UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017October 1, 2022
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-16769
WEIGHT WATCHERSWW INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Virginia |
| 11-6040273 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
675 Avenue of the Americas, 6th Floor, New York, New York10010
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (212) (212) 589-2700
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, no par value | WW | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
|
| Accelerated filer |
|
|
|
|
|
|
|
|
Non-accelerated filer |
| ☐ | Smaller reporting company |
| ☐ |
|
|
|
|
|
|
|
|
| Emerging growth company |
| ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of common stock outstanding as of October 31, 201727, 2022 was 64,530,211.70,526,717.
WW INTERNATIONAL, INC.
TABLE OF CONTENTS
|
| Page No. | |||
|
|
| |||
| |||||
|
|
| |||
Item 1. | 2 | ||||
|
|
| |||
| 2 | ||||
|
|
| |||
| 3 | ||||
|
|
| |||
| 4 | ||||
|
|
| |||
| 5 | ||||
| |||||
|
|
| |||
|
| ||||
|
|
| |||
| |||||
|
|
| |||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| |||
|
|
| |||
Item 3. |
| ||||
|
|
| |||
Item 4. |
| ||||
|
|
| |||
| |||||
|
|
| |||
Item 1. |
| ||||
|
|
| |||
Item 1A. |
| ||||
|
|
| |||
Item 2. |
| ||||
|
|
| |||
Item 3. |
| ||||
|
|
| |||
Item 4. |
| ||||
|
|
| |||
Item 5. |
| ||||
|
|
| |||
Item 6. |
| ||||
|
|
| |||
| |||||
59 |
PART I—FINANCIALFINANCIAL INFORMATION
WEIGHT WATCHERSITEM 1. FINANCIAL STATEMENTS
WW INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS AT
(IN THOUSANDS)
|
| September 30, |
|
| December 31, |
|
| October 1, |
| January 1, |
| |||||
|
| 2017 |
|
| 2016 |
|
| 2022 |
|
| 2022 |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
CURRENT ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 178,247 |
|
| $ | 108,656 |
|
| $ | 188,291 |
|
| $ | 153,794 |
|
Receivables (net of allowances: September 30, 2017 - $1,994 and December 31, 2016 - $2,973) |
|
| 22,267 |
|
|
| 27,518 |
| ||||||||
Receivables (net of allowances: October 1, 2022 - $1,693 and |
|
| 28,192 |
|
|
| 29,321 |
| ||||||||
Inventories |
|
| 23,421 |
|
|
| 32,629 |
|
|
| 26,394 |
|
|
| 30,566 |
|
Prepaid income taxes |
|
| 33,446 |
|
|
| 35,528 |
|
|
| 14,721 |
|
|
| 30,478 |
|
Prepaid expenses and other current assets |
|
| 23,166 |
|
|
| 30,880 |
|
|
| 32,161 |
|
|
| 27,014 |
|
TOTAL CURRENT ASSETS |
|
| 280,547 |
|
|
| 235,211 |
|
|
| 289,759 |
|
|
| 271,173 |
|
|
|
|
|
|
|
|
|
| ||||||||
Property and equipment, net |
|
| 48,755 |
|
|
| 49,574 |
|
|
| 30,112 |
|
|
| 37,219 |
|
Operating lease assets |
|
| 79,911 |
|
|
| 89,902 |
| ||||||||
Franchise rights acquired |
|
| 754,652 |
|
|
| 748,619 |
|
|
| 440,515 |
|
|
| 785,195 |
|
Goodwill |
|
| 170,731 |
|
|
| 166,138 |
|
|
| 156,155 |
|
|
| 157,374 |
|
Trademarks and other intangible assets, net |
|
| 48,829 |
|
|
| 58,612 |
| ||||||||
Other intangible assets, net |
|
| 62,952 |
|
|
| 61,126 |
| ||||||||
Deferred income taxes |
|
| 15,772 |
|
|
| 11,259 |
| ||||||||
Other noncurrent assets |
|
| 11,978 |
|
|
| 12,822 |
|
|
| 17,659 |
|
|
| 15,686 |
|
TOTAL ASSETS |
| $ | 1,315,492 |
|
| $ | 1,270,976 |
|
| $ | 1,092,835 |
|
| $ | 1,428,934 |
|
|
|
|
|
|
|
|
|
| ||||||||
LIABILITIES AND TOTAL DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Portion of long-term debt due within one year |
| $ | 31,429 |
|
| $ | 21,000 |
| ||||||||
Portion of operating lease liabilities due within one year |
| $ | 18,457 |
|
| $ | 20,297 |
| ||||||||
Accounts payable |
|
| 19,388 |
|
|
| 40,639 |
|
|
| 17,384 |
|
|
| 22,444 |
|
Salaries and wages payable |
|
| 51,867 |
|
|
| 49,638 |
|
|
| 64,047 |
|
|
| 57,401 |
|
Accrued marketing and advertising |
|
| 15,929 |
|
|
| 18,067 |
|
|
| 10,277 |
|
|
| 15,904 |
|
Accrued interest |
|
| 16,425 |
|
|
| 16,939 |
|
|
| 10,848 |
|
|
| 5,085 |
|
Other accrued liabilities |
|
| 54,383 |
|
|
| 51,251 |
|
|
| 37,318 |
|
|
| 45,728 |
|
Derivative payable |
|
| 21,129 |
|
|
| 31,974 |
|
|
| — |
|
|
| 14,670 |
|
Income taxes payable |
|
| 1,850 |
|
|
| 1,748 |
| ||||||||
Deferred revenue |
|
| 82,660 |
|
|
| 62,880 |
|
|
| 39,772 |
|
|
| 45,855 |
|
TOTAL CURRENT LIABILITIES |
|
| 293,210 |
|
|
| 292,388 |
|
|
| 199,953 |
|
|
| 229,132 |
|
|
|
|
|
|
|
|
|
| ||||||||
Long-term debt |
|
| 1,884,842 |
|
|
| 1,981,299 |
| ||||||||
Long-term debt, net |
|
| 1,421,239 |
|
|
| 1,418,104 |
| ||||||||
Long-term operating lease liabilities |
|
| 70,848 |
|
|
| 78,157 |
| ||||||||
Deferred income taxes |
|
| 187,676 |
|
|
| 175,115 |
|
|
| 58,293 |
|
|
| 157,718 |
|
Other |
|
| 30,480 |
|
|
| 25,048 |
|
|
| 2,005 |
|
|
| 2,227 |
|
TOTAL LIABILITIES |
|
| 2,396,208 |
|
|
| 2,473,850 |
|
|
| 1,752,338 |
|
|
| 1,885,338 |
|
|
|
|
|
|
|
|
|
| ||||||||
Redeemable noncontrolling interest |
|
| 4,636 |
|
|
| 4,699 |
| ||||||||
|
|
|
|
|
|
|
|
| ||||||||
TOTAL DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Common stock, $0 par value; 1,000,000 shares authorized; 118,947 shares issued at September 30, 2017 and at December 31, 2016 |
|
| 0 |
|
|
| 0 |
| ||||||||
|
|
|
|
|
|
|
|
| ||||||||
Treasury stock, at cost, 54,422 shares at September 30, 2017 and 55,021 shares at December 31, 2016 |
|
| (3,214,938 | ) |
|
| (3,237,346 | ) | ||||||||
Common stock, $0 par value; 1,000,000 shares authorized; 122,052 |
|
| 0 |
|
|
| 0 |
| ||||||||
Treasury stock, at cost, 51,667 shares at October 1, 2022 and 51,988 |
|
| (3,106,098 | ) |
|
| (3,120,149 | ) | ||||||||
Retained earnings |
|
| 2,144,459 |
|
|
| 2,056,893 |
|
|
| 2,457,912 |
|
|
| 2,682,349 |
|
Accumulated other comprehensive loss |
|
| (14,873 | ) |
|
| (27,120 | ) |
|
| (11,317 | ) |
|
| (18,604 | ) |
TOTAL DEFICIT |
|
| (1,085,352 | ) |
|
| (1,207,573 | ) |
|
| (659,503 | ) |
|
| (456,404 | ) |
TOTAL LIABILITIES AND TOTAL DEFICIT |
| $ | 1,315,492 |
|
| $ | 1,270,976 |
|
| $ | 1,092,835 |
|
| $ | 1,428,934 |
|
The accompanying notes are an integral part of the consolidated financial statements.
2
WW INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF NET INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
| Three Months Ended |
|
| Nine Months Ended |
| |||||||||||||||||||||||||
|
| September 30, |
|
| October 1, |
|
| September 30, |
|
| October 1, |
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| October 1, |
| October 2, |
| October 1, |
| October 2, |
| |||||||||||
Service revenues, net |
| $ | 273,219 |
|
| $ | 232,571 |
|
| $ | 817,696 |
|
| $ | 727,889 |
| |||||||||||||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||||||||||||||
Subscription revenues, net | $ | 220,746 |
|
| $ | 262,401 |
|
| $ | 718,122 |
|
| $ | 815,092 |
| ||||||||||||||||
Product sales and other, net |
|
| 50,468 |
|
|
| 48,248 |
|
|
| 176,726 |
|
|
| 169,601 |
|
| 28,972 |
|
|
| 31,096 |
|
|
| 98,810 |
|
|
| 121,580 |
|
Revenues, net |
|
| 323,687 |
|
|
| 280,819 |
|
|
| 994,422 |
|
|
| 897,490 |
|
| 249,718 |
|
|
| 293,497 |
|
|
| 816,932 |
|
|
| 936,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Cost of services |
|
| 118,073 |
|
|
| 111,515 |
|
|
| 363,284 |
|
|
| 355,945 |
| |||||||||||||||
Cost of subscription revenues |
| 73,541 |
|
|
| 90,280 |
|
|
| 243,710 |
|
|
| 285,209 |
| ||||||||||||||||
Cost of product sales and other |
|
| 28,526 |
|
|
| 25,001 |
|
|
| 100,943 |
|
|
| 86,521 |
|
| 23,826 |
|
|
| 25,180 |
|
|
| 77,811 |
|
|
| 93,965 |
|
Cost of revenues |
|
| 146,599 |
|
|
| 136,516 |
|
|
| 464,227 |
|
|
| 442,466 |
|
| 97,367 |
|
|
| 115,460 |
|
|
| 321,521 |
|
|
| 379,174 |
|
Gross profit |
|
| 177,088 |
|
|
| 144,303 |
|
|
| 530,195 |
|
|
| 455,024 |
|
| 152,351 |
|
|
| 178,037 |
|
|
| 495,411 |
|
|
| 557,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Marketing expenses |
|
| 30,310 |
|
|
| 30,078 |
|
|
| 158,707 |
|
|
| 157,791 |
|
| 35,696 |
|
|
| 34,569 |
|
|
| 195,123 |
|
|
| 208,656 |
|
Selling, general and administrative expenses |
|
| 55,400 |
|
|
| 47,433 |
|
|
| 153,671 |
|
|
| 143,152 |
|
| 58,443 |
|
|
| 63,745 |
|
|
| 193,320 |
|
|
| 206,615 |
|
Operating income |
|
| 91,378 |
|
|
| 66,792 |
|
|
| 217,817 |
|
|
| 154,081 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Franchise rights acquired and goodwill impairments |
| 312,741 |
|
|
| — |
|
|
| 339,161 |
|
|
| — |
| ||||||||||||||||
Operating (loss) income |
| (254,529 | ) |
|
| 79,723 |
|
|
| (232,193 | ) |
|
| 142,227 |
| ||||||||||||||||
Interest expense |
|
| 26,993 |
|
|
| 28,329 |
|
|
| 82,227 |
|
|
| 86,963 |
|
| 20,912 |
|
|
| 19,283 |
|
|
| 58,837 |
|
|
| 68,699 |
|
Other expense (income), net |
|
| 125 |
|
|
| (146 | ) |
|
| 278 |
|
|
| 397 |
| |||||||||||||||
Gain on early extinguishment of debt |
|
| 0 |
|
|
| 0 |
|
|
| (1,554 | ) |
|
| 0 |
| |||||||||||||||
Income before income taxes |
|
| 64,260 |
|
|
| 38,609 |
|
|
| 136,866 |
|
|
| 66,721 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Provision for income taxes |
|
| 19,593 |
|
|
| 3,989 |
|
|
| 36,457 |
|
|
| 12,420 |
| |||||||||||||||
Net income |
|
| 44,667 |
|
|
| 34,620 |
|
|
| 100,409 |
|
|
| 54,301 |
| |||||||||||||||
Net loss attributable to the noncontrolling interest |
|
| 52 |
|
|
| 38 |
|
|
| 135 |
|
|
| 99 |
| |||||||||||||||
Net income attributable to Weight Watchers International, Inc. |
| $ | 44,719 |
|
| $ | 34,658 |
|
| $ | 100,544 |
|
| $ | 54,400 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Earnings Per Share attributable to Weight Watchers International, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Other expense, net |
| 1,344 |
|
|
| 764 |
|
|
| 3,303 |
|
|
| 908 |
| ||||||||||||||||
Early extinguishment of debt |
| — |
|
|
| — |
|
|
| — |
|
|
| 29,169 |
| ||||||||||||||||
(Loss) income before income taxes |
| (276,785 | ) |
|
| 59,676 |
|
|
| (294,333 | ) |
|
| 43,451 |
| ||||||||||||||||
(Benefit from) provision for income taxes |
| (70,749 | ) |
|
| 13,346 |
|
|
| (75,431 | ) |
|
| 6,488 |
| ||||||||||||||||
Net (loss) income | $ | (206,036 | ) |
| $ | 46,330 |
|
| $ | (218,902 | ) |
| $ | 36,963 |
| ||||||||||||||||
(Net loss) earnings per share |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Basic |
| $ | 0.69 |
|
| $ | 0.54 |
|
| $ | 1.57 |
|
| $ | 0.85 |
| $ | (2.93 | ) |
| $ | 0.66 |
|
| $ | (3.12 | ) |
| $ | 0.53 |
|
Diluted |
| $ | 0.65 |
|
| $ | 0.53 |
|
| $ | 1.48 |
|
| $ | 0.83 |
| $ | (2.93 | ) |
| $ | 0.65 |
|
| $ | (3.12 | ) |
| $ | 0.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Basic |
|
| 64,463 |
|
|
| 63,782 |
|
|
| 64,237 |
|
|
| 63,690 |
|
| 70,383 |
|
|
| 69,875 |
|
|
| 70,258 |
|
|
| 69,516 |
|
Diluted |
|
| 68,686 |
|
|
| 65,841 |
|
|
| 67,939 |
|
|
| 65,872 |
|
| 70,383 |
|
|
| 70,860 |
|
|
| 70,258 |
|
|
| 70,866 |
|
The accompanying notes are an integral part of the consolidated financial statements.
3
WW INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| October 1, |
|
| September 30, |
|
| October 1, |
| ||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Net income |
| $ | 44,667 |
|
| $ | 34,620 |
|
| $ | 100,409 |
|
| $ | 54,301 |
|
Other comprehensive gain : |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss) |
|
| 5,673 |
|
|
| (1,496 | ) |
| $ | 11,704 |
|
|
| 10,167 |
|
Income tax (expense) benefit on foreign currency translation gain (loss) |
|
| (2,206 | ) |
|
| 583 |
|
|
| (4,559 | ) |
|
| (3,935 | ) |
Foreign currency translation gain (loss), net of taxes |
|
| 3,467 |
|
|
| (913 | ) |
|
| 7,145 |
|
|
| 6,232 |
|
Gain (loss) on derivatives |
|
| 4,105 |
|
|
| 8,136 |
|
|
| 8,482 |
|
|
| (9,984 | ) |
Income tax (expense) benefit on gain (loss) on derivatives |
|
| (1,601 | ) |
|
| (3,173 | ) |
|
| (3,308 | ) |
|
| 3,863 |
|
Gain (loss) on derivatives, net of taxes |
|
| 2,504 |
|
|
| 4,963 |
|
|
| 5,174 |
|
|
| (6,121 | ) |
Total other comprehensive gain |
|
| 5,971 |
|
|
| 4,050 |
|
|
| 12,319 |
|
|
| 111 |
|
Comprehensive income |
|
| 50,638 |
|
|
| 38,670 |
|
|
| 112,728 |
|
|
| 54,412 |
|
Less: Net loss attributable to the noncontrolling interest |
|
| 52 |
|
|
| 38 |
|
|
| 135 |
|
|
| 99 |
|
Less: Foreign currency translation (gain) loss, net of taxes attributable to the noncontrolling interest |
|
| (113 | ) |
|
| 19 |
|
|
| (72 | ) |
|
| (450 | ) |
Comprehensive (income) loss attributable to the noncontrolling interest |
|
| (61 | ) |
|
| 57 |
|
|
| 63 |
|
|
| (351 | ) |
Comprehensive income attributable to Weight Watchers International, Inc. |
| $ | 50,577 |
|
| $ | 38,727 |
|
| $ | 112,791 |
|
| $ | 54,061 |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
| October 1, |
|
| October 2, |
|
| October 1, |
|
| October 2, |
| ||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net (loss) income | $ | (206,036 | ) |
| $ | 46,330 |
|
| $ | (218,902 | ) |
| $ | 36,963 |
|
Other comprehensive (loss) gain: |
|
|
|
|
|
|
|
|
|
|
| ||||
Foreign currency translation loss |
| (9,552 | ) |
|
| (4,877 | ) |
|
| (18,018 | ) |
|
| (3,140 | ) |
Income tax benefit on foreign currency translation loss |
| 2,406 |
|
|
| 1,229 |
|
|
| 4,530 |
|
|
| 791 |
|
Foreign currency translation loss, net of taxes |
| (7,146 | ) |
|
| (3,648 | ) |
|
| (13,488 | ) |
|
| (2,349 | ) |
Gain on derivatives |
| 8,590 |
|
|
| 1,891 |
|
|
| 27,748 |
|
|
| 8,617 |
|
Income tax expense on gain on derivatives |
| (2,159 | ) |
|
| (477 | ) |
|
| (6,973 | ) |
|
| (2,171 | ) |
Gain on derivatives, net of taxes |
| 6,431 |
|
|
| 1,414 |
|
|
| 20,775 |
|
|
| 6,446 |
|
Total other comprehensive (loss) gain |
| (715 | ) |
|
| (2,234 | ) |
|
| 7,287 |
|
|
| 4,097 |
|
Comprehensive (loss) income | $ | (206,751 | ) |
| $ | 44,096 |
|
| $ | (211,615 | ) |
| $ | 41,060 |
|
The accompanying notes are an integral part of the consolidated financial statements.
4
WW INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWSConsolidated Statements of Changes in Total Deficit
(IN THOUSANDS)
|
| Nine Months Ended |
| |||||
|
| September 30, |
|
| October 1, |
| ||
|
| 2017 |
|
| 2016 |
| ||
Operating activities: |
|
|
|
|
|
|
|
|
Net income |
| $ | 100,409 |
|
| $ | 54,301 |
|
Adjustments to reconcile net income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 38,331 |
|
|
| 39,145 |
|
Amortization of deferred financing costs |
|
| 4,292 |
|
|
| 4,631 |
|
Impairment of intangible and long-lived assets |
|
| 670 |
|
|
| 91 |
|
Write-off of net assets due to cessation of Spain operations |
|
| 70 |
|
|
| 0 |
|
Share-based compensation expense |
|
| 9,372 |
|
|
| 4,366 |
|
Deferred tax provision |
|
| 6,393 |
|
|
| 9,171 |
|
Allowance for doubtful accounts |
|
| (775 | ) |
|
| 43 |
|
Reserve for inventory obsolescence |
|
| 6,280 |
|
|
| 3,823 |
|
Foreign currency exchange rate loss |
|
| 158 |
|
|
| 222 |
|
Gain on early extinguishment of debt |
|
| (1,840 | ) |
| 0 |
| |
Changes in cash due to: |
|
|
|
|
|
|
|
|
Receivables |
|
| 6,768 |
|
|
| 2,546 |
|
Inventories |
|
| 4,821 |
|
|
| (4,830 | ) |
Prepaid expenses |
|
| 9,711 |
|
|
| (8,313 | ) |
Accounts payable |
|
| (19,622 | ) |
|
| (7,209 | ) |
Accrued liabilities |
|
| (21,459 | ) |
|
| (20,123 | ) |
Deferred revenue |
|
| 16,692 |
|
|
| 12,199 |
|
Other long term assets and liabilities, net |
|
| 5,907 |
|
|
| 2,726 |
|
Income taxes |
|
| 18,627 |
|
|
| 1,128 |
|
Cash provided by operating activities |
|
| 184,805 |
|
|
| 93,917 |
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (10,755 | ) |
|
| (4,556 | ) |
Capitalized software expenditures |
|
| (20,242 | ) |
|
| (21,888 | ) |
Cash paid for acquisitions |
|
| 0 |
|
|
| (2,898 | ) |
Other items, net |
|
| (130 | ) |
|
| (174 | ) |
Cash used for investing activities |
|
| (31,127 | ) |
|
| (29,516 | ) |
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Payments on revolver |
|
| 0 |
|
|
| (48,000 | ) |
Payments on long-term debt |
|
| (88,387 | ) |
|
| (160,073 | ) |
Taxes paid related to net share settlement of equity awards |
|
| (4,894 | ) |
|
| 0 |
|
Excess tax benefit of share-based compensation |
|
| 0 |
|
|
| 964 |
|
Proceeds from stock options exercised |
|
| 4,925 |
|
|
| 35 |
|
Payment of dividends |
|
| 0 |
|
|
| (11 | ) |
Cash used for financing activities |
|
| (88,356 | ) |
|
| (207,085 | ) |
Effect of exchange rate changes on cash and cash equivalents |
|
| 4,269 |
|
|
| 202 |
|
Net increase (decrease) in cash and cash equivalents |
|
| 69,591 |
|
|
| (142,482 | ) |
Cash and cash equivalents, beginning of period |
|
| 108,656 |
|
|
| 241,526 |
|
Cash and cash equivalents, end of period |
| $ | 178,247 |
|
| $ | 99,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Three Months Ended October 1, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other |
|
|
|
|
|
|
| |||||||
|
| Common Stock |
|
| Treasury Stock |
|
| Comprehensive |
|
| Retained |
|
|
|
| |||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Loss |
|
| Earnings |
|
| Total |
| |||||||
Balance at July 2, 2022 |
|
| 122,052 |
|
| $ | 0 |
|
|
| 51,691 |
|
| $ | (3,107,324 | ) |
| $ | (10,602 | ) |
| $ | 2,661,818 |
|
| $ | (456,108 | ) |
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (715 | ) |
|
| (206,036 | ) |
|
| (206,751 | ) | ||||
Issuance of treasury stock under stock plans |
|
|
|
|
|
|
|
| (24 | ) |
|
| 1,226 |
|
|
|
|
|
| (1,246 | ) |
|
| (20 | ) | |||
Compensation expense on share-based awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,376 |
|
|
| 3,376 |
| |||||
Balance at October 1, 2022 |
|
| 122,052 |
|
| $ | 0 |
|
|
| 51,667 |
|
| $ | (3,106,098 | ) |
| $ | (11,317 | ) |
| $ | 2,457,912 |
|
| $ | (659,503 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Nine Months Ended October 1, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other |
|
|
|
|
|
|
| |||||||
|
| Common Stock |
|
| Treasury Stock |
|
| Comprehensive |
|
| Retained |
|
|
|
| |||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Loss |
|
| Earnings |
|
| Total |
| |||||||
Balance at January 1, 2022 |
|
| 122,052 |
|
| $ | 0 |
|
|
| 51,988 |
|
| $ | (3,120,149 | ) |
| $ | (18,604 | ) |
| $ | 2,682,349 |
|
| $ | (456,404 | ) |
Comprehensive (loss) income |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 7,287 |
|
|
| (218,902 | ) |
|
| (211,615 | ) | ||||
Issuance of treasury stock under stock plans |
|
|
|
|
|
|
|
| (321 | ) |
|
| 14,051 |
|
|
|
|
|
| (15,897 | ) |
|
| (1,846 | ) | |||
Compensation expense on share-based awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 10,362 |
|
|
| 10,362 |
| |||||
Balance at October 1, 2022 |
|
| 122,052 |
|
| $ | 0 |
|
|
| 51,667 |
|
| $ | (3,106,098 | ) |
| $ | (11,317 | ) |
| $ | 2,457,912 |
|
| $ | (659,503 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Three Months Ended October 2, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other |
|
|
|
|
|
|
| |||||||
|
| Common Stock |
|
| Treasury Stock |
|
| Comprehensive |
|
| Retained |
|
|
|
| |||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Loss |
|
| Earnings |
|
| Total |
| |||||||
Balance at July 3, 2021 |
|
| 122,052 |
|
| $ | 0 |
|
|
| 52,211 |
|
| $ | (3,129,329 | ) |
| $ | (18,818 | ) |
| $ | 2,610,250 |
|
| $ | (537,897 | ) |
Comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,234 | ) |
|
| 46,330 |
|
|
| 44,096 |
| ||||
Issuance of treasury stock under stock plans |
|
|
|
|
|
|
|
| (50 | ) |
|
| 2,034 |
|
|
|
|
|
| (3,014 | ) |
|
| (980 | ) | |||
Compensation expense on share-based awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,404 |
|
|
| 3,404 |
| |||||
Balance at October 2, 2021 |
|
| 122,052 |
|
| $ | 0 |
|
|
| 52,161 |
|
| $ | (3,127,295 | ) |
| $ | (21,052 | ) |
| $ | 2,656,970 |
|
| $ | (491,377 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Nine Months Ended October 2, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other |
|
|
|
|
|
|
| |||||||
|
| Common Stock |
|
| Treasury Stock |
|
| Comprehensive |
|
| Retained |
|
|
|
| |||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Loss |
|
| Earnings |
|
| Total |
| |||||||
Balance at January 2, 2021 |
|
| 121,470 |
|
| $ | 0 |
|
|
| 52,497 |
|
| $ | (3,140,903 | ) |
| $ | (25,149 | ) |
| $ | 2,617,841 |
|
| $ | (548,211 | ) |
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,097 |
|
|
| 36,963 |
|
|
| 41,060 |
| ||||
Issuance of treasury stock under stock plans |
|
|
|
|
|
|
|
| (336 | ) |
|
| 13,608 |
|
|
|
|
|
| (18,481 | ) |
|
| (4,873 | ) | |||
Compensation expense on share-based awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 16,596 |
|
|
| 16,596 |
| |||||
Issuance of common stock |
|
| 582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,051 |
|
|
| 4,051 |
| ||||
Balance at October 2, 2021 |
|
| 122,052 |
|
| $ | 0 |
|
|
| 52,161 |
|
| $ | (3,127,295 | ) |
| $ | (21,052 | ) |
| $ | 2,656,970 |
|
| $ | (491,377 | ) |
The accompanying notes are an integral part of the consolidated financial statements.
5
WEIGHT WATCHERSWW INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
|
| Nine Months Ended |
| |||||
|
| October 1, |
|
| October 2, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Operating activities: |
|
|
|
|
|
| ||
Net (loss) income |
| $ | (218,902 | ) |
| $ | 36,963 |
|
Adjustments to reconcile net (loss) income to cash provided by operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 33,371 |
|
|
| 37,222 |
|
Amortization of deferred financing costs and debt discount |
|
| 3,763 |
|
|
| 4,835 |
|
Impairment of franchise rights acquired and goodwill |
|
| 339,161 |
|
|
| — |
|
Impairment of intangible and long-lived assets |
|
| 2,088 |
|
|
| 421 |
|
Share-based compensation expense |
|
| 10,362 |
|
|
| 16,596 |
|
Deferred tax benefit |
|
| (107,879 | ) |
|
| (10,788 | ) |
Allowance for doubtful accounts |
|
| 54 |
|
|
| (91 | ) |
Reserve for inventory obsolescence |
|
| 4,712 |
|
|
| 5,805 |
|
Foreign currency exchange rate loss |
|
| 3,562 |
|
|
| 553 |
|
Early extinguishment of debt |
|
| — |
|
|
| 29,169 |
|
Changes in cash due to: |
|
|
|
|
|
| ||
Receivables |
|
| (9,760 | ) |
|
| 3,785 |
|
Inventories |
|
| (725 | ) |
|
| 8,390 |
|
Prepaid expenses |
|
| 17,613 |
|
|
| 2,585 |
|
Accounts payable |
|
| (3,634 | ) |
|
| (7,197 | ) |
Accrued liabilities |
|
| 15,390 |
|
|
| 4,440 |
|
Deferred revenue |
|
| (3,576 | ) |
|
| 208 |
|
Other long term assets and liabilities, net |
|
| (4,662 | ) |
|
| (2,001 | ) |
Income taxes |
|
| (392 | ) |
|
| (5,522 | ) |
Cash provided by operating activities |
|
| 80,546 |
|
|
| 125,373 |
|
Investing activities: |
|
|
|
|
|
| ||
Capital expenditures |
|
| (1,756 | ) |
|
| (1,947 | ) |
Capitalized software expenditures |
|
| (27,584 | ) |
|
| (27,204 | ) |
Cash paid for acquisitions |
|
| (4,350 | ) |
|
| (12,833 | ) |
Other items, net |
|
| (29 | ) |
|
| (1,593 | ) |
Cash used for investing activities |
|
| (33,719 | ) |
|
| (43,577 | ) |
Financing activities: |
|
|
|
|
|
| ||
Net (payments) borrowings on revolver |
|
| — |
|
|
| — |
|
Proceeds from long term debt |
|
| — |
|
|
| 1,500,000 |
|
Financing costs and debt discount |
|
| — |
|
|
| (36,985 | ) |
Payments on long-term debt |
|
| — |
|
|
| (1,511,500 | ) |
Taxes paid related to net share settlement of equity awards |
|
| (1,938 | ) |
|
| (5,328 | ) |
Proceeds from stock options exercised |
|
| — |
|
|
| 4,469 |
|
Cash paid for acquisitions |
|
| (113 | ) |
|
| (6,450 | ) |
Other items, net |
|
| (86 | ) |
|
| (116 | ) |
Cash used for financing activities |
|
| (2,137 | ) |
|
| (55,910 | ) |
Effect of exchange rate changes on cash and cash equivalents |
|
| (10,193 | ) |
|
| (3,543 | ) |
Net increase in cash and cash equivalents |
|
| 34,497 |
|
|
| 22,343 |
|
Cash and cash equivalents, beginning of period |
|
| 153,794 |
|
|
| 165,887 |
|
Cash and cash equivalents, end of period |
| $ | 188,291 |
|
| $ | 188,230 |
|
The accompanying notes are an integral part of the consolidated financial statements.
6
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
|
|
The accompanying consolidated financial statements include the accounts of Weight WatchersWW International, Inc. and all of its subsidiaries. The terms “Company” and “WWI”“WW” as used throughout these notes isare used to indicate Weight WatchersWW International, Inc. and all of its operations consolidated for purposes of its financial statements. The Company’s “meetings”“Digital” business refers to providing access to combined meetings and digital offeringssubscriptions to the Company’s digital product offerings, including Personal Coaching + Digital and Digital 360 as applicable. The Company’s “Workshops + Digital” business refers to providing unlimited access to the Company’s workshops combined with the Company’s digital subscription product offerings to commitment plan subscribers, (including Total Access subscribers),including former Digital 360 members as applicable. It also includes the provision of access to workshops for members who do not subscribe to commitment plans, including the Company’s “pay-as-you-go” members. In the second quarter of fiscal 2022, the Company ceased offering its Digital 360 product. More than a majority of associated members were transitioned from the Company’s Digital business to its Workshops + Digital business during the second quarter of fiscal 2022, with a de minimis number transitioning during the beginning of the third quarter of fiscal 2022. The cessation of this product offering and these transitions of former Digital 360 members at the then-current pricing for such product impacted the number of End of Period Subscribers in each business as well as access to meetings to the Company’s “pay-as-you-go” membersassociated Paid Weeks and other meetings members. “Online” refers to Weight Watchers Online, Weight Watchers OnlinePlus, Personal Coaching and other digital subscription products.Revenues for each business.
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and include amounts that are based on management’s best estimates and judgments. While all available information has been considered, actual amounts could differ from those estimates. These assumptions and estimates may change as new events occur and additional information is obtained, and such future changes may have an adverse impact on the Company's results of operations, financial position and liquidity. The consolidated financial statements include all of the Company’s majority-owned subsidiaries. All entities acquired, and any entity of which a majority interest was acquired, are included in the consolidated financial statements from the date of acquisition. All intercompany accounts and transactions have been eliminated in consolidation. The Company’s operating results for any interim period are not necessarily indicative of future or annual results. The consolidated financial statements are unaudited and, accordingly, they do not include all of the information necessary for a comprehensive presentation of results of operations, financial position and cash flow activity required by GAAP for complete financial statements but, in the opinion of management, reflect all adjustments including those of a normal recurring nature necessary for a fair statement of the interim results presented.
In the second quarter of fiscal 2022, the Company identified and recorded out-of-period adjustments related to income tax errors resulting primarily from the reversal of (i) a basis difference related to goodwill and other intangibles and (ii) a U.S. federal income tax receivable that should have been adjusted in prior fiscal years. The impact of correcting these errors, which were immaterial to prior period financial statements and corrected in the second quarter of fiscal 2022, resulted in an income tax benefit of $2,150 and decreased net loss by $2,150 for the nine months ended October 1, 2022.
These statements should be read in conjunction with the Company’s Annual Report on Form 10-K for fiscal 20162021 filed on March 1, 2017,2022, which includes additional information about the Company, its results of operations, its financial position and its cash flows.
Out-of-Period Adjustments:
In the third quarter of fiscal 2016, the Company identified and recorded out-of-period adjustments primarily to reverse a foreign tax receivable originally recorded in fiscal 2008 that should have been reversed in fiscal 2009. The impact of these income tax errors, which increased provision for income taxes and decreased net income attributable to the Company by $2,684, was immaterial to prior period financial statements and thus corrected in the third quarter of fiscal 2016.
|
|
In February 2016,October 2021, the Financial Accounting Standards Board (the “FASB”) issued updated guidance regarding leases, requiring lesseesto improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to (i) recognition of an acquired contract liability and (ii) payment terms and their effect on subsequent revenue recognized by the acquirer. The amendments in this update require an acquiring entity to recognize and measure contract assets and contract liabilities acquired in a right-of-use asset and a lease liability on the balance sheet for all leasesbusiness combination in accordance with the exception of short-term leases. For lessees, leases will continue to be classified as either operating or finance leases in the income statement. Lessor accounting is similar to the current model but will be updated to align with certain changes to the lessee model. Lessors will continue to classify leases as operating, direct financing or sales-type leases.Topic 606. The effective date of the new guidance for public companies is for fiscal years beginning after December 15, 20182022 and interim periods within those fiscal years. Early adoption is permitted. The new guidance mustshould be adopted using a modified retrospective transition and requires application of the new guidance at the beginning of the earliest comparative period presented. The updated guidance isapplied prospectively to business combinations occurring on or after its effective fordate. On January 2, 2022, the Company beginning in the first quarter of fiscal 2019. The Company is currently evaluating the impact that the adoption ofearly adopted this guidance will have on the consolidated financial statements and related disclosures of the Company.
In March 2016, the FASB issued updated guidance on revenue from contracts with customers,a prospective basis, which is intended to clarify the implementation guidancedid not have a material impact on principal versus agent considerations. The amendments in this update do not change the core principle of the guidance, but are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations by including indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customer. In April 2016, the FASB issued updated guidance on revenue from contracts with customers, which is intended to clarify guidance related to identifying performance obligations and licensing implementation guidance contained in the new revenue recognition standard. In May 2016, the FASB issued updated guidance on revenue from contracts with customers, which is intended to provide narrow scope guidance and practical expedients contained in the new revenue standard. In December 2016, the FASB issued updated guidance on revenue from contracts with customers for technical corrections and improvements on narrow aspects within the original and amended guidance. The amendments in these updates are effective for annual periods beginning after December 15, 2017 and interim periods within those fiscal years, with early adoption permitted. The Company continues to makeits consolidated financial statements.
67
WEIGHT WATCHERSWW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
progress in its assessment of the updated guidanceAt October 1, 2022 and in evaluating the effect of adoption on the consolidated financial statements. The Company plans on adopting this guidance on a modified retrospective basis. While the completion of this assessment is still ongoing, based on the progress to date, the Company does not expect the new standard will have a material impact on its revenue recognition accounting policy or its consolidated financial statements.
In January 2017, the FASB issued amended guidance to simplify the accounting for goodwill impairment. This guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Under the amended guidance, a goodwill impairment charge will now be recognized for the amount by which the carrying value of a reporting unit exceeds its fair value, not to exceed the carrying amount of goodwill. This guidance is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted for any impairment tests performed after January 1, 2017. The Company is currently evaluating2022, the impact thatCompany’s lease assets and lease liabilities, primarily for its studios and corporate offices, were as follows:
|
| October 1, 2022 |
|
| January 1, 2022 |
| ||
Assets: |
|
|
|
|
|
| ||
Operating lease assets |
| $ | 79,911 |
|
| $ | 89,902 |
|
Finance lease assets |
|
| 72 |
|
|
| 127 |
|
Total leased assets |
| $ | 79,983 |
|
| $ | 90,029 |
|
|
|
|
|
|
|
| ||
Liabilities: |
|
|
|
|
|
| ||
Current |
|
|
|
|
|
| ||
Operating |
| $ | 18,457 |
|
| $ | 20,297 |
|
Finance |
|
| 38 |
|
|
| 75 |
|
Noncurrent |
|
|
|
|
|
| ||
Operating |
| $ | 70,848 |
|
| $ | 78,157 |
|
Finance |
|
| 9 |
|
|
| 29 |
|
Total lease liabilities |
| $ | 89,352 |
|
| $ | 98,558 |
|
For the adoption of this guidance will have onthree and nine months ended October 1, 2022 and October 2, 2021, the consolidated financial statements and related disclosures of the Company.
In August 2017, the FASB issued amended guidance to improve accounting for hedging activities. The amendments in this update better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. This guidance is effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted as of the issuance date. The Company plans to adopt this guidance the first day of the fourth quarter of fiscal 2017, which will not have a material impact on the consolidated financial statements and related disclosures of the Company.
