WeightWatchers 2015 Annual Report Download - page 71

borrowings under the WWI Credit Facility. As of the end of fiscal 2015, borrowings under the Tranche B-1 Term
Facility bore interest at LIBOR plus an applicable margin of 3.00%, borrowings under the Tranche B-2 Term
Facility bore interest at LIBOR plus an applicable margin of 3.25% and borrowings under the Revolving Facility
bore interest at LIBOR plus an applicable margin of 2.50%. As of the end of fiscal 2015, we had $48.0 million
outstanding under the Revolving Facility. As of the end of fiscal 2015, we had in effect an interest rate swap with
a notional amount totaling $1.5 billion to hedge a portion of our variable rate debt. As of such date, we had
$2,234.6 million of variable rate debt, of which $0.7 million remained unhedged.
In January 2009, the Company entered into a forward-starting interest rate swap which had an effective date
of January 4, 2010 and a termination date of January 27, 2014. From December 29, 2012 through April 1, 2013,
this swap had qualified for hedge accounting, and therefore changes in the fair value of this derivative were
recorded in accumulated other comprehensive income (loss). Effective April 2, 2013, due to the Company’s debt
refinancing, the Company ceased the application of hedge accounting for this swap. Accordingly, changes in the
fair value of this swap were recorded in earnings subsequent to April 2, 2013 and were immaterial for the fiscal
year ended January 3, 2015.
On July 26, 2013, in order to hedge an additional portion of its variable rate debt, the Company entered into
a forward-starting interest rate swap with an effective date of March 31, 2014 and a termination date of April 2,
2020. The initial notional amount of this swap was $1.5 billion. During the term of this swap, the notional
amount will decrease from $1.5 billion effective March 31, 2014 to $1.25 billion on April 3, 2017 with a further
reduction to $1.0 billion on April 1, 2019. This interest rate swap effectively fixes the variable interest rate on the
notional amount of this swap at 2.38%. This swap qualifies for hedge accounting and, therefore, changes in the
fair value of this swap have been recorded in accumulated other comprehensive income (loss).
At the end of fiscal 2015, borrowings under (a) the Tranche B-1 Term Facility bore interest at LIBOR plus
an applicable margin of 3.00% and (b) the Tranche B-2 Term Facility bore interest at LIBOR plus an applicable
margin of 3.25%. For the Tranche B-2 Term Facility, the minimum interest rate for LIBOR applicable to such
facility pursuant to the terms of the Credit Agreement is set at 0.75%, referred to herein as the B-2 LIBOR Floor.
In addition, at the end of fiscal 2015, our interest rate swap in effect had a notional amount of $1.5 billion.
Accordingly, as of the end of fiscal 2015, based on the amount of variable rate debt including the impact of the
interest rate swap and the B-2 LIBOR Floor, a hypothetical 50 basis point increase in interest rates would
increase annual interest expense by approximately $2.9 million and a hypothetical 50 basis point decrease in
interest rates would decrease annual interest expense by approximately $0.6 million. This increase or decrease is
primarily driven by our Tranche B-1 Term Facility which had no interest rate swap associated with it and was not
subject to the B-2 LIBOR Floor.
There have been no material changes to the Company’s exposure to market risk from the end of fiscal 2014
as compared to the end of fiscal 2015.
Foreign Currency Risk
Other than inter-company transactions between our domestic and foreign entities, we generally do not have
significant transactions that are denominated in a currency other than the functional currency applicable to each
entity. As a result, substantially all of our revenues and expenses in each jurisdiction in which we operate are in
the same functional currency. In general, we are a net receiver of currencies other than the US dollar.
Accordingly, changes in exchange rates may negatively affect our revenues and gross margins as expressed in
US dollars. In the future, we may enter into forward and swap contracts to hedge transactions denominated in
foreign currencies to reduce the currency risk associated with fluctuating exchange rates. Realized and unrealized
gains and losses from any of these transactions may be included in net income for the period.
Fluctuations in currency exchange rates, particularly with respect to the euro, canadian dollar and pound
sterling, may impact our shareholders’ equity. The assets and liabilities of our non-US subsidiaries are translated
into US dollars at the exchange rates in effect at the balance sheet date. Revenues and expenses are translated
into US dollars at the average exchange rate for the period. The resulting translation adjustments are recorded in
shareholders’ equity as a component of accumulated other comprehensive loss. In addition, exchange rate
fluctuations will cause the US dollar translated amounts to change in comparison to prior periods.
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