assets | ||
Gross Carrying Amount | 8,003 | 7,976 |
Accumulated Amortization | 7,257 | 7,118 |
Trademarks and other intangible assets | ||
Finite-Lived Intangible Assets | ||
Gross Carrying Amount | 253,583 | 238,699 |
Accumulated Amortization | 189,516 | 172,360 |
Franchise Rights | ||
Finite-Lived Intangible Assets | ||
Gross Carrying Amount | 4,558 | 4,182 |
Accumulated Amortization | $ 4,444 | $ 4,059 |
Estimated Amortization Expense of Existing Finite-Lived Intangible Assets (Detail) $ in Thousands |
Jul. 02, 2016
USD ($)
|
---|---|
Expected Amortization Expense | |
Remainder of fiscal 2016 | $ 17,628 |
2017 | 29,570 |
2018 | 13,502 |
2019 | 3,399 |
2020 and thereafter | $ 82 |
Components of Current and Long-Term Debt (Detail) - USD ($) $ in Thousands |
Jul. 02, 2016 |
Jan. 02, 2016 |
|||
---|---|---|---|---|---|
Debt Instrument | |||||
Unamortized Deferred Financing Costs | $ 21,865 | $ 24,954 | |||
Total Debt | 2,079,750 | 2,234,573 | |||
Less Current Portion | 69,000 | 213,323 | |||
Unamortized Deferred Financing Costs | 21,865 | 24,954 | |||
Total Long-Term Debt | $ 1,988,885 | $ 1,996,296 | |||
Effective Interest Rate | [1] | 4.30% | 4.34% | ||
Tranche B-1 Term Facility due April 2, 2016 | |||||
Debt Instrument | |||||
Unamortized Deferred Financing Costs | $ 0 | $ 177 | |||
Total Debt | 0 | 144,323 | |||
Unamortized Deferred Financing Costs | $ 0 | $ 177 | |||
Effective Interest Rate | [1] | 3.90% | 3.87% | ||
Tranche B-2 Term Facility due April 2, 2020 | |||||
Debt Instrument | |||||
Unamortized Deferred Financing Costs | $ 21,865 | $ 24,777 | |||
Total Debt | 2,031,750 | 2,042,250 | |||
Unamortized Deferred Financing Costs | $ 21,865 | $ 24,777 | |||
Effective Interest Rate | [1] | 4.34% | 4.40% | ||
Revolving Facility due April 2, 2018 | |||||
Debt Instrument | |||||
Unamortized Deferred Financing Costs | $ 0 | $ 0 | |||
Total Debt | 48,000 | 48,000 | |||
Unamortized Deferred Financing Costs | $ 0 | $ 0 | |||
Effective Interest Rate | [1] | 3.16% | 3.25% | ||
|
Long-Term Debt - Additional Information (Detail) - USD ($) |
1 Months Ended | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 29, 2016 |
Apr. 01, 2016 |
Jul. 14, 2015 |
Jun. 26, 2015 |
Jun. 17, 2015 |
Mar. 25, 2015 |
Mar. 13, 2015 |
Feb. 21, 2014 |
Apr. 30, 2013 |
Jul. 02, 2016 |
Jul. 04, 2015 |
Sep. 27, 2014 |
Jun. 29, 2013 |
Jul. 02, 2016 |
Jul. 04, 2015 |
Jan. 02, 2016 |
Jun. 22, 2015 |
Mar. 20, 2015 |
Sep. 26, 2014 |
Apr. 02, 2013 |
|
Debt Instrument | ||||||||||||||||||||
Fees incurred in connection with debt refinancing | $ 44,817,000 | |||||||||||||||||||
Payments of term loan | $ 2,399,904,000 | $ 154,823,000 | $ 147,613,000 | |||||||||||||||||
Gain on early debt extinguishment | $ 0 | $ 6,700,000 | 0 | $ 11,476,000 | ||||||||||||||||
Credit facility drew down amount | $ 48,000,000 | |||||||||||||||||||
Credit Facility, aggregate principal amount outstanding | $ 2,079,750,000 | $ 2,079,750,000 | $ 2,234,573,000 | |||||||||||||||||
Additional applicable margin in the event the Company receives a corporate rating of BB- from S&P (or lower) and a corporate rating of Ba3 from Moody's (or lower) | 0.25% | 0.25% | ||||||||||||||||||
Average interest rate on debt, exclusive the impact of swaps | 4.31% | 4.31% | 4.34% | |||||||||||||||||
Average interest rate on debt, including the impact of swaps | 5.25% | 5.45% | ||||||||||||||||||
Tranche B-1 Term Facility due April 2, 2016 | ||||||||||||||||||||
Debt Instrument | ||||||||||||||||||||
WWI Credit Facility, maximum borrowing capacity | $ 300,000,000 | |||||||||||||||||||
Fees incurred in connection with debt refinancing | $ 641,000 | $ 601,000 | ||||||||||||||||||