For a discussion of the Company’s other significant accounting policies, see “Summarylease expense were as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| October 1, |
|
| October 2, |
|
| October 1, |
|
| October 2, |
| ||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Operating lease cost: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Fixed lease cost |
| $ | 9,071 |
|
| $ | 8,533 |
|
| $ | 24,974 |
|
| $ | 29,359 |
|
Lease termination cost |
|
| (189 | ) |
|
| 2,320 |
|
|
| 1,912 |
|
|
| 8,680 |
|
Variable lease cost |
|
| 7 |
|
|
| 6 |
|
|
| 20 |
|
|
| 15 |
|
Total operating lease cost |
| $ | 8,889 |
|
| $ | 10,859 |
|
| $ | 26,906 |
|
| $ | 38,054 |
|
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Amortization of leased assets |
|
| 25 |
|
|
| 36 |
|
|
| 86 |
|
|
| 116 |
|
Interest on lease liabilities |
|
| 4 |
|
|
| 2 |
|
|
| 6 |
|
|
| 7 |
|
Total finance lease cost |
| $ | 29 |
|
| $ | 38 |
|
| $ | 92 |
|
| $ | 123 |
|
Total lease cost |
| $ | 8,918 |
|
| $ | 10,897 |
|
| $ | 26,998 |
|
| $ | 38,177 |
|
In conjunction with the continued rationalization of Significant Accounting Policies”its real estate portfolio, the Company has decided to enter into a sublease, which resulted in a lease asset impairment charge of $1,828 that was recognized in general and administrative expenses in the Notes to Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for fiscal 2016. For a discussion of accounting standards adopted in the current year, see Note 3.
|
|
In March 2016, the FASB issued updated guidance on stock compensation which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification of applicable income tax consequences on the statement of cash flows. This guidance requires recognition of excess tax benefits and shortfalls (resulting from an increase or decrease in the fair value of an award from grant date to the vesting date) in the provision for income taxes as a discrete item in the quarterly period in which they occur. In addition, these amounts will be classified as an operating activity in the consolidated statement of cash flows instead of as a financing activity. The amendments requiring recognition of excess tax benefits and tax shortfalls in the income statement must be applied prospectively (See Note 10), and entities may elect to apply the amendments related to the presentation of excess tax benefits on the statement of cash flows using either a prospective or retrospective transition method. In May 2017, the FASB issued updated guidance on stock compensation which is intended to clarify when changes to the terms and conditions to a share-based payment transaction requires modification accounting.
The company adopted this guidance during the first quarter of fiscal 2017. As required by the standard, the Company recognized prospectively any excess tax benefits in theCompany's consolidated statements of net income for the three and nine months ended September 30, 2017 and applied the amendments relating to the presentation of excess tax benefits on the statement of cash flows using the prospective method. For the first nine months ended October 1, 2016,2022. The Company expects to begin recording sublease income as of the Company recorded $588sublease commencement date in the fourth quarter of excess tax benefits in equity. For the first nine months endedfiscal 2022 as an offset to general and administrative expenses.
At October 1, 2016,2022 and January 1, 2022, the Company paid taxes of $1,978 related to net share settlement of equity awards. As permitted under the guidance, the Company will continue to account for forfeitures in compensation cost by estimating the number of awards that are expected to vest.Company’s weighted average remaining lease term and weighted average discount rates were as follows:
In August 2016, the FASB issued updated guidance on the statement of cash flows presentation of certain transactions where diversity in practice exists. The Company adopted this guidance during the first quarter of 2017, which had no impact on the consolidated statement of cash flows.
|
| October 1, 2022 |
|
| January 1, 2022 |
| ||
Weighted Average Remaining Lease Term (years) |
|
|
|
|
|
| ||
Operating leases |
|
| 7.00 |
|
|
| 7.29 |
|
Finance leases |
|
| 1.00 |
|
|
| 1.54 |
|
|
|
|
|
|
|
| ||
Weighted Average Discount Rate |
|
|
|
|
|
| ||
Operating leases |
|
| 7.01 |
|
|
| 7.15 |
|
Finance leases |
|
| 3.39 |
|
|
| 5.31 |
|
In January 2017, the FASB issued updated guidance to assist Companies with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The Company early adopted this guidance during the first quarter of 2017. The adoption of this guidance had no impact on the consolidated financial statements.
78
WEIGHT WATCHERSWW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
On October 18, 2015 (the “Agreement Date”), the Company entered into the following agreementsThe Company’s leases have remaining lease terms of 0 to 10 years with Oprah Winfrey: the Strategic Collaboration Agreement, the Winfrey Purchase Agreement (defined below), and the Winfrey Option Agreement (defined below). The transactions contemplated by these agreements are collectively referred to herein as the “Winfrey Transaction”. Details of the Strategic Collaboration Agreement, Winfrey Purchase Agreement and Winfrey Option Agreement are below. See Note 16 for related party transactions with Ms. Winfrey.
Strategic Collaboration Agreement
The Company and Ms. Winfrey granted each other certain intellectual property rights under the Strategic Collaboration Agreement. The agreement has an initiala weighted average lease term of five6.99 years with additional successive one-year renewal terms. Duringas of October 1, 2022.
At October 1, 2022, the term of this agreement, Ms. Winfrey will consult with the Company and participate in developing, planning, executing and enhancing the Weight Watchers program and related initiatives, and provide it with services in her discretion to promote the Company and its programs, products and services.
Winfrey Purchase Agreement
On October 19, 2015, pursuant to the Share Purchase Agreement between the Company and Ms. Winfrey (the “Winfrey Purchase Agreement”), the Company issued and sold to Ms. Winfrey an aggregate of 6,362 sharesmaturity of the Company’s common stock (the “Purchased Shares”) at a price per sharelease liabilities in each of $6.79 for an aggregatethe next five fiscal years and thereafter were as follows:
| Operating |
|
| Finance |
|
| Total |
| |||
Remainder of fiscal 2022 | $ | 4,734 |
|
| $ | 13 |
|
| $ | 4,747 |
|
Fiscal 2023 |
| 24,872 |
|
|
| 31 |
|
|
| 24,903 |
|
Fiscal 2024 |
| 18,014 |
|
|
| 4 |
|
|
| 18,018 |
|
Fiscal 2025 |
| 12,575 |
|
|
| — |
|
|
| 12,575 |
|
Fiscal 2026 |
| 9,683 |
|
|
| — |
|
|
| 9,683 |
|
Fiscal 2027 |
| 9,376 |
|
|
| — |
|
|
| 9,376 |
|
Thereafter |
| 36,089 |
|
|
| — |
|
|
| 36,089 |
|
Total lease payments | $ | 115,343 |
|
| $ | 48 |
|
| $ | 115,391 |
|
Less imputed interest |
| 26,038 |
|
|
| 1 |
|
|
| 26,039 |
|
Present value of lease liabilities | $ | 89,305 |
|
| $ | 47 |
|
| $ | 89,352 |
|
Supplemental cash purchase price of $43,199. The Company recorded feesflow information related to leases for the issuancenine months ended October 1, 2022 and October 2, 2021 were as follows:
|
| Nine Months Ended |
| |||||
|
| October 1, |
|
| October 2, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
| ||
Operating cash flows from operating leases |
| $ | 24,244 |
|
| $ | 31,021 |
|
Operating cash flows from finance leases |
| $ | 6 |
|
| $ | 7 |
|
Financing cash flows from finance leases |
| $ | 86 |
|
| $ | 116 |
|
|
|
|
|
|
|
| ||
Leased assets obtained (modified) in exchange for new (modified) operating lease liabilities |
| $ | 11,160 |
|
| $ | (496 | ) |
Leased assets obtained in exchange for new finance lease liabilities |
| $ | 44 |
|
| $ | 81 |
|
Revenues are recognized when control of the Purchased Shares totaling $2,315, of which $1,700 was recorded as a reduction of equity in the fourth quarter of fiscal 2015. The Purchased Shares are subject to certain demand registration rights and piggyback rights held by Ms. Winfrey under the Winfrey Purchase Agreement.
The Purchased Shares were not transferrable by Ms. Winfrey within the first two years of the Agreement Date, subject to certain limited exceptions. Thereafter, Ms. Winfrey may generally transfer up to 15% of the Purchased Shares priorpromised services or goods is transferred to the third anniversary ofCompany’s customers, in an amount that reflects the Agreement Date, upconsideration it expects to 30% priorbe entitled to the fourth anniversary of the Agreement Date and up to 60% prior to the fifth anniversary of the Agreement Date. Onin exchange for those services or after the fifth anniversary of the Agreement Date, Ms. Winfrey will be permitted to transfer all of the Purchased Shares. In the event that Ms. Winfrey proposes to transfer any Purchased Shares or Winfrey Option Shares (defined below), the Company will have (a) a right of first offer with respect to such shares if such transfer is (i) for 1% or more ofgoods.
The following table presents the Company’s issued and outstanding common stock and is proposed to be made pursuant to Rule 144 under the Securities Act of 1933, as amended or (ii) proposed to be sold under a resale shelf registration statement or (b) a right of first refusal with respect to such shares if such transfer is (i) for 1% or more of the Company’s issued and outstanding common stock and is proposed to be made to a competitor of the Company or (ii) for 5% or more of the Company’s issued and outstanding common stock. Such transfer restrictions, right of first offer and right of first refusal terminate if Ms. Winfrey then has the right to be nominated as a director and has met certain eligibility requirements under the Winfrey Purchase Agreement, but is not elected as a director of the Company. If Ms. Winfrey is elected as a director of the Company, she shall receive compensation for her services as a director consistent with that of other non-executive directors of the Company. Such transfer restrictions also terminate if there is a change of control, including if another person (or group), other than Artal Luxembourg S.A. and Ms. Winfrey and their respective affiliates, acquires more than 50% of the total voting power of the Company.revenues disaggregated by revenue source:
Winfrey Option Agreement
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
| October 1, |
|
| October 2, |
|
| October 1, |
|
| October 2, |
| ||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Digital Subscription Revenues | $ | 155,881 |
|
| $ | 195,288 |
|
| $ | 521,582 |
|
| $ | 606,687 |
|
Workshops + Digital Fees |
| 64,865 |
|
|
| 67,113 |
|
|
| 196,540 |
|
|
| 208,405 |
|
Subscription Revenues, net | $ | 220,746 |
|
| $ | 262,401 |
|
| $ | 718,122 |
|
| $ | 815,092 |
|
Product sales and other, net |
| 28,972 |
|
|
| 31,096 |
|
|
| 98,810 |
|
|
| 121,580 |
|
Revenues, net | $ | 249,718 |
|
| $ | 293,497 |
|
| $ | 816,932 |
|
| $ | 936,672 |
|
In consideration of Ms. Winfrey entering into the Strategic Collaboration Agreement and the performance of her obligations thereunder, on the Agreement Date, the Company granted Ms. Winfrey a fully vested option (the “Winfrey Option”) to purchase 3,513 shares of common stock at an exercise price of $6.97 per share, which remains outstanding in full. The term sheet, and related terms and conditions, for the Winfrey Option are referred to herein as the “Winfrey Option Agreement”. Based on the Black Scholes option pricing method, the Company recorded $12,759 of compensation expense in the fourth quarter of fiscal 2015 for the Winfrey Option. At the date of the grant, the Company used a dividend yield of 0.0%, 63.88% volatility and a risk-free interest rate of 1.36%. Compensation expense is included as a component of selling, general and administrative expenses.
89
WEIGHT WATCHERSWW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Subject to certain limited exceptions, sharesThe following tables present the Company’s revenues disaggregated by revenue source and segment:
| Three Months Ended October 1, 2022 |
| |||||||||||||||||
| North |
|
| Continental |
|
| United |
|
|
|
|
|
|
| |||||
| America |
|
| Europe |
|
| Kingdom |
|
| Other |
|
| Total |
| |||||
Digital Subscription Revenues | $ | 102,735 |
|
| $ | 43,638 |
|
| $ | 5,693 |
|
| $ | 3,815 |
|
| $ | 155,881 |
|
Workshops + Digital Fees |
| 52,113 |
|
|
| 7,586 |
|
|
| 3,764 |
|
|
| 1,402 |
|
|
| 64,865 |
|
Subscription Revenues, net | $ | 154,848 |
|
| $ | 51,224 |
|
| $ | 9,457 |
|
| $ | 5,217 |
|
| $ | 220,746 |
|
Product sales and other, net |
| 21,234 |
|
|
| 5,272 |
|
|
| 1,441 |
|
|
| 1,025 |
|
|
| 28,972 |
|
Revenues, net | $ | 176,082 |
|
| $ | 56,496 |
|
| $ | 10,898 |
|
| $ | 6,242 |
|
| $ | 249,718 |
|
| Three Months Ended October 2, 2021 |
| |||||||||||||||||
| North |
|
| Continental |
|
| United |
|
|
|
|
|
|
| |||||
| America |
|
| Europe |
|
| Kingdom |
|
| Other |
|
| Total |
| |||||
Digital Subscription Revenues | $ | 125,077 |
|
| $ | 56,542 |
|
| $ | 9,007 |
|
| $ | 4,662 |
|
| $ | 195,288 |
|
Workshops + Digital Fees |
| 51,661 |
|
|
| 8,727 |
|
|
| 4,528 |
|
|
| 2,197 |
|
|
| 67,113 |
|
Subscription Revenues, net | $ | 176,738 |
|
| $ | 65,269 |
|
| $ | 13,535 |
|
| $ | 6,859 |
|
| $ | 262,401 |
|
Product sales and other, net |
| 21,059 |
|
|
| 6,664 |
|
|
| 2,131 |
|
|
| 1,242 |
|
|
| 31,096 |
|
Revenues, net | $ | 197,797 |
|
| $ | 71,933 |
|
| $ | 15,666 |
|
| $ | 8,101 |
|
| $ | 293,497 |
|
| Nine Months Ended October 1, 2022 |
| |||||||||||||||||
| North |
|
| Continental |
|
| United |
|
|
|
|
|
|
| |||||
| America |
|
| Europe |
|
| Kingdom |
|
| Other |
|
| Total |
| |||||
Digital Subscription Revenues | $ | 342,489 |
|
| $ | 145,920 |
|
| $ | 20,106 |
|
| $ | 13,067 |
|
| $ | 521,582 |
|
Workshops + Digital Fees |
| 155,558 |
|
|
| 23,599 |
|
|
| 12,482 |
|
|
| 4,901 |
|
|
| 196,540 |
|
Subscription Revenues, net | $ | 498,047 |
|
| $ | 169,519 |
|
| $ | 32,588 |
|
| $ | 17,968 |
|
| $ | 718,122 |
|
Product sales and other, net |
| 70,363 |
|
|
| 19,621 |
|
|
| 5,506 |
|
|
| 3,320 |
|
|
| 98,810 |
|
Revenues, net | $ | 568,410 |
|
| $ | 189,140 |
|
| $ | 38,094 |
|
| $ | 21,288 |
|
| $ | 816,932 |
|
| Nine Months Ended October 2, 2021 |
| |||||||||||||||||
| North |
|
| Continental |
|
| United |
|
|
|
|
|
|
| |||||
| America |
|
| Europe |
|
| Kingdom |
|
| Other |
|
| Total |
| |||||
Digital Subscription Revenues | $ | 387,422 |
|
| $ | 176,059 |
|
| $ | 28,410 |
|
| $ | 14,796 |
|
| $ | 606,687 |
|
Workshops + Digital Fees |
| 158,265 |
|
|
| 28,397 |
|
|
| 14,304 |
|
|
| 7,439 |
|
|
| 208,405 |
|
Subscription Revenues, net | $ | 545,687 |
|
| $ | 204,456 |
|
| $ | 42,714 |
|
| $ | 22,235 |
|
| $ | 815,092 |
|
Product sales and other, net |
| 81,055 |
|
|
| 27,308 |
|
|
| 9,021 |
|
|
| 4,196 |
|
|
| 121,580 |
|
Revenues, net | $ | 626,742 |
|
| $ | 231,764 |
|
| $ | 51,735 |
|
| $ | 26,431 |
|
| $ | 936,672 |
|
Information about Contract Balances
For Subscription Revenues, the Company can collect payment in advance of common stock issuable upon exerciseproviding services. Any amounts collected in advance of services being provided are recorded in deferred revenue. In the case where amounts are not collected, but the service has been provided and the revenue has been recognized, the amounts are recorded in accounts receivable. The opening and ending balances of the Winfrey Option (the “Winfrey Option Shares”) generally couldCompany’s deferred revenues were as follows:
|
| Deferred |
|
| Deferred |
| ||
|
| Revenue |
|
| Revenue-Long Term |
| ||
Balance as of January 1, 2022 |
| $ | 45,855 |
|
| $ | 28 |
|
Net (decrease) increase during the period |
|
| (6,083 | ) |
|
| 11 |
|
Balance as of October 1, 2022 |
| $ | 39,772 |
|
| $ | 39 |
|
|
|
|
|
|
|
| ||
Balance as of January 2, 2021 |
| $ | 50,475 |
|
| $ | 44 |
|
Net decrease during the period |
|
| (244 | ) |
|
| (36 | ) |
Balance as of October 2, 2021 |
| $ | 50,231 |
|
| $ | 8 |
|
10
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Revenue recognized from amounts included in current deferred revenue as of January 1, 2022 was $44,375 for the nine months ended October 1, 2022. Revenue recognized from amounts included in current deferred revenue as of January 2, 2021 was $49,808 for the nine months ended October 2, 2021. The Company’s long-term deferred revenue, which is included in other liabilities on the Company’s consolidated balance sheet, represents revenue that will not be transferred by Ms. Winfrey withinrecognized during the firstnext fiscal year and is generally related to upfront payments received as an inducement for entering into certain sales-based royalty agreements with third party licensees. This revenue is amortized on a straight-line basis over the term of the Agreement Date. Ms. Winfrey generally could have transferred up to 20%applicable agreement.
Acquisitions of Franchisees
On February 18, 2022, the Winfrey Option Shares prior toCompany acquired the second anniversaryentire issued share capital of its Republic of Ireland franchisee, Denross Limited, and its Northern Ireland franchisee, Checkweight Limited, as follows:
|
|
On June 27, 2016,August 16, 2021, the Company acquired substantially all of the assets of its franchisee for certain territories in South Florida,Maine, Weight Watchers of Greater Miami,Maine, Inc., for a purchase price of $3,250 (the “Miami Acquisition”)$2,250. Payment was in the form of cash ($2,898) plus1,999), cash in reserves ($300)225) and assumed net liabilities of ($52)26). The total purchase price has beenwas allocated to goodwill ($2,153), customer relationship value ($56) and franchise rights acquired ($41). The goodwill will be deductible for tax purposes.
On March 22, 2021, the Company acquired substantially all of the assets of its Michigan franchisee, The WW Group, Inc., and its Ontario, Canada franchisee, The WW Group Co., as follows:
These acquisitions have been accounted for under the purchase method of accounting and, accordingly, earnings of the acquired franchiseefranchises have been included in the consolidated operating results of the Company since the date of acquisition. The goodwill will be deductible for tax purposes.
|
|
Franchise rights acquired are due to acquisitions of the Company’s franchised territories as well as the acquisition of franchise promotion agreements and other factors associated with the acquired franchise territories. For the nine months ended September 30, 2017,October 1, 2022, the change in the carrying value of franchise rights acquired iswas due to the impairments of the United States, Canada and New Zealand units of account as discussed below, the effect of exchange rate changes.changes and the Northern Ireland franchisee acquisition as described in Note 5.
11
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Goodwill primarily relates to the acquisition of the Company by The Kraft Heinz Company (successor to H.J. Heinz CompanyCompany) in 1978, and the acquisitionCompany’s acquisitions of WW.com, LLC (formerly known as WW.com, Inc. and WeightWatchers.com, Inc.) in 2005 the acquisitions ofand the Company’s franchised territories, the acquisitions of the majority interest in Vigilantes do Peso Marketing Ltda. (“VPM”) and of Knowplicity, Inc., d/b/a Wello, in fiscal 2014 and the acquisition of Weilos, Inc. in fiscal 2015.territories. See Note 5 for additional information about acquisitions by the Company. For the nine months ended September 30, 2017,October 1, 2022, the change in the carrying amount of goodwill iswas due to the Republic of Ireland franchisee and Northern Ireland franchisee acquisitions as described in Note 5, the impairment of the Company's wholly-owned subsidiary Kurbo, Inc. (“Kurbo”) as discussed below and the effect of exchange rate changes as follows:
|
| North |
|
| United |
|
| Continental |
|
|
|
|
|
|
|
|
| |||
|
| America |
|
| Kingdom |
|
| Europe |
|
| Other |
|
| Total |
| |||||
Balance as of December 31, 2016 |
| $ | 137,543 |
|
| $ | 1,145 |
|
| $ | 6,884 |
|
| $ | 20,566 |
|
| $ | 166,138 |
|
Effect of exchange rate changes |
|
| 3,195 |
|
|
| 98 |
|
|
| 831 |
|
|
| 469 |
|
|
| 4,593 |
|
Balance as of September 30, 2017 |
| $ | 140,738 |
|
| $ | 1,243 |
|
| $ | 7,715 |
|
| $ | 21,035 |
|
| $ | 170,731 |
|
|
| North |
|
| Continental |
|
| United |
|
|
|
|
|
|
| |||||
|
| America |
|
| Europe |
|
| Kingdom |
|
| Other |
|
| Total |
| |||||
Balance as of January 2, 2021 |
| $ | 145,071 |
|
| $ | 7,792 |
|
| $ | 1,268 |
|
| $ | 1,486 |
|
| $ | 155,617 |
|
Goodwill acquired during the period |
|
| 2,153 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,153 |
|
Effect of exchange rate changes |
|
| 306 |
|
|
| (606 | ) |
|
| (14 | ) |
|
| (82 | ) |
|
| (396 | ) |
Balance as of January 1, 2022 |
| $ | 147,530 |
|
| $ | 7,186 |
|
| $ | 1,254 |
|
| $ | 1,404 |
|
| $ | 157,374 |
|
Goodwill acquired during the period |
|
| — |
|
|
| — |
|
|
| 5,936 |
|
|
| — |
|
|
| 5,936 |
|
Goodwill impairment |
|
| (1,101 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,101 | ) |
Effect of exchange rate changes |
|
| (3,651 | ) |
|
| (1,152 | ) |
|
| (1,084 | ) |
|
| (167 | ) |
|
| (6,054 | ) |
Balance as of October 1, 2022 |
| $ | 142,778 |
|
| $ | 6,034 |
|
| $ | 6,106 |
|
| $ | 1,237 |
|
| $ | 156,155 |
|
The Company reviews goodwill and other indefinite-lived intangible assets, includingFranchise Rights Acquired
Finite-lived franchise rights acquired with indefinite lives,are amortized over the remaining contractual period, which is generally less than one year. Indefinite-lived franchise rights acquired are tested for potential impairment on at least an annual basis or more often if events so require. The Company performed fair value impairment testing as of May 7, 2017 and May 8, 2016, each the first day of fiscal May, on its goodwill and other indefinite-lived intangible assets.
In performing its annualthe impairment analysis as of May 7, 2017, the Company determined that the carrying amounts of its goodwill reporting units andfor indefinite-lived franchise rights acquired, with indefinite lives units of account did not exceed their respective fair values and therefore, no impairment existed. For all reporting units, except for Brazil, there was significant headroom in the impairment analysis. Based on the results of this test for Brazil, the fair value of this reporting unit exceeded itsfor franchise rights acquired is estimated using a discounted cash flow approach referred to as the hypothetical start-up approach for franchise rights related to the Company’s Workshops + Digital business and a relief from royalty methodology for franchise rights related to the Company’s Digital business. The aggregate estimated fair value for these rights is then compared to the carrying value by approximately 10%,of the unit of account for those franchise rights. The Company has determined the appropriate unit of account for purposes of assessing impairment to be the combination of the rights in both the Workshops + Digital business and accordingly a relatively small changethe Digital business in the underlying assumptions would likely cause a changecountry in which the applicable acquisition occurred. The net book values of these franchise rights in the resultsUnited States, Canada, United Kingdom, Australia and New Zealand as of the impairment assessmentOctober 1, 2022 balance sheet date were $400,092, $19,342, $10,061, $5,753 and as such, could result in an impairment of the goodwill related to Brazil,$2,141, respectively.
In its hypothetical start-up approach analysis for which the carrying amount is $20,044.
When determining fair value,fiscal 2022, the Company utilizes various assumptions, including projectionsassumed that the year of maturity was reached after 7 years. Subsequent to the year of maturity, the Company estimated future cash flows for the Workshops + Digital business in each country based on assumptions regarding revenue growth rates and discount rates. A change in these underlying assumptions would cause a change in the results of the tests and, as such, could cause fair value to be less than the carrying amounts and result in an impairment of those assets.operating income margins. In the eventCompany’s relief from royalty approach analysis for fiscal 2022, the cash flows associated with the Digital business in each country were based on the expected Digital revenue for such country and the application of a result occurred,royalty rate based on current market terms. The cash flows for the Company would be required to record a corresponding charge,Workshops + Digital and the Digital businesses were discounted utilizing rates which would impact earnings. The Company would also bewere calculated using the weighted-average cost of capital, which included the cost of equity and the cost of debt.
9
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIESGoodwill
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
required to reduce the carrying amounts of the related assets on its balance sheet. The Company continues to evaluate these assumptions and believes that these assumptions are appropriate.
The following is a discussion of the goodwill and franchise rights acquired impairment analysis.
Goodwill
In performing the impairment analysis for goodwill, the fair value for the Company’s reporting units is estimated using a discounted cash flow approach. This approach involves projecting future cash flows attributable to the reporting unit and discounting those estimated cash flows using an appropriate discount rate. The estimated fair value is then compared to the carrying value of the reporting units.unit. The Company has determined the appropriate reporting unit for purposes of assessing annual impairment to be the country for all reporting units. The net book values of goodwill in the United States, Canada and other countries as of the October 1, 2022 balance sheet date were $104,019, $38,759 and $13,377, respectively.
For all of the Company’s reporting units except for Brazil (see below),tested as of May 8, 2022, the Company estimated future cash flows by utilizing the historical debt-free cash flows (cash flows provided by operating activitiesoperations less capital expenditures) attributable to that country and then applied expected future operating income growth rates for such country. The Company utilized operating income as the basis for measuring its potential growth because it believes it is the best indicator of the performance of its business. The Company then discounted the estimated future cash flows utilizing a discount rate which was calculated using the averageweighted-average cost of capital, which included the cost of equity and the cost of debt. The cost of equity was determined by combining a risk-free rate of return and a market risk premium for the Company’s peer group. The risk-free rate of return was determined based on the average rate of long-term U.S. Treasury securities. The market risk premium was determined by reviewing external market data. The cost of debt was determined by estimating the Company’s current borrowing rate.
As it relates to the impairment analysis for Brazil, the Company estimated future debt free cash flows in contemplation of its growth strategies for that market. In developing these projections, the Company considered the historical impact of similar growth strategies in other markets as well as the current market conditions in Brazil. The Company then discounted the estimated future cash flows utilizing a discount rate which was calculated using the average cost of capital, which included the cost of equity and the cost of debt. The cost of equity was determined by combining a risk-free rate of return and a market risk premium for the Company’s peer group. The risk-free rate of return was determined based on the average rate of long-term U.S. Treasury securities. The market risk premium was determined by reviewing external market data including the current economic conditions in Brazil and the country specific risk thereon. A further risk premium was included to reflect the risk associated with the rate of growth projected in the analysis. The cost of debt was determined by estimating the Company’s current borrowing rate.
Franchise Rights Acquired
Finite-lived franchise rights acquired are amortized over the remaining contractual period, which is generally less than one year.
In performing the impairment analysis for indefinite-lived franchise rights acquired, the fair value for franchise rights acquired is estimated using a discounted cash flow approach referred to as the hypothetical start-up approach for franchise rights related to the Company’s meetings business and a relief from royalty methodology for franchise rights related to the Company’s Online business. The aggregate estimated fair value for these rights is then compared to the carrying value of the unit of account for those franchise rights. The Company has determined the appropriate unit of account for purposes of assessing impairment to be the combination of the rights in the meetings and Online businesses in the country in which the acquisitions have occurred. In its hypothetical start-up approach analysis for fiscal 2017, the Company assumed that the year of maturity was reached after 7 years. Subsequent to the year of maturity, the Company estimated future cash flows for the meetings business in each country based on assumptions regarding revenue growth and operating income margins. The cash flows associated with the Online business were based on the expected Online revenue for such country and the application of a market-based royalty rate. The cash flows for the meetings and Online businesses were discounted utilizing rates consistent with those utilized in the goodwill impairment analysis.
1012
WEIGHT WATCHERSWW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Indefinite-Lived Franchise Rights Acquired and Goodwill Annual Impairment Test
The Company reviews indefinite-lived intangible assets, including franchise rights acquired with indefinite lives, and goodwill for potential impairment on at least an annual basis or more often if events so require. The Company performed fair value impairment testing as of May 8, 2022 and May 9, 2021, each the first day of fiscal May, on its indefinite-lived intangible assets and goodwill.
In performing its annual impairment analysis as of May 8, 2022, the Company determined that (i) the carrying amounts of its Canada and New Zealand franchise rights acquired with indefinite-lived units of account exceeded their respective fair values and, as a result, the Company recorded impairment charges for its Canada and New Zealand units of account of $24,485 and $834, respectively, in the second quarter of fiscal 2022; and (ii) the carrying amounts of all of its other franchise rights acquired with indefinite-lived units of account did not exceed their respective fair values and, therefore, no impairment existed with respect thereto. In performing its annual impairment analysis as of May 9, 2021, the Company determined that the carrying amounts of its franchise rights acquired with indefinite-lived units of account did not exceed their respective fair values and, therefore, no impairment existed. In performing its annual impairment analysis as of May 8, 2022 and May 9, 2021, the Company determined that the carrying amounts of its goodwill reporting units did not exceed their respective fair values and, therefore, no impairment existed.
When determining fair value, the Company utilizes various assumptions, including projections of future cash flows, growth rates and discount rates. A change in these underlying assumptions could cause a change in the results of the impairment assessments and, as such, could cause fair value to be less than the carrying amounts and result in an impairment of those assets. In the event such a result occurred, the Company would be required to record a corresponding charge, which would impact earnings. The Company would also be required to reduce the carrying amounts of the related assets on its balance sheet.
Based on the results of the Company’s May 8, 2022 annual franchise rights acquired impairment test performed for its United States unit of account, which held 92.7% of the Company’s franchise rights acquired as of the July 2, 2022 balance sheet date, the estimated fair value of this unit of account exceeded its carrying value by approximately 15%. Based on the results of the Company’s May 8, 2022 annual franchise rights acquired impairment analysis performed for its Canada and New Zealand units of account, which held 4.6 % and 0.5%, respectively, of the Company’s franchise rights acquired as of the July 2, 2022 balance sheet date, the estimated fair values of these units of account were equal to their respective carrying values. The above difference or lack thereof between the estimated fair value of the applicable unit of account and its carrying value is referred to herein as the “Annual Impairment Headroom”. As previously disclosed, a change in the underlying assumptions for the United States, Canada and New Zealand could change the results of the impairment assessment and, as such, could result in an impairment of the franchise rights acquired related to the United States, Canada and New Zealand, for which the net book values were $698,383, $34,556 and $3,574, respectively, as of July 2, 2022. Based on the results of the Company’s May 8, 2022 annual franchise rights acquired impairment analysis performed for its remaining units of account, which collectively held 2.2% of the Company’s franchise rights acquired as of the July 2, 2022 balance sheet date, the estimated fair values of these units of account exceeded their respective carrying values by over 100%.
Based on the results of the Company’s May 8, 2022 annual goodwill impairment analysis performed for all of its reporting units, all units, except for the Republic of Ireland, had an estimated fair value at least 35% higher than the respective unit’s carrying amount. Collectively, these reporting units represented 97.4% of the Company’s total goodwill as of the October 1, 2022 balance sheet date. Based on the results of the Company’s May 8, 2022 annual goodwill impairment analysis performed for its Republic of Ireland reporting unit, which holds 2.6% of the Company’s goodwill as of the October 1, 2022 balance sheet date, the estimated fair value of this reporting unit exceeded its carrying value by approximately 14%. Accordingly, a change in the underlying assumptions for the Republic of Ireland may change the results of the impairment assessment and, as such, could result in an impairment of the goodwill related to the Republic of Ireland, for which the net book value was $4,009 as of October 1, 2022.
Indefinite-Lived Franchise Rights Acquired Interim Impairment Test
During the quarter ended October 1, 2022, the Company identified various qualitative and quantitative factors which collectively, when combined with the Annual Impairment Headroom discussed above for the United States, Canada and New Zealand units of account, indicated a triggering event had occurred within these units of account. These factors included actual business performance as compared to the assumptions used in its annual impairment test, the continued decline in the Company’s market capitalization and market factors, including the increase in interest rates. As a result of this triggering event, the Company performed an interim impairment test of these units of account. In performing this interim impairment test as of October 1, 2022, the Company determined that the carrying amounts of its United States, Canada and New Zealand franchise rights acquired with indefinite-lived units of account exceeded their respective fair values. Accordingly, the Company recorded impairment charges for its United States, Canada and New Zealand units of account of $298,291, $13,312 and $1,138, respectively, in the third quarter of fiscal 2022. The preponderance of these impairments was driven by the increased weighted-average cost of capital used in this interim impairment test as compared to the weighted-average cost of capital used in the May 8, 2022 annual impairment test of its indefinite-lived franchise rights acquired, reflecting market factors including higher interest rates and the trading values of the Company's equity and debt.
13
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
When determining fair value, the Company utilizes various assumptions, including projections of future cash flows, growth rates and discount rates. A change in these underlying assumptions could cause a change in the results of the impairment assessments and, as such, could cause fair value to be less than the carrying amounts and result in an impairment of those assets. In the event such a result occurred, the Company would be required to record a corresponding charge, which would impact earnings. The Company would also be required to reduce the carrying amounts of the related assets on its balance sheet.
Based on the results of the Company’s October 1, 2022 interim franchise rights acquired impairment test performed for its United States, Canada and New Zealand units of account, which hold 91.5%, 4.4% and 0.5%, respectively, of the Company’s franchise rights acquired as of the October 1, 2022 balance sheet date, the estimated fair values of these units of account were equal to their respective carrying values. Accordingly, a change in the underlying assumptions for the United States, Canada and New Zealand may change the results of the impairment assessment and, as such, could result in an impairment of the franchise rights acquired related to the United States, Canada and New Zealand, for which the net book values were $400,092, $19,342 and $2,141, respectively, as of October 1, 2022.
Kurbo Goodwill Impairment
On August 10, 2018, the Company acquired substantially all of the assets of Kurbo Health, Inc., a family-based healthy lifestyle coaching program, for a net purchase price of $3,063, of which $1,101 was allocated to goodwill. The goodwill was deductible annually for tax purposes. The Company determined in the second quarter of fiscal 2022 to exit the Kurbo business in the third quarter of fiscal 2022 as part of its strategic plan. As a result of this determination, the Company recorded an impairment charge of $1,101 in the second quarter of fiscal 2022, which comprised the entire goodwill balance for Kurbo.
Finite-lived Intangible Assets
The carrying values of finite-lived intangible assets as of September 30, 2017October 1, 2022 and December 31, 2016January 1, 2022 were as follows:
|
| September 30, 2017 |
|
| December 31, 2016 |
|
| October 1, 2022 |
|
| January 1, 2022 |
| ||||||||||||||||||||
|
| Gross |
|
|
|
|
|
| Gross |
|
|
|
|
|
| Gross |
|
|
| Gross |
|
|
| |||||||||
|
| Carrying |
|
| Accumulated |
|
| Carrying |
|
| Accumulated |
|
| Carrying |
| Accumulated |
| Carrying |
| Accumulated |
| |||||||||||
|
| Amount |
|
| Amortization |
|
| Amount |
|
| Amortization |
|
| Amount |
|
| Amortization |
|
| Amount |
|
| Amortization |
| ||||||||
Capitalized software costs |
| $ | 133,255 |
|
| $ | 114,806 |
|
| $ | 126,737 |
|
| $ | 101,316 |
|
| $ | 115,746 |
|
| $ | 101,017 |
|
| $ | 115,065 |
|
| $ | 94,771 |
|
Website development costs |
|
| 132,927 |
|
|
| 103,295 |
|
|
| 119,971 |
|
|
| 87,736 |
|
|
| 130,738 |
|
|
| 90,790 |
|
|
| 110,678 |
|
|
| 78,629 |
|
Trademarks |
|
| 11,220 |
|
|
| 10,792 |
|
|
| 11,092 |
|
|
| 10,647 |
|
|
| 12,145 |
|
|
| 11,833 |
|
|
| 12,116 |
|
|
| 11,677 |
|
Other |
|
| 8,066 |
|
|
| 7,746 |
|
|
| 7,945 |
|
|
| 7,434 |
|
|
| 13,880 |
|
|
| 5,917 |
|
|
| 14,021 |
|
|
| 5,677 |
|
Trademarks and other intangible assets |
| $ | 285,468 |
|
| $ | 236,639 |
|
| $ | 265,745 |
|
| $ | 207,133 |
|
| $ | 272,509 |
|
| $ | 209,557 |
|
| $ | 251,880 |
|
| $ | 190,754 |
|
Franchise rights acquired |
|
| 4,593 |
|
|
| 4,593 |
|
|
| 4,551 |
|
|
| 4,551 |
|
|
| 8,126 |
|
|
| 5,001 |
|
|
| 7,905 |
|
|
| 4,766 |
|
Total finite-lived intangible assets |
| $ | 290,061 |
|
| $ | 241,232 |
|
| $ | 270,296 |
|
| $ | 211,684 |
|
| $ | 280,635 |
|
| $ | 214,558 |
|
| $ | 259,785 |
|
| $ | 195,520 |
|
Aggregate amortization expense for finite-lived intangible assets was recorded in the amounts of $9,120$8,347 and $27,310$25,282 for the three and nine months ended September 30, 2017,October 1, 2022, respectively. Aggregate amortization expense for finite-lived intangible assets was recorded in the amounts of $9,137$8,032 and $26,161$24,066 for the three and nine months ended October 1, 2016,2, 2021, respectively. The franchise rights acquired related to the VPM acquisition were amortized ratably over a 2 year period. The franchise rights acquired related to the Miami Acquisition were amortized ratably over a 3 month period.
