WeightWatchers 2015 Annual Report Download - page 59

in the United States. This decline was partially offset by the early launch of our winter season brand campaign in
the United States. Marketing expenses as a percentage of revenue were 17.7% in fiscal 2014 as compared to
17.1% in the prior year.
Selling, General and Administrative
Selling, general and administrative expenses for fiscal 2014 decreased $6.8 million, or 2.7%, versus fiscal
2013. Excluding the impact of the 2014 restructuring charges, selling, general and administrative expenses for
fiscal 2014 would have decreased by 5.6% versus fiscal 2013. In fiscal 2014, the Company made concerted
efforts to adopt cost-savings initiatives, including rationalization of its workforce and reduction of its total
payroll and discretionary spend. At the same time, the Company decided to invest in certain healthcare and
technology initiatives, which partially offset the savings. Selling, general and administrative expenses as a
percentage of revenue for fiscal 2014 increased to 16.3% from 14.4% for fiscal 2013. Excluding the impact of the
2014 restructuring charges, selling, general and administrative expenses as a percentage of revenue for fiscal
2014 increased to 15.8% from 14.4% for fiscal 2013.
Operating Income
Operating income for fiscal 2014 decreased $158.4 million, or 34.6%, versus fiscal 2013. This decrease in
operating income was almost exclusively the result of lower operating income from North America in fiscal 2014
as compared to the prior year. Excluding the impact of the 2014 restructuring charges, our operating income
margin in fiscal 2014 would have decreased to 21.0% from 26.5% in fiscal 2013. This decline in operating
income margin was primarily driven by the decline in gross margin, higher selling, general and administrative
and marketing expenses as a percentage of revenues, as compared to the prior year.
Interest Expense
Interest expense in fiscal 2014 increased $19.9 million, or 19.3%, versus fiscal 2013. Interest expense for
fiscal 2014 included a $1.6 million write-off of deferred financing fees associated with the reduction of the
amount of our Revolving Facility (defined hereafter). The increase in interest expense was primarily driven by
the difference in the notional amount of our interest rate swaps in effect during fiscal 2014 versus the prior year,
the 25 basis point increase related to the issuance of revised corporate ratings by S&P and Moody’s on
February 21, 2014 and higher interest rates on our debt as a result of the April 2, 2013 debt refinancing. See
“—Liquidity and Capital Resources—Long-Term Debt” for additional details regarding our Revolving Facility
and interest rates on our debt. Our average debt outstanding decreased by $24.4 million to $2,372.9 million in
fiscal 2014 from $2,397.3 million in fiscal 2013, however, the effective interest rate on our debt, excluding the
impact of our interest rate swaps, increased by 0.37% to 3.86% in fiscal 2014 from 3.49% in fiscal
2013. Including the impact of our interest rate swaps, our effective interest rate increased to 4.67% in fiscal 2014
from 3.92% in fiscal 2013. For additional details on our interest rate swap see “—“Item 7A. Quantitative and
Qualitative Disclosures about Market Risk” in Part III of this Annual Report on Form 10-K.
Gain on Brazil Acquisition
In March 2014, we acquired an additional 45% equity interest in our Brazilian partnership thereby
increasing our equity interest to 80%. As a result of this transaction, we adjusted our previously held equity
interest to fair value and recorded a charge associated with the settlement of the royalty-free arrangement of our
Brazilian partnership. The net effect of these items resulted in us recognizing a pre-tax gain of $10.5 million in
fiscal 2014.
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