Prepayment of accepted offers | 77,225,000 | 57,389,000 | ||||||||||||||||||
Accrued and unpaid interest on the amount to be prepaid | 84,862,000 | 63,065,000 | ||||||||||||||||||
Reduction in obligation | 59,728,000 | |||||||||||||||||||
Debt instrument, voluntary prepayment | 2,500,000 | |||||||||||||||||||
Write-off of deferred financing fees | 321,000 | 326,000 | ||||||||||||||||||
Gain on early debt extinguishment | $ 6,677,000 | $ 4,749,000 | ||||||||||||||||||
Principal amount paid on term loan | $ 144,323,000 | |||||||||||||||||||
Credit Facility, aggregate principal amount outstanding | $ 0 | $ 0 | $ 144,323,000 | |||||||||||||||||
Tranche B-1 Term Facility due April 2, 2016 | London Interbank Offered Rate (LIBOR) | ||||||||||||||||||||
Debt Instrument | ||||||||||||||||||||
WWI Credit Facility, additional interest rate | 2.75% | 3.00% | ||||||||||||||||||
Tranche B-1 Term Facility due April 2, 2016 | Maximum | ||||||||||||||||||||
Debt Instrument | ||||||||||||||||||||
Aggregate principal amount, discount par value | $ 229,000,000 | $ 75,000,000 | ||||||||||||||||||
Tranche B-1 Term Facility due April 2, 2016 | Minimum | ||||||||||||||||||||
Debt Instrument | ||||||||||||||||||||
Debt instrument, interest rate, effective percentage | 9.00% | 9.00% | ||||||||||||||||||
Tranche B-2 Term Facility due April 2, 2020 | ||||||||||||||||||||
Debt Instrument | ||||||||||||||||||||
WWI Credit Facility, maximum borrowing capacity | 2,100,000,000 | |||||||||||||||||||
Credit Facility, aggregate principal amount outstanding | $ 2,031,750,000 | $ 2,031,750,000 | 2,042,250,000 | |||||||||||||||||
Tranche B-2 Term Facility due April 2, 2020 | London Interbank Offered Rate (LIBOR) | ||||||||||||||||||||
Debt Instrument | ||||||||||||||||||||
WWI Credit Facility, additional interest rate | 3.00% | 3.25% | ||||||||||||||||||
Tranche B-2 Term Facility due April 2, 2020 | Minimum | London Interbank Offered Rate (LIBOR) | ||||||||||||||||||||
Debt Instrument | ||||||||||||||||||||
WWI Credit Facility, interest rate | 0.75% | 0.75% | ||||||||||||||||||
Tranche B-2 Term Facility due April 2, 2020 | Minimum | Base Rate Plus | ||||||||||||||||||||
Debt Instrument | ||||||||||||||||||||
WWI Credit Facility, interest rate | 1.75% | 1.75% | ||||||||||||||||||
Term B Loan due January 26, 2014 | ||||||||||||||||||||
Debt Instrument | ||||||||||||||||||||
Payments of term loan | 128,759,000 | |||||||||||||||||||
Term C Loan due June 30, 2015 | ||||||||||||||||||||
Debt Instrument | ||||||||||||||||||||
Payments of term loan | 110,602,000 | |||||||||||||||||||
Term D Loan due June 30, 2016 | ||||||||||||||||||||
Debt Instrument | ||||||||||||||||||||
Payments of term loan | 117,612,000 | |||||||||||||||||||
Term E Loan due March 15, 2017 | ||||||||||||||||||||
Debt Instrument | ||||||||||||||||||||
Payments of term loan | 1,125,044,000 | |||||||||||||||||||
Term F Loan due March 15, 2019 | ||||||||||||||||||||
Debt Instrument | ||||||||||||||||||||
Payments of term loan | 817,887,000 | |||||||||||||||||||
Revolver A-1 Loan due June 30, 2014 | ||||||||||||||||||||
Debt Instrument | ||||||||||||||||||||
Payments of term loan | 21,247,000 | |||||||||||||||||||
Revolver A-2 Loan due March 15, 2017 | ||||||||||||||||||||
Debt Instrument | ||||||||||||||||||||
Payments of term loan | $ 78,753,000 | |||||||||||||||||||
Term Loan Facility | ||||||||||||||||||||
Debt Instrument | ||||||||||||||||||||
Debt outstanding amount | $ 2,009,885,000 | $ 2,009,885,000 | 2,161,619,000 | 2,400,000,000 | ||||||||||||||||
Revolving Facility due April 2, 2018 | ||||||||||||||||||||