Estimated amortization expense of existing finite-lived intangible assets for the next five fiscal years and thereafter is as follows:
Remainder of fiscal 2017 |
| $ | 8,806 |
|
Fiscal 2018 |
| $ | 23,263 |
|
Fiscal 2019 |
| $ | 12,166 |
|
Fiscal 2020 |
| $ | 3,926 |
|
Fiscal 2021 and thereafter |
| $ | 668 |
|
Remainder of fiscal 2022 |
| $ | 8,223 |
|
Fiscal 2023 |
| $ | 27,053 |
|
Fiscal 2024 |
| $ | 16,687 |
|
Fiscal 2025 |
| $ | 5,378 |
|
Fiscal 2026 |
| $ | 845 |
|
Fiscal 2027 |
| $ | 720 |
|
Thereafter |
| $ | 7,171 |
|
14
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
| 7. Long-Term Debt |
The components of the Company’s long-term debt were as follows:
|
| October 1, 2022 |
|
| January 1, 2022 |
| ||||||||||||||||||||||||||
|
| Principal |
|
| Unamortized |
|
| Unamortized |
|
| Effective |
|
| Principal |
|
| Unamortized |
|
| Unamortized |
|
| Effective |
| ||||||||
Revolving Credit Facility due |
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| 0.00 | % |
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| 2.61 | % |
Term Loan Facility due |
|
| 945,000 |
|
|
| 6,098 |
|
|
| 12,638 |
|
|
| 5.15 | % |
|
| 945,000 |
|
|
| 6,930 |
|
|
| 14,362 |
|
|
| 4.48 | % |
Senior Secured Notes due |
|
| 500,000 |
|
|
| 5,025 |
|
|
| — |
|
|
| 4.65 | % |
|
| 500,000 |
|
|
| 5,604 |
|
|
| — |
|
|
| 4.70 | % |
Total |
| $ | 1,445,000 |
|
| $ | 11,123 |
|
| $ | 12,638 |
|
|
| 4.98 | % |
| $ | 1,445,000 |
|
| $ | 12,534 |
|
| $ | 14,362 |
|
|
| 5.15 | % |
Less: Current portion |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
|
| ||||||
Unamortized deferred |
|
| 11,123 |
|
|
|
|
|
|
|
|
|
|
|
| 12,534 |
|
|
|
|
|
|
|
|
|
| ||||||
Unamortized debt discount |
|
| 12,638 |
|
|
|
|
|
|
|
|
|
|
|
| 14,362 |
|
|
|
|
|
|
|
|
|
| ||||||
Total long-term debt |
| $ | 1,421,239 |
|
|
|
|
|
|
|
|
|
|
| $ | 1,418,104 |
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||||||||||
|
| Principal Balance |
|
| Effective Rate (1) |
|
| Principal Balance |
|
| Effective Rate (1) |
| ||||
Revolving Facility due April 2, 2018 |
| $ | 0 |
|
|
| 0.00 | % |
| $ | 0 |
|
|
| 3.35 | % |
Tranche B-1 Term Facility due April 2, 2016 |
|
| 0 |
|
|
| 0.00 | % |
|
| 0 |
|
|
| 3.96 | % |
Tranche B-2 Term Facility due April 2, 2020 |
|
| 1,930,386 |
|
|
| 4.68 | % |
|
| 2,021,250 |
|
|
| 4.41 | % |
Total |
|
| 1,930,386 |
|
|
| 4.68 | % |
|
| 2,021,250 |
|
|
| 4.38 | % |
Less: Current Portion |
|
| 31,429 |
|
|
|
|
|
|
| 21,000 |
|
|
|
|
|
Unamortized Deferred Financing Costs |
|
| 14,115 |
|
|
|
|
|
|
| 18,951 |
|
|
|
|
|
Total Long-Term Debt |
| $ | 1,884,842 |
|
|
|
|
|
| $ | 1,981,299 |
|
|
|
|
|
|
|
The Company’sOn April 13, 2021, the Company (1) repaid in full approximately $1,189,750 in aggregate principal amount of senior secured tranche B term loans due in 2024 under its then-existing credit facilities at the endand (2) redeemed all of the first$300,000 in aggregate principal amount of its then-outstanding 8.625% Senior Notes due in 2025 (the “Discharged Senior Notes”). On April 13, 2021, the Company’s then-existing credit facilities included a senior secured revolving credit facility (which included borrowing capacity available for letters of credit) due in 2022 with $175,000 in an aggregate principal amount of commitments. There were no outstanding borrowings under such revolving credit facility on that date. The Company funded such repayment of loans and redemption of notes with cash on hand as well as with proceeds received from approximately $1,000,000 in an aggregate principal amount of borrowings under its new credit facilities (as amended from time to time, the “Credit Facilities”) and proceeds received from the issuance of $500,000 in aggregate principal amount of 4.500% Senior Secured Notes due 2029 (the “Senior Secured Notes”), each as described below. These transactions are collectively referred to herein as the “April 2021 debt refinancing”. During the second quarter of fiscal 2013 consisted2021, the Company incurred fees of $37,910 (which included $12,939 of a prepayment penalty on the following term loan facilitiesDischarged Senior Notes and revolving$5,000 of a debt discount on its Term Loan Facility (as defined below)) in connection with the April 2021 debt refinancing. In addition, the Company recorded a loss on early extinguishment of debt of $29,169 in connection thereto. This early extinguishment of debt charge was comprised of $12,939 of a prepayment penalty on the Discharged Senior Notes, $9,017 of financing fees paid in connection with the April 2021 debt refinancing and the write-off of $7,213 of pre-existing deferred financing fees and debt discount.
Credit Facilities
The Credit Facilities were issued under a credit facilities: aagreement, dated April 13, 2021 (as amended from time to time, the “Credit Agreement”), among the Company, as borrower, the lenders party thereto, and Bank of America, N.A. (“Bank of America”), as administrative agent and an issuing bank. The Credit Facilities consist of (1) $1,000,000 in aggregate principal amount of senior secured tranche B loan (“Term B Loan”term loans due in 2028 (the “Term Loan Facility”), and (2) $175,000 in an aggregate principal amount of commitments under a tranche C loan (“Term C Loan”), a tranche D loan (“Term D Loan”), a tranche E loan (“Term E Loan”), a tranche F loan (“Term F Loan”),senior secured revolving credit facility A-1 (“Revolver A-1”(which includes borrowing capacity available for letters of credit) due in 2026 (the “Revolving Credit Facility”).
In December 2021, the Company made voluntary prepayments at par in an aggregate amount of $52,500 in respect of its outstanding term loans under the Term Loan Facility. As a result of these prepayments, the Company wrote off a debt discount and revolvingdeferred financing fees of $1,183 in the aggregate in the fourth quarter of fiscal 2021.
As of October 1, 2022, the Company had $945,000 in an aggregate principal amount of loans outstanding under the Credit Facilities, with $173,911 of availability and $1,089 in issued but undrawn letters of credit facility A-2 (“Revolver A-2”).outstanding under the Revolving Credit Facility. There were no outstanding borrowings under the Revolving Credit Facility as of October 1, 2022.
11
15
WEIGHT WATCHERSWW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
On April 2, 2013, the Company refinanced its credit facilities pursuant to a new Credit Agreement (as amended, supplemented or otherwise modified, the “Credit Agreement”) among the Company, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent and an issuing bank, The Bank of Nova Scotia, as revolving agent, swingline lender and an issuing bank, and the other parties thereto. The Credit Agreement provides for (a) a revolving credit facility (including swing line loans and letters of credit) in an initial aggregate principal amount of $250,000 that will mature on April 2, 2018 (the “Revolving Facility”), (b) an initial term B-1 loan credit facility in an aggregate principal amount of $300,000 that matured on April 2, 2016 (the “Tranche B-1 Term Facility”) and (c) an initial term B-2 loan credit facility in an aggregate principal amount of $2,100,000 that will mature on April 2, 2020 (the “Tranche B-2 Term Facility”, and together with the Tranche B-1 Term Facility, the “Term Facilities”; the Term Facilities and Revolving Facility collectively, the “WWI Credit Facility”). In connection with this refinancing, the Company used the proceeds from borrowings under the Term Facilities to pay off a total of $2,399,904 of outstanding loans, consisting of $128,759 of Term B Loans, $110,602 of Term C Loans, $117,612 of Term D Loans, $1,125,044 of Term E Loans, $817,887 of Term F Loans, $21,247 of loans under the Revolver A-1 and $78,753 of loans under the Revolver A-2. Following the refinancing of a total of $2,399,904 of loans, at April 2, 2013, the Company had $2,400,000 debt outstanding under the Term Facilities and $248,848 of availability under the Revolving Facility. The Company incurred fees of $44,817 during the second quarter of fiscal 2013 in connection with this refinancing. In the second quarter of fiscal 2013, the Company wrote-off fees associated with this refinancing which resulted in the Company recording a charge of $21,685 in early extinguishment of debt.
On September 26, 2014, the Company and certain lenders entered into an agreement amending the Credit Agreement that, among other things, eliminated the Financial Covenant (as defined in the Credit Agreement) with respect to the Revolving Facility. In connection with this amendment, the Company wrote-off deferred financing fees of approximately $1,583 in the third quarter of fiscal 2014. Concurrently with and in order to effect this amendment, the Company reduced the amount of the Revolving Facility from $250,000 to $50,000.
Under the terms of the Credit Agreement, depending on the Company’s Consolidated Leverage Ratio (as defined in the Credit Agreement), on an annual basis on or about the time the Company is required to deliver its financial statements for any fiscal year, the Company is obligated to offer to prepay a portion of the outstanding principal amount of the Term Facilities in an aggregate amount determined by a percentage of its annual excess cash flow (as defined in the Credit Agreement) (said payment, a “Cash Flow Sweep”). On March 13, 2015, the Company commenced an offer to prepay at a discount to par up to $75,000 in aggregate principal amount of term loans outstanding under the Tranche B-1 Term Facility. On March 20, 2015, the Company accepted offers with a discount equal to or greater than 9.00% in respect of such term loans. On March 25, 2015, the Company paid an aggregate amount of cash proceeds totaling $57,389 plus an amount sufficient to pay accrued and unpaid interest on the amount prepaid to prepay $63,065 in aggregate principal amount of such term loans under the Tranche B-1 Term Facility. This expenditure reduced, on a dollar for dollar basis, the Company’s $59,728 obligation to make a mandatory excess cash flow prepayment offer to the term loan lenders under the terms of the Credit Agreement. In addition, the Company made a voluntary prepayment at par on March 25, 2015 of $2,500 in respect of such term loans under the Tranche B-1 Term Facility to reduce the remaining excess cash flow prepayment obligation for fiscal 2014. As a result of this prepayment, the Company wrote-off fees of $326, incurred fees of $601 and recorded a gain on early extinguishment of debt of $4,749, inclusive of these fees, in the first quarter of fiscal 2015.
On June 17, 2015, the Company commenced another offer to prepay at a discount to par up to $229,000 in aggregate principal amount of term loans outstanding under the Tranche B-1 Term Facility. On June 22, 2015, the Company accepted offers with a discount equal to or greater than 9.00% in respect of such term loans. On June 26, 2015, the Company paid an aggregate amount of cash proceeds totaling $77,225 plus an amount sufficient to pay accrued and unpaid interest on the amount prepaid to prepay $84,862 in aggregate principal amount of such term loans under the Tranche B-1 Term Facility. As a result of this prepayment, the Company wrote-off fees of $321, incurred fees of $641 and recorded a gain on early extinguishment of debt of $6,677, inclusive of these fees, in the second quarter of fiscal 2015.
On July 14, 2015, the Company drew down the $48,000 available on its Revolving Facility in order to enhance its cash position and to provide additional financial flexibility. As of January 2, 2016, the revolver borrowing was classified as a short-term liability in consideration of the fact that the terms of the Revolving Facility require an assessment as to whether there have been any material adverse changes with respect to the Company in connection with the Company’s monthly interest elections. Although the revolver borrowing was classified as a short-term liability as of January 2, 2016, absent any change in fact and circumstance, the Company had, and continues to have, the ability to extend and not repay the Revolving Facility until its due date of April 2, 2018.
On April 1, 2016, the Company paid in full, with cash on hand, a principal amount of term loans equal to $144,323, which constituted the entire remaining principal amount of term loans outstanding under the Tranche B-1 Term Facility due April 2, 2016.
12
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
On July 29, 2016, the Company paid down, with cash on hand, a principal amount of $25,000 of the $48,000 outstanding under its Revolving Facility. On September 16, 2016, the Company paid down, with cash on hand, the remaining outstanding principal amount of $23,000 on its Revolving Facility.
On May 18, 2017, the Company commenced another offer to prepay at a discount to par up to $75,000 in aggregate principal amount of term loans outstanding under the Tranche B-2 Term Facility. On May 24, 2017, the Company accepted offers with a discount equal to or greater than 3.28% in respect of such term loans. On May 25, 2017, the Company paid an aggregate amount of cash proceeds totaling $73,030 plus an amount sufficient to pay accrued and unpaid interest on the amount prepaid to prepay $75,507 in aggregate principal amount of such term loans under the Tranche B-2 Term Facility. As a result of this prepayment, the Company wrote-off fees of $618, incurred fees of $305 and recorded a gain on early extinguishment of debt of $1,554, inclusive of these fees, in the second quarter of fiscal 2017.
At September 30, 2017 under the WWI Credit Facility, the Company had $1,930,386 outstanding consisting entirely of a term loan under the Tranche B-2 Term Facility. At September 30, 2017, the Revolving Facility had $0 outstanding, $2,165 in issued but undrawn letters of credit outstanding thereunder and $47,835 in available unused commitments thereunder. The proceeds from borrowings under the Revolving Facility (including swing line loans and letters of credit) are available to be used for working capital and general corporate purposes.
At September 30, 2017, in accordance with the terms of the Credit Agreement, it is probable that the Company will have a Cash Flow Sweep obligation of approximately $11,216 to the term loan lenders in the second quarter of fiscal 2018.
BorrowingsAll obligations under the Credit Agreement are guaranteed by, subject to certain exceptions, each of the Company’s current and future wholly-owned material domestic restricted subsidiaries. All obligations under the Credit Agreement, and the guarantees of those obligations, are secured by substantially all of the assets of the Company and each guarantor, subject to customary exceptions, including:
The Credit Facilities require the Company to prepay outstanding term loans, subject to certain exceptions, with:
The foregoing mandatory prepayments will be used to reduce the installments of principal on the Term Loan Facility. The Company may voluntarily repay outstanding loans under the Credit Facilities at any time without penalty, except for customary “breakage” costs with respect to LIBOR loans under the Credit Facilities.
Borrowings under the Term Loan Facility bear interest at a rate per annum equal to, at the Company’s option, LIBOR pluseither (1) an applicable margin orplus a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate as determined by the Federal Reserve Bank of New York, (b) the prime rate of Bank of America and (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00%; provided that such rate is not lower than a floor of 1.50% or (2) an applicable margin.margin plus a LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, provided that LIBOR is not lower than a floor of 0.50%. Borrowings under the Tranche B-2 TermRevolving Credit Facility is subjectbear interest at a rate per annum equal to an applicable margin based upon a minimum interestleverage-based pricing grid, plus, at the Company’s option, either (1) a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate as determined by the Federal Reserve Bank of New York, (b) the prime rate of 0.75%Bank of America and (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00%; provided that such rate is not lower than a floor of 1.00% or (2) a LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, provided such rate is not lower than a floor of zero. As of October 1, 2022, the applicable margins for the LIBOR rate borrowings under the Term Loan Facility and the base rate underRevolving Credit Facility were 3.50% and 2.75%, respectively. In the Tranche B-2 Term Facilityevent that LIBOR is subject to a minimum interest rate of 1.75%. Under the terms ofphased out as is currently expected, the Credit Agreement in the eventprovides that the Company receivesand the administrative agent may amend the Credit Agreement to replace the LIBOR definition therein with a corporate ratingsuccessor rate subject to notifying the lending syndicate of BB- (or lower)such change and not receiving within five business days of such notification objections to such replacement rate from S&P andlenders holding at least a corporate rating of Ba3 (or lower) from Moody’s, the applicable margin relating to the Term Facilities would increase by 25 basis points. On February 21, 2014, both S&P and Moody’s issued revised corporate ratingsmajority of the Company of B+ and B1, respectively. As a result, effective February 21, 2014, the applicable margin on borrowings under the Tranche B-1 Term Facility went from 2.75% to 3.00% and on borrowings under the Tranche B-2 Term Facility went from 3.00% to 3.25%. The applicable margin relating to the Revolving Facility will fluctuate depending upon the Company’s Consolidated Leverage Ratio. At April 1, 2016, the date of payment of theaggregate principal amount of loans and commitments then outstanding under the Tranche B-1 Term Facility discussed above,Credit Agreement; provided that such lending syndicate may not object to a SOFR-based successor rate contained in any such amendment. If the Company fails to do so, its borrowings underwill be based off of the Tranche B-1 Term Facility bore interest at LIBORalternative base rate plus an applicable margin of 3.00%. At September 30, 2017, borrowings under the Tranche B-2 Term Facility bore interest at LIBOR plus an applicable margin of 3.25%. Based on the Company’s Consolidated Leverage Ratio as of September 30, 2017, had there been any borrowings under the Revolving Facility, it would have borne interest at LIBOR plus an applicable margin of 2.50%. a margin.
On a quarterly basis, the Company will paypays a commitment fee to the lenders under the Revolving Credit Facility in respect of unutilized commitments thereunder, which commitment fee will fluctuatefluctuates depending upon the Company’s Consolidated Leverage Ratio. Based on the Company’s ConsolidatedFirst Lien Leverage Ratio as of September 30, 2017 and December 31, 2016,(as defined in the commitment fee was 0.50% per annum. For the nine months ended September 30, 2017 and the fiscal year ended December 31, 2016, the Company paid $183 and $31, respectively, in commitment fees. The Company also will pay customary letter of credit fees and fronting fees under the Revolving Facility, which totaled $36 for the nine months ended September 30, 2017 and $49 for the fiscal year ended December 31, 2016.Credit Agreement).
The Credit Agreement contains other customary terms, including (1) representations, warranties and affirmative covenants, (2) negative covenants, including covenants that,limitations on indebtedness, liens, mergers, acquisitions, asset sales, investments, distributions, prepayments of subordinated debt, amendments of material agreements governing subordinated indebtedness, changes to lines of business and transactions with affiliates, in each case subject to baskets, thresholds and other exceptions, and (3) customary events of default.
16
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
The availability of certain circumstances, restrictbaskets and the ability to enter into certain transactions are also subject to compliance with certain financial ratios. In addition, if the aggregate principal amount of extensions of credit outstanding under the Revolving Credit Facility as of any fiscal quarter end exceeds 35% of the amount of the aggregate commitments under the Revolving Credit Facility in effect on such date, the Company must be in compliance with a Consolidated First Lien Leverage Ratio of 5.75:1.00 for the period ending after the first fiscal quarter of 2022 through and including with the first fiscal quarter of 2023, with a step down to 5.50:1.00 for the period ending after the first fiscal quarter of 2023 through and including with the first fiscal quarter of 2024, with an additional step down to 5.25:1.00 for the period ending after the first fiscal quarter of 2024 through and including with the first fiscal quarter of 2025 and again to 5.00:1.00, for the period following the first fiscal quarter of 2025. As of October 1, 2022, the Company’s ability to incur additional indebtedness, pay dividends onactual Consolidated First Lien Leverage Ratio was 4.99:1.00 and redeem capital stock, make other payments, including investments, sellthere were no borrowings under its assets and enter into consolidations, mergers and transfers of all or substantially all of its assets. The WWIRevolving Credit Facility doesand total letters of credit issued were $1,089. The Company expects it may not requirebe able to satisfy the Consolidated First Lien Leverage Ratio in the near future, and as a result, the amount of funds the Company is able to meetborrow under the Revolving Credit Facility would be effectively limited.
Senior Secured Notes
The Senior Secured Notes were issued pursuant to an Indenture, dated as of April 13, 2021 (as amended, supplemented or modified from time to time, the “Indenture”), among the Company, the guarantors named therein and The Bank of New York Mellon, as trustee and notes collateral agent. The Indenture contains customary terms, events of default and covenants for an issuer of non-investment grade debt securities. These covenants include limitations on indebtedness, liens, mergers, acquisitions, asset sales, investments, distributions, prepayments of subordinated debt and transactions with affiliates, in each case subject to baskets, thresholds and other exceptions.
The Senior Secured Notes accrue interest at a rate per annum equal to 4.500% and will mature on April 15, 2029. Interest on the Senior Secured Notes is payable semi-annually on April 15 and October 15 of each year, beginning on October 15, 2021.On or after April 15, 2024, the Company may on any financial maintenance covenants and is guaranteed by certain of the Company’s existing and future subsidiaries. Substantiallyone or more occasions redeem some or all of the Senior Secured Notes at a purchase price equal to 102.250% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the redemption date, such optional redemption price decreasing to 101.125% on or after April 15, 2025 and to 100.000% on or after April 15, 2026. Prior to April 15, 2024, the Company may on any one or more occasions redeem up to 40% of the aggregate principal amount of the Senior Secured Notes with an amount not to exceed the net proceeds of certain equity offerings at 104.500% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the redemption date. Prior to April 15, 2024, the Company may redeem some or all of the Senior Secured Notes at a make-whole price plus accrued and unpaid interest, if any, to, but not including, the redemption date. In addition, during any twelve-month period ending prior to April 15, 2024, the Company may redeem up to 10% of the aggregate principal amount of the Senior Secured Notes at a purchase price equal to 103.000% of the principal amount of the Senior Secured Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. If a change of control occurs, the Company must offer to purchase for cash the Senior Secured Notes at a purchase price equal to 101% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the purchase date. Following the sale of certain assets and subject to certain conditions, the Company must offer to purchase for cash the Senior Secured Notes at a purchase price equal to 100% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the purchase date.
The Senior Secured Notes are guaranteed on a senior secured basis by the Company’s assets securesubsidiaries that guarantee the WWI Credit Facility.Facilities. The Senior Secured Notes and the note guarantees are secured by a first-priority lien on all the collateral that secures the Credit Facilities, subject to a shared lien of equal priority with the Company’s and each guarantor’s obligations under the Credit Facilities and subject to certain thresholds, exceptions and permitted liens.
Outstanding Debt
At September 30, 2017October 1, 2022, the Company had $1,445,000 outstanding under the Credit Facilities and December 31, 2016,the Senior Secured Notes, consisting of borrowings under the Term Loan Facility of $945,000, $0 drawn down on the Revolving Credit Facility and $500,000 in aggregate principal amount of Senior Secured Notes issued and outstanding.
At October 1, 2022 and January 1, 2022, the Company’s debt consisted entirely of both fixed and variable-rate instruments. An interestInterest rate swap wasswaps were entered into to hedge a portion of the cash flow exposure associated with the Company’s variable-rate borrowings. See Note 11 for information on the Company’s interest rate swaps. The weighted average interest rate (which includes amortization of deferred financing costs)costs and debt discount) on the Company’s outstanding debt, exclusive of the impact of the swap,swaps then in effect, was approximately 4.68%4.98% and 4.41%5.11% per annum at October 1, 2022 and January 1, 2022, respectively, based on interest rates at September 30, 2017 and December 31, 2016, respectively.on these dates. The weighted average interest rate (which includes amortization of deferred financing costs)costs and debt discount) on the Company’s outstanding debt, including the impact of the swap,swaps then in effect, was approximately 5.19%5.28% and 5.32%5.62% per annum at October 1, 2022 and January 1, 2022, respectively, based on interest rates at September 30, 2017 and December 31, 2016, respectively.on these dates.
1317
WEIGHT WATCHERSWW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
|
Basic (net loss) earnings per share (“EPS”) areis calculated utilizing the weighted average number of common shares outstanding during the periods presented. Diluted EPS(net loss) earnings per share is calculated utilizing the weighted average number of common shares outstanding during the periods presented adjusted for the effect of dilutive common stock equivalents.
The following table sets forth the computation of basic and diluted EPS:(net loss) earnings per share data:
|
| Three Months Ended |
|
| Nine Months Ended |
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| October 1, |
|
| September 30, |
|
| October 1, |
| October 1, |
| October 2, |
| October 1, |
| October 2, |
| |||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net income attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Weight Watchers International, Inc. |
| $ | 44,719 |
|
| $ | 34,658 |
|
| $ | 100,544 |
|
| $ | 54,400 |
| |||||||||||||||
Net (loss) income | $ | (206,036 | ) |
| $ | 46,330 |
|
| $ | (218,902 | ) |
| $ | 36,963 |
| ||||||||||||||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Weighted average shares of common stock outstanding |
|
| 64,463 |
|
|
| 63,782 |
|
|
| 64,237 |
|
|
| 63,690 |
|
| 70,383 |
|
|
| 69,875 |
|
|
| 70,258 |
|
|
| 69,516 |
|
Effect of dilutive common stock equivalents |
|
| 4,223 |
|
|
| 2,059 |
|
|
| 3,702 |
|
|
| 2,182 |
|
| — |
|
|
| 985 |
|
|
| — |
|
|
| 1,350 |
|
Weighted average diluted common shares outstanding |
|
| 68,686 |
|
|
| 65,841 |
|
|
| 67,939 |
|
|
| 65,872 |
|
| 70,383 |
|
|
| 70,860 |
|
|
| 70,258 |
|
|
| 70,866 |
|
Earnings per share attributable to Weight Watchers International, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
(Net loss) earnings per share |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Basic |
| $ | 0.69 |
|
| $ | 0.54 |
|
| $ | 1.57 |
|
| $ | 0.85 |
| $ | (2.93 | ) |
| $ | 0.66 |
|
| $ | (3.12 | ) |
| $ | 0.53 |
|
Diluted |
| $ | 0.65 |
|
| $ | 0.53 |
|
| $ | 1.48 |
|
| $ | 0.83 |
| $ | (2.93 | ) |
| $ | 0.65 |
|
| $ | (3.12 | ) |
| $ | 0.52 |
|
The number of anti-dilutive common stock equivalents excluded from the calculation of the weighted average number of common shares for diluted EPS(net loss) earnings per share was 1,8629,229 and 1,9215,426 for the three months ended September 30, 2017October 1, 2022 and October 1, 2016, respectively,2, 2021, respectively. The number of anti-dilutive common stock equivalents excluded from the calculation of the weighted average number of common shares for diluted (net loss) earnings per share was 8,307 and 1,230 and 1,4485,270 for the nine months ended September 30, 2017October 1, 2022 and October 1, 2016,2, 2021, respectively.
|
|
On May 6, 2008 and May 12, 2004, respectively, the Company’s shareholders approved the 2008 Stock Incentive Plan (the “2008 Plan”) and the 2004 Stock Incentive Plan (the “2004 Plan”). On May 6, 2014, the Company’s shareholders approved the 2014 Stock Incentive Plan (as amended and restated, the “2014 Plan”), which replaced the 2008 Plan and 2004 Plan for all equity-based awards granted on or after May 6, 2014. The 2014 Plan is designed to promote the long-term financial interests and growth of the Company by attracting, motivating and retaining employees with the ability to contribute to the success of the business and to align compensation for the Company’s employees over a multi-year period directly with the interests of the shareholders of the Company. The Company’s Board of Directors or a committee thereof administers the 2014 Plan.Income Taxes
Pursuant to the restricted stock provisions of the 2014 Plan, in fiscal 2016 the Compensation and Benefits Committee of the Company’s Board of Directors (the “Compensation Committee”) determined to grant 289.9 performance-based stock unit (“PSU”) awards having both time- and performance-vesting criteria. The time-vesting criteria for these PSUs will be satisfied on the third anniversary of the grant date (i.e., May 16, 2019). The performance-vesting criteria for these PSUs will be satisfied if the Company has achieved a Debt Ratio (as defined in the applicable term sheet for these PSU awards and based on a Debt to EBITDAS ratio (each, as defined therein)) at levels at or above a “threshold” level performance of 4.5x over the performance period from December 31, 2017 to December 29, 2018. Pursuant to these awards, the number of PSUs that become vested, if any, upon the satisfaction of both vesting criteria, shall be equal to (x) the target number of PSUs granted multiplied by (y) the applicable Debt Ratio achievement percentage, rounded down to avoid the issuance of fractional shares. If all of these awards fully meet the time-vesting criteria and the minimum performance condition is attained, depending on the Company’s Debt Ratio achievement, the number of shares of the Company’s common stock issuable under these PSUs range from 61.7 to 308.4. The Company is currently accruing compensation expense to what it believes is the probable outcome upon vesting.
14
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Additionally, pursuant to the restricted stock provisions of the 2014 Plan, in fiscal 2017 the Compensation Committee determined to grant 98.5 PSUs in May 2017 and 47.9 PSUs in July 2017, all having both time- and performance-vesting criteria. The time-vesting criteria for these PSUs will be satisfied on May 15, 2020. The performance-vesting criteria for these PSUs will be satisfied if the Company has achieved, in the case of the May 2017 awards, certain annual operating income objectives and, in the case of the July 2017 award, certain net income or operating income objectives, as applicable for each performance year, in each fiscal year over a three-year period (i.e., fiscal 2017 through fiscal 2019) (each, a “2017 Award Performance Year”). When the performance measure has been met for a particular 2017 Award Performance Year, that portion of units is “banked” for potential issuance following the satisfaction of the three-year time-vesting criteria. Such portion of units to be “banked” shall be equal to (x) the target number of PSUs granted for the applicable 2017 Award Performance Year multiplied by (y) the applicable achievement percentage, rounded down to avoid the issuance of fractional shares. If all of these awards fully meet the time-vesting criteria and the minimum performance condition is attained in each 2017 Award Performance Year, depending on the Company’s performance achievement, the number of shares of the Company’s common stock issuable under these PSUs range from 48.8 to 244.0. The Company is currently accruing compensation expense to what it believes is the probable outcome upon vesting.
The effective tax rates for the three and nine months ended September 30, 2017 were 30.5% and 26.6%, respectively. The effective tax rates for the three and nine months ended October 1, 20162022 were 10.3%25.6% and 18.6%25.6%, respectively.
For the nine months ended September 30, 2017,October 1, 2022, the primarytax benefit was impacted by out-of-period income tax adjustments and a U.S. state tax rate change, partially offset by tax shortfalls from stock compensation. For the nine months ended October 1, 2022, the difference between the USU.S. federal statutory tax rate and the Company’s consolidated effective tax rate was primarily due to the $11,633state income tax expense and tax expense from income earned in foreign jurisdictions, partially offset by a tax benefit related to the cessation of operations of the Company’s Spanish subsidiary recorded in the first quarter of fiscal 2017 and a $2,255 reversal offoreign-derived intangible income (“FDII”).
The effective tax reserves resulting from an updated transfer pricing study.
Forrates for the three months and nine months ended October 1, 2016 the primary differences between the US federal statutory tax rate2, 2021 were 22.4% and the Company’s consolidated effective tax rate were due to $11,438 net tax benefits arising from a research and development tax credit and a Section 199 deduction for the tax years 2012 through 2016, partially offset by $2,684 of income tax expenses recorded for out-of-period adjustments. See Note 1 for additional information on these adjustments.14.9%, respectively. For the nine months ended October 1, 2016,2, 2021, the difference between the US federal statutory tax rateexpense was impacted by tax windfalls from stock compensation and the Company’s consolidated effective tax rate was also due to the reversal of a $2,500 valuation allowance related to tax benefits for foreign losses that are now expected to be realized.
The differences For the nine months ended October 2, 2021, the difference between the USU.S. federal statutory tax rate and the Company’s consolidated effective tax rate was primarily due to state income tax expense and tax expense from income earned in foreign jurisdictions, partially offset by a tax benefit related to FDII.
The U.S. federal government has recently signed into law the Inflation Reduction Act of 2022 (the “IRA”) which, among other things, imposes a minimum “book” tax on certain large corporations and creates a new excise tax on stock repurchases made by certain publicly traded corporations after December 31, 2022. Although the Company is continuing to evaluate the impact of the IRA on its consolidated financial statements as follows:it awaits further guidance, the Company does not currently expect a material impact.
Non-Income Tax Matters
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| October 1, |
|
| September 30, |
|
| October 1, |
| ||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
US federal statutory tax rate |
|
| 35.0 | % |
|
| 35.0 | % |
|
| 35.0 | % |
|
| 35.0 | % |
State income taxes (net of federal benefit) |
|
| 0.5 | % |
|
| 0.0 | % |
|
| 1.5 | % |
|
| 0.0 | % |
Cessation of Spanish operations |
|
| 0.0 | % |
|
| 0.0 | % |
|
| (8.5 | %) |
|
| 0.0 | % |
Research and development credit |
|
| (2.1 | %) |
|
| (39.6 | %) |
|
| (2.2 | %) |
|
| (24.0 | %) |
Tax (windfall) shortfall on share-based awards |
|
| (0.9 | %) |
|
| 0.0 | % |
|
| 0.0 | % |
|
| 0.0 | % |
Reserves for uncertain tax positions |
|
| (4.5 | %) |
|
| 7.4 | % |
|
| (1.7 | %) |
|
| 5.2 | % |
Out-of-period adjustments |
|
| 0.0 | % |
|
| 7.0 | % |
|
| 0.0 | % |
|
| 4.0 | % |
Increase (decrease) in valuation allowance |
|
| 1.1 | % |
|
| 0.0 | % |
|
| 3.0 | % |
|
| (3.8 | %) |
Other |
|
| 1.4 | % |
|
| 0.5 | % |
|
| (0.5 | %) |
|
| 2.2 | % |
Effective Tax Rate |
|
| 30.5 | % |
|
| 10.3 | % |
|
| 26.6 | % |
|
| 18.6 | % |
The Internal Revenue Service notified the Company of certain penalties assessed related to the annual disclosure and reporting requirements of the Affordable Care Act. The Company is in the process of appealing this determination and does not believe it has any liability with respect to this matter.
1518
WEIGHT WATCHERSWW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
|
Raymond Roberts v. Weight Watchers International, Inc.
On January 7, 2016, an OnlinePlus member filed a putative class action complaint against the Company in the Supreme Court of New York, New York County, asserting class claims for breach of contract and violations of the New York General Business Law. On February 5, 2016, the Company removed the case to the United States District Court, Southern District of New York. On March 18, 2016, the plaintiff filed an amended complaint, alleging that, as a result of the temporary glitches in the Company’s website and app in November and December 2015, the Company has: (1) breached its Subscription Agreement with its OnlinePlus members; and (2) engaged in deceptive acts and practices in violation of Section 350 of the New York General Business Law. The plaintiff is seeking unspecified actual, punitive and statutory damages, as well as his attorneys’ fees and costs incurred in connection with this action. The Company filed a motion to dismiss on May 6, 2016. The plaintiff filed his opposition papers on June 9, 2016 and the Company filed its reply papers on June 23, 2016. The Court granted the Company’s motion to dismiss on November 14, 2016. On November 16, 2016, the plaintiff filed a timely notice of appeal of the Court’s decision to the Second Circuit Court of Appeals and on January 31, 2017, the plaintiff filed his brief in support of appeal. The Company filed its opposition brief on April 5, 2017, and the plaintiff filed his reply brief on April 25, 2017. On October 25, 2017, the Second Circuit conducted oral arguments on the plaintiff’s appeal. On November 2, 2017, the Second Circuit issued its decision denying the plaintiff’s appeal and affirming the lower court’s dismissal of the case. The plaintiff has until November 16, 2017 to file a petition for a rehearing with the Second Circuit, or until January 31, 2018 to file a petition for appeal with the United States Supreme Court.
Other Litigation Matters
Due to the nature of the Company’s activities, it is, also, at times, subject to pending and threatened legal actions that arise out of the ordinary course of business. In the opinion of management, the disposition of any such matters is not expected, individually or in the aggregate, to have a material adverse effect on the Company’s results of operations, financial condition or cash flows. However, the results of legal actions cannot be predicted with certainty. Therefore, it is possible that the Company’s results of operations, financial condition or cash flows could be materially adversely affected in any particular period by the unfavorable resolution of one or more legal actions.
|
|
As of September 30, 2017October 1, 2022 and December 31, 2016,January 1, 2022, the Company had in effect an interest rate swapswaps with aan aggregate notional amount totaling $1,250,000 and $1,500,000, respectively.$500,000.
On July 26, 2013,June 11, 2018, in order to hedge a portion of its variable rate debt, the Company entered into a forward-starting interest rate swap (the “2018 swap”) with an effective date of March 31, 2014April 2, 2020 and a termination date of April 2, 2020.March 31, 2024. The initial notional amount of this swap was $1,500,000.$500,000. During the term of this swap, the notional amount decreased from $1,500,000$500,000 effective April 2, 2020 to $250,000 on March 31, 2014 to $1,250,000 on April 3, 2017, and will decrease to $1,000,000 on April 1, 2019.2021. This interest rate swap effectively fixesfixed the variable interest rate on the notional amount of this swap at 2.38%3.1005%. On June 7, 2019, in order to hedge a portion of its variable rate debt, the Company entered into a forward-starting interest rate swap (the “2019 swap”, and together with the 2018 swap, the “current swaps”) with an effective date of April 2, 2020 and a termination date of March 31, 2024. The notional amount of this swap is $250,000. This interest rate swap qualifieseffectively fixed the variable interest rate on the notional amount of this swap at 1.901%. The current swaps qualify for hedge accounting and, therefore, changes in the fair value of this swapthe current swaps have been recorded in accumulated other comprehensive loss.
As of September 30, 2017 and December 31, 2016,October 1, 2022, the cumulative unrealized lossesgain for qualifying hedges werewas reported as a component of accumulated other comprehensive loss in the amountsamount of $10,828$9,932 ($17,75113,127 before taxes). As of January 1, 2022, the cumulative unrealized loss for qualifying hedges was reported as a component of accumulated other comprehensive loss in the amount of $10,843 ($14,622 before taxes).
The following table presents the aggregate fair value of the Company’s derivative financial instruments by balance sheet classification and $16,002 ($26,232 before taxes), respectively.location:
|
|
|
|
|
| Fair Value |
| |||||
|
| Balance Sheet Classification |
| Balance Sheet |
| October 1, 2022 |
|
| January 1, 2022 |
| ||
Assets: |
|
|
|
|
|
|
|
|
|
| ||
Interest rate swaps - current swaps |
| Current asset |
| Prepaid expenses and other current assets |
| $ | 8,631 |
|
| $ | — |
|
Interest rate swaps - current swaps |
| Noncurrent asset |
| Other noncurrent assets |
|
| 4,513 |
|
|
| — |
|
Total assets |
|
|
|
|
| $ | 13,144 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
| ||
Liabilities: |
|
|
|
|
|
|
|
|
|
| ||
Interest rate swaps - current swaps |
| Current liability |
| Derivative payable |
| $ | — |
|
| $ | 14,670 |
|
Total liabilities |
|
|
|
|
| $ | — |
|
| $ | 14,670 |
|
The Company is hedging forecasted transactions for periods not exceeding the next three years.two years. The Company expects approximately $5,183$6,287 ($8,4978,397 before taxes) of net derivative lossesgains included in accumulated other comprehensive loss at September 30, 2017,October 1, 2022, based on current market rates, will be reclassified into earnings within the next 12 months.
|
|
Accounting guidance on fair value measurements for certain financial assets and liabilities requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
16
19
WEIGHT WATCHERSWW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
|
|
When measuring fair value, the Company is required to maximize the use of observable inputs and minimize the use of unobservable inputs.
Fair Value of Financial Instruments
The Company’s significant financial instruments include long-term debt and an interest rate swap agreementagreements as of September 30, 2017October 1, 2022 and December 31, 2016.January 1, 2022. Since there were no outstanding borrowings under the Revolving Credit Facility as of October 1, 2022 and January 1, 2022, the fair value approximated a carrying value of $0 at both October 1, 2022 and January 1, 2022.
The fair value of the Company’s TermCredit Facilities is determined by utilizing average bid prices on or near the end of each fiscal quarter (Level 2 input). As of September 30, 2017October 1, 2022 and December 31, 2016,January 1, 2022, the fair value of the Company’s long-term debt was approximately $1,897,108$922,092 and $1,671,920,$1,389,306, respectively, as compared to the carrying value (net of deferringdeferred financing costs)costs and debt discount) of $1,916,271$1,421,239 and $2,002,299,$1,418,104, respectively.
Derivative Financial Instruments
The fair values for the Company’s derivative financial instruments are determined using observable current market information such as the prevailing LIBOR interest rate and LIBOR yield curve rates and include consideration of counterparty credit risk. See Note 1211 for disclosures related to derivative financial instruments.
The following table presents the aggregate fair value of the Company’s derivative financial instruments:
|
|
|
|
|
|
| Fair Value Measurements Using: |
| |||||||||
|
| Total Fair Value |
|
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| ||||
Interest rate swap liability at September 30, 2017 |
| $ | 21,129 |
|
|
| $ | 0 |
|
| $ | 21,129 |
|
| $ | 0 |
|
Interest rate swap liability at December 31, 2016 |
| $ | 31,974 |
|
|
| $ | 0 |
|
| $ | 31,974 |
|
| $ | 0 |
|
|
|
|
|
|
| Fair Value Measurements Using: |
| ||||||||||
|
| Total |
|
|
| Quoted Prices in |
|
| Significant Other |
|
| Significant |
| ||||
Interest rate swap current asset at October 1, 2022 |
| $ | 8,631 |
|
|
| $ | — |
|
| $ | 8,631 |
|
| $ | — |
|
Interest rate swap noncurrent asset at October 1, 2022 |
| $ | 4,513 |
|
|
| $ | — |
|
| $ | 4,513 |
|
| $ | — |
|
Interest rate swap current liability at January 1, 2022 |
| $ | 14,670 |
|
|
| $ | — |
|
| $ | 14,670 |
|
| $ | — |
|
The Company did notnot have any transfers into or out of Levels 1 and 2 and did not maintain any assets or liabilities classified as Level 3 during the nine months ended September 30, 2017October 1, 2022 and the fiscal year ended December 31, 2016.January 1, 2022.
