WeightWatchers 2012 Annual Report Download - page 64

Download and view the complete annual report

Please find page 64 of the 2012 WeightWatchers annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 132

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132

Operating Income Margin
Excluding the impact of the settlement of the UK self-employment matter, our operating income margin in
fiscal 2012 decreased to 27.2% from 30.0% in fiscal 2011. This decline in operating income margin was
primarily driven by costs related to first time Online TV marketing campaigns in several of our international
markets and our significant investment in marketing the Weight Watchers Online product to men in the United
States. Both marketing expenses and selling, general and administrative expenses increased as a percentage of
revenue in fiscal 2012 as compared to the prior year.
Interest Expense and Other
Interest expense was $90.5 million for fiscal 2012, an increase of $30.7 million, or 51.3%, from $59.9
million in fiscal 2011. Excluding the impact of the settlement of the UK self-employment matter noted in the
table above, interest expense was $83.4 million, an increase of $23.6 million or 39.4% versus the prior year. The
increase was primarily driven by an increase in our average debt outstanding and higher interest rates on our
debt. The effective interest rate on our debt increased by 0.76% to 2.91% in fiscal 2012 from 2.15% in fiscal
2011. Our average debt outstanding increased by $920.0 million to $2,102.9 million in fiscal 2012 from $1,182.9
million in fiscal 2011. The increase in average debt outstanding was driven by the additional borrowings under
the WWI Credit Facility (defined below) in connection with our repurchase of shares in the Tender Offer and the
related share repurchase from Artal Holdings (see “—Liquidity and Capital Resources—Dividends and Stock
Transactions”). Interest expense was partially offset by a decrease in the notional value and interest rates of our
interest rate swaps, which resulted in a lower effective interest rate of 3.60% in fiscal 2012, as compared to
4.62% in fiscal 2011. In the first quarter of fiscal 2012, we wrote-off $1.3 million of fees in connection with the
refinancing of our debt, which we recorded as an early extinguishment of debt charge.
The Company incurred $2.0 million of other expense in fiscal 2012 as compared to $3.4 million of other
expense in the prior year, both years include the write-off associated with an investment and the impact of
foreign currency on intercompany transactions.
Tax
Our effective tax rate was 38.3% for fiscal 2012 as compared to 37.0% for fiscal 2011. For fiscal 2012, the
UK self-employment matter impacted our effective tax rate. Excluding the impact of the settlement of the UK
self-employment matter, our effective tax rate for fiscal 2012 would have been 38.1%. The difference in period-
over-period effective tax rates is primarily the result of a tax benefit recorded in fiscal 2012 associated with a
reduction in certain international tax rates. This was offset by tax benefits recorded in fiscal 2011 associated with
the closure of our Finland business and reversing certain tax reserves upon expiration of the applicable statutes of
limitations.
RESULTS OF OPERATIONS FOR FISCAL 2011 (52 weeks) COMPARED TO FISCAL 2010 (52 weeks)
OVERVIEW
Since the second quarter of fiscal 2010, the Company has experienced sustained growth in revenue,
volumes, and profitability in each quarter as compared to the prior year periods. The growth trend began with a
successful change in marketing strategy in both the meetings business and WeightWatchers.com in North
America in the second quarter of fiscal 2010, and accelerated throughout the remainder of fiscal 2010 fueled by
the soft launch of a new program platform in North America and the United Kingdom at the end of fiscal 2010.
Accordingly, by the end of fiscal 2010, our customer base had grown by more than 20% since the beginning of
fiscal 2010.
In January 2011, we began marketing campaigns for our new program launches which accelerated period-
over-period volume growth in the North American and UK meetings and WeightWatchers.com businesses to
historically high levels in the first quarter of fiscal 2011. As a result, on a consolidated Company basis, revenues
48