Debt Instrument | ||||||||||||||||||||
WWI Credit Facility, maximum borrowing capacity | $ 50,000,000 | 250,000,000 | ||||||||||||||||||
Credit facility available amount | 181,000 | 181,000 | $ 248,848,000 | |||||||||||||||||
Write-off of deferred financing fees related to amendment | $ 1,583,000 | |||||||||||||||||||
Credit Facility, aggregate principal amount outstanding | 48,000,000 | 48,000,000 | $ 48,000,000 | |||||||||||||||||
Loan outstanding under the revolving facility | 48,000,000 | 48,000,000 | ||||||||||||||||||
Line of credit facility, issued but undrawn letters of credit | 1,819,000 | $ 1,819,000 | ||||||||||||||||||
Revolving credit facility, commitment fee on unused commitments | 0.50% | 0.50% | ||||||||||||||||||
Customary letter of credit fees and fronting fees | $ 12,000 | $ 24,000 | $ 48,000 | |||||||||||||||||
Revolving credit facility, commitment fee amount | $ 186,000 | |||||||||||||||||||
Revolving Facility due April 2, 2018 | Subsequent Event | ||||||||||||||||||||
Debt Instrument | ||||||||||||||||||||
Loan outstanding under the revolving facility | $ 48,000,000 | |||||||||||||||||||
Principal amount paid on revolving facility | $ 25,000,000 | |||||||||||||||||||
Revolving Facility due April 2, 2018 | London Interbank Offered Rate (LIBOR) | ||||||||||||||||||||
Debt Instrument | ||||||||||||||||||||
WWI Credit Facility, additional interest rate | 2.50% |
Computation of Basic and Diluted Earnings Per Share (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jul. 02, 2016 |
Jul. 04, 2015 |
Jul. 02, 2016 |
Jul. 04, 2015 |
|
Numerator: | ||||
Net income attributable to Weight Watchers International, Inc. | $ 30,494 | $ 27,877 | $ 19,741 | $ 22,444 |
Denominator: | ||||
Weighted average shares of common stock outstanding | 63,740 | 57,085 | 63,644 | 56,946 |
Effect of dilutive common stock equivalents | 2,194 | 70 | 2,246 | 89 |
Weighted average diluted common shares outstanding | 65,934 | 57,155 | 65,890 | 57,035 |
Net income per share attributable to Weight Watchers International, Inc. | ||||
Basic | $ 0.48 | $ 0.49 | $ 0.31 | $ 0.39 |
Diluted | $ 0.46 | $ 0.49 | $ 0.30 | $ 0.39 |
Earnings Per Share Data - Additional Information (Detail) - shares shares in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jul. 02, 2016 |
Jul. 04, 2015 |
Jul. 02, 2016 |
Jul. 04, 2015 |
|
Antidilutive Securities Excluded from Computation of Earnings Per Share | ||||
Anti-dilutive common stock equivalents excluded from the calculation of diluted EPS | 1,265 | 1,911 | 1,205 | 1,995 |
Stock Plans - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | |||||
---|---|---|---|---|---|---|
Jun. 22, 2015 |
May 22, 2015 |
May 07, 2015 |
Jul. 02, 2016 |
Apr. 02, 2016 |
Jan. 02, 2016 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Options outstanding | 0 | |||||
Stock option expense | $ 12,759 | |||||
Options To Purchase Common Stock | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Options outstanding | 734,000 | 1,700,000 | ||||
Percentage of options eligible for exchange | 99.60% | |||||
Weighted-average exercise price | $ 5.25 | $ 24.68 | ||||
Vesting period | 3 years | |||||
Stock option expense | $ 1,599 | |||||
Options To Purchase Common Stock | Vesting on the first anniversary | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Vesting percentage | 25.00% | |||||
Options To Purchase Common Stock | Vesting on the second anniversary | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Vesting percentage | 25.00% | |||||
Options To Purchase Common Stock | Vesting on the third anniversary | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Vesting percentage | 50.00% | |||||