Amounts reclassified out of accumulated other comprehensive loss were as follows:
17Changes in Accumulated Other Comprehensive Loss by Component (1)
|
| Nine Months Ended October 1, 2022 |
| |||||||||
|
| (Loss) Gain on |
|
| Loss on |
|
| Total |
| |||
Beginning balance at January 1, 2022 |
| $ | (10,843 | ) |
| $ | (7,761 | ) |
| $ | (18,604 | ) |
Other comprehensive income (loss) before |
|
| 17,350 |
|
|
| (13,488 | ) |
|
| 3,862 |
|
Amounts reclassified from accumulated other |
|
| 3,425 |
|
|
| — |
|
|
| 3,425 |
|
Net current period other comprehensive income (loss) |
|
| 20,775 |
|
|
| (13,488 | ) |
|
| 7,287 |
|
Ending balance at October 1, 2022 |
| $ | 9,932 |
|
| $ | (21,249 | ) |
| $ | (11,317 | ) |
20
WEIGHT WATCHERSWW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
|
| Nine Months Ended October 2, 2021 |
| |||||||||
|
| Loss on |
|
| Loss on |
|
| Total |
| |||
Beginning balance at January 2, 2021 |
| $ | (20,979 | ) |
| $ | (4,170 | ) |
| $ | (25,149 | ) |
Other comprehensive income (loss) before |
|
| 418 |
|
|
| (2,349 | ) |
|
| (1,931 | ) |
Amounts reclassified from accumulated other |
|
| 6,028 |
|
|
| — |
|
|
| 6,028 |
|
Net current period other comprehensive income (loss) |
|
| 6,446 |
|
|
| (2,349 | ) |
|
| 4,097 |
|
Ending balance at October 2, 2021 |
| $ | (14,533 | ) |
| $ | (6,519 | ) |
| $ | (21,052 | ) |
(1)
Changes in Accumulated Other Comprehensive Loss by Component (a)
|
| Nine Months Ended September 30, 2017 |
| |||||||||
|
| Loss on Qualifying Hedges |
|
| Loss on Foreign Currency Translation |
|
| Total |
| |||
Beginning Balance at December 31, 2016 |
| $ | (16,002 | ) |
| $ | (11,118 | ) |
| $ | (27,120 | ) |
Other comprehensive (loss) income before reclassifications, net of tax |
|
| (2,498 | ) |
|
| 6,358 |
|
|
| 3,860 |
|
Amounts reclassified from accumulated other comprehensive loss, net of tax(b) |
|
| 7,672 |
|
|
| 787 |
|
|
| 8,459 |
|
Net current period other comprehensive income including noncontrolling interest |
|
| 5,174 |
|
|
| 7,145 |
|
|
| 12,319 |
|
Less: net current period other comprehensive income attributable to the noncontrolling interest |
|
| 0 |
|
|
| (72 | ) |
|
| (72 | ) |
Ending Balance at September 30, 2017 |
| $ | (10,828 | ) |
| $ | (4,045 | ) |
| $ | (14,873 | ) |
|
|
| (2) See separate table below for details about these reclassifications |
|
| Nine Months Ended October 1, 2016 |
| |||||||||
|
| Loss on Qualifying Hedges |
|
| Loss on Foreign Currency Translation |
|
| Total |
| |||
Beginning Balance at January 2, 2016 |
| $ | (23,135 | ) |
| $ | (14,130 | ) |
| $ | (37,265 | ) |
Other comprehensive (loss) income before reclassifications, net of tax |
|
| (17,440 | ) |
|
| 6,232 |
|
|
| (11,208 | ) |
Amounts reclassified from accumulated other comprehensive loss, net of tax(b) |
|
| 11,319 |
|
|
| 0 |
|
|
| 11,319 |
|
Net current period other comprehensive (loss) income including noncontrolling interest |
|
| (6,121 | ) |
|
| 6,232 |
|
|
| 111 |
|
Less: net current period other comprehensive income attributable to the noncontrolling interest |
|
| 0 |
|
|
| (450 | ) |
|
| (450 | ) |
Ending Balance at October 1, 2016 |
| $ | (29,256 | ) |
| $ | (8,348 | ) |
| $ | (37,604 | ) |
|
|
|
|
18
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Reclassifications out of Accumulated Other Comprehensive Loss (a)(1)
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||
| October 1, |
|
| October 2, |
|
| October 1, |
|
| October 2, |
|
|
| ||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
|
| ||||
Details about Other Comprehensive | Amounts Reclassified from |
|
| Amounts Reclassified from | Affected Line Item in the | ||||||||||||
Loss on Qualifying Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest rate contracts | $ | (326 | ) |
| $ | (2,213 | ) |
| $ | (4,575 | ) |
| $ | (8,058 | ) |
| Interest expense |
|
| (326 | ) |
|
| (2,213 | ) |
|
| (4,575 | ) |
|
| (8,058 | ) |
| (Loss) income before income taxes |
|
| 82 |
|
|
| 557 |
|
|
| 1,150 |
|
|
| 2,030 |
|
| (Benefit from) provision for income taxes |
| $ | (244 | ) |
| $ | (1,656 | ) |
| $ | (3,425 | ) |
| $ | (6,028 | ) |
| Net (loss) income |
|
| Three Months Ended |
|
| Nine Months Ended |
|
|
| ||||||||||
|
| September 30, |
|
| October 1, |
|
| September 30, |
|
| October 1, |
|
|
| ||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
|
| ||||
Details about Other Comprehensive Loss Components |
| Amounts Reclassified from Accumulated Other Comprehensive Loss |
|
| Amounts Reclassified from Accumulated Other Comprehensive Loss |
|
| Affected Line Item in the Statement Where Net Income is Presented | ||||||||||
Loss on Qualifying Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| $ | (3,422 | ) |
| $ | (6,185 | ) |
| $ | (12,577 | ) |
| $ | (18,555 | ) |
| Interest expense |
|
|
| (3,422 | ) |
|
| (6,185 | ) |
|
| (12,577 | ) |
|
| (18,555 | ) |
| Income before income taxes |
|
|
| 1,335 |
|
|
| 2,412 |
|
|
| 4,905 |
|
|
| 7,236 |
|
| Provision for income taxes |
|
| $ | (2,087 | ) |
| $ | (3,773 | ) |
| $ | (7,672 | ) |
| $ | (11,319 | ) |
| Net income |
Loss on Foreign Currency Translation |
| $ | 0 |
|
| $ | 0 |
|
| $ | (787 | ) |
| $ | 0 |
|
| Other expense (income), net |
|
|
| 0 |
|
|
| 0 |
|
|
| (787 | ) |
|
| 0 |
|
| Income before income taxes |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
| Provision for income taxes |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | (787 | ) |
| $ | 0 | �� |
| Net income |
|
|
|
|
The Company has four reportable segments based on an integrated geographical structure as follows: North America, United Kingdom, Continental Europe (CE), United Kingdom and Other. Other consists of Australia, New Zealand and emerging markets operations and franchise revenues and related costs, all of which have been grouped together as if they were a single reportable segment because they do not meet any of the quantitative thresholds and are immaterial for separate disclosure. To be consistent with the information that is presented to the chief operating decision maker, the Company does not include intercompany activity in the segment results.
Information about the Company’s reportable segments is as follows:
| Total Revenues, net |
| Total Revenues, net |
|
| |||||||||||||||||||||||||||
|
| Total Revenue |
| Three Months Ended |
|
| Nine Months Ended |
|
| |||||||||||||||||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
| October 1, |
|
| October 2, |
| October 1, |
| October 2, |
| |||||||||||||||||
|
| September 30, 2017 |
|
| October 1, 2016 |
|
| September 30, 2017 |
|
| October 1, 2016 |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| ||||||||
North America |
| $ | 223,677 |
|
| $ | 192,899 |
|
| $ | 695,397 |
|
| $ | 613,287 |
| $ | 176,082 |
|
| $ | 197,797 |
|
| $ | 568,410 |
|
| $ | 626,742 |
|
|
Continental Europe |
| 56,496 |
|
|
| 71,933 |
|
|
| 189,140 |
|
|
| 231,764 |
|
| ||||||||||||||||
United Kingdom |
|
| 25,473 |
|
|
| 23,480 |
|
|
| 75,907 |
|
|
| 80,093 |
|
| 10,898 |
|
|
| 15,666 |
|
|
| 38,094 |
|
|
| 51,735 |
|
|
Continental Europe |
|
| 60,665 |
|
|
| 50,675 |
|
|
| 179,580 |
|
|
| 163,429 |
| ||||||||||||||||
Other |
|
| 13,872 |
|
|
| 13,765 |
|
|
| 43,538 |
|
|
| 40,681 |
|
| 6,242 |
|
|
| 8,101 |
|
|
| 21,288 |
|
|
| 26,431 |
|
|
Total revenue |
| $ | 323,687 |
|
| $ | 280,819 |
|
| $ | 994,422 |
|
| $ | 897,490 |
| ||||||||||||||||
Total revenues, net | $ | 249,718 |
|
| $ | 293,497 |
|
| $ | 816,932 |
|
| $ | 936,672 |
|
|
19
21
WEIGHT WATCHERSWW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
| Net (Loss) Income |
|
| Net (Loss) Income |
|
| ||||||||||
| Three Months Ended |
|
| Nine Months Ended |
|
| ||||||||||
| October 1, |
|
| October 2, |
|
| October 1, |
|
| October 2, |
|
| ||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| ||||
Segment operating (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
North America | $ | (255,269 | ) |
| $ | 74,310 |
|
| $ | (207,241 | ) |
| $ | 163,287 |
|
|
Continental Europe |
| 27,013 |
|
|
| 36,116 |
|
|
| 75,477 |
|
|
| 89,620 |
|
|
United Kingdom |
| 2,462 |
|
|
| 3,502 |
|
|
| 1,363 | �� |
|
| 6,085 |
|
|
Other |
| (234 | ) |
|
| 1,746 |
|
|
| 578 |
|
|
| 3,834 |
|
|
Total segment operating (loss) income |
| (226,028 | ) |
|
| 115,674 |
|
|
| (129,823 | ) |
|
| 262,826 |
|
|
General corporate expenses |
| 28,501 |
|
|
| 35,951 |
|
|
| 102,370 |
|
|
| 120,599 |
|
|
Interest expense |
| 20,912 |
|
|
| 19,283 |
|
|
| 58,837 |
|
|
| 68,699 |
|
|
Other expense, net |
| 1,344 |
|
|
| 764 |
|
|
| 3,303 |
|
|
| 908 |
|
|
Early extinguishment of debt |
| — |
|
|
| — |
|
|
| — |
|
|
| 29,169 |
|
|
(Benefit from) provision for income taxes |
| (70,749 | ) |
|
| 13,346 |
|
|
| (75,431 | ) |
|
| 6,488 |
|
|
Net (loss) income | $ | (206,036 | ) |
| $ | 46,330 |
|
| $ | (218,902 | ) |
| $ | 36,963 |
|
|
| Depreciation and Amortization |
|
| Depreciation and Amortization |
|
| ||||||||||
| Three Months Ended |
|
| Nine Months Ended |
|
| ||||||||||
| October 1, |
|
| October 2, |
|
| October 1, |
|
| October 2, |
|
| ||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| ||||
North America | $ | 7,939 |
|
| $ | 9,635 |
|
| $ | 24,738 |
|
| $ | 29,752 |
|
|
Continental Europe |
| 166 |
|
|
| 340 |
|
|
| 599 |
|
|
| 1,171 |
|
|
United Kingdom |
| 109 |
|
|
| 160 |
|
|
| 475 |
|
|
| 639 |
|
|
Other |
| 87 |
|
|
| 96 |
|
|
| 273 |
|
|
| 312 |
|
|
Total segment depreciation and amortization |
| 8,301 |
|
|
| 10,231 |
|
|
| 26,085 |
|
|
| 31,874 |
|
|
General corporate depreciation and amortization |
| 3,532 |
|
|
| 2,200 |
|
|
| 11,049 |
|
|
| 10,183 |
|
|
Depreciation and amortization | $ | 11,833 |
|
| $ | 12,431 |
|
| $ | 37,134 |
|
| $ | 42,057 |
|
|
|
| Net Income |
| |||||||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, 2017 |
|
| October 1, 2016 |
|
| September 30, 2017 |
|
| October 1, 2016 |
| ||||
Segment operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
| $ | 76,206 |
|
| $ | 50,614 |
|
| $ | 189,397 |
|
| $ | 133,113 |
|
United Kingdom |
|
| 5,968 |
|
|
| 4,864 |
|
|
| 15,213 |
|
|
| 10,780 |
|
Continental Europe |
|
| 27,097 |
|
|
| 18,872 |
|
|
| 54,920 |
|
|
| 39,602 |
|
Other |
|
| 1,473 |
|
|
| 2,998 |
|
|
| 6,413 |
|
|
| 6,111 |
|
Total segment operating income |
|
| 110,744 |
|
|
| 77,348 |
|
|
| 265,943 |
|
|
| 189,606 |
|
General corporate expenses |
|
| 19,366 |
|
|
| 10,556 |
|
|
| 48,126 |
|
|
| 35,525 |
|
Interest expense |
|
| 26,993 |
|
|
| 28,329 |
|
|
| 82,227 |
|
|
| 86,963 |
|
Other expense (income), net |
|
| 125 |
|
|
| (146 | ) |
|
| 278 |
|
|
| 397 |
|
Gain on early extinguishment of debt |
|
| 0 |
|
|
| 0 |
|
|
| (1,554 | ) |
|
| 0 |
|
Provision for income taxes |
|
| 19,593 |
|
|
| 3,989 |
|
|
| 36,457 |
|
|
| 12,420 |
|
Net income |
|
| 44,667 |
|
|
| 34,620 |
|
|
| 100,409 |
|
|
| 54,301 |
|
Net loss attributable to the noncontrolling interest |
|
| 52 |
|
|
| 38 |
|
|
| 135 |
|
|
| 99 |
|
Net income attributable to Weight Watchers International, Inc. |
| $ | 44,719 |
|
| $ | 34,658 |
|
| $ | 100,544 |
|
| $ | 54,400 |
|
|
| Depreciation and Amortization |
| |||||||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, 2017 |
|
| October 1, 2016 |
|
| September 30, 2017 |
|
| October 1, 2016 |
| ||||
North America |
| $ | 9,764 |
|
| $ | 9,917 |
|
| $ | 29,632 |
|
| $ | 31,694 |
|
United Kingdom |
|
| 259 |
|
|
| 229 |
|
|
| 887 |
|
|
| 746 |
|
Continental Europe |
|
| 306 |
|
|
| 397 |
|
|
| 907 |
|
|
| 1,281 |
|
Other |
|
| 187 |
|
|
| 181 |
|
|
| 462 |
|
|
| 650 |
|
Total segment depreciation and amortization |
|
| 10,516 |
|
|
| 10,724 |
|
|
| 31,888 |
|
|
| 34,371 |
|
General corporate depreciation and amortization |
|
| 3,692 |
|
|
| 4,128 |
|
|
| 10,735 |
|
|
| 9,405 |
|
Depreciation and amortization |
| $ | 14,208 |
|
| $ | 14,852 |
|
| $ | 42,623 |
|
| $ | 43,776 |
|
|
|
As more fully described in Note 4,previously disclosed, on October 18, 2015, the Company entered into the Strategic Collaboration Agreement with Ms.Oprah Winfrey, under which she willwould consult with the Company and participate in developing, planning, executing and enhancing the Weight WatchersWW program and related initiatives, and provide it with services in her discretion to promote the Company and its programs, products and services.services for an initial term of five years (the “Initial Term”).
As previously disclosed, on December 15, 2019, the Company entered into an amendment of the Strategic Collaboration Agreement with Ms. Winfrey, pursuant to which, among other things, the Initial Term of the Strategic Collaboration Agreement was extended until April 17, 2023 (with no additional successive renewal terms) after which a second term will commence and continue through the earlier of the date of the Company’s 2025 annual meeting of shareholders or May 31, 2025. Ms. Winfrey will continue to provide the above-described services during the remainder of the Initial Term and, during the second term, will provide certain consulting and other services to the Company.
In addition to the Strategic Collaboration Agreement, Ms. Winfrey and her related entities provided services to the Company totaling $364$284 and $2,920 for the three and nine months ended September 30, 2017, respectively and $368 and $2,054$860 for the three and nine months ended October 1, 2016,2022, respectively, and $80 and $746 for the three and nine months ended October 2, 2021, respectively, which services included advertising, production and related fees.
The Company’s accounts payable to parties related to Ms. Winfrey at September 30, 2017October 1, 2022 and December 31, 2016January 1, 2022 was $364$80 and $1,123,$120, respectively.
During the nine months ended October 2, 2021, as permitted by the transfer provisions set forth in the previously disclosed Share Purchase Agreement, dated October 18, 2015, between the Company and Ms. Winfrey, as amended, and the previously disclosed Winfrey Option Agreement, dated October 18, 2015, between the Company and Ms. Winfrey, Ms. Winfrey sold 1,542 of the shares she purchased under such purchase agreement and exercised a portion of her stock options granted in fiscal 2015 resulting in the sale of 581 shares issuable under such options, respectively.
22
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
As previously disclosed, in the second quarter of fiscal 2022, the Company committed to a restructuring plan consisting of (i) an organizational realignment to simplify the Company’s corporate structure and reduce associated costs (the “Organizational Realignment”) and (ii) a continued rationalization of its real estate portfolio resulting in the termination of certain of the Company’s operating leases (together with the Organizational Realignment, the “2022 Plan”). In connection with the 2022 Plan, the Company previously expected to record restructuring charges of approximately $27,000 in the aggregate in fiscal 2022. The Company revised its estimate and currently expects to record restructuring expenses of approximately $33,000 in the aggregate in fiscal 2022 related to this plan. For the three and nine months ended October 1, 2022, the Company recorded restructuring expenses totaling $3,557 ($2,663 after tax) and $22,674 ($16,976 after tax), respectively.
The Organizational Realignment has resulted and will result in the elimination of certain positions and termination of employment for certain employees worldwide. In connection with its Organizational Realignment, the Company continues to expect to record charges of approximately $20,000 in the aggregate with respect to employee termination benefit costs (consisting primarily of general and administrative expenses), the majority of which were recorded in the second quarter of fiscal 2022.
In connection with the rationalization of its real estate portfolio, the Company previously expected to record charges of approximately $6,000 in the aggregate consisting of lease termination and other related costs in fiscal 2022. The Company revised its estimate and currently expects to record restructuring expenses with respect to lease termination and other related costs of approximately $12,000 in the aggregate in fiscal 2022.
Additionally, the Company expects to record other restructuring costs of approximately $1,000 in the aggregate in fiscal 2022.
Costs arising from the 2022 Plan related to separation payments, other employee termination expenses and lease termination and other related costs, except for lease impairment and accelerated depreciation and amortization related to leased locations, are expected to result in cash expenditures. For the three and nine months ended October 1, 2022, the components of the Company’s restructuring expenses were as follows:
| Three Months Ended |
|
| Nine Months Ended |
| ||
| October 1, 2022 |
|
| October 1, 2022 |
| ||
Lease termination and other related costs | $ | (334 | ) |
| $ | 3,332 |
|
Employee termination benefit costs |
| 1,882 |
|
|
| 16,789 |
|
Lease impairment |
| 1,828 |
|
|
| 1,828 |
|
Other costs |
| 181 |
|
|
| 725 |
|
Total restructuring expenses | $ | 3,557 |
|
| $ | 22,674 |
|
See Note 3 for additional information in regard to the Company's lease impairment for the three and nine months ended October 1, 2022.
For the three and nine months ended October 1, 2022, restructuring expenses were recorded in the Company’s consolidated statements of net income as follows:
| Three Months Ended |
|
| Nine Months Ended |
| ||
| October 1, 2022 |
|
| October 1, 2022 |
| ||
Cost of revenues | $ | (98 | ) |
| $ | 4,401 |
|
Selling, general and administrative expenses |
| 3,655 |
|
|
| 18,273 |
|
Total restructuring expenses | $ | 3,557 |
|
| $ | 22,674 |
|
All expenses were recorded to general corporate expenses and, therefore, there was no impact to the segments.
For the nine months ended October 1, 2022, the Company made payments of $1,877 towards the liability for the lease termination costs. For the nine months ended October 1, 2022, the Company made payments of $7,505 towards the liability for the employee termination benefit costs.
The Company expects the remaining lease termination liability of $547 and the remaining employee termination benefit liability of $9,284 to be paid in full by the end of fiscal 2024.
23
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
2021 Plan
As previously disclosed, in the first quarter of fiscal 2021, as the Company continued to evaluate its cost structure, anticipate consumer demand and focus on costs, the Company committed to a plan which has resulted in the termination of operating leases and elimination of certain positions worldwide. For the fiscal year ended January 1, 2022, the Company recorded restructuring expenses totaling $21,534 ($16,109 after tax).
For the fiscal year ended January 1, 2022, the components of the Company’s restructuring expenses were as follows:
| Fiscal Year Ended |
| |
| January 1, 2022 |
| |
Lease termination and other related costs | $ | 12,688 |
|
Employee termination benefit costs |
| 8,846 |
|
Total restructuring expenses | $ | 21,534 |
|
For the fiscal year ended January 1, 2022, restructuring expenses were recorded in the Company’s consolidated statements of net income as follows:
| Fiscal Year Ended |
| |
| January 1, 2022 |
| |
Cost of revenues | $ | 16,727 |
|
Selling, general and administrative expenses |
| 4,807 |
|
Total restructuring expenses | $ | 21,534 |
|
All expenses were recorded to general corporate expenses and, therefore, there was no impact to the segments.
For the fiscal year ended January 1, 2022, the Company made payments of $7,640 towards the liability for the lease termination costs and decreased provision estimates by $3. For the fiscal year ended January 1, 2022, the Company made payments of $4,802 towards the liability for the employee termination benefit costs.
For the nine months ended October 1, 2022, the Company made payments of $777 towards the liability for the lease termination costs, decreased provision estimates by $681 and incurred additional lease termination and other related costs of $119. For the nine months ended October 1, 2022, the Company made payments of $3,407 towards the liability for the employee termination benefit costs, increased provision estimates by $215 and incurred additional employee termination benefit costs of $148.
As of October 1, 2022, there was no outstanding lease termination liability. The Company expects the remaining employee termination benefit liability of $1,000 to be paid in full by the end of fiscal 2023.
2020 Plan
As previously disclosed, in the second quarter of fiscal 2020, in connection with its cost-savings initiative, and its continued response to the COVID-19 pandemic and the related shift in market conditions, the Company committed to a plan of reduction in force which has resulted in the elimination of certain positions and termination of employment for certain employees worldwide. To adjust to anticipated consumer demand, the Company evolved its workshop strategy and expanded its restructuring plan to include lease termination and other related costs. For the fiscal year ended January 2, 2021, the Company recorded restructuring expenses totaling $33,092 ($24,756 after tax).
For the fiscal year ended January 2, 2021, the components of the Company’s restructuring expenses were as follows:
| Fiscal Year Ended |
| |
| January 2, 2021 |
| |
Lease termination and other related costs | $ | 7,989 |
|
Employee termination benefit costs |
| 25,103 |
|
Total restructuring expenses | $ | 33,092 |
|
24
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
For the fiscal year ended January 2, 2021, restructuring expenses were recorded in the Company’s consolidated statements of net income as follows:
| Fiscal Year Ended |
| |
| January 2, 2021 |
| |
Cost of revenues | $ | 23,300 |
|
Selling, general and administrative expenses |
| 9,792 |
|
Total restructuring expenses | $ | 33,092 |
|
All expenses were recorded to general corporate expenses and, therefore, there was no impact to the segments.
For the fiscal year ended January 2, 2021, the Company made payments of $645 towards the liability for the lease termination costs. For the fiscal year ended January 2, 2021, the Company made payments of $15,434 towards the liability for the employee termination benefit costs and increased provision estimates by $180.
For the fiscal year ended January 1, 2022, the Company made payments of $4,649 towards the liability for the lease termination costs and decreased provision estimates by $470. For the fiscal year ended January 1, 2022, the Company made payments of $6,773 towards the liability for the employee termination benefit costs and decreased provision estimates by $1,136.
For the nine months ended October 1, 2022, the Company made payments of $86 towards the liability for the lease termination costs and decreased provision estimates by $116. For the nine months ended October 1, 2022, the Company made payments of $1,164 towards the liability for the employee termination benefit costs.
As of October 1, 2022, there was no outstanding lease termination liability. The Company expects the remaining employee termination benefit liability of $776 to be paid in full by the end of fiscal 2023.
25
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, this Quarterly Report on Form 10-Q includes “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, including, in particular, the statements about our plans, strategies, objectives and prospects and the impact of the COVID-19 virus under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We have generally used the words “may,” “will,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “plan,” “intend”“intend,” “aim” and similar expressions in this Quarterly Report on Form 10-Q to identify forward-looking statements. We have based these forward-looking statements on our current views with respect to future events and financial performance. Actual results could differ materially from those projected in these forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions, including, among other things:
the impact of the ongoing global outbreak of the COVID-19 virus on our business and liquidity and on the business and consumer environment and markets in which we operate;
our failure to continue to retain and grow our subscriber base;
the ability to successfully implement new strategic initiatives;
the effectiveness and efficiency of our advertising and marketing programs, including the strength of our social media presence;
the impact on the Weight Watchers brandour reputation of actions taken by our franchisees, licensees, suppliers and other partners;
the inability to refinance our debt obligations on favorable terms or at all;
the impact of our debt service obligations and restrictive debt covenants;
uncertainties regarding the satisfactory operation of our information technology or systems;
the impact of security breaches or privacy concerns;
the recognition of asset impairment charges;
the loss of key personnel, strategic partners or consultants or failure to effectively manage and motivate our workforce;
our chief executive officer transition;
the inability to renew certain of our licenses, or the inability to do so on terms that are favorable to us;
the expiration or early termination by us of leases;
risks and uncertainties associated with our international operations, including regulatory, economic, political and social risks and foreign currency risks;
uncertainties related to a downturn in general economic conditions or consumer confidence;
our ability to successfully make acquisitions or enter into joint ventures or collaborations, including our ability to successfully integrate, operate or realize the anticipated benefits of such businesses;
the seasonal nature of our business;
the impact of events that discourage or impede people from gathering with others or impede accessing resources;
our failure to maintain effective internal control over financial reporting;
risks and uncertainties associated with our international operations, including regulatory, economic, political, social, intellectual property, and foreign currency risks, which risks may be exacerbated as a result of the war in Ukraine;
the impact of existing and future laws and regulations;
our failure to maintain effective internal control over financial reporting;
the possibility that the interests of Artal Group S.A., who effectively controlsor Artal, the largest holder of our common stock and a shareholder with significant influence over us, will conflict with our interests or the interests of other holders of our common stock; and
26
You should not put undue reliance on any forward-looking statements. You should understand that many important factors, including those discussed herein, could cause our results to differ materially from those expressed or suggested in any forward-looking statement. Except as required by law, we do not undertake any obligation to update or revise these forward-looking statements to reflect new information or events or circumstances that occur after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events or otherwise.
27
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Weight WatchersWW International, Inc. is a Virginia corporation with its principal executive offices in New York, New York. In this Quarterly Report on Form 10-Q unless the context indicates otherwise: “we,” “us,” “our,” the “Company”“Company,” “Weight Watchers” and “WWI”“WW” refer to Weight WatchersWW International, Inc. and all of its operations consolidated for purposes of its financial statements; “North America” refers to our North American Company-owned operations; “Continental Europe” refers to our Continental Europe Company-owned operations; “United Kingdom” refers to our United Kingdom Company-owned operations; “Continental Europe” refers to our Continental Europe Company-owned operations; and “Other” refers to Australia, New Zealand and emerging markets operations and franchise revenues and related costs. Each of North America, Continental Europe, United Kingdom Continental Europe and Other is also a reportable segment. Our “meetings”“Digital” business refers to providing subscriptions to our digital product offerings, including Personal Coaching + Digital and Digital 360 as applicable. Our “Workshops + Digital” business refers to providing unlimited access to our workshops combined meetings andwith our digital subscription product offerings to the Company’s commitment plan subscribers, (including Total Access subscribers),including former Digital 360 members as applicable. It also includes the provision of access to workshops for members who do not subscribe to commitment plans, including our “pay-as-you-go” members. In the second quarter of fiscal 2022, we ceased offering our Digital 360 product. More than a majority of associated members were transitioned from our Digital business to our Workshops + Digital business during the second quarter of fiscal 2022, with a de minimis number transitioning during the beginning of the third quarter of fiscal 2022. For additional details on the cessation of this product offering and how these transitions of former Digital 360 members at the then-current pricing for such product impacted the fiscal 2022 second quarter and first half number of End of Period Subscribers in each business as well as access to meetings tothe associated Paid Weeks and Revenues for each business, see our “pay-as-you-go” members and other meetings members. “Online” refers to Weight Watchers Online, Weight Watchers OnlinePlus, Personal Coaching and other digital subscription products.Quarterly Report on Form 10-Q for the second quarter of fiscal 2022.
Our fiscal year ends on the Saturday closest to December 31st and consists of either 52- or 53-week periods. In this Quarterly Report on Form 10-Q:
|
|
“fiscal 2009” refers to our fiscal year ended January 2, 2010;
“fiscal 2013” refers to our fiscal year ended December 28, 2013;
“fiscal 2014” refers to our fiscal year ended January 3, 2015 (included a 53rd week);
“fiscal 2015” refers to our fiscal year ended January 2, 2016;
“fiscal 2016” refers to our fiscal year ended December 31, 2016;
“fiscal 2017” refers to our fiscal year ended December 30, 2017;
“fiscal 2018” refers to our fiscal year ended December 29, 2018;
“fiscal 2019” refers to our fiscal year ended December 28, 2019;
“fiscal 2020” refers to our fiscal year ended January 2, 2021 (includes(included a 53rd53rd week); and
“fiscal 2021” refers to our fiscal year ended January 1, 2022.
The following termterms used in this Quarterly Report on Form 10-Q isare our trademark: trademarks: Digital 360®, PersonalPointsTM and Weight Watchers®.
You should read the following discussion in conjunction with our Annual Report on Form 10-K for fiscal 20162021 that includes additional information about us, our results of operations, our financial position and our cash flows, and with our unaudited consolidated financial statements and related notes included in Item 1 of this Quarterly Report on Form 10-Q (collectively referred to as the “Consolidated Financial Statements”).
28
NON-GAAP FINANCIAL MEASURES
To supplement our consolidated results presented in accordance with accounting principles generally accepted in the United States, or GAAP, we have disclosed non-GAAP financial measures of operating results that exclude or adjust certain items. Gross profit, gross profit margin, operating (loss) income, operating (loss) income margin and components thereof are discussed in this Quarterly Report on Form 10-Q both as reported (on a GAAP basis) and as adjusted (on a non-GAAP basis), as applicable, with respect to (i) the third quarter of fiscal 2022 to exclude (a) the impact of the impairment charges for our franchise rights acquired related to our United States, Canada and New Zealand units of account and (b) the net impact of (x) charges associated with our previously disclosed 2022 restructuring plan (the “2022 plan”) and (y) charges associated with our previously disclosed 2021 organizational restructuring plan (the “2021 plan”); (ii) the first nine months of fiscal 2022 to exclude (a) the impact of impairment charges for our franchise rights acquired related to our United States, Canada and New Zealand units of account and the impairment charge for our goodwill related to our wholly-owned subsidiary Kurbo, Inc. (“Kurbo”) and (b) the net impact of (x) charges associated with the 2022 plan, (y) charges associated with the 2021 plan or the reversal of certain of the charges associated with the 2021 plan, as applicable, and (z) the reversal of certain of the charges associated with our previously disclosed 2020 organizational restructuring plan (the “2020 plan”); and (iii) the third quarter and first nine months of fiscal 2021 to exclude the net impact of (x) charges associated with the 2021 plan and (y) the reversal of certain of the charges associated with the 2020 plan. We generally refer to such non-GAAP measures as follows: (i) with respect to the adjustments for the third quarter of fiscal 2022, as excluding or adjusting for the impact of the franchise rights acquired impairments and the net impact of restructuring charges; (ii) with respect to the adjustments for the first nine months of fiscal 2022, as excluding or adjusting for the impact of franchise rights acquired and goodwill impairments and the net impact of restructuring charges; and (iii) with respect to the adjustments for the third quarter and first nine months of fiscal 2021, as excluding or adjusting for the net impact of restructuring charges. We also present within this Quarterly Report on Form 10-Q the non-GAAP financial measuresmeasures: earnings before interest, taxes, depreciation, amortization and stock-based compensation (“EBITDAS”); earnings before interest, taxes, depreciation, amortization, stock-based compensation, franchise rights acquired and goodwill impairments, net debt.restructuring charges, and early extinguishment of debt with respect to the Company’s previously disclosed April 2021 debt refinancing and voluntary debt prepayments (“Adjusted EBITDAS”); total debt less unamortized deferred financing costs, unamortized debt discount and cash on hand (i.e., net debt); and a net debt/Adjusted EBITDAS ratio. See “—Liquidity and Capital Resources—EBITDAS”EBITDAS, Adjusted EBITDAS and Net Debt” for the calculations.reconciliations of these non-GAAP financial measures to the most comparable GAAP financial measure in each case. Our management believes these non-GAAP financial measures provide useful supplemental information to investors regarding the performance of our business and are useful for period-over-period comparisons of the performance of our business. While we believe that these non-GAAP financial measures are useful in evaluating our business, this information should be considered as supplemental in nature and is not meant to be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similarly entitled measures reported by other companies.
USE OF CONSTANT CURRENCY
As exchange rates are an important factor in understanding period-to-period comparisons, we believe in certain cases the presentation of results on a constant currency basis in addition to reported results helps improve investors’ ability to understand our operating results and evaluate our performance in comparison to prior periods. Constant currency information compares results between periods as if exchange rates had remained constant period-over-period. We use results on a constant currency basis as one measure to evaluate our performance. In this Quarterly Report on Form 10-Q, we calculate constant currency by calculating current-
yearcurrent-year results using prior-year foreign currency exchange rates. We generally refer to such amounts calculated on a constant currency basis as excluding or adjusting for the impact of foreign currency or being on a constant currency basis. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP and are not meant to be considered in isolation. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not measures of performance presented in accordance with GAAP.
CRITICAL ACCOUNTING POLICIESESTIMATES
Goodwill and Franchise Rights Acquired Annual Impairment Test
We review goodwill and other indefinite-lived intangible assets, includingFinite-lived franchise rights acquired with indefinite lives,are amortized over the remaining contractual period, which is generally less than one year. Indefinite-lived franchise rights acquired are tested for potential impairment on at least an annual basis or more often if events so require. We performed fair value impairment testing as of May 7, 2017 and May 8, 2016, each the first day of fiscal May, on our goodwill and other indefinite-lived intangible assets. In performing our goodwill impairment analysis for our reporting units for fiscal 2017 and fiscal 2016, no impairment was identified as the fair value of those units exceeded their respective carrying value.
29
In performing the impairment analysis for our indefinite-lived franchise rights acquired, with indefinite livesthe fair value for fiscal 2017 and fiscal 2016, we determined that the carrying amounts of these units of account did not exceed their respective fair values and therefore no impairment existed.
With respect to our analysis, a change in the underlying assumptions would cause a change in the results of the impairment assessments and, as such, could result in an impairment of those assets, which would impact earnings. We would also be required to reduce the carrying amounts of the related assets on our balance sheet. We continue to evaluate these assumptions and believe that they are appropriate.
The following is a more detailed discussion of our fiscal 2017 goodwill and franchise rights acquired is estimated using a discounted cash flow approach referred to as the hypothetical start-up approach for our franchise rights related to our Workshops + Digital business and a relief from royalty methodology for our franchise rights related to our Digital business. The aggregate estimated fair value for these rights is then compared to the carrying value of the unit of account for those franchise rights. We have determined the appropriate unit of account for purposes of assessing impairment analysis.to be the combination of the rights in both the Workshops + Digital business and the Digital business in the country in which the applicable acquisition occurred. The net book values of these franchise rights in the United States, Canada, United Kingdom, Australia and New Zealand as of the October 1, 2022 balance sheet date were $400.1 million, $19.3 million, $10.1 million, $5.8 million and $2.1 million, respectively.
GoodwillIn our hypothetical start-up approach analysis for fiscal 2022, we assumed that the year of maturity was reached after 7 years. Subsequent to the year of maturity, we estimated future cash flows for the Workshops + Digital business in each country based on assumptions regarding revenue growth and operating income margins. In our relief from royalty approach analysis for fiscal 2022, the cash flows associated with the Digital business in each country were based on the expected Digital revenue for such country and the application of a royalty rate based on current market terms. The cash flows for the Workshops + Digital and the Digital businesses were discounted utilizing rates which were calculated using the weighted-average cost of capital, which included the cost of equity and the cost of debt.
Goodwill
In performing the impairment analysis for goodwill, the fair value for our reporting units is estimated using a discounted cash flow approach. This approach involves projecting future cash flows attributable to the reporting unit and discounting those estimated cash flows using an appropriate discount rate. The estimated fair value is then compared to the carrying value of the reporting units.unit. We have determined the appropriate reporting unit for purposes of assessing annual impairment to be the country for all reporting units. The net book values of goodwill in the United States, Canada Brazil and other countries at September 30, 2017 were $97.8 million, $43.0 million, $19.5 million and $10.4 million, respectively.
Based on the results of our annual impairment test performed as of the first day of fiscal May (May 7, 2017), we estimated that for reporting units that hold approximately 88.9% of our goodwill, those units had a fair value at least 50% higher than the respective reporting unit’s carrying amount. In Brazil, which holds 11.1% of our goodwill, the fair value of this reporting unit exceeded its carrying value by approximately 10%.October 1, 2022 balance sheet date were $104.0 million, $38.8 million and $13.4 million, respectively.
For all of our reporting units except for Brazil (see below),tested as of May 8, 2022, we estimated future cash flows by utilizing the historical debt-free cash flows (cash flows provided by operating activitiesoperations less capital expenditures) attributable to that country and then applied expected future operating income growth rates for such country. We utilized operating income as the basis for measuring our potential growth because we believe it is the best indicator of the performance of our business. We then discounted the estimated future cash flows utilizing a discount rate which was calculated using the averageweighted-average cost of capital, which included the cost of equity and the cost of debt. The cost
Indefinite-Lived Franchise Rights Acquired and Goodwill Annual Impairment Test
We review indefinite-lived intangible assets, including franchise rights acquired with indefinite lives, and goodwill for potential impairment on at least an annual basis or more often if events so require. We performed fair value impairment testing as of equity was determined by combining a risk-free rateMay 8, 2022 and May 9, 2021, each the first day of returnfiscal May, on our indefinite-lived intangible assets and a market risk premium for the Company’s peer group. The risk-free rate of return was determined based on the average rate of long-term U.S. Treasury securities. The market risk premium was determined by reviewing external market data. The cost of debt was determined by estimating our current borrowing rate.goodwill.
