WeightWatchers 2013 Annual Report Download - page 61

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The combination of declining recruitments and the lower incoming active base at the start of fiscal 2013 in
the meetings business led to a decline in global meeting paid weeks in fiscal 2013 versus the prior year. With the
benefit of starting fiscal 2013 with a higher active Online subscriber base, WeightWatchers.com experienced
growth of 1.7% in Online paid weeks versus the prior fiscal year. The increase in Online paid weeks did not fully
offset the decline in meeting paid weeks, resulting in a 3.9% decrease in global paid weeks in fiscal 2013 versus
the prior year. Global attendance in fiscal 2013 declined 15.5% in comparison to fiscal 2012.
Gross Profit and Operating Income
Gross profit for fiscal 2013 of $1,001.1 million decreased $92.7 million, or 8.5%, from $1,093.8 million in
fiscal 2012. Excluding the impact of the settlement in fiscal 2012 of the UK self-employment matter noted in the
above table, and of foreign currency which negatively impacted gross profit for fiscal 2013 by $0.3 million, gross
profit in fiscal 2013 decreased by $77.9 million, or 7.2%, versus the prior year. Operating income for fiscal 2013
was $460.8 million, a decrease of $50.0 million, or 9.8%, from $510.8 million in fiscal 2012. Excluding the
impact of the settlement in fiscal 2012 of the UK self-employment matter and of foreign currency which
negatively impacted operating income for fiscal 2013 by $0.5 million, operating income in fiscal 2013 decreased
by $35.0 million, or 7.0%, versus the prior year. This decrease in operating income was primarily the result of
lower meeting revenues in fiscal 2013 versus the prior year that were partially offset by lower marketing
expense, primarily from the elimination of inefficient digital advertising and the lack of a men’s campaign in the
United States, in fiscal 2013. As adjusted for the settlement in fiscal 2012, our gross margin in fiscal 2013
decreased to 58.1% from 58.7% in fiscal 2012, and operating income margin in fiscal 2013 decreased to 26.7%
from 27.0% in fiscal 2012. See “—Components of Expenses and Margins” for additional details.
Net Income and Earnings Per Share
Net income in fiscal 2013 declined 20.5% from $257.4 million in fiscal 2012 to $204.7 million. This decline
in net income was driven by the decrease in operating income in fiscal 2013 versus the prior year as well as a
charge of $21.7 million in early extinguishment of debt and higher interest expense resulting from our long-term
debt refinancing in the second quarter of fiscal 2013. Excluding this early extinguishment of debt charge (after
tax), net income would have been $218.0 million in fiscal 2013.
Earnings per fully diluted share in fiscal 2013 were $3.63, a decrease of $0.60 from $4.23 in fiscal 2012.
Excluding the early extinguishment of debt charge, EPS would have been $3.87 in fiscal 2013. EPS in fiscal
2013 benefited from our repurchase of shares in the Tender Offer and the related share repurchase from Artal
Holdings as the number of our weighted average diluted shares outstanding for fiscal 2013 decreased to
56.4 million from 60.9 million in the prior year. See “—Liquidity and Capital Resources—Stock Transactions”
for a description of the Tender Offer and related share repurchase from Artal Holdings.
Components of Revenue and Volumes
We derive our revenues principally from meeting fees, Internet revenues, products sold in meetings, and
licensed products sold in retail channels. In addition, we generate other revenue from royalties paid to us by our
franchisees, subscriptions to our branded magazines, and advertising in our publications.
Meeting Fees
Global meeting fees for fiscal 2013 were $851.6 million, a decrease of $83.3 million, or 8.9%, from $934.9
million in the prior year. Excluding the impact of foreign currency, which decreased our global meeting fees for
fiscal 2013 by $0.7 million, global meeting fees in fiscal 2013 decreased by 8.8% versus the prior year. The
decline in meeting fees was driven by a 10.1% decline in global meeting paid weeks in fiscal 2013 to
89.1 million from 99.2 million in the prior year. The decline in meeting paid weeks was driven by a lower
meetings active base at the beginning of fiscal 2013 versus the beginning of fiscal 2012 as well as by the lower
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