Stock Option | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Vesting period | 3 years | 3 years | ||||
Stock options, granted | 4,000 | 1,000 | ||||
Total fair value of stock options | $ 25 | $ 6 | ||||
Stock options, weighted average fair value per share | $ 6.58 | $ 6.41 | ||||
Restricted Stock Performance Condition | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Vesting period | 3 years | |||||
Other than options, granted | 289,000 | |||||
Other than options, total fair value | $ 3,819 | |||||
Other than options, weighted average fair value per share | $ 13.20 | |||||
Restricted Stock Performance Condition | Minimum | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Other than options, shares expected to vest | 96 | |||||
Other than options, percentage of outstanding shares expected to vest | 33.33% | |||||
Restricted Stock Performance Condition | Maximum | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Other than options, shares expected to vest | 482,000 | |||||
Net debt to EBITDA ratio | 450.00% | |||||
Other than options, percentage of outstanding shares expected to vest | 166.67% | |||||
Restricted Stock | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Vesting period | 3 years | |||||
Other than options, granted | 434,000 | |||||
Other than options, total fair value | $ 5,730 | |||||
Other than options, weighted average fair value per share | $ 13.2 | |||||
Employees | Stock Incentive Plan 2014 | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Stock conversion ratio | 200.00% | |||||
Chief Executive Officer | Stock Incentive Plan 2014 | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Stock conversion ratio | 350.00% |
Income Taxes - Additional Information (Detail) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jul. 02, 2016 |
Jul. 04, 2015 |
Jul. 02, 2016 |
Jul. 04, 2015 |
|
Income Tax Contingency [Line Items] | ||||
Effective income tax rate | 31.50% | 40.20% | 30.00% | 40.70% |
Reversal in valuation allowance related to tax benefits for foreign losses | $ 2.5 | $ 2.5 |
Legal - Additional Information (Detail) |
1 Months Ended |
---|---|
Mar. 29, 2014
LegalMatter
| |
Loss Contingencies | |
Securities class action filed | 2 |
Derivative Instruments and Hedging - Additional Information (Detail) - USD ($) |
6 Months Ended | ||
---|---|---|---|
Jul. 26, 2013 |
Jul. 02, 2016 |
Jan. 02, 2016 |
|
Derivative | |||
Maximum length of time hedging forecasted | 4 years | ||
Derivative losses included in accumulated other comprehensive income(loss) that are expected to be reclassified into earnings within the next 12 months, net of tax | $ (11,133,000) | ||
Derivative losses included in accumulated other comprehensive income(loss) that are expected to be reclassified into earnings within the next 12 months, before tax | $ (18,251,000) | ||
Interest Rate Swap | |||
Derivative | |||
Forward-starting interest rate swap, effective date | Mar. 31, 2014 | ||
Forward starting interest rate swap, termination date | Apr. 02, 2020 | ||
Derivative interest rate swap percentage | 2.38% | ||
Cumulative losses for qualifying hedges reported as a component of accumulated other comprehensive loss net of tax | $ (34,216,000) | $ (23,135,000) | |
Cumulative losses for qualifying hedges reported as a component of accumulated other comprehensive loss before tax | (56,095,000) | (38,053,000) | |
Interest Rate Swap | Cash Flow Hedging | |||
Derivative | |||
Notional amount | $ 1,500,000,000 | 1,500,000,000 | $ 1,500,000,000 |
Interest Rate Swap | Cash Flow Hedging | March 31, 2014 | |||