The following are the more significant assumptions utilized inIn performing our annual impairment analysis (except for Brazil) for fiscal 2017 and fiscal 2016:
|
| July 1, |
|
| July 2, |
|
| ||
|
| 2017 |
|
| 2016 |
|
| ||
Debt-Free Cumulative Annual Cash Flow Growth Rate |
| 3.6% to 4.1% |
|
| 3.1% to 4.9% |
|
| ||
Discount Rate |
|
| 8.9% |
|
|
| 9.4% |
|
|
As it relates to our impairment analysis for Brazil,as of May 8, 2022, we estimated future debt free cash flows in contemplationdetermined that (i) the carrying amounts of our growth strategiesCanada and New Zealand franchise rights acquired with indefinite-lived units of account exceeded their respective fair values and, as a result, we recorded impairment charges for that market. In developing these projections, we considered the historical impactour Canada and New Zealand units of similar growth strategies in other markets as well as the current market conditions in Brazil. We then discounted the estimated future cash flows utilizing a discount rate which was calculated using the average costaccount of capital, which included the cost of equity$24.5 million and the cost of debt. The cost of equity was determined by combining a risk-free rate of return and a market risk premium for the Company’s peer group. The risk-free rate of return was determined based on the average rate of long-term U.S. Treasury securities. The market risk premium was determined by reviewing external market data including the current economic conditions in Brazil and the country specific risk thereon. A further risk premium was included to reflect the risk associated with the rate of growth projected$0.8 million, respectively, in the analysis. The costsecond quarter of debt was determined by estimatingfiscal 2022; and (ii) the Company’s current borrowing rate.
The following are the more significant assumptions utilized incarrying amounts of all of our other franchise rights acquired with indefinite-lived units of account did not exceed their respective fair values and, therefore, no impairment existed with respect thereto. In performing our annual impairment analysis for Brazil for fiscal 2017 and fiscal 2016:
|
| July 1, |
|
| July 2, |
|
| ||
|
| 2017 |
|
| 2016 |
|
| ||
Cumulative Annual Revenue Cash Flow Growth Rate |
|
| 19.4% |
|
|
| 19.0% |
|
|
Average Operating Income Margin |
|
| 18.6% |
|
|
| 20.0% |
|
|
Average Operating Income Margin Range |
| (10.8%) to 31.0% |
|
| (6.9%) to 31.0% |
|
| ||
Discount Rate |
|
| 16.9% |
|
|
| 16.8% |
|
|
Franchise Rights Acquired
Finite-lived franchise rights acquired are amortized overas of May 9, 2021, we determined that the remaining contractual period, which is generally less than one year. In performing the impairment analysis for our indefinite-lived franchise rights acquired, the fair value forcarrying amounts of our franchise rights acquired is estimated using a discounted cash flow approach referred towith indefinite-lived units of account did not exceed their respective fair values and, therefore, no impairment existed. In performing our annual impairment analysis as of May 8, 2022 and May 9, 2021, we determined that the hypothetical start-up approach forcarrying amounts of our franchise rights related to our meetings businessgoodwill reporting units did not exceed their respective fair values and, a relief from royalty methodology for our franchise rights related to our Online business. The aggregate estimatedtherefore, no impairment existed.
When determining fair value, forwe utilize various assumptions, including projections of future cash flows, growth rates and discount rates. A change in these rights is then comparedunderlying assumptions could cause a change in the results of the impairment assessments and, as such, could cause fair value to be less than the carrying amounts and result in an impairment of those assets. In the event such a result occurred, we would be required to record a corresponding charge, which would impact earnings. We would also be required to reduce the carrying amounts of the related assets on our balance sheet. We continue to evaluate these assumptions and believe that these assumptions are appropriate.
In performing our annual impairment analysis, we also considered the trading value of both our equity and debt. If the unittrading values of account for those franchise rights. Weboth our equity and debt were to significantly decline from their levels at the time of testing, we may have determinedto take an impairment charge at the appropriate unittime, which could be material. For additional information on risks associated with our recognizing asset impairment charges, see “Item 1A. Risk Factors” of accountour Annual Report on Form 10-K for purposes of assessing impairment to be the combination of the rights in the meetings and Online businesses in the country in which the acquisitions have occurred. The values of these franchise rights in the United States, Canada, United Kingdom, Australia, and New Zealand at September 30, 2017 were $671.9 million, $58.0 million, $12.7 million, $7.0 million, and $5.1 million, respectively.fiscal 2021.
30
Based on the results of our fiscal 2017May 8, 2022 annual franchise rights acquired impairment analysis, we estimated that approximately 100.0%test performed for our United States unit of account, which held 92.7% of our franchise rights acquired had aas of the July 2, 2022 balance sheet date, the estimated fair value at least 40% higher thanof this unit of account exceeded its carrying value by approximately 15%. Based on the results of our May 8, 2022 annual franchise rights acquired impairment analysis performed for our Canada and New Zealand units of account, which held 4.6% and 0.5%, respectively, of our franchise rights acquired as of the July 2, 2022 balance sheet date, the estimated fair values of these units of account were equal to their respective carrying amount.values. The above difference or lack thereof between the estimated fair value of the applicable unit of account and its carrying value is referred to herein as the Annual Impairment Headroom. As previously disclosed, a change in the underlying assumptions for the United States, Canada and New Zealand could change the results of the impairment assessment and, as such, could result in an impairment of the franchise rights acquired related to the United States, Canada and New Zealand, for which the net book values were $698.4 million, $34.6 million and $3.6 million, respectively, as of July 2, 2022. Based on the results of our May 8, 2022 annual franchise rights acquired impairment analysis performed for our remaining units of account, which collectively held 2.2% of our franchise rights acquired as of the July 2, 2022 balance sheet date, the estimated fair values of these units of account exceeded their respective carrying values by over 100%.
In performing this annual impairment analysis for fiscal 2022, in our hypothetical start-up approach analysis, for fiscal 2017, we assumed that the year of maturity was reached after 7 years. Subsequent to the year of maturity, we estimated future cash flows for the meetings business in each country based on assumptions regarding revenue growth and operating income margins. The cash flows associated with the Online business were based on the expected Online revenue for such country and the application of a market-based royalty rate. The cash flows for the meetings and Online businesses were discounted utilizing rates consistent with those utilized in the goodwill impairment analysis.
In performing this impairment analysis for fiscal 2017, for the year of maturity, we assumed meeting roomWorkshops + Digital revenue (comprised of MeetingWorkshops + Digital Fees (defined hereafter) and revenues from products sold to members in meetings)studios) growth of 16.2%23.0% to 58.3%106.2% in the year of maturity from fiscal 2016,2021, in each case, earned in the applicable country and assumed cumulative annual revenue growth rates for the years beyond the year of maturity of 1.9%2.4%. For the year of maturity and beyond, we assumed operating income margin rates of 7.1%(3.0%) to 22.5%8.8%. In our relief from royalty approach, we assumed Digital revenue growth in each country of (25.6%) to 16.1% for fiscal 2022.
Other Based on the results of our May 8, 2022 annual goodwill impairment analysis performed for all of our reporting units, all units, except for the Republic of Ireland, had an estimated fair value at least 35% higher than the respective unit’s carrying amount. Collectively, these reporting units represented 97.4% of our total goodwill as of the October 1, 2022 balance sheet date. Based on the results of our May 8, 2022 annual goodwill impairment analysis performed for our Republic of Ireland reporting unit, which holds 2.6% of our goodwill as of the October 1, 2022 balance sheet date, the estimated fair value of this reporting unit exceeded its carrying value by approximately 14%. Accordingly, a change in the underlying assumptions for the Republic of Ireland may change the results of the impairment assessment and, as such, could result in an impairment of the goodwill related to the Republic of Ireland, for which the net book value was $4.0 million as of October 1, 2022.
The following are the more significant assumptions utilized in our annual impairment analyses for fiscal 2022 and fiscal 2021:
|
| Fiscal 2022 |
| Fiscal 2021 |
Debt-Free Cumulative Annual Cash Flow Growth Rate |
| 1.2% to 20.6% |
| 0.2% to 2.6% |
Discount Rate |
| 9.6% |
| 8.5% |
Indefinite-Lived Franchise Rights Acquired Interim Impairment Test
During the quarter ended October 1, 2022, we identified various qualitative and quantitative factors which collectively, when combined with the Annual Impairment Headroom discussed above for the United States, Canada and New Zealand units of account, indicated a triggering event had occurred within these units of account. These factors included actual business performance as compared to the assumptions used in our annual impairment test, the continued decline in our market capitalization and market factors, including the increase in interest rates. As a result of this triggering event, we performed an interim impairment test of these units of account. In performing this interim impairment test as of October 1, 2022, we determined that the carrying amounts of our United States, Canada and New Zealand franchise rights acquired with indefinite-lived units of account exceeded their respective fair values. Accordingly, we recorded impairment charges for our United States, Canada and New Zealand units of account of $298.3 million, $13.3 million and $1.1 million, respectively, in the third quarter of fiscal 2022. The preponderance of these impairments was driven by the increased weighted-average cost of capital used in this interim impairment test of 13.4% as compared to the weighted-average cost of capital used in the May 8, 2022 annual impairment test of its indefinite-lived franchise rights acquired of 9.6%, reflecting market factors including higher interest rates and the trading values of our equity and debt.
When determining fair value, we utilize various assumptions, including projections of future cash flows, growth rates and discount rates. A change in these underlying assumptions could cause a change in the results of the impairment assessments and, as such, could cause fair value to be less than the carrying amounts and result in an impairment of those assets. In the event such a result occurred, we would be required to record a corresponding charge, which would impact earnings. We would also be required to reduce the carrying amounts of the related assets on our balance sheet. We continue to evaluate these assumptions and believe that these assumptions are appropriate.
31
In performing this interim impairment analysis, in our hypothetical start-up approach analysis, for the year of maturity, we assumed Workshops + Digital revenue (comprised of Workshops + Digital Fees and revenues from products sold to members in studios) growth of 20.2% to 57.6% in the year of maturity from fiscal 2021, in each case, earned in the applicable country and assumed cumulative annual revenue growth rates for the years beyond the year of maturity of 2.5%. For the year of maturity and beyond, we assumed operating income margin rates of 2.3% to 8.8%. In our relief from royalty approach, we assumed Digital revenue growth in each country of (21.5%) to 1.6% for fiscal 2022.
Based on the results of our October 1, 2022 interim franchise rights acquired impairment test performed for our United States, Canada and New Zealand units of account, which hold 91.5%, 4.4% and 0.5%, respectively, of our franchise rights acquired as of the October 1, 2022 balance sheet date, the estimated fair values of these units of account were equal to their respective carrying values. Accordingly, a change in the underlying assumptions for the United States, Canada and New Zealand may change the results of the impairment assessment and, as such, could result in an impairment of the franchise rights acquired related to the United States, Canada and New Zealand, for which the net book values were $400.1 million, $19.3 million and $2.1 million, respectively, as of October 1, 2022.
Any impairment test is highly dependent on the assumptions used. The most significant assumptions used in the interim impairment test discussed above were the discount rate applied and the Digital revenue growth rates. We applied a discount rate of 13.4% based on our actual weighted-average cost of capital, which included the cost of equity and the cost of debt. We projected Digital revenues based upon our current and past performance. Changes in these assumptions would have a significant impact on the valuation model. Holding all other assumptions constant, a hypothetical 50 basis point increase in our discount rate assumption would decrease the fair values of the United States, Canada and New Zealand units of account by approximately 5.5%, 5.4% and 4.2%, respectively, which would result in additional impairment charges. Holding all other assumptions constant, a hypothetical 1% reduction in projected Digital revenues for each year in the analysis would decrease the fair values of the United States, Canada and New Zealand units of account by approximately 0.9%, 1.2% and 1.0%, respectively, which would also result in additional impairment charges.
Kurbo Goodwill Impairment
On August 10, 2018, we acquired substantially all of the assets of Kurbo Health, Inc., a family-based healthy lifestyle coaching program, for a net purchase price of $3.1 million, of which $1.1 million was allocated to goodwill. The goodwill was deductible annually for tax purposes. We determined in the second quarter of fiscal 2022 to exit the Kurbo business in the third quarter of fiscal 2022 as part of our strategic plan. As a result of this determination, we recorded an impairment charge of $1.1 million in the second quarter of fiscal 2022, which comprised the entire goodwill balance for Kurbo.
Critical Accounting Policies
For a discussion of the otherInformation concerning our critical accounting policies affecting us, see “Item 7. Management’s Discussion and Analysisis set forth in “Note 2. Summary of Financial Condition and Results of Operations—CriticalSignificant Accounting Policies” of our audited consolidated financial statements contained in our Annual Report on Form 10-K for fiscal 2016.2021. Our critical accounting policies have not changed since the end of fiscal 2016.2021.
Our management team regularly reviews and analyzes severala number of financial and operating metrics, including the key performance indicators listed below, in order to manage our business, measure our performance, identify trends affecting our business, determine the allocation of resources, make decisions regarding corporate strategies and assess the quality and potential variability of our cash flows and earnings. TheseWe also believe that these key performance indicators include:are useful to both management and investors for forecasting purposes and to facilitate comparisons to our historical operating results. These metrics are supplemental to our GAAP results and include operational measures.
Revenues—Our “Service“Subscription Revenues” consist of “Meeting Fees” and “Online“Digital Subscription Revenues” and “Workshops + Digital Fees”. “Meeting“Digital Subscription Revenues” consist of the fees associated with subscriptions for our Digital offerings, including Personal Coaching + Digital and Digital 360 as applicable. “Workshops + Digital Fees” consist of the fees associated with our subscription plans for combined meetingsworkshops and digital offerings and other payment arrangements for access to meetings. “Online Subscription Revenues” consist of the fees associated with subscriptions for our Online subscription products, including our Personal Coaching product.workshops. In addition, “product sales and other” consists of sales of consumer products to membersvia e-commerce, in meetingsstudios and online,through our trusted partners, revenues from licensing magazine subscriptions,and publishing, and third-party advertising in publications, payments from the sale of third-party website advertising and the By Mail product, other revenues, and, in the case of the consolidated financial results and Other reportable segment, franchise fees with respect to commitment plans and commissions.
32
Paid Weeks—The “Paid Weeks” metric reports paid weeks by Weight WatchersWW customers in Company-owned operations for a given period as follows: (i) “Meeting Paid Weeks” is the sum of total paid commitment plan weeks (including Total Access) and total “pay-as-you-go” weeks; (ii) “Online“Digital Paid Weeks” is the total paid subscription weeks for our digital subscription products (including Personal Coaching)Coaching + Digital and Digital 360 as applicable); (ii) “Workshops + Digital Paid Weeks” is the sum of total paid commitment plan weeks which include workshops and digital offerings and total “pay-as-you-go” weeks; and (iii) “Total Paid Weeks” is the sum of MeetingDigital Paid Weeks and OnlineWorkshops + Digital Paid Weeks.
Incoming Subscribers—“Subscribers” refer to meetings membersDigital subscribers and OnlineWorkshops + Digital subscribers who participate in recurring billing programs.recur bill programs in Company-owned operations. The “Incoming Subscribers” metric reports Weight WatchersWW subscribers in Company-owned operations at a given period start as follows: (i) “Incoming MeetingDigital Subscribers” is the total number of Weight Watchers commitment plan subscribers (including Total Access);Digital, including Personal Coaching + Digital and Digital 360 (as applicable), subscribers; (ii) “Incoming OnlineWorkshops + Digital Subscribers” is the total number of Weight Watchers Online, Weight Watchers OnlinePluscommitment plan subscribers that have access to combined workshops and Personal Coaching subscribers;digital offerings; and (iii) “Incoming Subscribers” is the sum of Incoming MeetingDigital Subscribers and Incoming OnlineWorkshops + Digital Subscribers. Recruitment and retention are key drivers for this metric.
End of Period Subscribers—The “End of Period Subscribers” metric reports Weight WatchersWW subscribers in Company-owned operations at a given period end as follows: (i) “End of Period MeetingDigital Subscribers” is the total number of Weight Watchers commitment plan subscribers (including Total Access);Digital, including Personal Coaching + Digital and Digital 360 (as applicable), subscribers; (ii) “End of Period OnlineWorkshops + Digital Subscribers” is the total number of Weight Watchers Online, Weight Watchers OnlinePluscommitment plan subscribers that have access to combined workshops and Personal Coaching subscribers;digital offerings; and (iii) “End of Period Subscribers” is the sum of End of Period MeetingDigital Subscribers and End of Period OnlineWorkshops + Digital Subscribers. Recruitment and retention are key drivers for this metric.
grossGross profit and operating expenses as a percentage of revenue
COVID-19 PANDEMIC
The novel coronavirus (including its variants, COVID-19) pandemic continues to evolve and have unpredictable impacts on consumer sentiment and behavior, which in turn have impacted and may impact our business performance and operations. We have seen significant shifts in consumer sentiment with respect to the weight loss and wellness marketplace, which we believe in part is attributable to the evolution of the pandemic. COVID-19 had a significant effect on our recruitments starting in March 2020. Our Workshops + Digital recruitments were substantially negatively impacted during the first year of the pandemic. While Digital recruitments were strong in the beginning of the COVID-19 pandemic, a subsequent turn in consumer sentiment drove a decline in Digital recruitments. Given the long-term subscription model of our business, these declines in recruitment continued to impact the number of our End of Period Subscribers in the third quarter of fiscal 2022, which declined compared to the prior year period. Additionally, our mix shift toward our Digital business, which was significant during the onset of the pandemic, especially when amplified by the nature of our subscription business, negatively impacted revenue. Over the longer term, it remains uncertain how the COVID-19 pandemic will impact consumer demand for our products and services and consumer preferences and behavior generally.
We continue to serve our members virtually, both via our Digital business and through virtual workshops, and to evolve our workshop strategy as we evaluate our cost structure and respond to shifting consumer sentiment. The current number of our studio locations is significantly lower than that prior to the pandemic, and we expect it to remain below pre-COVID-19 levels. As a result, we have incurred, and may continue to incur, significant costs associated with our real estate realignment.
While we expect the effects of the pandemic and the related responses, including shifts in consumer sentiment and behavior, to negatively impact our results of operations, cash flows and financial position, the uncertainty of the full extent of the duration and severity of the consumer, economic and operational impacts of COVID-19 means we cannot reasonably estimate the related financial impact at this time. This dynamic situation continues to drive uncertainty at the macroeconomic, local and consumer levels. We continue to actively monitor the ongoing global outbreak of COVID-19 and its impact and related developments. For more information, see “Item 1A. Risk Factors” in Part I of our Annual Report on Form 10-K for fiscal 2021.
33
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2017OCTOBER 1, 2022 COMPARED TO THE THREE MONTHS ENDED OCTOBER 1, 20162, 2021
The table below sets forth selected financial information for the third quarter of fiscal 2017 from our consolidated statements of net income for the three months ended September 30, 2017 versus selected financial information for the third quarter of fiscal 20162022 from our consolidated statements of net income for the three months ended October 1, 2016:2022 versus selected financial information for the third quarter of fiscal 2021 from our consolidated statements of net income for the three months ended October 2, 2021.
Summary of Selected Financial Data
|
| (In millions, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| For The Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| September 30, 2017 |
|
| October 1, 2016 |
|
| Increase/ (Decrease) |
|
| % Change |
|
| % Change Constant Currency |
| |||||
Revenues, net |
| $ | 323.7 |
|
| $ | 280.8 |
|
| $ | 42.9 |
|
|
| 15.3 | % |
|
| 13.9 | % |
Cost of revenues |
|
| 146.6 |
|
|
| 136.5 |
|
|
| 10.1 |
|
|
| 7.4 | % |
|
| 6.3 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
| 177.1 |
|
|
| 144.3 |
|
|
| 32.8 |
|
|
| 22.7 | % |
|
| 21.0 | % |
Gross Margin % |
|
| 54.7 | % |
|
| 51.4 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing expenses |
|
| 30.3 |
|
|
| 30.1 |
|
|
| 0.2 |
|
|
| 0.8 | % |
|
| (0.6 | )% |
Selling, general & administrative expenses |
|
| 55.4 |
|
|
| 47.4 |
|
|
| 8.0 |
|
|
| 16.8 | % |
|
| 15.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
| 91.4 |
|
|
| 66.8 |
|
|
| 24.6 |
|
|
| 36.8 | % |
|
| 34.4 | % |
Operating Income Margin % |
|
| 28.2 | % |
|
| 23.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| 27.0 |
|
|
| 28.3 |
|
|
| (1.3 | ) |
|
| (4.7 | %) |
|
| (4.7 | %) |
Other expense (income), net |
|
| 0.1 |
|
|
| (0.1 | ) |
|
| 0.2 |
|
|
| 100.0 | % |
|
| 100.0 | % |
Income before income taxes |
|
| 64.3 |
|
|
| 38.6 |
|
|
| 25.7 |
|
|
| 66.4 | % |
|
| 62.3 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
| 19.6 |
|
|
| 4.0 |
|
|
| 15.6 |
|
| 100.0% |
|
| 100.0% |
| ||
Net income |
|
| 44.7 |
|
|
| 34.6 |
|
|
| 10.0 |
|
|
| 29.0 | % |
|
| 25.8 | % |
Net loss attributable to the noncontrolling interest |
|
| 0.1 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 35.6 | % |
|
| 31.7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Weight Watchers International, Inc. |
| $ | 44.7 |
|
| $ | 34.7 |
|
| $ | 10.1 |
|
|
| 29.0 | % |
|
| 25.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
| 68.7 |
|
|
| 65.8 |
|
|
| 2.8 |
|
|
| 4.3 | % |
|
| 4.3 | % |
Diluted earnings per share |
| $ | 0.65 |
|
| $ | 0.53 |
|
| $ | 0.12 |
|
|
| 23.7 | % |
|
| 20.6 | % |
|
| (In millions, except per share amounts) |
|
|
|
|
|
|
|
| |||||||||||
|
| For The Three Months Ended |
|
|
|
|
|
|
|
| |||||||||||
|
| October 1, 2022 |
|
| October 2, 2021 |
|
| Increase/ |
|
| % |
|
| % Change |
|
| |||||
Revenues, net |
| $ | 249.7 |
|
| $ | 293.5 |
|
| $ | (43.8 | ) |
|
| (14.9 | %) |
|
| (10.7 | %) |
|
Cost of revenues |
|
| 97.4 |
|
|
| 115.5 |
|
|
| (18.1 | ) |
|
| (15.7 | %) |
|
| (12.7 | %) |
|
Gross profit |
|
| 152.4 |
|
|
| 178.0 |
|
|
| (25.7 | ) |
|
| (14.4 | %) |
|
| (9.4 | %) |
|
Gross Margin % |
|
| 61.0 | % |
|
| 60.7 | % |
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Marketing expenses |
|
| 35.7 |
|
|
| 34.6 |
|
|
| 1.1 |
|
|
| 3.3 | % |
|
| 9.2 | % |
|
Selling, general & administrative expenses |
|
| 58.4 |
|
|
| 63.7 |
|
|
| (5.3 | ) |
|
| (8.3 | %) |
|
| (5.6 | %) |
|
Franchise rights acquired impairments |
|
| 312.7 |
|
|
| — |
|
|
| 312.7 |
|
|
| 100.0 | % |
|
| 100.0 | % |
|
Operating (loss) income |
|
| (254.5 | ) |
|
| 79.7 |
|
|
| (334.3 | ) |
|
| (100.0 | %) | * |
| (100.0 | %) | * |
Operating (Loss) Income Margin % |
|
| (101.9 | %) |
|
| 27.2 | % |
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest expense |
|
| 20.9 |
|
|
| 19.3 |
|
|
| 1.6 |
|
|
| 8.4 | % |
|
| 8.4 | % |
|
Other expense, net |
|
| 1.3 |
|
|
| 0.8 |
|
|
| 0.6 |
|
|
| 76.0 | % |
|
| 76.0 | % |
|
(Loss) income before income taxes |
|
| (276.8 | ) |
|
| 59.7 |
|
|
| (336.5 | ) |
|
| (100.0 | %) | * |
| (100.0 | %) | * |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
(Benefit from) provision for income taxes |
|
| (70.7 | ) |
|
| 13.3 |
|
|
| (84.1 | ) |
|
| (100.0 | %) | * |
| (100.0 | %) | * |
Net (loss) income |
| $ | (206.0 | ) |
| $ | 46.3 |
|
| $ | (252.4 | ) |
|
| (100.0 | %) | * |
| (100.0 | %) | * |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Weighted average diluted shares |
|
| 70.4 |
|
|
| 70.9 |
|
|
| (0.5 | ) |
|
| (0.7 | %) |
|
| (0.7 | %) |
|
Diluted (net loss) earnings per share |
| $ | (2.93 | ) |
| $ | 0.65 |
|
| $ | (3.58 | ) |
|
| (100.0 | %) | * |
| (100.0 | %) | * |
Note: Totals may not sum due to rounding.
Consolidated Results*Note: Percentage in excess of 100.0%.
Revenues
Revenues in
34
Certain results for the third quarter of fiscal 20172022 are adjusted to exclude the impact of the $312.7 million of franchise rights acquired impairments and the net impact of the $3.6 million of 2022 plan restructuring charges and the $0.1 million of 2021 plan restructuring charges. See “Non-GAAP Financial Measures” above. The table below sets forth a reconciliation of certain of those components of our selected financial data for the three months ended October 1, 2022 which have been adjusted.
|
|
|
|
| Gross |
|
|
|
|
| Operating |
| ||||
|
| Gross |
|
| Profit |
|
| Operating |
|
| (Loss) Income |
| ||||
(in millions except percentages) |
| Profit |
|
| Margin |
|
| (Loss) Income |
|
| Margin |
| ||||
Third Quarter of Fiscal 2022 |
| $ | 152.4 |
|
|
| 61.0 | % |
| $ | (254.5 | ) |
|
| (101.9 | %) |
Adjustments to reported amounts (1) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Franchise rights acquired impairments |
|
| — |
|
|
|
|
|
| 312.7 |
|
|
|
| ||
2022 plan restructuring charges |
|
| (0.1 | ) |
|
|
|
|
| 3.6 |
|
|
|
| ||
2021 plan restructuring charges |
|
| 0.1 |
|
|
|
|
|
| 0.1 |
|
|
|
| ||
Total adjustments (1) |
|
| 0.0 |
|
|
|
|
|
| 316.4 |
|
|
|
| ||
Third Quarter of Fiscal 2022, as adjusted (1) |
| $ | 152.4 |
|
|
| 61.0 | % |
| $ | 61.9 |
|
|
| 24.8 | % |
Note: Totals may not sum due to rounding.
Certain results for the third quarter of fiscal 2021 are adjusted to exclude the net impact of the $9.3 million of 2021 plan restructuring charges and the reversal of $0.7 million of 2020 plan restructuring charges. See “Non-GAAP Financial Measures” above. The table below sets forth a reconciliation of certain of those components of our selected financial data for the three months ended October 2, 2021 which have been adjusted.
|
|
|
|
| Gross |
|
|
|
|
| Operating |
| ||||
|
| Gross |
|
| Profit |
|
| Operating |
|
| Income |
| ||||
(in millions except percentages) |
| Profit |
|
| Margin |
|
| Income |
|
| Margin |
| ||||
Third Quarter of Fiscal 2021 |
| $ | 178.0 |
|
|
| 60.7 | % |
| $ | 79.7 |
|
|
| 27.2 | % |
Adjustments to reported amounts (1) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
2021 plan restructuring charges |
|
| 5.6 |
|
|
|
|
|
| 9.3 |
|
|
|
| ||
2020 plan restructuring charges |
|
| (0.7 | ) |
|
|
|
|
| (0.7 | ) |
|
|
| ||
Total adjustments (1) |
|
| 4.9 |
|
|
|
|
|
| 8.6 |
|
|
|
| ||
Third Quarter of Fiscal 2021, as adjusted (1) |
| $ | 183.0 |
|
|
| 62.3 | % |
| $ | 88.4 |
|
|
| 30.1 | % |
Note: Totals may not sum due to rounding.
Consolidated Results
Revenues
Revenues for the third quarter of fiscal 2022 were $323.7$249.7 million, an increasea decrease of $42.9$43.8 million, or 15.3%14.9%, versus the third quarter of fiscal 2016.2021. Excluding the impact of foreign currency, which positivelynegatively impacted our revenues in the third quarter of fiscal 2022 by $12.4 million, revenues for the third quarter of fiscal 2017 by $3.9 million, revenues in the third quarter of fiscal 20172022 would have increased 13.9%decreased 10.7% versus the prior year period. This increasedecrease was driven primarily by revenue growthlower Subscription Revenues reflecting lower sign-ups throughout fiscal 2022 primarily due to worsened consumer sentiment and our PersonalPoints program not resonating with consumers to the extent anticipated. This worsened consumer sentiment in all major markets.fiscal 2022 was due in part to the evolution of the COVID-19 pandemic as well as the likely impact of certain macro factors including increasing inflation, social and political unrest and challenged economic growth. See “—Segment Results” for additional details on revenues.
35
Cost of Revenues and Gross Profit
Total cost of revenues for the third quarter of fiscal 2022 decreased $18.1 million, or 15.7%, versus the third quarter of fiscal 2021. Excluding the impact of foreign currency, which decreased cost of revenues in the third quarter of fiscal 2017 increased $10.12022 by $3.5 million, or 7.4%,cost of revenues for the third quarter of fiscal 2022 would have decreased 12.7% versus the prior year period. Gross profit increased $32.8Excluding the net impact of the $0.0 million or 22.7%,of restructuring charges in the third quarter of fiscal 2017 compared to2022 and the net impact of the $4.9 million of restructuring charges in the third quarter of fiscal 2016 primarily due to2021, total cost of revenues for the increase in revenues.third quarter of fiscal 2022 would have decreased by 11.9%, or 8.8% on a constant currency basis, versus the prior year period.
Gross Profit
Gross profit for the third quarter of fiscal 2022 decreased $25.7 million, or 14.4%, versus the third quarter of fiscal 2021. Excluding the impact of foreign currency, which positivelynegatively impacted gross profit in the third quarter of fiscal 2022 by $9.0 million, gross profit for the third quarter of fiscal 2017 by $2.52022 would have decreased 9.4% versus the prior year period. Excluding the net impact of the $0.0 million gross profitof restructuring charges in the third quarter of fiscal 20172022 and the net impact of the $4.9 million of restructuring charges in the third quarter of fiscal 2021, gross profit for the third quarter of fiscal 2022 would have increased 21.0%decreased by 16.7%, or 11.8% on a constant currency basis, versus the prior year period.period primarily due to the decrease in revenues. Gross margin for the third quarter of fiscal 2022 increased to 61.0% versus 60.7% for the third quarter of fiscal 2021. Excluding the impact of foreign currency, gross margin in the third quarter of fiscal 20172022 would have increased 3.3%0.9% to 54.7%61.5% versus 51.4%the prior year period. Excluding the net impact of restructuring charges in the third quarter of fiscal 2016. Gross2022 and the net impact of restructuring charges in the third quarter of fiscal 2021, gross margin expansionfor the third quarter of fiscal 2022 would have decreased 1.3% to 61.0% versus the prior year period. Excluding the impact of foreign currency, the net impact of restructuring charges in the third quarter of fiscal 2022 and the net impact of restructuring charges in the third quarter of fiscal 2021, gross margin for the third quarter of fiscal 2022 would have decreased 0.8% to 61.5% versus the prior year period. The gross margin decrease was driven primarily driven by improved leverage in both the meetings and Online businesses and a revenue mix shift to theaway from our higher margin OnlineDigital business to our lower margin Workshops + Digital business. This expansion was partially offset by lower revenues in our high margin licensing business.
Marketing
Marketing expenses for the third quarter of fiscal 20172022 increased $0.2$1.1 million, or 0.8%3.3%, versus the third quarter of fiscal 2016.2021. Excluding the impact of foreign currency, which increaseddecreased marketing expenses in the third quarter of fiscal 2022 by $2.1 million, marketing expenses for the third quarter of fiscal 2017 by $0.4 million,2022 would have increased 9.2% versus the prior year period. This increase in marketing expenses was primarily due to an increase in the third quarter of fiscal 2017 would have decreased 0.6% versus the third quarter of fiscal 2016.online, social and TV media spend. Marketing expenses as a percentage of revenue were 9.4% infor the third quarter of fiscal 2017 as compared2022 increased to 10.7% in14.3% from 11.8% for the prior year period.third quarter of fiscal 2021.
Selling, General and Administrative
Selling, general and administrative expenses for the third quarter of fiscal 2017 increased $8.02022 decreased $5.3 million, or 16.8%8.3%, versus the third quarter of fiscal 2016.2021. Excluding the impact of foreign currency, which increaseddecreased selling, general and administrative expenses in the third quarter of fiscal 2022 by $1.7 million, selling, general and administrative expenses for the third quarter of fiscal 2017 by $0.42022 would have decreased 5.6% versus the prior year period. Excluding the net impact of the $3.7 million selling, general and administrative expensesof restructuring charges in the third quarter of fiscal 20172022 and the net impact of the $3.7 million of restructuring charges in the third quarter of fiscal 2021, selling, general and administrative expenses for the third quarter of fiscal 2022 would have increased 15.8%decreased by 8.7%, or 5.8% on a constant currency basis, versus the prior year period. The increaseThis decrease in selling, general and administrative expenses in the third quarter of fiscal 2017 was primarily driven by higher compensationdue to an increase in capitalizable projects, lower salary costs and incentive related costs.lower legal and professional fees. Selling, general and administrative expenses as a percentage of revenue were 17.1% for the third quarter of fiscal 2017 as compared2022 increased to 16.9%23.4% from 21.7% for the third quarter of fiscal 2016.
Operating Income
Operating income2021. Excluding the net impact of restructuring charges in the third quarter of fiscal 2022 and the net impact of restructuring charges in the third quarter of fiscal 2021, selling, general and administrative expenses as a percentage of revenue for the third quarter of fiscal 20172022 would have increased $24.6by 1.5%, or 1.1% on a constant currency basis, versus the prior year period.
Impairment
In performing our interim impairment analysis as of October 1, 2022, we determined that the carrying amounts of our United States, Canada and New Zealand franchise rights acquired with indefinite-lived units of account exceeded their respective fair values and, as a result, we recorded impairment charges for our United States, Canada and New Zealand units of account of $298.3 million, or 36.8%, versus$13.3 million and $1.1 million, respectively, in the third quarter of fiscal 2016. Excluding2022.
36
Operating (Loss) Income
Operating loss for the impactthird quarter of foreign currency, which positively impactedfiscal 2022 was $254.5 million compared to operating income for the third quarter of fiscal 20172021 of $79.7 million. Operating loss for the third quarter of fiscal 2022 was negatively impacted by $1.6$4.3 million operating incomeof foreign currency. Excluding the impact of the $312.7 million of franchise rights acquired impairments in third quarter of fiscal 2022, the net impact of the $3.7 million of restructuring charges in the third quarter of fiscal 20172022 and the net impact of the $8.6 million of restructuring charges in the third quarter of fiscal 2021, operating income would have increased 34.4% versus the prior year period. This increase in operating income was driven by higher operating income in all major markets as compared to the prior year period. Operating income margin increased 4.4%been $61.9 million for the third quarter of fiscal 2017 compared to2022, a decrease of 30.0%, or 24.1% on a constant currency basis, versus operating income in the prior year period. Operating loss margin for the third quarter of fiscal 2016. This increase in2022 was 101.9% compared to operating income margin was primarily driven by an increase in gross margin as compared tofor the prior year period.
Interest Expense
Interest expensethird quarter of fiscal 2021 of 27.2%. Excluding the impact of the franchise rights acquired impairments in the third quarter of fiscal 2017 decreased $1.32022, the net impact of restructuring charges in the third quarter of fiscal 2022 and the net impact of restructuring charges in the third quarter of fiscal 2021, operating income margin would have been 24.8% for the third quarter of fiscal 2022, a decrease of 5.3%, or 4.5% on a constant currency basis, versus operating income margin in the prior year period. This decrease in operating income margin was driven by an increase in marketing expenses as a percentage of revenue, an increase in selling, general and administrative expenses as a percentage of revenue and a decrease in gross margin versus the prior year period.
Interest Expense
Interest expense for the third quarter of fiscal 2022 increased $1.6 million, or 4.7%8.4%, versus the third quarter of fiscal 2016.2021. The decreaseincrease in interest expense was driven by (i) the decrease in the notional amount of our interest rate swap from $1.5 billion to $1.25 billion and (ii) the decrease in our average debt outstanding which decreased to $1.9 billion in the third quarter of fiscal 2017 from $2.0 billion in the third quarter of fiscal 2016. These decreases were offsetprimarily by an increase in LIBOR rates. the base rate of our Term Loan Facility (as defined below).The effective interest rate on our debt, based on interest incurred (which includes amortization of our deferred financing costs)costs and debt discount) and our average borrowings during the third quarter of fiscal 20172022 and the third quarter of fiscal 20162021 and excluding the impact of our interest rate swap,swaps then in effect, increased to 4.85%5.68% per annum at the end of the third quarter of fiscal 20172022 from 4.33%4.69% per annum at the end of the third quarter of fiscal 2016.2021. Including the impact of our interest rate swap, ourswaps then in effect, the effective interest rate on our debt, based on interest incurred (which includes amortization of our deferred financing costs)costs and debt discount) and our average borrowings during the third quarter of fiscal 20172022 and the third quarter of fiscal 2016,2021, increased to 5.56%5.77% per annum at the end of the third quarter of fiscal 20172022 from 5.53%5.29% per annum at the end of the third quarter of fiscal 2016.2021. See “—Liquidity and Capital Resources—Long-Term Debt” for additional details regarding our debt, including interest rates on our debt outstanding and payments on our debt.thereon. For additional details on our interest rate swap,swaps, see “Item 3. Quantitative and Qualitative Disclosures about Market Risk” in Part I of this Quarterly Report on Form 10-Q.
Other expense, (income), net, which consists primarily of the impact of foreign currency on intercompany transactions, increased by $0.2$0.6 million infor the third quarter of fiscal 20172022 to $0.1$1.3 million of expense as compared to $0.1$0.8 million of income inexpense for the prior year period.third quarter of fiscal 2021.
Tax
Our effective tax rate for the third quarter of fiscal 20172022 was 30.5%25.6% as compared to 10.3%22.4% for the third quarter of fiscal 2016.2021. The effective tax rate inbenefit for the third quarter of fiscal 2017 reflects2022 was impacted by a one-time tax benefit of $2.3 million related to a reversal of tax reserves resulting from an updated transfer pricing study. The effectiveU.S. state tax rate inchange. For the third quarter of fiscal 20162022, the difference between the U.S. federal statutory tax rate and our consolidated effective tax rate was impacted by an $11.4 million net tax benefitprimarily due to a researchstate income tax expense and development credit and a Section 199 deduction for tax years 2012 through 2015,expense from income earned in foreign jurisdictions, partially offset by $2.7 million of out-of-period adjustments ina tax benefit related to foreign-derived intangible income, taxes inor FDII.The tax expense for the third quarter of fiscal 2016.
Net Income Attributable2021 was impacted by the reversal of a valuation allowance related to the Company and Earnings Per Share
Net income attributabletax benefits for foreign losses that are now expected to the Company inbe realized. For the third quarter of fiscal 2017 increased $10.1 million,2021, the difference between the U.S. federal statutory tax rate and our consolidated effective tax rate was primarily due to state income tax expense and tax expense from income earned in foreign jurisdictions, partially offset by a tax benefit related to FDII.
