WeightWatchers 2009 Annual Report Download - page 63

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Our reported operating income for fiscal 2008 was $425.0 million, a decrease of $10.6 million, or 2.4%,
versus fiscal 2007. Excluding the net adjustment for the U.K. VAT ruling, our operating income was $451.5
million for fiscal 2008 versus $435.6 million in fiscal 2007, an increase of $15.9 million, or 3.7%. Our reported
operating income margin declined from 29.7% for fiscal 2007 to 27.7% for fiscal 2008. Excluding the net
adjustment for the U.K. VAT ruling, our adjusted operating income margin for fiscal 2008 was 28.9%, a decrease
of 80 basis points from 29.7% in fiscal 2007, as a result of the decline in gross margin coupled with higher
marketing expense.
Interest expense was $92.7 million for fiscal 2008, a decrease of $16.6 million, or 15.2%, from $109.3
million for fiscal 2007, due to lower effective interest rates and a $44.0 million decrease in our average debt
outstanding. The average effective interest rate for fiscal 2008 decreased to 5.44%, from 6.39% in fiscal 2007, a
result of a decline in LIBOR combined with the 0.25% reduction in our interest rate spread over LIBOR for our
two tranche A facilities and our revolving credit facility which took effect at the end of February 2008.
For fiscal 2008, we reported other income of $2.0 million, versus $3.2 million in fiscal 2007. The decrease
is primarily the result of the impact of foreign currency exchange rates on intercompany transactions.
In fiscal 2007, we recorded a charge of $3.0 million for early extinguishment of debt. This charge reflected
the write-off of deferred financing costs associated with the WW.com Credit Facilities, which were paid down
during that period (as further explained in Note 7 to the Consolidated Financial Statements).
The effective tax rate on our reported results for fiscal 2008 was 39.5%, versus 38.4% in fiscal 2007.
Excluding the adjustment for the U.K. VAT ruling, our effective tax rate for fiscal 2008 was 38.9%.
Liquidity and Capital Resources
Balance Sheet
Comparing the balance sheet at January 2, 2010 with that at January 3, 2009, our cash balance decreased by
$1.2 million from $47.3 million to $46.1 million. Our working capital deficit at January 2, 2010 was
$336.1 million, including $46.1 million of cash, versus $270.1 million, including $47.3 million of cash, at
January 3, 2009. Excluding the change in cash, the working capital deficit increased by $64.8 million from
January 3, 2009 to January 2, 2010.
Of the $64.8 million increase in negative working capital, $52.5 million reflects an increase in the current
portion of our long-term debt, $36.7 million represents the accrual for the adverse U.K. tax ruling relating to the
self-employment status of our U.K. leaders and $15.5 million represents lower prepaid and deferred income
taxes. These are partially offset by a decrease in negative working capital of $39.9 million arising from a $22.3
million decrease in our derivative payable due to changes in the interest rate yield curve, a $9.3 million decrease
in our U.K. VAT liability and operational items of $8.3 million, largely the result of lower payables and accrued
expenses due to timing of these payments this year versus last year.
Capital spending has averaged approximately $29.0 million annually over the last three fiscal years and has
consisted primarily of information system and website development expenditures, leasehold improvements,
furniture and equipment for meeting locations.
Sources and Uses of Cash
Fiscal 2009
At the end of fiscal 2009, cash and cash equivalents were $46.1 million, a decrease of $1.2 million from the
end of fiscal 2008. Cash flows provided by operating activities were $265.5 million, exceeding fiscal 2009 net
income of $177.3 million by $88.2 million. The excess of cash over net income arose primarily from differences
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