Derivative | |||
Notional amount | $ 1,500,000,000 | ||
Forward-starting interest rate swap, effective date | Mar. 31, 2014 | ||
Interest Rate Swap | Cash Flow Hedging | April 3, 2017 | |||
Derivative | |||
Notional amount | $ 1,250,000,000 | ||
Forward-starting interest rate swap, effective date | Apr. 03, 2017 | ||
Interest Rate Swap | Cash Flow Hedging | April 1, 2019 | |||
Derivative | |||
Notional amount | $ 1,000,000,000 | ||
Forward-starting interest rate swap, effective date | Apr. 01, 2019 |
Fair Value Measurements - Additional Information (Detail) - USD ($) |
6 Months Ended | 12 Months Ended | |
---|---|---|---|
Jul. 02, 2016 |
Jan. 02, 2016 |
Apr. 02, 2013 |
|
Term Loan Facility | |||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||
Fair value of long-term debt | $ 1,515,482,000 | $ 1,664,393,000 | |
Carrying value of long-term debt, net of deferring financing costs | 2,009,885,000 | 2,161,619,000 | $ 2,400,000,000 |
Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets (Level 1) | |||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||
Fair value transfers, assets | 0 | 0 | |
Fair value transfers, liabilities | 0 | 0 | |
Fair Value Measurements Using Significant Other Observable Inputs (Level 2) | |||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||
Fair value transfers, assets | 0 | 0 | |
Fair value transfers, liabilities | 0 | $ 0 | |
Revolving Facility due April 2, 2018 | |||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||
Carrying value of long-term debt | $ 48,000,000 |
Aggregate Fair Value of Derivative Financial Instruments (Detail) - Fair Value, Measurements, Recurring - Interest Rate Swap - USD ($) $ in Thousands |
Jul. 02, 2016 |
Jan. 02, 2016 |
---|---|---|
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis | ||
Interest rate swap liability | $ 62,212 | $ 44,170 |
Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets (Level 1) | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis | ||
Interest rate swap liability | 0 | 0 |
Fair Value Measurements Using Significant Other Observable Inputs (Level 2) | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis | ||
Interest rate swap liability | 62,212 | 44,170 |
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis | ||
Interest rate swap liability | $ 0 | $ 0 |
Accumulated Other Comprehensive Loss - Additional Information (Detail) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||||
---|---|---|---|---|---|---|---|
Jul. 02, 2016 |
Jul. 04, 2015 |
Jul. 02, 2016 |
Jul. 04, 2015 |
||||
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||||||
Income (loss) before income taxes | $ (44,515) | $ (46,476) | $ (28,111) | $ (37,617) | |||
Net (loss) income | (30,481) | (27,780) | (19,680) | (22,296) | |||
Reclassification out of Accumulated Other Comprehensive Income | |||||||
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||||||
Income (loss) before income taxes | [1] | (6,185) | (6,185) | (12,370) | (12,370) | ||
Net (loss) income | [1] | $ (3,773) | (3,773) | $ (7,546) | (7,546) | ||
Reclassification out of Accumulated Other Comprehensive Income | As Reported | |||||||
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||||||
Income (loss) before income taxes | (68) | (544) | |||||
Net (loss) income | $ (41) | $ (332) | |||||
|
Changes in Accumulated Other Comprehensive Loss by Component (Detail) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 02, 2016 |
Jul. 04, 2015 |
Jul. 02, 2016 |
Jul. 04, 2015 |
||||||||
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||||||||||