We continue to evaluate the realizability of our deferred tax assets and if our U.S. business continues to decline, it is possible that some or 29.0%, fromall of the business interest expense carryforward may not be used. While this carryforward has an indefinite life, a change in the valuation allowance is possible in the foreseeable future which could materially increase our tax expense in the period the valuation allowance is recognized.
Net (Loss) Income and Diluted (Net Loss) Earnings Per Share
Net loss for the third quarter of fiscal 2016. Excluding the impact of foreign currency, which positively impacted2022 was $206.0 million compared to net income attributable to the Company infor the third quarter of fiscal 2017 by $1.1 million, net income attributable to the Company in2021 of $46.3 million. Net loss for the third quarter of fiscal 2017 would have increased2022 was negatively impacted by 25.8% versus the prior year period.
Earnings per fully diluted share, or EPS, in$2.7 million of foreign currency. Net loss for the third quarter of fiscal 2017 was $0.65 compared to $0.53 in2022 included a $235.1 million impact from the franchise rights acquired impairments and a $2.7 million net impact from restructuring charges. Net income for the third quarter of fiscal 2016. Earnings2021 included a $6.5 million net impact from restructuring charges.
37
Diluted net loss per fully diluted share for the third quarter of fiscal 2017 included a $0.03 tax benefit related2022 was $2.93 compared to the reversalearnings per fully diluted share, or EPS, of tax reserves resulting from an updated transfer pricing study. This benefit was offset by the higher share count in$0.65 for the third quarter of fiscal 2017 which was driven by the higher average stock price, which, diluted EPS by $0.03. Earnings2021. Diluted net loss per fully diluted share for the third quarter of fiscal 20162022 included a $0.13$3.34 impact from the franchise rights acquired impairments and a $0.04 net benefit driven by a lower tax rate of 10.3%impact from restructuring charges. EPS for the third quarter of fiscal 2016. This2021 included a $0.09 net impact from restructuring charges. Additionally, EPS for the third quarter of fiscal 2021 included a $0.02 tax benefit was primarily compriseddue to the reversal of a $0.17 net tax benefit in connection with a research and development credit and a Section 199 deduction for the tax years 2012 through 2015, partially offset by a $0.04 expense for out-of-period tax adjustments. valuation allowance related to foreign losses that are now expected to be realized.
38
Segment Results
Metrics and Business Trends
The following tables set forth key metrics by reportable segment for the third quarter of fiscal 20172022 and the percentage change in those metrics versus the prior year period:
(in millions except percentages and as noted)
|
| Q3 2022 |
| |||||||||||||||||||||||||||||||||
|
| GAAP |
|
| Constant Currency |
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
| Subscription |
|
| Product |
|
| Total |
|
| Subscription |
|
| Product |
|
| Total |
|
| Total |
|
| Incoming |
|
| EOP |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
| ||||||||||||
North America |
| $ | 154.8 |
|
| $ | 21.2 |
|
| $ | 176.1 |
|
| $ | 155.2 |
|
| $ | 21.3 |
|
| $ | 176.5 |
|
|
| 34.0 |
|
|
| 2,805.1 |
|
|
| 2,463.8 |
|
CE |
|
| 51.2 |
|
|
| 5.3 |
|
|
| 56.5 |
|
|
| 60.0 |
|
|
| 6.2 |
|
|
| 66.2 |
|
|
| 13.6 |
|
|
| 1,118.9 |
|
|
| 1,009.7 |
|
UK |
|
| 9.5 |
|
|
| 1.4 |
|
|
| 10.9 |
|
|
| 11.1 |
|
|
| 1.7 |
|
|
| 12.8 |
|
|
| 3.2 |
|
|
| 254.8 |
|
|
| 234.0 |
|
Other (1) |
|
| 5.2 |
|
|
| 1.0 |
|
|
| 6.2 |
|
|
| 5.6 |
|
|
| 1.1 |
|
|
| 6.7 |
|
|
| 1.1 |
|
|
| 88.7 |
|
|
| 86.1 |
|
Total |
| $ | 220.7 |
|
| $ | 29.0 |
|
| $ | 249.7 |
|
| $ | 231.9 |
|
| $ | 30.2 |
|
| $ | 262.2 |
|
|
| 51.9 |
|
|
| 4,267.5 |
|
|
| 3,793.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
| % Change Q3 2022 vs. Q3 2021 |
| |||||||||||||||||||||||||||||||||
North America |
|
| (12.4 | %) |
|
| 0.8 | % |
|
| (11.0 | %) |
|
| (12.2 | %) |
|
| 1.0 | % |
|
| (10.8 | %) |
|
| (13.5 | %) |
|
| (11.2 | %) |
|
| (15.6 | %) |
CE |
|
| (21.5 | %) |
|
| (20.9 | %) |
|
| (21.5 | %) |
|
| (8.0 | %) |
|
| (7.1 | %) |
|
| (8.0 | %) |
|
| (12.5 | %) |
|
| (12.2 | %) |
|
| (12.6 | %) |
UK |
|
| (30.1 | %) |
|
| (32.4 | %) |
|
| (30.4 | %) |
|
| (18.2 | %) |
|
| (20.9 | %) |
|
| (18.6 | %) |
|
| (20.1 | %) |
|
| (24.4 | %) |
|
| (20.0 | %) |
Other (1) |
|
| (23.9 | %) |
|
| (17.5 | %) |
|
| (22.9 | %) |
|
| (18.0 | %) |
|
| (13.0 | %) |
|
| (17.2 | %) |
|
| (11.1 | %) |
|
| (9.6 | %) |
|
| (11.0 | %) |
Total |
|
| (15.9 | %) |
|
| (6.8 | %) |
|
| (14.9 | %) |
|
| (11.6 | %) |
|
| (2.8 | %) |
|
| (10.7 | %) |
|
| (13.6 | %) |
|
| (12.3 | %) |
|
| (15.0 | %) |
|
| Q3 2017 |
| |||||||||||||||||||||||||||||||||
|
| GAAP |
|
| Constant Currency |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
|
|
|
|
| Product |
|
|
|
|
|
|
|
|
|
| Product |
|
|
|
|
|
| Total |
|
|
|
|
|
|
|
|
| |||
|
| Service |
|
| Sales & |
|
| Total |
|
| Service |
|
| Sales & |
|
| Total |
|
| Paid |
|
| Incoming |
|
| EOP |
| |||||||||
|
| Revenues |
|
| Other |
|
| Revenues |
|
| Revenues |
|
| Other |
|
| Revenues |
|
| Weeks |
|
| Subscribers |
|
| Subscribers |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
| |||||
North America |
| $ | 193.7 |
|
| $ | 29.9 |
|
| $ | 223.7 |
|
| $ | 193.2 |
|
| $ | 29.9 |
|
| $ | 223.0 |
|
|
| 30.0 |
|
|
| 2,332.5 |
|
|
| 2,200.2 |
|
UK |
|
| 19.0 |
|
|
| 6.5 |
|
|
| 25.5 |
|
|
| 19.1 |
|
|
| 6.5 |
|
|
| 25.6 |
|
|
| 4.4 |
|
|
| 332.9 |
|
|
| 320.7 |
|
CE |
|
| 51.2 |
|
|
| 9.5 |
|
|
| 60.7 |
|
|
| 48.7 |
|
|
| 9.0 |
|
|
| 57.7 |
|
|
| 9.9 |
|
|
| 784.1 |
|
|
| 756.7 |
|
Other (1) |
|
| 9.3 |
|
|
| 4.5 |
|
|
| 13.9 |
|
|
| 9.0 |
|
|
| 4.4 |
|
|
| 13.4 |
|
|
| 1.2 |
|
|
| 77.7 |
|
|
| 77.9 |
|
Total |
| $ | 273.2 |
|
| $ | 50.5 |
|
| $ | 323.7 |
|
| $ | 269.9 |
|
| $ | 49.9 |
|
| $ | 319.8 |
|
|
| 45.4 |
|
|
| 3,527.2 |
|
|
| 3,355.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| % Change Q3 2017 vs. Q3 2016 |
| |||||||||||||||||||||||||||||||||
North America |
|
| 17.0 | % |
|
| 9.5 | % |
|
| 16.0 | % |
|
| 16.7 | % |
|
| 9.2 | % |
|
| 15.6 | % |
|
| 21.0 | % |
|
| 21.5 | % |
|
| 19.1 | % |
UK |
|
| 9.8 | % |
|
| 4.7 | % |
|
| 8.5 | % |
|
| 10.2 | % |
|
| 4.9 | % |
|
| 8.8 | % |
|
| 9.5 | % |
|
| 10.9 | % |
|
| 6.5 | % |
CE |
|
| 26.1 | % |
|
| (5.9 | %) |
|
| 19.7 | % |
|
| 20.0 | % |
|
| (10.5 | %) |
|
| 13.9 | % |
|
| 23.8 | % |
|
| 22.1 | % |
|
| 23.8 | % |
Other (1) |
|
| 1.8 | % |
|
| (1.4 | %) |
|
| 0.8 | % |
|
| (1.7 | %) |
|
| (3.6 | %) |
|
| (2.4 | %) |
|
| 1.0 | % |
|
| 3.4 | % |
|
| 4.5 | % |
Total |
|
| 17.5 | % |
|
| 4.6 | % |
|
| 15.3 | % |
|
| 16.1 | % |
|
| 3.3 | % |
|
| 13.9 | % |
|
| 19.8 | % |
|
| 20.1 | % |
|
| 18.4 | % |
Note: Totals may not sum due to rounding.
|
|
(in millions except percentages and as noted)
|
| Q3 2022 |
| |||||||||||||||||||||||||||||||||||||
|
| Digital Subscription Revenues |
|
|
|
|
|
|
|
|
|
|
| Workshops + Digital Fees |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
| GAAP |
|
| Constant |
|
| Digital |
|
| Incoming |
|
| EOP |
|
| GAAP |
|
| Constant |
|
| Workshops |
|
| Incoming |
|
| EOP |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
| ||||||||||||||||
North America |
| $ | 102.7 |
|
| $ | 103.0 |
|
|
| 26.3 |
|
|
| 2,174.6 |
|
|
| 1,908.4 |
|
| $ | 52.1 |
|
| $ | 52.2 |
|
|
| 7.8 |
|
|
| 630.5 |
|
|
| 555.4 |
|
CE |
|
| 43.6 |
|
|
| 51.1 |
|
|
| 12.1 |
|
|
| 1,009.8 |
|
|
| 898.1 |
|
|
| 7.6 |
|
|
| 8.9 |
|
|
| 1.5 |
|
|
| 109.1 |
|
|
| 111.6 |
|
UK |
|
| 5.7 |
|
|
| 6.7 |
|
|
| 2.3 |
|
|
| 182.8 |
|
|
| 168.6 |
|
|
| 3.8 |
|
|
| 4.4 |
|
|
| 0.9 |
|
|
| 72.0 |
|
|
| 65.4 |
|
Other (1) |
|
| 3.8 |
|
|
| 4.1 |
|
|
| 0.9 |
|
|
| 72.8 |
|
|
| 70.9 |
|
|
| 1.4 |
|
|
| 1.5 |
|
|
| 0.2 |
|
|
| 15.9 |
|
|
| 15.2 |
|
Total |
| $ | 155.9 |
|
| $ | 164.9 |
|
|
| 41.6 |
|
|
| 3,440.0 |
|
|
| 3,046.1 |
|
| $ | 64.9 |
|
| $ | 67.0 |
|
|
| 10.3 |
|
|
| 827.6 |
|
|
| 747.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| % Change Q3 2022 vs. Q3 2021 |
| |||||||||||||||||||||||||||||||||||||
North America |
|
| (17.9 | %) |
|
| (17.7 | %) |
|
| (17.8 | %) |
|
| (16.5 | %) |
|
| (18.5 | %) |
|
| 0.9 | % |
|
| 1.1 | % |
|
| 5.7 | % |
|
| 13.8 | % |
|
| (3.7 | %) |
CE |
|
| (22.8 | %) |
|
| (9.6 | %) |
|
| (15.5 | %) |
|
| (14.4 | %) |
|
| (15.5 | %) |
|
| (13.1 | %) |
|
| 1.9 | % |
|
| 23.8 | % |
|
| 15.7 | % |
|
| 21.0 | % |
UK |
|
| (36.8 | %) |
|
| (26.0 | %) |
|
| (24.4 | %) |
|
| (29.9 | %) |
|
| (23.0 | %) |
|
| (16.9 | %) |
|
| (2.7 | %) |
|
| (7.0 | %) |
|
| (5.9 | %) |
|
| (11.1 | %) |
Other (1) |
|
| (18.2 | %) |
|
| (11.9 | %) |
|
| (6.0 | %) |
|
| (2.6 | %) |
|
| (7.5 | %) |
|
| (36.2 | %) |
|
| (31.0 | %) |
|
| (28.8 | %) |
|
| (32.0 | %) |
|
| (24.3 | %) |
Total |
|
| (20.2 | %) |
|
| (15.6 | %) |
|
| (17.3 | %) |
|
| (16.5 | %) |
|
| (17.7 | %) |
|
| (3.3 | %) |
|
| (0.1 | %) |
|
| 5.6 | % |
|
| 10.6 | % |
|
| (2.0 | %) |
|
| Q3 2017 |
| |||||||||||||||||||||||||||||||||||||
|
| Meeting Fees |
|
| Meeting |
|
| Incoming |
|
| EOP |
|
| Online Subscription Revenues |
|
| Online |
|
| Incoming |
|
| EOP |
| ||||||||||||||||
|
|
|
|
|
| Constant |
|
| Paid |
|
| Meeting |
|
| Meeting |
|
|
|
|
|
| Constant |
|
| Paid |
|
| Online |
|
| Online |
| ||||||||
|
| GAAP |
|
| Currency |
|
| Weeks |
|
| Subscribers |
|
| Subscribers |
|
| GAAP |
|
| Currency |
|
| Weeks |
|
| Subscribers |
|
| Subscribers |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
| ||||||||||
North America |
| $ | 122.4 |
|
| $ | 122.1 |
|
|
| 13.0 |
|
|
| 980.2 |
|
|
| 924.9 |
|
| $ | 71.3 |
|
| $ | 71.1 |
|
|
| 17.0 |
|
|
| 1,352.4 |
|
|
| 1,275.3 |
|
UK |
|
| 13.3 |
|
|
| 13.4 |
|
|
| 2.6 |
|
|
| 188.8 |
|
|
| 180.3 |
|
|
| 5.7 |
|
|
| 5.7 |
|
|
| 1.8 |
|
|
| 144.1 |
|
|
| 140.4 |
|
CE |
|
| 23.4 |
|
|
| 22.3 |
|
|
| 2.7 |
|
|
| 216.7 |
|
|
| 206.2 |
|
|
| 27.7 |
|
|
| 26.4 |
|
|
| 7.2 |
|
|
| 567.3 |
|
|
| 550.5 |
|
Other (1) |
|
| 6.5 |
|
|
| 6.3 |
|
|
| 0.7 |
|
|
| 35.5 |
|
|
| 35.6 |
|
|
| 2.9 |
|
|
| 2.7 |
|
|
| 0.5 |
|
|
| 42.2 |
|
|
| 42.3 |
|
Total |
| $ | 165.6 |
|
| $ | 164.0 |
|
|
| 18.9 |
|
|
| 1,421.2 |
|
|
| 1,346.9 |
|
| $ | 107.6 |
|
| $ | 105.9 |
|
|
| 26.6 |
|
|
| 2,106.0 |
|
|
| 2,008.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| % Change Q3 2017 vs. Q3 2016 |
| |||||||||||||||||||||||||||||||||||||
North America |
|
| 13.8 | % |
|
| 13.4 | % |
|
| 14.5 | % |
|
| 16.2 | % |
|
| 14.1 | % |
|
| 23.1 | % |
|
| 22.7 | % |
|
| 26.5 | % |
|
| 25.7 | % |
|
| 23.1 | % |
UK |
|
| 5.2 | % |
|
| 5.6 | % |
|
| 4.6 | % |
|
| 6.1 | % |
|
| 1.1 | % |
|
| 22.4 | % |
|
| 22.8 | % |
|
| 17.3 | % |
|
| 18.1 | % |
|
| 14.4 | % |
CE |
|
| 10.0 | % |
|
| 4.8 | % |
|
| 4.9 | % |
|
| 4.0 | % |
|
| 4.9 | % |
|
| 43.8 | % |
|
| 36.8 | % |
|
| 32.8 | % |
|
| 30.8 | % |
|
| 32.7 | % |
Other (1) |
|
| 1.2 | % |
|
| (2.2 | %) |
|
| 3.4 | % |
|
| 7.6 | % |
|
| 7.9 | % |
|
| 3.3 | % |
|
| (0.7 | %) |
|
| (1.8 | %) |
|
| 0.1 | % |
|
| 1.8 | % |
Total |
|
| 12.0 | % |
|
| 10.8 | % |
|
| 11.2 | % |
|
| 12.5 | % |
|
| 10.6 | % |
|
| 27.1 | % |
|
| 25.2 | % |
|
| 26.7 | % |
|
| 25.8 | % |
|
| 24.4 | % |
Note: Totals may not sum due to rounding.
| (1) Represents Australia, New Zealand and emerging markets operations and franchise revenues. |
39
North America Performance
The increasedecrease in North America revenues infor the third quarter of fiscal 20172022 versus the prior year period was primarily driven by the increasea decrease in ServiceSubscription Revenues. The increasedecrease in Subscription Revenues for the third quarter of fiscal 2022 versus the prior year period was driven by a decrease in Digital Subscription Revenues. Digital Subscription Revenues were negatively impacted by both the lower number of Incoming Digital Subscribers at the beginning of the third quarter of fiscal 2022 versus the beginning of the third quarter of fiscal 2021 and the recruitment decline during the third quarter of fiscal 2022 as compared to the prior year period. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment and our PersonalPoints program not resonating with consumers to the extent anticipated. The decrease in North America Total Paid Weeks for the third quarter of fiscal 2022 versus the prior year period was driven primarily by both the higherlower number of Total Incoming Subscribers at the beginning of the third quarter of fiscal 20172022 versus the beginning of the third quarter of fiscal 2016, improved retention versus the prior year period2021 and recruitment strength in our Online business inlower recruitments for the third quarter of fiscal 20172022 versus the prior year period. For the third quarter of fiscal 2022, Workshops + Digital Fees, Workshops + Digital Paid Weeks and End of Period Workshops + Digital Subscribers all substantially benefited from the transition of our former Digital 360 members from the Digital business to the Workshops + Digital business during the second and third quarters of fiscal 2022 as previously disclosed.
The slight increase in North America product sales and other infor the third quarter of fiscal 20172022 versus the prior year period was driven primarily driven by an increase in product saleslicensing, partially offset by a declinedecrease in licensing revenue.product sales.
United KingdomContinental Europe Performance
The increasedecrease in UKContinental Europe revenues infor the third quarter of fiscal 20172022 versus the prior year period was driven primarily driven by the increasea decrease in ServiceSubscription Revenues. This increaseThe decrease in ServiceSubscription Revenues infor the third quarter of fiscal 20172022 versus the prior year period was primarily the result of an increasedriven by a decrease in OnlineDigital Subscription Revenues. Digital Subscription Revenues and improved retention.
The increase in UK product sales and other inwere negatively impacted by both the lower number of Incoming Digital Subscribers at the beginning of the third quarter of fiscal 20172022 versus the beginning of the third quarter of fiscal 2021 and the recruitment decline during the third quarter of fiscal 2022 as compared to the prior year period. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment and our PersonalPoints program not resonating with consumers to the extent anticipated. The decrease in Continental Europe Total Paid Weeks for the third quarter of fiscal 2022 versus the prior year period was driven primarily driven by an increase in product sales, partially offset by a decline in licensing revenue.
Continental Europe Performance
The increase in Continental Europe revenues inboth lower recruitments for the third quarter of fiscal 20172022 versus the prior year period was primarily driven byand the increase in Service Revenues. The increase in Continental Europe Total Paid Weeks was driven by the higherlower number of Total Incoming Subscribers at the beginning of the third quarter of fiscal 20172022 versus the beginning of the third quarter of fiscal 2016, improved retention versus the prior year period and recruitment strength in our Online business in the third quarter of fiscal 2017 versus the prior year period.2021.
The increase in Continental Europe Service Revenues was partially offset by the declinedecrease in Continental Europe product sales and other infor the third quarter of fiscal 2017 versus the prior year period.
Other Performance
The decline in Other revenues in the third quarter of fiscal 20172022 versus the prior year period was primarily driven by the positive impact of foreign currency. Excluding the impact of foreign currency, Other revenues would have decreased, drivenprimarily by a decrease in Service Revenues due to price discounting.product sales.
United Kingdom Performance
The decrease in product sales and other inUK revenues for the third quarter of fiscal 20172022 versus the prior year period was driven primarily by a decrease in Subscription Revenues. The decrease in Subscription Revenues for the third quarter of fiscal 20162022 versus the prior year period was driven primarily driven by a decrease in otherDigital Subscription Revenues. Digital Subscription Revenues were negatively impacted by both the lower number of Incoming Digital Subscribers at the beginning of the third quarter of fiscal 2022 versus the beginning of the third quarter of fiscal 2021 and the recruitment decline during the third quarter of fiscal 2022 as compared to the prior year period. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment and our PersonalPoints program not resonating with consumers to the extent anticipated. The decrease in UK Total Paid Weeks for the third quarter of fiscal 2022 versus the prior year period was driven primarily by both the lower number of Total Incoming Subscribers at the beginning of the third quarter of fiscal 2022 versus the beginning of the third quarter of fiscal 2021 and lower recruitments for the third quarter of fiscal 2022 versus the prior year period.
The decrease in UK product sales partially offsetand other for the third quarter of fiscal 2022 versus the prior year period was driven primarily by commissions received froma decrease in e-commerce product sales.
Other Performance
The decrease in Other revenues for the third quarter of fiscal 2022 versus the prior year period was driven primarily by a decrease in Subscription Revenues. The decrease in Subscription Revenues for the third quarter of fiscal 2022 versus the prior year period was driven by both a decrease in Workshops + Digital Fees and a decrease in Digital Subscription Revenues. Subscription Revenues were negatively impacted by both the lower number of Total Incoming Subscribers at the beginning of the third quarter of fiscal 2022 versus the beginning of the third quarter of fiscal 2021 and the recruitment decline during the third quarter of fiscal 2022 as compared to the prior year period. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment and our franchisees.PersonalPoints program not resonating with consumers to the extent anticipated.
The decrease in Other product sales and other for the third quarter of fiscal 2022 versus the prior year period was driven primarily by a decrease in e-commerce product sales.
40
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2017OCTOBER 1, 2022 COMPARED TO THE NINE MONTHS ENDED OCTOBER 1, 20162, 2021
The table below sets forth selected financial information for the first nine months of fiscal 2017 from our consolidated statements of net income for the nine months ended September 30, 2017 versus selected financial information for the first nine months of fiscal 20162022 from our consolidated statements of net income for the nine months ended October 1, 2016:2022 versus selected financial information for the first nine months of fiscal 2021 from our consolidated statements of net income for the nine months ended October 2, 2021.
Summary of Selected Financial Data
|
| (In millions, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| For The Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
|
| October 1, 2016 |
|
| Increase/ (Decrease) |
|
| % Change |
|
| % Change Constant Currency |
| |||||
Revenues, net |
| $ | 994.4 |
|
| $ | 897.5 |
|
| $ | 96.9 |
|
|
| 10.8 | % |
|
| 11.5 | % |
Cost of revenues |
|
| 464.2 |
|
|
| 442.5 |
|
|
| 21.8 |
|
|
| 4.9 | % |
|
| 5.6 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
| 530.2 |
|
|
| 455.0 |
|
|
| 75.2 |
|
|
| 16.5 | % |
|
| 17.2 | % |
Gross Margin % |
|
| 53.3 | % |
|
| 50.7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing expenses |
|
| 158.7 |
|
|
| 157.8 |
|
|
| 0.9 |
|
|
| 0.6 | % |
|
| 1.7 | % |
Selling, general & administrative expenses |
|
| 153.7 |
|
|
| 143.2 |
|
|
| 10.5 |
|
|
| 7.3 | % |
|
| 7.7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
| 217.8 |
|
|
| 154.1 |
|
|
| 63.7 |
|
|
| 41.4 | % |
|
| 41.7 | % |
Operating Income Margin % |
|
| 21.9 | % |
|
| 17.2 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| 82.2 |
|
|
| 87.0 |
|
|
| (4.7 | ) |
|
| (5.4 | %) |
|
| (5.4 | %) |
Other expense, net |
|
| 0.3 |
|
|
| 0.4 |
|
|
| (0.1 | ) |
|
| 29.9 | % |
|
| 29.9 | % |
Gain on early extinguishment of debt |
|
| (1.6 | ) |
|
| 0.0 |
|
|
| (1.6 | ) |
|
| 100.0 | % |
|
| 100.0 | % |
Income before income taxes |
|
| 136.9 |
|
|
| 66.7 |
|
|
| 70.2 |
|
|
| 105.1 | % |
|
| 106.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
| 36.5 |
|
|
| 12.4 |
|
|
| 24.0 |
|
| 100.0% |
|
| 100.0% |
| ||
Net income |
|
| 100.4 |
|
|
| 54.3 |
|
|
| 46.1 |
|
|
| 84.9 | % |
|
| 85.4 | % |
Net loss attributable to the noncontrolling interest |
|
| 0.1 |
|
|
| 0.1 |
|
|
| 0.0 |
|
|
| 36.4 | % |
|
| 18.5 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Weight Watchers International, Inc. |
| $ | 100.5 |
|
| $ | 54.4 |
|
| $ | 46.1 |
|
|
| 84.8 | % |
|
| 85.3 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
| 67.9 |
|
|
| 65.9 |
|
|
| 2.1 |
|
|
| 3.1 | % |
|
| 3.1 | % |
Diluted earnings per share |
| $ | 1.48 |
|
| $ | 0.83 |
|
| $ | 0.65 |
|
|
| 79.2 | % |
|
| 79.7 | % |
|
| (In millions, except per share amounts) |
|
|
|
|
|
|
|
| |||||||||||
|
| For The Nine Months Ended |
|
|
|
|
|
| |||||||||||||
|
| October 1, 2022 |
|
| October 2, 2021 |
|
| Increase/ |
|
| % |
|
| % Change |
|
| |||||
Revenues, net |
| $ | 816.9 |
|
| $ | 936.7 |
|
| $ | (119.7 | ) |
|
| (12.8 | %) |
|
| (9.6 | %) |
|
Cost of revenues |
|
| 321.5 |
|
|
| 379.2 |
|
|
| (57.7 | ) |
|
| (15.2 | %) |
|
| (13.0 | %) |
|
Gross profit |
|
| 495.4 |
|
|
| 557.5 |
|
|
| (62.1 | ) |
|
| (11.1 | %) |
|
| (7.3 | %) |
|
Gross Margin % |
|
| 60.6 | % |
|
| 59.5 | % |
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Marketing expenses |
|
| 195.1 |
|
|
| 208.7 |
|
|
| (13.5 | ) |
|
| (6.5 | %) |
|
| (3.6 | %) |
|
Selling, general & administrative expenses |
|
| 193.3 |
|
|
| 206.6 |
|
|
| (13.3 | ) |
|
| (6.4 | %) |
|
| (4.5 | %) |
|
Franchise rights acquired and goodwill |
|
| 339.2 |
|
|
| — |
|
|
| 339.2 |
|
|
| 100.0 | % |
|
| 100.0 | % |
|
Operating (loss) income |
|
| (232.2 | ) |
|
| 142.2 |
|
|
| (374.4 | ) |
|
| (100.0 | %) | * |
| (100.0 | %) | * |
Operating (Loss) Income Margin % |
|
| (28.4 | %) |
|
| 15.2 | % |
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest expense |
|
| 58.8 |
|
|
| 68.7 |
|
|
| (9.9 | ) |
|
| (14.4 | %) |
|
| (14.4 | %) |
|
Other expense, net |
|
| 3.3 |
|
|
| 0.9 |
|
|
| 2.4 |
|
|
| 100.0 | % | * |
| 100.0 | % | * |
Early extinguishment of debt |
|
| — |
|
|
| 29.2 |
|
|
| (29.2 | ) |
|
| (100.0 | %) |
|
| (100.0 | %) |
|
(Loss) income before income taxes |
|
| (294.3 | ) |
|
| 43.5 |
|
|
| (337.8 | ) |
|
| (100.0 | %) | * |
| (100.0 | %) | * |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
(Benefit from) provision for income taxes |
|
| (75.4 | ) |
|
| 6.5 |
|
|
| (81.9 | ) |
|
| (100.0 | %) | * |
| (100.0 | %) | * |
Net (loss) income |
| $ | (218.9 | ) |
| $ | 37.0 |
|
| $ | (255.9 | ) |
|
| (100.0 | %) | * |
| (100.0 | %) | * |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Weighted average diluted shares |
|
| 70.3 |
|
|
| 70.9 |
|
|
| (0.6 | ) |
|
| (0.9 | %) |
|
| (0.9 | %) |
|
Diluted (net loss) earnings per share |
| $ | (3.12 | ) |
| $ | 0.52 |
|
| $ | (3.64 | ) |
|
| (100.0 | %) | * |
| (100.0 | %) | * |
Note: Totals may not sum due to rounding.
Consolidated Results*Note: Percentage in excess of 100.0%.
Revenues
Revenues in
41
Certain results for the first nine months of fiscal 20172022 are adjusted to exclude the impact of the $339.2 million of franchise rights acquired and goodwill impairments and the net impact of the $22.7 million of 2022 plan restructuring charges, the reversal of $0.2 million of 2021 plan restructuring charges and the reversal of $0.1 million of 2020 plan restructuring charges. See “Non-GAAP Financial Measures” above. The table below sets forth a reconciliation of certain of those components of our selected financial data for the first nine months ended October 1, 2022 which have been adjusted.
|
|
|
|
| Gross |
|
|
|
|
| Operating |
| ||||
|
| Gross |
|
| Profit |
|
| Operating |
|
| (Loss) Income |
| ||||
(in millions except percentages) |
| Profit |
|
| Margin |
|
| (Loss) Income |
|
| Margin |
| ||||
First Nine Months of Fiscal 2022 |
| $ | 495.4 |
|
|
| 60.6 | % |
| $ | (232.2 | ) |
|
| (28.4 | %) |
Adjustments to reported amounts (1) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Franchise rights acquired and goodwill impairments |
|
| — |
|
|
|
|
|
| 339.2 |
|
|
|
| ||
2022 plan restructuring charges |
|
| 4.4 |
|
|
|
|
|
| 22.7 |
|
|
|
| ||
2021 plan restructuring charges |
|
| (0.4 | ) |
|
|
|
|
| (0.2 | ) |
|
|
| ||
2020 plan restructuring charges |
|
| (0.1 | ) |
|
|
|
|
| (0.1 | ) |
|
|
| ||
Total adjustments (1) |
|
| 3.9 |
|
|
|
|
|
| 361.5 |
|
|
|
| ||
First Nine Months of Fiscal 2022, as adjusted (1) |
| $ | 499.3 |
|
|
| 61.1 | % |
| $ | 129.3 |
|
|
| 15.8 | % |
Note: Totals may not sum due to rounding.
Certain results for the first nine months of fiscal 2021 are adjusted to exclude the net impact of the $20.9 million of 2021 plan restructuring charges and the reversal of $1.5 million of 2020 plan restructuring charges. See “Non-GAAP Financial Measures” above. The table below sets forth a reconciliation of certain of those components of our selected financial data for the first nine months ended October 2, 2021 which have been adjusted.
|
|
|
|
| Gross |
|
|
|
|
| Operating |
| ||||
|
| Gross |
|
| Profit |
|
| Operating |
|
| Income |
| ||||
(in millions except percentages) |
| Profit |
|
| Margin |
|
| Income |
|
| Margin |
| ||||
First Nine Months of Fiscal 2021 |
| $ | 557.5 |
|
|
| 59.5 | % |
| $ | 142.2 |
|
|
| 15.2 | % |
Adjustments to reported amounts (1) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
2021 plan restructuring charges |
|
| 16.4 |
|
|
|
|
|
| 20.9 |
|
|
|
| ||
2020 plan restructuring charges |
|
| (1.3 | ) |
|
|
|
|
| (1.5 | ) |
|
|
| ||
Total adjustments (1) |
|
| 15.1 |
|
|
|
|
|
| 19.4 |
|
|
|
| ||
First Nine Months of Fiscal 2021, as adjusted (1) |
| $ | 572.6 |
|
|
| 61.1 | % |
| $ | 161.6 |
|
|
| 17.3 | % |
Note: Totals may not sum due to rounding.
Consolidated Results
Revenues
Revenues for the first nine months of fiscal 2022 were $994.4$816.9 million, an increasea decrease of $96.9$119.7 million, or 10.8%12.8%, versus the first nine months of fiscal 2016.2021. Excluding the impact of foreign currency, which negatively impacted our revenues in the first nine months of fiscal 2022 by $29.5 million, revenues for the first nine months of fiscal 2017 by $6.0 million, revenues in the first nine months of fiscal 20172022 would have increased 11.5%decreased 9.6% versus the prior year period. This increasedecrease was driven primarily by revenue growth, on a constant currency basis,lower Subscription Revenues reflecting lower sign-ups primarily due to worsened consumer sentiment and our PersonalPoints program not resonating with consumers to the extent anticipated. This worsened consumer sentiment was due in all major markets.part to the evolution of the COVID-19 pandemic as well as the likely impact of certain macro factors including increasing inflation, social and political unrest and challenged economic growth. See “—Segment Results” for additional details on revenues.
42
Cost of Revenues and Gross Profit
Total cost of revenues for the first nine months of fiscal 2022 decreased $57.7 million, or 15.2%, versus the first nine months of fiscal 2021. Excluding the impact of foreign currency, which decreased cost of revenues in the first nine months of fiscal 2017 increased $21.82022 by $8.3 million, or 4.9%,cost of revenues for the first nine months of fiscal 2022 would have decreased 13.0% versus the prior year period. Gross profit increased $75.2Excluding the net impact of the $3.9 million or 16.5%,of restructuring charges in the first nine months of fiscal 2017 compared to2022 and the net impact of the $15.1 million of restructuring charges in the first nine months of fiscal 2016 primarily due to2021, total cost of revenues for the increase in revenues.first nine months of fiscal 2022 would have decreased by 12.7%, or 10.5% on a constant currency basis, versus the prior year period.
Gross Profit
Gross profit for the first nine months of fiscal 2022 decreased $62.1 million, or 11.1%, versus the first nine months of fiscal 2021. Excluding the impact of foreign currency, which negatively impacted gross profit in the first nine months of fiscal 2022 by $21.1 million, gross profit for the first nine months of fiscal 2017 by $2.92022 would have decreased 7.3% versus the prior year period. Excluding the net impact of the $3.9 million gross profitof restructuring charges in the first nine months of fiscal 20172022 and the net impact of the $15.1 million of restructuring charges in the first nine months of fiscal 2021, gross profit for the first nine months of fiscal 2022 would have increased 17.2%decreased by 12.8%, or 9.1% on a constant currency basis, versus the prior year period.period primarily due to the decrease in revenues. Gross margin for the first nine months of fiscal 2022 increased to 60.6% versus 59.5% for the first nine months of fiscal 2021. Excluding the impact of foreign currency, gross margin in the first nine months of fiscal 20172022 would have increased 2.6%1.5% to 53.3%61.0% versus 50.7%the prior year period. Excluding the net impact of restructuring charges in the first nine months of fiscal 2016. Gross2022 and the net impact of restructuring charges in the first nine months of fiscal 2021, gross margin for the first nine months of fiscal 2022 would have been flat at 61.1% versus the prior year period. Excluding the impact of foreign currency, the net impact of restructuring charges in the first nine months of fiscal 2022 and the net impact of restructuring charges in the first nine months of fiscal 2021, gross margin for the first nine months of fiscal 2022 would have increased 0.4% to 61.5% versus the prior year period. The gross margin increase was driven primarily by margin expansion was primarily driven by improved leverage in both the meetings and Online businessesWorkshops + Digital business resulting from a more efficient studio footprint and a mix shift to the higher margin Online business. This expansion was partially offset by lower revenuesreduction in our high margin licensing business.labor costs.
Marketing
Marketing expenses for the first nine months of fiscal 2017 increased $0.92022 decreased $13.5 million, or 0.6%6.5%, versus the first nine months of fiscal 2016.2021. Excluding the impact of foreign currency, which decreased marketing expenses in the first nine months of fiscal 2022 by $6.1 million, marketing expenses for the first nine months of fiscal 2017 by $1.8 million,2022 would have decreased 3.6% versus the prior year period. This decrease in marketing expenses was primarily due to a decline in the first nine months of fiscal 2017 would have increased 1.7% versus the first nine months of fiscal 2016. TV media.Marketing expenses as a percentage of revenue decreased to 16.0% infor the first nine months of fiscal 2017 as compared2022 increased to 17.6% in23.9% from 22.3% for the prior year period.first nine months of fiscal 2021.
Selling, General and Administrative
Selling, general and administrative expenses for the first nine months of fiscal 2017 increased $10.52022 decreased $13.3 million, or 7.3%6.4%, versus the first nine months of fiscal 2016.2021. Excluding the impact of foreign currency, which decreased selling, general and administrative expenses in the first nine months of fiscal 2022 by $4.0 million, selling, general and administrative expenses for the first nine months of fiscal 2017 by $0.52022 would have decreased 4.5% versus the prior year period. Excluding the impact of the $18.5 million selling, general and administrative expensesof restructuring charges in the first nine months of fiscal 2017 would have increased 7.7% versus2022 and the prior year period. The increase in selling, general and administrative expensesnet impact of the $4.3 million of restructuring charges in the first nine months of fiscal 20172021, selling, general and administrative expenses for the first nine months of fiscal 2022 would have decreased by 13.6%, or 11.6% on a constant currency basis, versus the prior year period. This decrease in selling, general and administrative expenses was primarily driven by higherdue to lower stock compensation expense, lower salary costs, lower professional fees and incentive related costs.an increase in capitalizable projects. Selling, general and administrative expenses as a percentage of revenue for the first nine months of fiscal 2017 decreased2022 increased to 15.5%23.7% from 16.0%22.1% for the first nine months of fiscal 2016.
Operating Income
Operating income2021. Excluding the impact of restructuring charges in the first nine months of fiscal 2022 and the net impact of restructuring charges in the first nine months of fiscal 2021, selling, general and administrative expenses as a percentage of revenue for the first nine months of fiscal 2017 increased $63.72022 would have decreased by 0.2%, or 0.5% on a constant currency basis, versus the prior year period.
Impairments
In performing our interim impairment analysis as of October 1, 2022, we determined that the carrying amounts of our United States, Canada and New Zealand franchise rights acquired with indefinite-lived units of account exceeded their respective fair values and, as a result, we recorded impairment charges for our United States, Canada and New Zealand units of account of $298.3 million, or 41.4%, versus$13.3 million and $1.1 million, respectively, in the third quarter of fiscal 2022.
