WeightWatchers 2013 Annual Report Download - page 65

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Operating Income Margin
Excluding the impact of the settlement of the UK self-employment matter, our operating income margin in
fiscal 2013 decreased to 26.7% from 27.0% in fiscal 2012. This decline in operating income margin was
primarily driven by the decline in gross margin and higher selling, general and administrative expenses, which
were partially offset by the absence of a Weight Watchers Online US men’s specific marketing campaign,
achieving lower and more efficient digital marketing spend in the United States in fiscal 2013 and lower TV
advertising and production costs globally versus fiscal 2012. In fiscal 2013, marketing expenses decreased as a
percentage of revenue, but this decrease was slightly offset by the increase in selling, general and administrative
expenses as a percentage of revenue, as compared to the prior year.
Interest Expense
Interest expense was $103.1 million for fiscal 2013, an increase of $12.6 million, or 13.9%, from $90.5
million in fiscal 2012. Excluding the impact of the 2012 settlement of the UK self-employment matter, interest
expense increased $19.7 million or 23.6% versus the prior year. The increase was primarily driven by an increase
in our average debt outstanding and higher interest rates on our debt. Our average debt outstanding increased by
$294.4 million to $2,397.3 million in fiscal 2013 from $2,102.9 million in fiscal 2012. The increase in average
debt outstanding was driven by the additional borrowings under our then existing credit facilities in March and
April 2012 in connection with our repurchase of shares in the Tender Offer and the related share repurchase from
Artal Holdings (see “—Liquidity and Capital Resources—Stock Transactions”). The effective interest rate on our
debt increased by 0.58% to 3.49% in fiscal 2013 from 2.91% in fiscal 2012 as a result of our April 2, 2013 debt
refinancing. Interest expense was partially offset by a decrease in the notional value of our interest rate swap,
which resulted in a higher effective interest rate of 3.92% in fiscal 2013, as compared to 3.60% in fiscal 2012.
Other Expense
The Company incurred $0.6 million of other expense in fiscal 2013 as compared to $2.0 million of other
expense in the prior year. While both years include the impact of foreign currency on intercompany transactions,
the prior year also includes $2.4 million of expense resulting from a write-off associated with an investment.
Early Extinguishment of Debt
In the second quarter of fiscal 2013, we wrote-off $21.7 million of fees in connection with the April 2013
refinancing of our debt that we recorded as an early extinguishment of debt charge. In the first quarter of fiscal
2012, we wrote-off $1.3 million of fees in connection with the March 2012 refinancing of our debt that we
recorded as an early extinguishment of debt charge.
Tax
Our effective tax rate was 39.0% for fiscal 2013 as compared to 38.3% for fiscal 2012. 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 the lack of a tax benefit recorded for certain non-
deductible impairments charges recorded in fiscal 2013 as well as the impact of a non-recurring tax benefit
recorded in fiscal 2012 associated with a reduction in certain international tax rates.
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