Other comprehensive (loss) income before reclassifications, net of tax | [1] | $ (11,484) | $ (16,746) | ||||||||
Amounts reclassified from accumulated other comprehensive loss, net of tax | [1],[2] | 7,546 | 7,546 | ||||||||
Total other comprehensive (loss) gain | $ (1,286) | $ 8,118 | (3,938) | [1] | (9,200) | [1] | |||||
Less: net current period other comprehensive income attributable to the noncontrolling interest | [1] | (470) | 449 | ||||||||
Loss on Qualifying Hedges | |||||||||||
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||||||||||
Beginning Balance | [1] | (23,135) | (21,856) | ||||||||
Other comprehensive (loss) income before reclassifications, net of tax | [1] | (18,627) | (8,213) | ||||||||
Amounts reclassified from accumulated other comprehensive loss, net of tax | [1],[2] | 7,546 | 7,546 | ||||||||
Total other comprehensive (loss) gain | [1] | (11,081) | (667) | ||||||||
Less: net current period other comprehensive income attributable to the noncontrolling interest | [1] | 0 | 0 | ||||||||
Ending Balance | [1] | (34,216) | (22,523) | (34,216) | (22,523) | ||||||
Loss on Foreign Currency Translation | |||||||||||
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||||||||||
Beginning Balance | [1] | (14,130) | 1,906 | ||||||||
Other comprehensive (loss) income before reclassifications, net of tax | [1] | 7,143 | (8,533) | ||||||||
Amounts reclassified from accumulated other comprehensive loss, net of tax | [1],[2] | 0 | 0 | ||||||||
Total other comprehensive (loss) gain | [1] | 7,143 | (8,533) | ||||||||
Less: net current period other comprehensive income attributable to the noncontrolling interest | [1] | (470) | 449 | ||||||||
Ending Balance | [1] | (7,457) | (6,178) | (7,457) | (6,178) | ||||||
Accumulated Other Comprehensive Loss | |||||||||||
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||||||||||
Beginning Balance | [1] | (37,265) | (19,950) | ||||||||
Ending Balance | [1] | $ (41,673) | $ (28,701) | $ (41,673) | $ (28,701) | ||||||
|
Reclassifications out of Accumulated Other Comprehensive Loss (Detail) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||||
---|---|---|---|---|---|---|---|
Jul. 02, 2016 |
Jul. 04, 2015 |
Jul. 02, 2016 |
Jul. 04, 2015 |
||||
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items] | |||||||
Interest expense | $ (28,609) | $ (30,460) | $ (58,634) | $ (61,564) | |||
Income before income taxes | (44,515) | (46,476) | (28,111) | (37,617) | |||
Provision for income taxes | 14,034 | 18,696 | 8,431 | 15,321 | |||
Net income | (30,481) | (27,780) | (19,680) | (22,296) | |||
Reclassification out of Accumulated Other Comprehensive Income | |||||||
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items] | |||||||
Income before income taxes | [1] | (6,185) | (6,185) | (12,370) | (12,370) | ||
Provision for income taxes | [1] | 2,412 | 2,412 | 4,824 | 4,824 | ||
Net income | [1] | (3,773) | (3,773) | (7,546) | (7,546) | ||
Loss on Qualifying Hedges | Interest Rate Contract | Reclassification out of Accumulated Other Comprehensive Income | |||||||
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items] | |||||||
Interest expense | [1] | $ (6,185) | $ (6,185) | $ (12,370) | $ (12,370) | ||
|
Segment Data - Additional Information (Detail) |
6 Months Ended |
---|---|
Jul. 02, 2016
Segment
| |
Segment Reporting Information [Line Items] | |
Number of reportable segments | 4 |
Information About Reportable Segments (Detail) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jul. 02, 2016 |
Jul. 04, 2015 |
Jul. 02, 2016 |
Jul. 04, 2015 |
|
Segment Reporting Information [Line Items] | ||||
Net revenue | $ 309,761 | $ 309,754 | $ 616,671 | $ 631,857 |