43
In performing our annual impairment analysis as of May 8, 2022, we determined that the carrying amounts of our Canada and New Zealand franchise rights acquired with indefinite-lived units of account exceeded their respective fair values and, as a result, we recorded impairment charges for our Canada and New Zealand units of account of $24.5 million and $0.8 million, respectively, in the second quarter of fiscal 2022. In addition, we determined in the second quarter of fiscal 2022 to exit the Kurbo business in the third quarter of fiscal 2022 as part of our strategic plan. As a result of this determination, we recorded an impairment charge of $1.1 million in the second quarter of fiscal 2022, which comprised the entire goodwill balance for Kurbo.
Operating (Loss) Income
Operating loss for the first nine months of fiscal 2016. Excluding the impact of foreign currency, which negatively impacted2022 was $232.2 million compared to operating income for the first nine months of fiscal 20172021 of $142.2 million. Operating loss for the first nine months of fiscal 2022 was negatively impacted by $0.6$8.9 million operating incomeof foreign currency. Excluding the impact of the $339.2 million of franchise rights acquired and goodwill impairments in the first nine months of fiscal 20172022, the net impact of the $22.4 million of restructuring charges in the first nine months of fiscal 2022 and the net impact of the $19.4 million of restructuring charges in the first nine months of fiscal 2021, operating income would have increased 41.7% versus the prior year period. This increase in operating income was driven by higher operating income in all major markets as compared to the prior year period. Operating income margin increased 4.7%been $129.3 million for the first nine months of fiscal 2017 compared to2022, a decrease of 20.0%, or 13.1% on a constant currency basis, versus operating income in the prior year period. Operating loss margin for the first nine months of fiscal 2016.2022 was 28.4% compared to operating income margin for the first nine months of fiscal 2021 of 15.2%. Excluding the impact of the franchise rights acquired and goodwill impairments in the first nine months of fiscal 2022, the net impact of restructuring charges in the first nine months of fiscal 2022 and the net impact of restructuring charges in the first nine months of fiscal 2021, operating income margin would have been 15.8% for the first nine months of fiscal 2022, a decrease of 1.4%, or 0.7% on a constant currency basis, versus operating income margin in the prior year period. This increasedecrease in operating income margin was primarily driven by an increase in gross margin and to a lesser extent a decrease in marketing expenses as a percentage of revenue, andpartially offset by a decrease in selling, general and administrative expenses as a percentage of revenue all as compared toand an increase in gross margin, versus the prior year period.
Interest Expense
Interest expense infor the first nine months of fiscal 20172022 decreased $4.7$9.9 million, or 5.4%14.4%, versus the first nine months of fiscal 2016.2021. The decrease in interest expense was driven primarily by (i) the decrease in the notional amountlower interest rates under our Term Loan Facility and on our Senior Secured Notes (as defined below) as a result of our interest rate swap from $1.5 billion to $1.25 billion; (ii) the decrease in our averageApril 2021 debt outstanding under the Tranche B-2 Term Facility (defined hereafter) which decreased to $2.0 billion in the first nine months of fiscal 2017 from $2.1 billion in the first nine months of fiscal 2016; (iii) the payment in full in April 2016 of the principal amount of loans outstanding under the Tranche B-1 Term Facility (defined hereafter) and (iv) the aggregate payments in the third quarter of fiscal 2016 of the outstanding principal amount of $48.0 million on the Revolving Facility (defined hereafter). The increase in LIBOR rates offset the benefits set forth in items (i) through (iii)refinancing (as defined below). The effective interest rate on our debt, based on interest incurred (which includes amortization of our deferred financing costs)costs and debt discount) and our average borrowings during the first nine months of fiscal 20172022 and the first nine months of fiscal 20162021 and excluding the impact of our interest rate swap, increasedswaps then in effect, decreased to 4.68%4.98% per annum at the end of the first nine months of fiscal 20172022 from 4.31%5.28% per annum at the end of the first nine months of fiscal 2016.2021. Including the impact of our interest rate swap, ourswaps then in effect, the effective interest rate on our debt, based on interest incurred (which includes amortization of our deferred financing costs)costs and debt discount) and our average borrowings during the first nine months of fiscal 20172022 and the first nine months of fiscal 2016, increased2021, decreased to 5.52%5.40% per annum at the end of the first nine months of fiscal 20172022 from 5.48%6.00% per annum at the end of the first nine months of fiscal 2016.2021. See “—Liquidity and Capital Resources—Long-Term Debt” for additional details regarding our debt, including interest rates on our debt outstanding, the Revolving Facility and payments on our debt.thereon. For additional details on our interest rate swap,swaps, see “Item 3. Quantitative and Qualitative Disclosures about Market Risk” in Part I of this Quarterly Report on Form 10-Q.
Other expense, net, which consists primarily of the impact of foreign currency on intercompany transactions, decreasedincreased by $0.1$2.4 million infor the first nine months of fiscal 20172022 to $0.3$3.3 million of expense as compared to $0.4$0.9 million inof expense for the prior year period.first nine months of fiscal 2021.
Gain on Early Extinguishment of Debt
In May 2017, we paid an aggregate amount of cash proceeds totaling $73.0 million plus an amount sufficient to pay accrued and unpaid interest on the amount prepaid to prepay $75.5 million in aggregate principal amount of term loans under the Tranche B-2 Term Facility. As a result of this prepayment, we wrote-off fees of $0.6 million, incurred fees of $0.3 million and recorded a gain on early extinguishment of debt of $1.6 million, inclusive of these fees, in the second quarter of fiscal 2017.2021, we wrote-off $29.2 million of fees in connection with our April 2021 debt refinancing that we recorded as an early extinguishment of debt charge, comprised of $12.9 million of a prepayment penalty on the Discharged Senior Notes (as defined below), $9.0 million of financing fees and $7.2 million of pre-existing deferred financing fees and debt discount. For additional details on this refinancing, see “—Liquidity and Capital Resources—Long-Term Debt”.
Tax
44
Tax
Our effective tax rate for the first nine months of fiscal 20172022 was 26.6%25.6% as compared to 18.6%14.9% for the first nine months of fiscal 2016.2021. The effective tax ratebenefit for the first nine months of fiscal 20172022 was impacted by the following one-time discrete items occurring inout-of-period income tax adjustments and a U.S. state tax rate change, partially offset by tax shortfalls from stock compensation. For the first nine months of fiscal 2017: (i) an $11.6 million2022, the difference between the U.S. federal statutory tax rate and our consolidated effective tax rate was primarily due to state income tax expense and tax expense from income earned in foreign jurisdictions, partially offset by a tax benefit related to the cessation of operations of our Spanish subsidiary and (ii) by $2.3 million related to the reversal ofFDII. The tax reserves resulting from an updated transfer pricing study. The effective tax rateexpense for the first nine months of fiscal 20162021 was impacted by: (i) an $11.4 million netby tax benefit due to a researchwindfalls from stock compensation and development credit and a Section 199 deduction for tax years 2012 through 2015 and (ii) the reversal of a $2.5 million valuation allowance related to tax benefits for foreign losses that are now expected to be realized. These benefits were partially offset by $2.7 million of out-of-period adjustments in income taxes in the third quarter of fiscal 2016.
Net Income Attributable to the Company and Earnings Per Share
Net income attributable to the Company inFor the first nine months of fiscal 2017 increased $46.1 million,2021, the difference between the U.S. federal statutory tax rate and our consolidated effective tax rate was primarily due to state income tax expense and tax expense from income earned in foreign jurisdictions, partially offset by a tax benefit related to FDII.
We continue to evaluate the realizability of our deferred tax assets and if our U.S. business continues to decline, it is possible that some or 84.8%, fromall of the business interest expense carryforward may not be used. While this carryforward has an indefinite life, a change in the valuation allowance is possible in the foreseeable future which could materially increase our tax expense in the period the valuation allowance is recognized.
Net (Loss) Income and Diluted (Net Loss) Earnings Per Share
Net loss for the first nine months of fiscal 2016. Excluding the impact of foreign currency, which negatively impacted2022 was $218.9 million compared to net income attributable to the Company infor the first nine months of fiscal 2017 by $0.3 million, net income attributable to the Company in2021 of $37.0 million. Net loss for the first nine months of fiscal 2017 would have increased2022 was negatively impacted by 85.3% versus$5.7 million of foreign currency. Net loss for the prior year period.first nine months of fiscal 2022 included a $256.4 million impact from franchise rights acquired and goodwill impairments and a $16.7 million net impact from restructuring charges. Net income for the first nine months of fiscal 2021 included a $21.8 million impact from the write-off of fees related to our April 2021 debt refinancing and an $14.5 million net impact from restructuring charges.
EarningsDiluted net loss per fully diluted share orfor the first nine months of fiscal 2022 was $3.12 compared to EPS of $0.52 for the first nine months of fiscal 2021. Diluted net loss per share for the first nine months of fiscal 2022 included a $3.65 impact from franchise rights acquired and goodwill impairments and a $0.24 net impact from restructuring charges. EPS for the first nine months of fiscal 2021 included a $0.31 impact from the write-off of fees related to our April 2021 debt refinancing and a $0.20 net impact from restructuring charges. Additionally, EPS in the first nine months of fiscal 2017 was $1.48 compared to $0.83 in the first nine months of fiscal 2016. Earnings per fully diluted share in the first nine months of fiscal 20172021 included (i) a $0.02 tax benefit of $0.18 that was offset by $0.01 of expense, both relateddue to the cessation of operations of our Spanish subsidiary; (ii) a $0.01 gain on early extinguishment of debt and (iii) a $0.03 net tax benefit related to the reversal of tax reserves resulting from an updated transfer pricing study. Earnings per fully diluted share in the first nine months of fiscal 2016 included (i) a $0.17 net tax benefit in connection with a research and development credit and a Section 199 deduction for the tax years 2012 through 2015 and (ii) a $0.04 benefit for the reversal of a valuation allowance related to tax benefits for foreign losses that are now expected to be realized, partially offset by a $0.04 expense for out-of-period tax adjustments. realized.
45
Segment Results
Metrics and Business Trends
The following tables set forth key metrics by reportable segment for the first nine months of fiscal 20172022 and the percentage change in those metrics versus the prior year period:
(in millions except percentages and as noted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
| First Nine Months of Fiscal 2022 |
| |||||||||||||||||||||||||||||||||
|
| GAAP |
|
| Constant Currency |
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
| Subscription |
|
| Product |
|
| Total |
|
| Subscription |
|
| Product |
|
| Total |
|
| Total |
|
| Incoming |
|
| EOP |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
| ||||||||||||
North America |
| $ | 498.0 |
|
| $ | 70.4 |
|
| $ | 568.4 |
|
| $ | 498.8 |
|
| $ | 70.5 |
|
| $ | 569.3 |
|
|
| 110.5 |
|
|
| 2,734.9 |
|
|
| 2,463.8 |
|
CE |
|
| 169.5 |
|
|
| 19.6 |
|
|
| 189.1 |
|
|
| 190.7 |
|
|
| 21.9 |
|
|
| 212.6 |
|
|
| 44.1 |
|
|
| 1,094.1 |
|
|
| 1,009.7 |
|
UK |
|
| 32.6 |
|
|
| 5.5 |
|
|
| 38.1 |
|
|
| 35.8 |
|
|
| 6.0 |
|
|
| 41.8 |
|
|
| 10.1 |
|
|
| 245.0 |
|
|
| 234.0 |
|
Other (1) |
|
| 18.0 |
|
|
| 3.3 |
|
|
| 21.3 |
|
|
| 19.2 |
|
|
| 3.5 |
|
|
| 22.7 |
|
|
| 3.6 |
|
|
| 94.5 |
|
|
| 86.1 |
|
Total |
| $ | 718.1 |
|
| $ | 98.8 |
|
| $ | 816.9 |
|
| $ | 744.5 |
|
| $ | 101.9 |
|
| $ | 846.4 |
|
|
| 168.3 |
|
|
| 4,168.6 |
|
|
| 3,793.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
| % Change First Nine Months of Fiscal 2022 vs. First Nine Months of Fiscal 2021 |
| |||||||||||||||||||||||||||||||||
North America |
|
| (8.7 | %) |
|
| (13.2 | %) |
|
| (9.3 | %) |
|
| (8.6 | %) |
|
| (13.1 | %) |
|
| (9.2 | %) |
|
| (8.5 | %) |
|
| (3.1 | %) |
|
| (15.6 | %) |
CE |
|
| (17.1 | %) |
|
| (28.1 | %) |
|
| (18.4 | %) |
|
| (6.7 | %) |
|
| (19.7 | %) |
|
| (8.3 | %) |
|
| (11.5 | %) |
|
| (7.2 | %) |
|
| (12.6 | %) |
UK |
|
| (23.7 | %) |
|
| (39.0 | %) |
|
| (26.4 | %) |
|
| (16.2 | %) |
|
| (33.3 | %) |
|
| (19.2 | %) |
|
| (21.7 | %) |
|
| (24.3 | %) |
|
| (20.0 | %) |
Other (1) |
|
| (19.2 | %) |
|
| (20.9 | %) |
|
| (19.5 | %) |
|
| (13.6 | %) |
|
| (16.8 | %) |
|
| (14.1 | %) |
|
| (8.5 | %) |
|
| (3.2 | %) |
|
| (11.0 | %) |
Total |
|
| (11.9 | %) |
|
| (18.7 | %) |
|
| (12.8 | %) |
|
| (8.7 | %) |
|
| (16.2 | %) |
|
| (9.6 | %) |
|
| (10.2 | %) |
|
| (5.8 | %) |
|
| (15.0 | %) |
|
| First Nine Months Of Fiscal 2017 |
| |||||||||||||||||||||||||||||||||
|
| GAAP |
|
| Constant Currency |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
|
|
|
|
| Product |
|
|
|
|
|
|
|
|
|
| Product |
|
|
|
|
|
| Total |
|
|
|
|
|
|
|
|
| |||
|
| Service |
|
| Sales & |
|
| Total |
|
| Service |
|
| Sales & |
|
| Total |
|
| Paid |
|
| Incoming |
|
| EOP |
| |||||||||
|
| Revenues |
|
| Other |
|
| Revenues |
|
| Revenues |
|
| Other |
|
| Revenues |
|
| Weeks |
|
| Subscribers |
|
| Subscribers |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
| |||||
North America |
| $ | 589.1 |
|
| $ | 106.3 |
|
| $ | 695.4 |
|
| $ | 588.7 |
|
| $ | 106.2 |
|
| $ | 695.0 |
|
|
| 91.0 |
|
|
| 1,719.2 |
|
|
| 2,200.2 |
|
UK |
|
| 55.3 |
|
|
| 20.6 |
|
|
| 75.9 |
|
|
| 60.3 |
|
|
| 22.5 |
|
|
| 82.9 |
|
|
| 13.3 |
|
|
| 265.1 |
|
|
| 320.7 |
|
CE |
|
| 145.2 |
|
|
| 34.4 |
|
|
| 179.6 |
|
|
| 145.8 |
|
|
| 34.8 |
|
|
| 180.6 |
|
|
| 29.7 |
|
|
| 564.7 |
|
|
| 756.7 |
|
Other (1) |
|
| 28.1 |
|
|
| 15.4 |
|
|
| 43.5 |
|
|
| 26.9 |
|
|
| 15.1 |
|
|
| 42.0 |
|
|
| 3.7 |
|
|
| 72.2 |
|
|
| 77.9 |
|
Total |
| $ | 817.7 |
|
| $ | 176.7 |
|
| $ | 994.4 |
|
| $ | 821.7 |
|
| $ | 178.7 |
|
| $ | 1,000.4 |
|
|
| 137.7 |
|
|
| 2,621.1 |
|
|
| 3,355.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| % Change First Nine Months of Fiscal 2017 vs. First Nine Months of Fiscal 2016 |
| |||||||||||||||||||||||||||||||||
North America |
|
| 13.8 | % |
|
| 11.4 | % |
|
| 13.4 | % |
|
| 13.7 | % |
|
| 11.3 | % |
|
| 13.3 | % |
|
| 17.8 | % |
|
| 12.3 | % |
|
| 19.1 | % |
UK |
|
| (4.1 | %) |
|
| (8.1 | %) |
|
| (5.2 | %) |
|
| 4.6 | % |
|
| 0.6 | % |
|
| 3.5 | % |
|
| 6.2 | % |
|
| 0.8 | % |
|
| 6.5 | % |
CE |
|
| 14.7 | % |
|
| (6.6 | %) |
|
| 9.9 | % |
|
| 15.2 | % |
|
| (5.6 | %) |
|
| 10.5 | % |
|
| 18.9 | % |
|
| 6.4 | % |
|
| 23.8 | % |
Other (1) |
|
| 9.3 | % |
|
| 3.2 | % |
|
| 7.0 | % |
|
| 4.4 | % |
|
| 1.2 | % |
|
| 3.2 | % |
|
| 4.9 | % |
|
| 12.2 | % |
|
| 4.5 | % |
Total |
|
| 12.3 | % |
|
| 4.2 | % |
|
| 10.8 | % |
|
| 12.9 | % |
|
| 5.4 | % |
|
| 11.5 | % |
|
| 16.4 | % |
|
| 9.7 | % |
|
| 18.4 | % |
Note: Totals may not sum due to rounding.
|
|
(in millions except percentages and as noted)
|
| First Nine Months of Fiscal 2022 |
| |||||||||||||||||||||||||||||||||||||
|
| Digital Subscription Revenues |
|
|
|
|
|
|
|
|
|
|
| Workshops + Digital Fees |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
| GAAP |
|
| Constant |
|
| Digital |
|
| Incoming |
|
| EOP |
|
| GAAP |
|
| Constant |
|
| Workshops |
|
| Incoming |
|
| EOP |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
| ||||||||||||||||
North America |
| $ | 342.5 |
|
| $ | 343.1 |
|
|
| 87.7 |
|
|
| 2,186.9 |
|
|
| 1,908.4 |
|
| $ | 155.6 |
|
| $ | 155.8 |
|
|
| 22.7 |
|
|
| 548.0 |
|
|
| 555.4 |
|
CE |
|
| 145.9 |
|
|
| 164.1 |
|
|
| 39.9 |
|
|
| 998.5 |
|
|
| 898.1 |
|
|
| 23.6 |
|
|
| 26.6 |
|
|
| 4.2 |
|
|
| 95.7 |
|
|
| 111.6 |
|
UK |
|
| 20.1 |
|
|
| 22.1 |
|
|
| 7.4 |
|
|
| 179.7 |
|
|
| 168.6 |
|
|
| 12.5 |
|
|
| 13.8 |
|
|
| 2.7 |
|
|
| 65.3 |
|
|
| 65.4 |
|
Other (1) |
|
| 13.1 |
|
|
| 14.0 |
|
|
| 3.0 |
|
|
| 76.0 |
|
|
| 70.9 |
|
|
| 4.9 |
|
|
| 5.2 |
|
|
| 0.7 |
|
|
| 18.5 |
|
|
| 15.2 |
|
Total |
| $ | 521.6 |
|
| $ | 543.2 |
|
|
| 138.1 |
|
|
| 3,441.1 |
|
|
| 3,046.1 |
|
| $ | 196.5 |
|
| $ | 201.3 |
|
|
| 30.3 |
|
|
| 727.4 |
|
|
| 747.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| % Change First Nine Months of Fiscal 2022 vs. First Nine Months of Fiscal 2021 |
| |||||||||||||||||||||||||||||||||||||
North America |
|
| (11.6 | %) |
|
| (11.4 | %) |
|
| (11.9 | %) |
|
| (6.3 | %) |
|
| (18.5 | %) |
|
| (1.7 | %) |
|
| (1.6 | %) |
|
| 7.4 | % |
|
| 12.3 | % |
|
| (3.7 | %) |
CE |
|
| (17.1 | %) |
|
| (6.8 | %) |
|
| (12.8 | %) |
|
| (5.8 | %) |
|
| (15.5 | %) |
|
| (16.9 | %) |
|
| (6.3 | %) |
|
| 3.5 | % |
|
| (20.1 | %) |
|
| 21.0 | % |
UK |
|
| (29.2 | %) |
|
| (22.4 | %) |
|
| (25.1 | %) |
|
| (23.5 | %) |
|
| (23.0 | %) |
|
| (12.7 | %) |
|
| (3.9 | %) |
|
| (10.7 | %) |
|
| (26.2 | %) |
|
| (11.1 | %) |
Other (1) |
|
| (11.7 | %) |
|
| (5.6 | %) |
|
| (2.4 | %) |
|
| 2.8 | % |
|
| (7.5 | %) |
|
| (34.1 | %) |
|
| (29.6 | %) |
|
| (28.8 | %) |
|
| (21.9 | %) |
|
| (24.3 | %) |
Total |
|
| (14.0 | %) |
|
| (10.5 | %) |
|
| (12.8 | %) |
|
| (7.1 | %) |
|
| (17.7 | %) |
|
| (5.7 | %) |
|
| (3.4 | %) |
|
| 3.8 | % |
|
| 1.0 | % |
|
| (2.0 | %) |
|
| First Nine Months Of Fiscal 2017 |
| |||||||||||||||||||||||||||||||||||||
|
| Meeting Fees |
|
| Meeting |
|
| Incoming |
|
| EOP |
|
| Online Subscription Revenues |
|
| Online |
|
| Incoming |
|
| EOP |
| ||||||||||||||||
|
|
|
|
|
| Constant |
|
| Paid |
|
| Meeting |
|
| Meeting |
|
|
|
|
|
| Constant |
|
| Paid |
|
| Online |
|
| Online |
| ||||||||
|
| GAAP |
|
| Currency |
|
| Weeks |
|
| Subscribers |
|
| Subscribers |
|
| GAAP |
|
| Currency |
|
| Weeks |
|
| Subscribers |
|
| Subscribers |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
| ||||||||||
North America |
| $ | 376.1 |
|
| $ | 375.9 |
|
|
| 39.7 |
|
|
| 743.9 |
|
|
| 924.9 |
|
| $ | 213.0 |
|
| $ | 212.8 |
|
|
| 51.3 |
|
|
| 975.3 |
|
|
| 1,275.3 |
|
UK |
|
| 39.4 |
|
|
| 43.1 |
|
|
| 7.9 |
|
|
| 154.8 |
|
|
| 180.3 |
|
|
| 15.9 |
|
|
| 17.3 |
|
|
| 5.4 |
|
|
| 110.3 |
|
|
| 140.4 |
|
CE |
|
| 70.2 |
|
|
| 70.6 |
|
|
| 8.6 |
|
|
| 171.7 |
|
|
| 206.2 |
|
|
| 75.0 |
|
|
| 75.2 |
|
|
| 21.1 |
|
|
| 393.0 |
|
|
| 550.5 |
|
Other (1) |
|
| 19.3 |
|
|
| 18.3 |
|
|
| 2.0 |
|
|
| 31.6 |
|
|
| 35.6 |
|
|
| 8.9 |
|
|
| 8.6 |
|
|
| 1.7 |
|
|
| 40.6 |
|
|
| 42.3 |
|
Total |
| $ | 505.0 |
|
| $ | 507.8 |
|
|
| 58.3 |
|
|
| 1,102.0 |
|
|
| 1,346.9 |
|
| $ | 312.7 |
|
| $ | 313.9 |
|
|
| 79.5 |
|
|
| 1,519.1 |
|
|
| 2,008.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| % Change First Nine Months of Fiscal 2017 vs. First Nine Months of Fiscal 2016 |
| |||||||||||||||||||||||||||||||||||||
North America |
|
| 12.5 | % |
|
| 12.5 | % |
|
| 13.5 | % |
|
| 15.3 | % |
|
| 14.1 | % |
|
| 16.0 | % |
|
| 15.9 | % |
|
| 21.4 | % |
|
| 10.0 | % |
|
| 23.1 | % |
UK |
|
| (8.4 | %) |
|
| (0.0 | %) |
|
| 0.5 | % |
|
| 1.1 | % |
|
| 1.1 | % |
|
| 8.6 | % |
|
| 18.1 | % |
|
| 15.6 | % |
|
| 0.3 | % |
|
| 14.4 | % |
CE |
|
| 1.1 | % |
|
| 1.7 | % |
|
| 1.6 | % |
|
| (0.4 | %) |
|
| 4.9 | % |
|
| 31.1 | % |
|
| 31.5 | % |
|
| 27.8 | % |
|
| 9.7 | % |
|
| 32.7 | % |
Other (1) |
|
| 9.1 | % |
|
| 3.7 | % |
|
| 7.8 | % |
|
| 16.2 | % |
|
| 7.9 | % |
|
| 9.5 | % |
|
| 5.7 | % |
|
| 1.5 | % |
|
| 9.3 | % |
|
| 1.8 | % |
Total |
|
| 8.8 | % |
|
| 9.4 | % |
|
| 9.5 | % |
|
| 10.4 | % |
|
| 10.6 | % |
|
| 18.6 | % |
|
| 19.1 | % |
|
| 22.1 | % |
|
| 9.2 | % |
|
| 24.4 | % |
Note: Totals may not sum due to rounding.
|
|
46
North America Performance
The increasedecrease in North America revenues infor the first nine months of fiscal 2017 versus the prior year period was primarily driven by the increase in Service Revenues. The increase in North America Total Paid Weeks was driven by both the higher number of Incoming Subscribers at the beginning of fiscal 2017 versus the beginning of fiscal 2016 and higher recruitments primarily in the Online business in the first nine months of fiscal 2017 versus the prior year period.
The increase in North America product sales and other in the first nine months of fiscal 2017 versus the prior year period was primarily driven by an increase in product sales, partially offset by a decline in licensing revenue.
United Kingdom Performance
The decline in UK revenues in the first nine months of fiscal 20172022 versus the prior year period was driven by the negative impact of foreign currency. Excluding the impact of foreign currency, UK revenues would have increased, driven by an increasea decrease in ServiceSubscription Revenues onand, to a constant currency basis. This increaselesser extent, a decrease in Serviceproduct sales and other. The decrease in Subscription Revenues was the result of recruitment strength in our Online business infor the first nine months of fiscal 20172022 versus the prior year period.
The increaseperiod was driven primarily by a decrease in UK product sales and other inDigital Subscription Revenues. Digital Subscription Revenues were negatively impacted by both the recruitment decline during the first nine months of fiscal 20172022 as compared to the prior year period and the lower number of Incoming Digital Subscribers at the beginning of fiscal 2022 versus the beginning of fiscal 2021. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment and our PersonalPoints program not resonating with consumers to the extent anticipated. The decrease in North America Total Paid Weeks for the first nine months of fiscal 2022 versus the prior year period was driven primarily by both lower recruitments for the first nine months of fiscal 2022 versus the prior year period and the lower number of Total Incoming Subscribers at the beginning of fiscal 2022 versus the beginning of fiscal 2021. For the first nine months of fiscal 2022, Workshops + Digital Fees, Workshops + Digital Paid Weeks and End of Period Workshops + Digital Subscribers all substantially benefited from the transition of our former Digital 360 members from the Digital business to the Workshops + Digital business during the second and third quarters of fiscal 2022 as previously disclosed.
The decrease in North America product sales and other for the first nine months of fiscal 2022 versus the prior year period was driven primarily by a decrease in e-commerce product sales.
Continental Europe Performance
The decrease in Continental Europe revenues for the first nine months of fiscal 2022 versus the prior year period was driven by a decrease in meetingSubscription Revenues and, other productsto a lesser extent, a decrease in product sales almost entirely offset by the declineand other. The decrease in licensing revenue.
Continental Europe Performance
The increase in Continental Europe revenues inSubscription Revenues for the first nine months of fiscal 20172022 versus the prior year period was driven primarily driven by a decrease in Digital Subscription Revenues. Digital Subscription Revenues were negatively impacted by both the increase in Service Revenues. This increase in Service Revenues inrecruitment decline during the first nine months of fiscal 20172022 as compared to the prior year period and the lower number of Incoming Digital Subscribers at the beginning of fiscal 2022 versus the beginning of fiscal 2021. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment and our PersonalPoints program not resonating with consumers to the extent anticipated. The decrease in Continental Europe Total Paid Weeks for the first nine months of fiscal 2022 versus the prior year period was driven primarily driven by both lower recruitments for the increase in Online Subscription Revenues. The increase in Continental Europe Total Paid Weeks was primarily driven byfirst nine months of fiscal 2022 versus the higherprior year period and the lower number of Total Incoming Subscribers at the beginning of fiscal 20172022 versus the beginning of fiscal 2016, improved retention in the first nine months of fiscal 2017 versus the prior year period and recruitment strength in our Online business in the first nine months of fiscal 2017 versus the prior year period.2021.
The increase in Continental Europe revenues was partially offset by the declinedecrease in Continental Europe product sales and other infor the first nine months of fiscal 20172022 versus the prior year period.period was driven primarily by a decrease in e-commerce product sales.
OtherUnited Kingdom Performance
The increasedecrease in OtherUK revenues infor the first nine months of fiscal 20172022 versus the prior year period was primarily driven by a decrease in Subscription Revenues and, to a lesser extent, a decrease in product sales and other. The decrease in Subscription Revenues for the increasefirst nine months of fiscal 2022 versus the prior year period was driven primarily by a decrease in ServiceDigital Subscription Revenues. Digital Subscription Revenues were negatively impacted by both the lower number of Incoming Digital Subscribers at the beginning of fiscal 2022 versus the beginning of fiscal 2021 and the recruitment decline during the first nine months of fiscal 2022 as compared to the prior year period. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment and our PersonalPoints program not resonating with consumers to the extent anticipated. The increasedecrease in OtherUK Total Paid Weeks for the first nine months of fiscal 2022 versus the prior year period was driven primarily driven by both the higherlower number of Total Incoming Subscribers at the beginning of fiscal 20172022 versus the beginning of fiscal 2016.
The increase in product sales2021 and other inlower recruitments for the first nine months of fiscal 20172022 versus the prior year period.
The decrease in UK product sales and other for the first nine months of fiscal 20162022 versus the prior year period was driven primarily by a decrease in e-commerce product sales.
Other Performance
The decrease in Other revenues for the first nine months of fiscal 2022 versus the prior year period was driven by an increasea decrease in in-meetingSubscription Revenues and, to a lesser extent, a decrease in product sales and commissions from our franchisees partially offsetother. The decrease in Subscription Revenues for the first nine months of fiscal 2022 versus the prior year period was driven by a decrease in Workshops + Digital Fees and, to a lesser extent, a decrease in Digital Subscription Revenues. Subscription Revenues were negatively impacted by both the recruitment decline during the first nine months of fiscal 2022 as compared to the prior year period and the lower number of Total Incoming Subscribers at the beginning of fiscal 2022 versus the beginning of fiscal 2021. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment and our PersonalPoints program not resonating with consumers to the extent anticipated.
47
The decrease in Other product sales and other for the first nine months of fiscal 2022 versus the prior year period was driven primarily by a decrease in product sales, licensing revenue.and franchise commissions.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities have historically supplied, and are expected to continue to supply, us with our primary source of liquidity. We use these cash flows, supplemented with long-term debt and short-term borrowings, to fund our operations and global strategic initiatives, pay down debt and opportunistically engage in selective acquisitions. We currently believe that cash generated by operations, during fiscal 2017, our cash on hand of $178.2approximately $188.3 million at September 30, 2017October 1, 2022, our availability under our Revolving Credit Facility (as defined below) at October 1, 2022 and our continued cost focus will provide us with sufficient liquidity to meet our obligations for the next twelve months.short- and long-term.In addition, if necessary, we have the flexibility to delay investments or reduce marketing spend.
We continue to proactively manage our liquidity so we can maintain flexibility to fund investments in our business, honor our long-term debt obligations, and respond to evolving business and consumer conditions. To increase our flexibility and reduce our cash interest payments, we refinanced our then-existing credit facilities and then-existing senior notes in April 2021. See “—Long-Term Debt” for additional details on this refinancing. Additionally, we instituted a number of measures throughout our operations to mitigate expenses and reduce costs as well as ensure liquidity. The evolving nature, and uncertain economic impact, of the current demand environment may impact our liquidity going forward. To the extent that we do not successfully manage our costs, our liquidity and financial results, as well as our ability to fully access our Revolving Credit Facility, may be adversely affected.
Balance Sheet Working Capital
We generally operate with negative working capital that is driven in part byAs market conditions warrant, we may, from time to time, seek to purchase our commitmentoutstanding debt securities or loans, including the Senior Secured Notes and subscription plans which are our primary payment method. These plans require members and subscribersborrowings under the Credit Facilities (each as defined below). Such transactions could be privately negotiated or open market transactions, pursuant to pay us for meetings and Online subscription products before we pay for our obligationstender offers or otherwise. Subject to any applicable limitations contained in the normal courseagreements governing, or terms of, business. These prepayments are recorded as a current liabilityour indebtedness, any such purchases made by us may be funded by the use of cash on our balance sheet, which has resulted in, and in certain circumstances has helped drive, negative working capital. This core characteristicthe incurrence of new secured or unsecured debt, the issuance of our business model is expectedequity or the sale of assets. The amounts involved in any such purchase transactions, individually or in the aggregate, may be material. Any such purchases may equate to continue. However, in a period insubstantial amount of a particular class or series of debt, which revenue is increasing, we get higher working capital benefit from this deferred revenue.may reduce the trading liquidity of such class or series.
The following table sets forth certain relevant measures of our balance sheet working capital deficit, excluding cash and cash equivalents at:
|
| September 30, |
|
| December 31, |
|
| Increase/ |
|
| October 1, |
|
| January 1, |
|
| Increase/ |
| ||||||
|
| 2017 |
|
| 2016 |
|
| (Decrease) |
|
| 2022 |
|
| 2022 |
|
| (Decrease) |
| ||||||
|
| (in millions) |
|
| (in millions) |
| ||||||||||||||||||
Total current assets |
| $ | 280.5 |
|
| $ | 235.2 |
|
| $ | 45.3 |
|
| $ | 289.8 |
|
| $ | 271.2 |
|
| $ | 18.6 |
|
Total current liabilities |
|
| 293.2 |
|
|
| 292.4 |
|
|
| 0.8 |
|
|
| 200.0 |
|
|
| 229.1 |
|
|
| (29.2 | ) |
Working capital deficit |
|
| (12.7 | ) |
|
| (57.2 | ) |
|
| (44.5 | ) | ||||||||||||
Working capital surplus |
|
| 89.8 |
|
|
| 42.0 |
|
|
| (47.8 | ) | ||||||||||||
Cash and cash equivalents |
|
| 178.2 |
|
|
| 108.7 |
|
|
| 69.5 |
|
|
| 188.3 |
|
|
| 153.8 |
|
|
| 34.5 |
|
Current portion of long-term debt |
|
| 31.4 |
|
|
| 21.0 |
|
|
| 10.4 |
| ||||||||||||
Working capital deficit, excluding cash and cash equivalents and current portion of long-term debt | $ | (159.5 | ) |
| $ | (144.9 | ) |
| $ | 14.6 |
| |||||||||||||
Working capital deficit, excluding cash and cash equivalents |
| $ | (98.5 | ) |
| $ | (111.8 | ) |
| $ | (13.3 | ) |
Note: Totals may not sum due to rounding.
48
The following table sets forth a summary of the primary factors contributing to this $14.6the $13.3 million increasedecrease in our working capital deficit:deficit, excluding cash and cash equivalents:
|
| September 30, |
|
| December 31, |
|
| Increase/ |
|
| Impact to |
| ||||
|
| 2017 |
|
| 2016 |
|
| (Decrease) |
|
| Working Capital Deficit |
| ||||
|
| (in millions) |
| |||||||||||||
Derivative payable |
| $ | 21.1 |
|
| $ | 32.0 |
|
| $ | (10.8 | ) |
| $ | (10.8 | ) |
Operational liabilities and other, net of assets |
| $ | 60.4 |
|
| $ | 66.8 |
|
| $ | (6.4 | ) |
| $ | (6.4 | ) |
Deferred revenue |
| $ | 82.7 |
|
| $ | 62.9 |
|
| $ | 19.8 |
|
| $ | 19.8 |
|
Other current assets |
| $ | 23.2 |
|
| $ | 30.9 |
|
| $ | (7.7 | ) |
| $ | 7.7 |
|
Accrued salaries and wages |
| $ | 51.9 |
|
| $ | 49.6 |
|
| $ | 2.2 |
|
| $ | 2.2 |
|
Prepaid income taxes |
| $ | 33.4 |
|
| $ | 35.5 |
|
| $ | (2.1 | ) |
| $ | 2.1 |
|
Working capital deficit change |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 14.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Impact to |
| ||||
|
| October 1, |
|
| January 1, |
|
| Increase/ |
|
| Working |
| ||||
|
| 2022 |
|
| 2022 |
|
| (Decrease) |
|
| Capital Deficit |
| ||||
|
| (in millions) |
| |||||||||||||
Derivative (receivable) payable, net |
| $ | (8.6 | ) |
| $ | 14.7 |
|
| $ | (23.3 | ) |
| $ | (23.3 | ) |
Deferred revenue |
| $ | 39.8 |
|
| $ | 45.9 |
|
| $ | (6.1 | ) |
| $ | (6.1 | ) |
Operational liabilities and other, net of assets |
| $ | 50.9 |
|
| $ | 54.7 |
|
| $ | (3.8 | ) |
| $ | (3.8 | ) |
Portion of operating lease liabilities due within one year |
| $ | 18.5 |
|
| $ | 20.3 |
|
| $ | (1.8 | ) |
| $ | (1.8 | ) |
Income taxes payable |
| $ | 1.8 |
|
| $ | 1.7 |
|
| $ | 0.1 |
|
| $ | 0.1 |
|
Accrued interest |
| $ | 10.8 |
|
| $ | 5.1 |
|
| $ | 5.8 |
|
| $ | 5.8 |
|
Prepaid income taxes |
| $ | 14.7 |
|
| $ | 30.5 |
|
| $ | (15.8 | ) |
| $ | 15.8 |
|
Working capital deficit change, excluding cash and cash equivalents |
|
|
|
|
|
|
|
|
|
| $ | (13.3 | ) |
Note: Totals may not sum due to rounding.
The decreasechange in operational liabilities and other,derivative (receivable) payable, net of assets, was primarilydue to a change in fair value driven by timing of payments and seasonality.the change in interest rates. The increasedecrease in deferred revenue was driven primarily by improved business performance.lower signups compared to the prior year. The increase in accrued interest was due to the timing of debt principal payments. The decrease in prepaid income taxes was driven primarily by the timing of tax payments.
Cash Flows
The following table sets forth a summary of the Company’sour cash flows for the nine months ended:
|
| October 1, |
|
| October 2, |
| ||||||||||
|
| September 30, 2017 |
|
| October 1, 2016 |
|
| 2022 |
|
| 2021 |
| ||||
|
| (in millions) |
|
| (in millions) |
| ||||||||||
Net cash provided by operating activities |
| $ | 184.8 |
|
| $ | 93.9 |
|
| $ | 80.5 |
|
| $ | 125.4 |
|
Net cash used for investing activities |
| $ | (31.1 | ) |
| $ | (29.5 | ) |
| $ | (33.7 | ) |
| $ | (43.6 | ) |
Net cash used for financing activities |
| $ | (88.4 | ) |
| $ | (207.1 | ) |
| $ | (2.1 | ) |
| $ | (55.9 | ) |
Operating Activities
First Nine Months of Fiscal 20172022
Cash flows provided by operating activities of $184.8$80.5 million for the first nine months of fiscal 20172022 reflected an increasea decrease of $90.9$44.8 million from $93.9$125.4 million of cash flows used forprovided by operating activities infor the first nine months of fiscal 2016.2021. The increasedecrease in cash provided by operating activities was primarily the result of $46.1 million of highera decrease in net income, as well as the $43.3 million of benefit from the year-over-year changepartially offset by an increase in working capitalnon-cash add-back adjustments in the first nine months of fiscal 20172022 as compared to the prior year period.