Operating income | 73,731 | 70,580 | 87,287 | 88,624 |
Interest expense | 28,609 | 30,460 | 58,634 | 61,564 |
Other expense, net | 607 | 344 | 542 | 919 |
Gain on early extinguishment of debt | 0 | (6,700) | 0 | (11,476) |
Provision for taxes | 14,034 | 18,696 | 8,431 | 15,321 |
Net income | 30,481 | 27,780 | 19,680 | 22,296 |
Less: Net loss attributable to the noncontrolling interest | 13 | 97 | 61 | 148 |
Net income attributable to Weight Watchers International, Inc. | 30,494 | 27,877 | 19,741 | 22,444 |
Depreciation and amortization | 14,392 | 16,099 | 28,923 | 31,854 |
Operating Segments | ||||
Segment Reporting Information [Line Items] | ||||
Operating income | 84,359 | 84,532 | 112,257 | 120,288 |
Depreciation and amortization | 11,791 | 12,897 | 23,649 | 25,428 |
General corporate expenses | ||||
Segment Reporting Information [Line Items] | ||||
General corporate expenses | (10,628) | (13,952) | (24,970) | (31,664) |
Depreciation and amortization | 2,601 | 3,202 | 5,274 | 6,426 |
North America | ||||
Segment Reporting Information [Line Items] | ||||
Net revenue | 211,545 | 200,772 | 420,388 | 406,328 |
North America | Operating Segments | ||||
Segment Reporting Information [Line Items] | ||||
Operating income | 56,975 | 51,000 | 82,499 | 69,020 |
Depreciation and amortization | 10,894 | 11,866 | 21,779 | 23,341 |
United Kingdom Segment | ||||
Segment Reporting Information [Line Items] | ||||
Net revenue | 27,702 | 32,785 | 56,613 | 67,155 |
United Kingdom Segment | Operating Segments | ||||
Segment Reporting Information [Line Items] | ||||
Operating income | 5,506 | 8,268 | 5,915 | 14,449 |
Depreciation and amortization | 299 | 195 | 517 | 382 |
Continental Europe | ||||
Segment Reporting Information [Line Items] | ||||
Net revenue | 57,048 | 62,206 | 112,754 | 128,949 |
Continental Europe | Operating Segments | ||||
Segment Reporting Information [Line Items] | ||||
Operating income | 19,523 | 22,582 | 20,729 | 32,639 |
Depreciation and amortization | 428 | 476 | 884 | 961 |
Other | ||||
Segment Reporting Information [Line Items] | ||||
Net revenue | 13,466 | 13,991 | 26,916 | 29,425 |
Other | Operating Segments | ||||
Segment Reporting Information [Line Items] | ||||
Operating income | 2,355 | 2,682 | 3,114 | 4,180 |
Depreciation and amortization | $ 170 | $ 360 | $ 469 | $ 744 |
Restructuring Charges - Additional Information (Detail) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jul. 04, 2015 |
Jul. 02, 2016 |
Jul. 04, 2015 |
Jan. 02, 2016 |
|
Restructuring Cost and Reserve [Line Items] | ||||
Employee termination benefit costs, pretax | $ 232 | $ 5,993 | ||
Employee termination benefit costs, after tax | 142 | 3,656 | ||
Liability for restructuring | $ 701 | $ 1,809 | ||
Payments | 1,036 | |||
Provision | $ 72 | |||
Cost of Revenues | ||||
Restructuring Cost and Reserve [Line Items] | ||||
Employee termination benefit costs, pretax | (311) | 1,698 | ||
Selling, General and Administrative Expenses | ||||
Restructuring Cost and Reserve [Line Items] | ||||
Employee termination benefit costs, pretax | $ 543 | $ 4,295 |
Related Party - Additional Information (Detail) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |
---|---|---|---|
Jul. 02, 2016 |
Jul. 02, 2016 |
Jan. 02, 2016 |
|
Ms. Winfrey and her related entities | |||
Related Party Transaction [Line Items] | |||
Related Party Transaction, service provided by related party | $ 542 | $ 1,685 | |
Ms. Winfrey | |||
Related Party Transaction [Line Items] | |||
Accounts payable to related parties | $ 557 | $ 557 | $ 574 |
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