First Nine Months of Fiscal 20162021
Cash flows provided by operating activities of $93.9$125.4 million for the first nine months of fiscal 20162021 reflected an increasea decrease of $41.0$2.1 million from $52.9$127.4 million of cash flows provided by operating activities infor the first nine months of fiscal 2015. The increase in cash provided by operating activities was primarily the result of $30.1 million of benefit from year-over-year change in working capital in the first nine months of fiscal 2016 as compared to the prior year period.2020.
First Nine Months of Fiscal 20172022
Net cash used for investing activities totaled $31.1$33.7 million infor the first nine months of fiscal 2017,2022, a decrease of $1.6$9.9 million as compared to the first nine months of fiscal 2016, which included2021. This decrease was primarily attributable to a decrease in cash paid for acquisitions in the acquisitionfirst nine months of its franchisee for certain territories in South Florida for $2.9 million.fiscal 2022 as compared to the prior year period.
First Nine Months of Fiscal 20162021
Net cash used for investing activities totaled $29.5$43.6 million infor the first nine months of fiscal 2016, an increase2021, a decrease of $3.3$4.2 million as compared to the first nine months of fiscal 2015. Our technology and operating infrastructure required less investment2020. This decrease was primarily attributable to lower capital expenditures, partially offset by an increase in cash paid for acquisitions, in the first nine months of fiscal 20162021 as compared to the prior year period.
49
Financing Activities
First Nine Months of Fiscal 2022
Net cash used for financing activities totaled $2.1 million for the first nine months of fiscal 2022, a decrease of $53.8 million as compared to the first nine months of fiscal 2015.2021. This decrease was primarily attributable to the April 13, 2021 payment in full of approximately $1.2 billion of borrowings under our then-existing credit facilities and redemption of all of the $300.0 million aggregate principal amount of our then-existing senior notes, as well as the payment in aggregate of $37.0 million of prepayment penalties, financing costs and debt discount in connection with the April 2021 debt refinancing in the first nine months of fiscal 2021. In addition, there was $19.3 million used for scheduled debt repayments under our then-existing term loan facility in the first quarter of fiscal 2021 and $2.5 million used for scheduled debt repayments under our Term Loan Facility (as defined below) in the third quarter of fiscal 2021. These payments were partially offset by the proceeds received of $1,000.0 million in an aggregate principal amount of borrowings under our Term Loan Facility and proceeds received from the issuance of $500.0 million in aggregate principal amount of our Senior Secured Notes (as defined below) in connection with our April 2021 debt refinancing in the first nine months of fiscal 2021. See “—Long-Term Debt” for additional details on debt.
Financing Activities
First Nine Months of Fiscal 20172021
Net cash used for financing activities totaled $88.4$55.9 million infor the first nine months of fiscal 2017,2021 primarily due to $73.0the April 13, 2021 payment in full of approximately $1.2 billion of borrowings under our then-existing credit facilities and redemption of all of the $300.0 million used foraggregate principal amount of our then-existing senior notes, as well as the payment in aggregate of $37.0 million of prepayment penalties, financing costs and debt prepayment and other scheduled debt repayments of $15.4 milliondiscount in connection with the Tranche B-2April 2021 debt refinancing. In addition, there was $19.3 million used for scheduled debt repayments under our then-existing term loan facility in the first quarter of fiscal 2021 and $2.5 million used for scheduled debt repayments under our Term Loan Facility in the first nine monthsthird quarter of fiscal 2017.
First Nine Months2021. These payments were partially offset by the proceeds received of Fiscal 2016
Net cash used for financing activities totaled $207.1$1,000.0 million in an aggregate principal amount of borrowings under our Term Loan Facility and proceeds received from the first nine monthsissuance of fiscal 2016, primarily due to a $144.3$500.0 million debt repaymentin aggregate principal amount of our Senior Secured Notes in connection with the Tranche B-1 Term Facility and other scheduledour April 2021 debt repayments of $15.8 million in connection with the Tranche B-2 Term Facility, as well as the repayment of $48.0 million outstanding under the Revolving Facility, offset by a tax benefitrefinancing. See “—Long-Term Debt” for restricted stock units vested and stock options exercised of $1.0 million in the first nine months of fiscal 2016.additional details on debt.
Long-Term Debt
We currently plan to meet our long-term debt obligations by using cash flows provided by operating activities and opportunistically using other means to repay or refinance our obligations as we determine appropriate.
The following schedule sets forth our long-term debt obligations at September 30, 2017:October 1, 2022:
Long-Term Debt
At September 30, 2017October 1, 2022
(Balances in millions)
|
| October 1, 2022 |
| |
Term Loan Facility due April 13, 2028 |
| $ | 945.0 |
|
Senior Secured Notes due April 15, 2029 |
|
| 500.0 |
|
Total |
|
| 1,445.0 |
|
Less: Current portion |
|
| — |
|
Unamortized deferred financing costs |
|
| 11.1 |
|
Unamortized debt discount |
|
| 12.6 |
|
Total long-term debt |
| $ | 1,421.2 |
|
|
| Balance |
| |
Tranche B-2 Term Facility due April 2, 2020 |
| $ | 1,930.4 |
|
Less: Current Portion |
|
| 31.4 |
|
Unamortized Deferred Financing Costs |
|
| 14.1 |
|
Total Long-Term Debt |
| $ | 1,884.8 |
|
Note: Totals may not sum due to rounding.
Our50
On April 13, 2021, we (1) repaid in full approximately $1.2 billion in aggregate principal amount of senior secured tranche B term loans due in 2024 under our then-existing credit facilities at the endand (2) redeemed all of the first$300.0 million in aggregate principal amount of our then-outstanding 8.625% Senior Notes due in 2025, or the Discharged Senior Notes. On April 13, 2021, our then-existing credit facilities included a senior secured revolving credit facility (which included borrowing capacity available for letters of credit) due in 2022 with $175.0 million in an aggregate principal amount of commitments. There were no outstanding borrowings under such revolving credit facility on that date. We funded such repayment of loans and redemption of notes with cash on hand as well as with proceeds received from approximately $1,000.0 million in an aggregate principal amount of borrowings under our new credit facilities (as amended from time to time, referred to herein as the Credit Facilities) and proceeds received from the issuance of $500.0 million in aggregate principal amount of 4.500% Senior Secured Notes due 2029, or the Senior Secured Notes, each as described below. These transactions are collectively referred to herein as the April 2021 debt refinancing. During the second quarter of fiscal 2013 consisted2021, we incurred fees of $37.9 million (which included $12.9 million of a prepayment penalty on the following term loan facilitiesDischarged Senior Notes and revolving$5.0 million of a debt discount on our Term Loan Facility (as defined below)) in connection with our April 2021 debt refinancing. In addition, we recorded a loss on early extinguishment of debt of $29.2 million in connection thereto. This early extinguishment of debt charge was comprised of $12.9 million of a prepayment penalty on the Discharged Senior Notes, $9.0 million of financing fees paid in connection with our April 2021 debt refinancing and the write-off of $7.2 million of pre-existing deferred financing fees and debt discount.
Credit Facilities
The Credit Facilities were issued under a credit facilities: a tranche B loan, or Term B Loan, a tranche C loan, or Term C Loan, a tranche D loan, or Term D Loan, a tranche E loan, or Term E Loan, a tranche F loan, or Term F Loan, revolving credit facility A-1, or Revolver A-1, and revolving credit facility A-2, or Revolver A-2.
Onagreement, dated April 2, 2013, we refinanced our credit facilities pursuant to a new Credit Agreement,13, 2021 or, as amended supplemented or otherwise modified,from time to time, the Credit Agreement, among the Company, as borrower, the lenders party thereto, JPMorgan Chaseand Bank of America, N.A., or Bank of America, as administrative agent and an issuing bank, The Bank of Nova Scotia, as revolving agent, swingline lender and an issuing bank, and the other parties thereto.bank. The Credit Agreement provides for (a) a revolving credit facility (including swing line loans and lettersFacilities consist of credit)(1) $1,000.0 million in an initial aggregate principal amount of $250.0 million that will mature on April 2, 2018,senior secured tranche B term loans due in 2028, or the RevolvingTerm Loan Facility, (b) an initial term B-1 loan credit facilityand (2) $175.0 million in an aggregate principal amount of $300.0commitments under a senior secured revolving credit facility (which includes borrowing capacity available for letters of credit) due in 2026, or the Revolving Credit Facility.
In December 2021, we made voluntary prepayments at par in an aggregate amount of $52.5 million that matured on April 2, 2016, or Tranche B-1in respect of our outstanding term loans under the Term Facility,Loan Facility. As a result of these prepayments, we wrote off a debt discount and (c) an initial term B-2 loan credit facilitydeferred financing fees of $1.2 million in the aggregate in the fourth quarter of fiscal 2021.
As of October 1, 2022, we had $945.0 million in an aggregate principal amount of $2,100.0 million that will mature on April 2, 2020, or Tranche B-2 Term Facility. We refer herein to the Tranche B-1 Term Facility together with the Tranche B-2 Term Facility as the Term Facilities, and the Term Facilities and Revolving Facility collectively as the WWI Credit Facility. In connection with this refinancing, we used the proceeds from borrowings under the Term Facilities to pay off a total of $2,399.9 million of outstanding loans consisting of $128.8 million of Term B Loans, $110.6 million of Term C Loans, $117.6 million of Term D Loans, $1,125.0 million of Term E Loans, $817.9 million of Term F Loans, $21.2 million of loans under the Revolver A-1 and $78.8 million of loans under the Revolver A-2. Following the refinancing of a total of $2,399.9 million of loans, at April 2, 2013, we had $2,400.0 million debt outstanding under the Termour Credit Facilities, and $248.8with $173.9 million of availability under the Revolving Facility. We incurred fees of $44.8 million during the second quarter of fiscal 2013 in connection with this refinancing. In the second quarter of fiscal 2013, we wrote-off fees associated with this refinancing which resulted in our recording a charge of $21.7 million in early extinguishment of debt.
On September 26, 2014, we entered into an agreement with certain lenders amending the Credit Agreement that, among other things, eliminated the Financial Covenant (as defined in the Credit Agreement) with respect to the Revolving Facility. In connection with this amendment, we wrote-off deferred financing fees of approximately $1.6 million in the third quarter of fiscal 2014. Concurrently with and in order to effect this amendment, we reduced the amount of the Revolving Facility from $250.0 million to $50.0 million.
Under the terms of the Credit Agreement, depending on our Consolidated Leverage Ratio (as defined in the Credit Agreement), on an annual basis on or about the time we are required to deliver our financial statements for any fiscal year, we are obligated to offer to prepay a portion of the outstanding principal amount of the Term Facilities in an aggregate amount determined by a percentage of our annual excess cash flow (as defined in the Credit Agreement) (said payment referred to as a Cash Flow Sweep). On March 13, 2015, we commenced an offer to prepay at a discount to par up to $75.0 million in aggregate principal amount of term loans outstanding under the Tranche B-1 Term Facility. On March 20, 2015, we accepted offers with a discount equal to or greater than 9.00% in respect of such term loans. On March 25, 2015, we paid an aggregate amount of cash proceeds totaling $57.4 million plus an amount sufficient to pay accrued and unpaid interest on the amount prepaid to prepay $63.1 million in aggregate principal amount of such term loans under the Tranche B-1 Term Facility. This expenditure reduced, on a dollar for dollar basis, our $59.7 million obligation to make a mandatory excess cash flow prepayment offer to the term loan lenders under the terms of the Credit Agreement. In addition, we made a voluntary prepayment at par on March 25, 2015 of $2.5 million in respect of such term loans under the Tranche B-1 Term Facility to reduce the remaining excess cash flow prepayment obligation for fiscal 2014. As a result of this prepayment, we wrote-off fees of $0.3 million, incurred fees of $0.6 million and recorded a gain on early extinguishment of debt of $4.7 million, inclusive of these fees, in the first quarter of fiscal 2015.
On June 17, 2015, we commenced another offer to prepay at a discount to par up to $229.0 million in aggregate principal amount of term loans outstanding under the Tranche B-1 Term Facility. On June 22, 2015, we accepted offers with a discount equal to or greater than 9.00% in respect of such term loans. On June 26, 2015, we paid an aggregate amount of cash proceeds totaling $77.2 million plus an amount sufficient to pay accrued and unpaid interest on the amount prepaid to prepay $84.9 million in aggregate principal amount of such term loans under the Tranche B-1 Term Facility. As a result of this prepayment, we wrote-off fees of $0.3 million, incurred fees of $0.6 million and recorded a gain on early extinguishment of debt of $6.7 million, inclusive of these fees, in the second quarter of fiscal 2015.
On July 14, 2015, we drew down the $48.0 million available on our Revolving Facility in order to enhance our cash position and to provide additional financial flexibility. As of January 2, 2016, the revolver borrowing was classified as a short-term liability in consideration of the fact that the terms of the Revolving Facility require an assessment as to whether there have been any material adverse changes with respect to the Company in connection with our monthly interest elections. Although the revolver borrowing had classified as a short-term liability as of January 2, 2016, absent any change in fact and circumstance, we had, and continue to have, the ability to extend and not repay the Revolving Facility until its due date of April 2, 2018.
On April 1, 2016, we paid in full, with cash on hand, a principal amount of term loans equal to $144.3 million, which constituted the entire remaining principal amount of term loans outstanding under the Tranche B-1 Term Facility due April 2, 2016.
On July 29, 2016, we paid down, with cash on hand, a principal amount of $25.0 million of the $48.0 million outstanding under the Revolving Facility. On September 16, 2016, we paid down, with cash on hand, the remaining outstanding principal amount of $23.0 million on the Revolving Facility.
On May 18, 2017, we commenced another offer to prepay at a discount to par up to $75.0 million in aggregate principal amount of term loans outstanding under the Tranche B-2 Term Facility. On May 24, 2017, we accepted offers with a discount equal to or greater than 3.28% in respect of such term loans. On May 25, 2017, we paid an aggregate amount of cash proceeds totaling $73.0 million plus an amount sufficient to pay accrued and unpaid interest on the amount prepaid to prepay $75.5 million in aggregate principal amount of such term loans under the Tranche B-2 Term Facility. As a result of this prepayment, we wrote-off fees of $0.6 million, incurred fees of $0.3 million and recorded a gain on early extinguishment of debt of $1.6 million, inclusive of these fees, in the second quarter of fiscal 2017.
At September 30, 2017, under the WWI Credit Facility, we had $1,930.4 million outstanding consisting entirely of a term loan under the Tranche B-2 Term Facility. At September 30, 2017, the Revolving Facility had $0 outstanding, $2.2$1.1 million in issued but undrawn letters of credit outstanding thereunder and $47.8 million in available unused commitments thereunder. The proceeds fromunder the Revolving Credit Facility. There were no outstanding borrowings under the Revolving Credit Facility as of October 1, 2022.
All obligations under the Credit Agreement are guaranteed by, subject to certain exceptions, each of our current and future wholly-owned material domestic restricted subsidiaries. All obligations under the Credit Agreement, and the guarantees of those obligations, are secured by substantially all of the assets of the Company and each guarantor, subject to customary exceptions, including:
The Credit Facilities require the Company to prepay outstanding term loans, subject to certain exceptions, with:
The foregoing mandatory prepayments will be used to reduce the installments of principal on the Term Loan Facility. We may voluntarily repay outstanding loans under the Credit Facilities at any time without penalty, except for customary “breakage” costs with respect to LIBOR loans under the Credit Facilities.
51
Borrowings under the Term Loan Facility bear interest at a rate per annum equal to, at our option, either (1) an applicable margin plus a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate as determined by the Federal Reserve Bank of New York, (b) the prime rate of Bank of America and (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00%; provided that such rate is not lower than a floor of 1.50% or (2) an applicable margin plus a LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, provided that LIBOR is not lower than a floor of 0.50%. Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to an applicable margin based upon a leverage-based pricing grid, plus, at our option, either (1) a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate as determined by the Federal Reserve Bank of New York, (b) the prime rate of Bank of America and (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00%; provided that such rate is not lower than a floor of 1.00% or (2) a LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, provided such rate is not lower than a floor of zero. As of October 1, 2022, the applicable margins for the LIBOR rate borrowings under the Term Loan Facility and the Revolving Credit Facility were 3.50% and 2.75%, respectively. In the event that LIBOR is phased out as is currently expected, the Credit Agreement provides that we and the administrative agent may amend the Credit Agreement to replace the LIBOR definition therein with a successor rate subject to notifying the lending syndicate of such change and not receiving within five business days of such notification objections to such replacement rate from lenders holding at least a majority of the aggregate principal amount of loans and commitments then outstanding under the Credit Agreement; provided that such lending syndicate may not object to a SOFR-based successor rate contained in any such amendment. If we fail to do so, our borrowings will be based off of the alternative base rate plus a margin.
On a quarterly basis, we pay a commitment fee to the lenders under the Revolving Credit Facility in respect of unutilized commitments thereunder, which commitment fee fluctuates depending upon our Consolidated First Lien Leverage Ratio (as defined in the Credit Agreement).
The Credit Agreement contains other customary terms, including (1) representations, warranties and affirmative covenants, (2) negative covenants, including limitations on indebtedness, liens, mergers, acquisitions, asset sales, investments, distributions, prepayments of subordinated debt, amendments of material agreements governing subordinated indebtedness, changes to lines of business and transactions with affiliates, in each case subject to baskets, thresholds and other exceptions, and (3) customary events of default.
The availability of certain baskets and the ability to enter into certain transactions are also subject to compliance with certain financial ratios. In addition, if the aggregate principal amount of extensions of credit outstanding under the Revolving Credit Facility as of any fiscal quarter end exceeds 35% of the amount of the aggregate commitments under the Revolving Credit Facility in effect on such date, we must be in compliance with a Consolidated First Lien Leverage Ratio of 5.75:1.00 for the period ending after the first fiscal quarter of 2022 through and including with the first fiscal quarter of 2023, with a step down to 5.50:1.00 for the period ending after the first fiscal quarter of 2023 through and including with the first fiscal quarter of 2024, with an additional step down to 5.25:1.00 for the period ending after the first fiscal quarter of 2024 through and including with the first fiscal quarter of 2025 and again to 5.00:1.00, for the period following the first fiscal quarter of 2025. As of October 1, 2022, our actual Consolidated First Lien Leverage Ratio was 4.99:1.00 and there were no borrowings under our Revolving Credit Facility and total letters of credit)credit issued were $1.1 million. We expect we may not be able to satisfy the Consolidated First Lien Leverage Ratio in the near future, and as a result, the amount of funds we are availableable to borrow under the Revolving Credit Facility would be effectively limited.
Senior Secured Notes
The Senior Secured Notes were issued pursuant to an Indenture, dated as of April 13, 2021, or, as amended, supplemented or modified from time to time, the Indenture, among the Company, the guarantors named therein and The Bank of New York Mellon, as trustee and notes collateral agent. The Indenture contains customary terms, events of default and covenants for an issuer of non-investment grade debt securities. These covenants include limitations on indebtedness, liens, mergers, acquisitions, asset sales, investments, distributions, prepayments of subordinated debt and transactions with affiliates, in each case subject to baskets, thresholds and other exceptions.
52
The Senior Secured Notes accrue interest at a rate per annum equal to 4.500% and will mature on April 15, 2029. Interest on the Senior Secured Notes is payable semi-annually on April 15 and October 15 of each year, beginning on October 15, 2021. On or after April 15, 2024, we may on any one or more occasions redeem some or all of the Senior Secured Notes at a purchase price equal to 102.250% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the redemption date, such optional redemption price decreasing to 101.125% on or after April 15, 2025 and to 100.000% on or after April 15, 2026. Prior to April 15, 2024, we may on any one or more occasions redeem up to 40% of the aggregate principal amount of the Senior Secured Notes with an amount not to exceed the net proceeds of certain equity offerings at 104.500% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the redemption date. Prior to April 15, 2024, we may redeem some or all of the Senior Secured Notes at a make-whole price plus accrued and unpaid interest, if any, to, but not including, the redemption date. In addition, during any twelve-month period ending prior to April 15, 2024, we may redeem up to 10% of the aggregate principal amount of the Senior Secured Notes at a purchase price equal to 103.000% of the principal amount of the Senior Secured Notes to be usedredeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. If a change of control occurs, we must offer to purchase for working capitalcash the Senior Secured Notes at a purchase price equal to 101% of the principal amount of the Senior Secured Notes, plus accrued and general corporate purposes. unpaid interest, if any, to, but not including, the purchase date. Following the sale of certain assets and subject to certain conditions, we must offer to purchase for cash the Senior Secured Notes at a purchase price equal to 100% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the purchase date.
The Senior Secured Notes are guaranteed on a senior secured basis by our subsidiaries that guarantee the Credit Facilities. The Senior Secured Notes and the note guarantees are secured by a first-priority lien on all the collateral that secures the Credit Facilities, subject to a shared lien of equal priority with the Company’s and each guarantor’s obligations under the Credit Facilities and subject to certain thresholds, exceptions and permitted liens.
Outstanding Debt
At September 30, 2017October 1, 2022, we had $1,445.0 million outstanding under the Credit Facilities and December 31, 2016,the Senior Secured Notes, consisting of borrowings under the Term Loan Facility of $945.0 million, $0.0 drawn down on the Revolving Credit Facility and $500.0 million in aggregate principal amount of Senior Secured Notes issued and outstanding.
At October 1, 2022 and January 1, 2022, our debt consisted entirely of both fixed and variable-rate instruments. An interestInterest rate swap wasswaps were entered into to hedge a portion of the cash flow exposure associated with our variable-rate borrowings. Further information regarding our interest rate swaps can be found in Part I, Item 1 of this Quarterly Report on Form 10-Q under Note 11 “Derivative Instruments and Hedging” in the Notes to the Consolidated Financial Statements. The weighted average interest rate (which includes amortization of deferred financing costs)costs and debt discount) on our outstanding debt, exclusive of the impact of the swap,swaps then in effect, was approximately 4.68%4.98% and 4.41%5.11% per annum at September 30, 2017October 1, 2022 and December 31, 2016,January 1, 2022, respectively, based on interest rates on the applicablethese dates. The weighted average interest rate (which includes amortization of deferred financing costs)costs and debt discount) on our outstanding debt, including the impact of the swap,swaps then in effect, was approximately 5.19%5.28% and 5.32%5.62% per annum at September 30, 2017October 1, 2022 and December 31, 2016,January 1, 2022, respectively, based on interest rates on the applicablethese dates.
At September 30, 2017, in accordance with the terms of the Credit Agreement, it is probable that we will have a Cash Flow Sweep obligation of approximately $11.2 million to the term loan lenders in the second quarter of fiscal 2018.
Borrowings under the Credit Agreement bear interest at a rate equal to, at our option, LIBOR plus an applicable margin or a base rate plus an applicable margin. LIBOR under the Tranche B-2 Term Facility is subject to a minimum interest rate of 0.75% and the base rate under the Tranche B-2 Term Facility is subject to a minimum interest rate of 1.75%. Under the terms of the Credit Agreement, in the event we receive a corporate rating of BB- (or lower) from S&P and a corporate rating of Ba3 (or lower) from Moody’s, the applicable margin relating to the Term Facilities would increase by 25 basis points. On February 21, 2014, both S&P and Moody’s issued revised corporate ratings of the Company of B+ and B1, respectively. As a result, effective February 21, 2014, the applicable margin on borrowings under the Tranche B-1 Term Facility went from 2.75% to 3.00% and on borrowings under the Tranche B-2 Term Facility went from 3.00% to 3.25%. The applicable margin relating to the Revolving Facility will fluctuate depending upon our Consolidated Leverage Ratio. At April 1, 2016, the date of payment of the principal amount of loans outstanding under the Tranche B-1 Term Facility discussed above, borrowings under the Tranche B-1 Term Facility bore interest at LIBOR plus an applicable margin of 3.00%. At September 30, 2017, borrowings under the Tranche B-2 Term Facility bore interest at LIBOR plus an applicable margin of 3.25%. Based on our Consolidated Leverage Ratio as of September 30, 2017, had there been any borrowings under the Revolving Facility, it would have borne interest at LIBOR plus an applicable margin of 2.50%. On a quarterly basis, we will pay a commitment fee to the lenders under the Revolving Facility in respect of unutilized commitments thereunder, which commitment fee will fluctuate, but in no event exceed 0.50% per annum, depending upon our Consolidated Leverage Ratio. At our Consolidated Leverage Ratio of 5:49:1.00 as of September 30, 2017, the commitment fee was 0.50% per annum. We also will pay customary letter of credit fees and fronting fees under the Revolving Facility.
The Credit Agreement contains customary covenants including covenants that, in certain circumstances, restrict our ability to incur additional indebtedness, pay dividends on and redeem capital stock, make other payments, including investments, sell our assets and enter into consolidations, mergers and transfers of all or substantially all of our assets. The WWI Credit Facility does not require us to meet any financial maintenance covenants and is guaranteed by certain of our existing and future subsidiaries. Substantially all of our assets secure the WWI Credit Facility.
The following schedule sets forth our year-by-year debt obligations at September 30, 2017:October 1, 2022:
Total Debt Obligation
(Including Current Portion)
At September 30, 2017October 1, 2022
(in millions)
Remainder of fiscal 2017 |
| $ | 5.1 |
|
Fiscal 2018 |
| $ | 26.4 |
|
Fiscal 2019 |
| $ | 20.2 |
|
Fiscal 2020 |
| $ | 1,878.7 |
|
Total |
| $ | 1,930.4 |
|
Remainder of fiscal 2022 |
| $ | — |
|
Fiscal 2023 |
|
| — |
|
Fiscal 2024 |
|
| — |
|
Fiscal 2025 |
|
| — |
|
Fiscal 2026 |
|
| — |
|
Fiscal 2027 |
|
| 10.0 |
|
Thereafter |
|
| 1,435.0 |
|
Total |
| $ | 1,445.0 |
|
Note: Totals may not sum due to rounding.
53
Accumulated Other Comprehensive Loss
Our accumulated other comprehensive loss includes changes in the fair value of derivative instruments and the effects of foreign currency translations. At September 30, 2017October 1, 2022 and October 1, 2016,2, 2021, the cumulative balance of changes in the fair value of derivative instruments, net of taxes, was a gain of $9.9 million and a loss of $10.8 million and $29.3$14.5 million, respectively. At September 30, 2017October 1, 2022 and October 1, 2016,2, 2021, the cumulative balance of the effects of foreign currency translations, net of taxes, was a loss of $4.0$21.2 million and $8.3a loss of $6.5 million, respectively.
Dividends and Stock Transactions
We do not currently pay a cash dividend.dividend and we have no current plans to pay dividends in the foreseeable future. Any future determination to declare and pay dividends will be made at the sole discretion of our Board of Directors, after taking into account our financial condition and results of operations, capital requirements, contractual, legal, tax and regulatory restrictions, the provisions of Virginia law affecting the payment of distributions to shareholders and such other factors itour Board of Directors may deem relevant. The WWI Credit Facility also contains restrictions onIn addition, our ability to pay dividends onmay be limited by covenants in our common stock.existing indebtedness, including the Credit Agreement governing the Credit Facilities and the Indenture governing the Senior Secured Notes, and may be limited by the agreements governing other indebtedness we or our subsidiaries incur in the future.
On October 9, 2003, our Board of Directors authorized, and we announced, a program to repurchase up to $250.0 million of our outstanding common stock. On each of June 13, 2005, May 25, 2006 and October 21, 2010, our Board of Directors authorized, and we announced, addingthe addition of $250.0 million to this program. The repurchase program allows for shares to be purchased from time to time in the open market or through privately negotiated transactions. No shares will be purchased from Artal Holdings Sp. z o.o., Succursale de Luxembourg and its parents and subsidiaries under this program. The repurchase program currently has no expiration date. During the nine months ended September 30, 2017October 1, 2022 and October 1, 2016,2, 2021, we repurchased no shares of our common stock in the open market under this program.
The WWI Credit Facility provides that we are permitted to pay dividendsEBITDAS, Adjusted EBITDAS and extraordinary dividends, as well as repurchase shares of our common stock, so long as we are not in default under the Credit Agreement. However, payment of extraordinary dividends and stock repurchases shall not exceed $100.0 million in the aggregate in any fiscal year if our Consolidated Leverage Ratio is greater than 3.25:1. As of September 30, 2017, our Consolidated Leverage Ratio was greater than 3.25:1 and we expect that it will remain above 3.25:1 for the foreseeable future.Net Debt
EBITDAS
We define EBITDAS, a non-GAAP financial measure, as earnings before interest, taxes, depreciation, amortization and stock-based compensation. compensation and Adjusted EBITDAS, a non-GAAP financial measure, as earnings before interest, taxes, depreciation, amortization, stock-based compensation, franchise rights acquired and goodwill impairments, net restructuring charges and early extinguishment of debt.
54
The table below sets forth the calculationsreconciliations for EBITDAS and Adjusted EBITDAS, each a non-GAAP financial measure, to net (loss) income, the most comparable GAAP financial measure, for the three and nine months ended September 30, 2017October 1, 2022 and October 1, 2016,2, 2021, and EBITDAS and Adjusted EBITDAS to net loss for the trailing twelve months ended September 30, 2017:October 1, 2022:
(in millions)
|
| Three Months Ended |
|
| Nine Months Ended |
|
|
|
| |||||||||||
|
| October 1, 2022 |
|
| October 2, 2021 |
|
| October 1, 2022 |
|
| October 2, 2021 |
|
| Trailing Twelve |
| |||||
Net (loss) income |
| $ | (206.0 | ) |
| $ | 46.3 |
|
| $ | (218.9 | ) |
| $ | 37.0 |
|
| $ | (189.0 | ) |
Interest |
|
| 20.9 |
|
|
| 19.3 |
|
|
| 58.8 |
|
|
| 68.7 |
|
|
| 78.0 |
|
Taxes |
|
| (70.7 | ) |
|
| 13.3 |
|
|
| (75.4 | ) |
|
| 6.5 |
|
|
| (72.1 | ) |
Depreciation and amortization |
|
| 10.5 |
|
|
| 11.1 |
|
|
| 31.9 |
|
|
| 34.5 |
|
|
| 43.0 |
|
Stock-based compensation |
|
| 3.4 |
|
|
| 3.4 |
|
|
| 10.4 |
|
|
| 16.6 |
|
|
| 15.1 |
|
EBITDAS |
| $ | (242.0 | ) |
| $ | 93.5 |
|
| $ | (193.2 | ) |
| $ | 163.2 |
|
| $ | (125.0 | ) |
Franchise rights acquired and |
|
| 312.7 |
|
|
| — |
|
|
| 339.2 |
|
|
| — |
|
|
| 339.2 |
|
2022 plan restructuring charges |
|
| 3.6 |
|
|
| — |
|
|
| 22.7 |
|
|
| — |
|
|
| 22.7 |
|
2021 plan restructuring charges |
|
| 0.1 |
|
|
| 9.3 |
|
|
| (0.2 | ) |
|
| 20.9 |
|
|
| 0.4 |
|
2020 plan restructuring charges |
|
| — |
|
|
| (0.7 | ) |
|
| (0.1 | ) |
|
| (1.5 | ) |
|
| (0.2 | ) |
Early extinguishment of debt |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 29.2 |
|
|
| 1.2 |
|
Adjusted EBITDAS (1) |
| $ | 74.4 |
|
| $ | 102.1 |
|
| $ | 168.3 |
|
| $ | 211.7 |
|
| $ | 238.3 |
|
|
| Three Months Ended |
|
| Nine Months Ended |
|
|
|
|
| ||||||||||
|
| September 30, |
|
| October 1, |
|
| September 30, |
|
| October 1, |
|
| Trailing Twelve |
| |||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| Months |
| |||||
Net Income |
| $ | 44.7 |
|
| $ | 34.7 |
|
| $ | 100.5 |
|
| $ | 54.4 |
|
| $ | 113.8 |
|
Interest |
|
| 27.0 |
|
|
| 28.3 |
|
|
| 82.2 |
|
|
| 87.0 |
|
| $ | 110.4 |
|
Taxes |
|
| 19.6 |
|
|
| 4.0 |
|
|
| 36.5 |
|
|
| 12.4 |
|
| $ | 40.7 |
|
Depreciation and Amortization |
|
| 12.8 |
|
|
| 13.4 |
|
|
| 38.3 |
|
|
| 39.1 |
|
| $ | 51.8 |
|
Stock-based Compensation |
|
| 4.6 |
|
|
| (0.6 | ) |
|
| 9.4 |
|
|
| 4.4 |
|
| $ | 11.5 |
|
EBITDAS |
| $ | 108.6 |
|
| $ | 79.8 |
|
| $ | 266.9 |
|
| $ | 197.3 |
|
| $ | 328.3 |
|
Note: Totals may not sum due to rounding.
Reducing leverage is a clear capital structure priority for the Company. As part of our commitment to deleveraging, we are targeting a year end 2018 net debt/EBITDAS ratio of less than 4.5x, based on improved operating performance and cash generation. As of September 30, 2017 our trailing twelve months EBITDAS was $328.3 million andOctober 1, 2022, our net debt/Adjusted EBITDAS ratio was 5.3x. 5.2x.
The table below sets forth the calculationreconciliation for net debt, a non-GAAP financial measure:measure, to total debt, the most comparable GAAP financial measure, for the nine months ended:
(in millions)
|
| October 1, 2022 |
| |
Total debt |
| $ | 1,445.0 |
|
Less: Unamortized deferred financing costs |
|
| 11.1 |
|
Less: Unamortized debt discount |
|
| 12.6 |
|
Less: Cash on hand |
|
| 188.3 |
|
Net debt |
| $ | 1,232.9 |
|
Note: Totals may not sum due to rounding.
|
| September 30, |
| |
|
| 2017 |
| |
Total debt |
| $ | 1,930.4 |
|
Less: Unamortized deferred financing costs |
|
| 14.1 |
|
Less: Cash on hand |
|
| 178.2 |
|
Net debt |
| $ | 1,738.1 |
|
We present EBITDAS, Adjusted EBITDAS and net debt/Adjusted EBITDAS because we consider them to be useful supplemental measures of our performance. In addition, we believe EBITDAS, Adjusted EBITDAS and net debt/Adjusted EBITDAS are useful to investors, analysts and rating agencies in measuring the ability of a company to meet its debt service obligations. See “Non-GAAP“—Non-GAAP Financial Measures” herein for an explanation of our use of these non-GAAP financial measures.
55
OFF-BALANCE SHEET ARRANGEMENTS
As part of our ongoing business, we do not participate in transactionsarrangements that generate relationships with unconsolidated entities or financial partnerships established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes, such as entities often referred to as structured finance or special purpose entities.
SEASONALITY
Our business is seasonal due to the importance of the winter season to our overall member recruitment environment. Our advertising schedule generally supportsHistorically, we experience our highest level of recruitment during the three key recruitment-generating seasonsfirst quarter of the year: winter, spring and fall,year, which is supported with winter having the highest concentration of advertising spending. Therefore, our number of End of Period Subscribers in the first quarter of the year is typically higher than the number in other quarters of the year, historically reflecting a decline over the course of the year.
AVAILABLE INFORMATION
Corporate information and our press releases, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments thereto, are available free of charge on our corporate website at www.weightwatchersinternational.comcorporate.ww.com as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (i.e., generally the same day as the filing)., or the SEC. Moreover, we also make available at that site the Section 16 reports filed electronically by our officers, directors and 10 percent shareholders. Usually these are publicly accessible no later than the business day following the filing.
We use our corporate website at www.weightwatchersinternational.com,corporate.ww.com and certain social media channels such as our corporate Facebook page (www.facebook.com/weightwatchers) and(www.facebook.com/WW), Instagram account (Instagram.com/weightwatchers)WW) and Twitter account (@ww_us) as channels of distribution of Company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, Securities and Exchange CommissionSEC filings and public conference calls and webcasts. The contents of our website and social media channels shall not be deemed to be incorporated herein by reference.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of September 30, 2017,October 1, 2022, the market risk disclosures appearing in “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” of our Annual Report on Form 10-K for fiscal 20162021 have not materially changed from December 31, 2016.January 1, 2022.
At the end of the third quarter of fiscal 2017,2022, borrowings under the Tranche B-2 Term FacilityCredit Facilities bore interest at LIBOR plus an applicable margin of 3.25%3.50%. For the Tranche B-2 Term Loan Facility, the minimum interest rate for LIBOR applicable to such facility pursuant to the terms of the Credit Agreement iswas set at 0.75%0.50%, referred to herein as the B-2 LIBOR Floor. In addition, at the endas of the third quarter of fiscal 2017,October 1, 2022, our interest rate swapswaps in effect had aan aggregate notional amount of $1.25 billion.$500.0 million. Accordingly, as of the end of the third quarter of fiscal 2017,October 1, 2022, based on the amount of variable rate debt outstanding and the then-current LIBOR rate, after giving consideration to the impact of the interest rate swapswaps and the B-2 LIBOR Floor, a hypothetical 5090 basis point increase in interest rates would have increased annual interest expense by approximately $3.4$4.0 million and a hypothetical 5090 basis point decrease in interest rates would have decreased annual interest expense by approximately $4.0 million. This increase isand decrease would have been driven primarily driven by the interest rate applicable to our Tranche B-2 Term Loan Facility. This decrease is primarily driven by the lower debt balance resulting from our Tranche B-2 Term Facility prepayment of $73.0 million as well as the principal payments during the first and second quarters of fiscal 2017.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’sSEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management, with the participation of our principal executive officer and our principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2017,October 1, 2022, the end of the third quarter of fiscal 2017.2022. Based upon that evaluation and subject to the foregoing, our principal executive officer and our principal financial officer concluded that, as of the end of the third quarter of fiscal 2017,2022, the design and operation of our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHEROTHER INFORMATION
Raymond Roberts v. Weight Watchers International, Inc.
On January 7, 2016, an OnlinePlus member filed a putative class action complaint against the Company in the Supreme Court of New York, New York County, asserting class claimsITEM 1. LEGAL PROCEEDINGS
The information called for breach of contract and violationsby this item is incorporated herein by reference to Note 10 “Legal” of the New York General Business Law. On February 5, 2016, the Company removed the casenotes to the United States District Court, Southern District of New York. On March 18, 2016, the plaintiff filed an amended complaint, alleging that, as a result of the temporary glitchesunaudited consolidated financial statements contained in the Company’s website and app in November and December 2015, the Company has: (1) breached its Subscription Agreement with its OnlinePlus members; and (2) engaged in deceptive acts and practices in violation of Section 350 of the New York General Business Law. The plaintiff is seeking unspecified actual, punitive and statutory damages, as well as his attorneys’ fees and costs incurred in connection with this action. The Company filed a motion to dismissQuarterly Report on May 6, 2016. The plaintiff filed his opposition papers on June 9, 2016 and the Company filed its reply papers on June 23, 2016. The Court granted the Company’s motion to dismiss on November 14, 2016. On November 16, 2016, the plaintiff filed a timely notice of appeal of the Court’s decision to the Second Circuit Court of Appeals and on January 31, 2017, the plaintiff filed his brief in support of appeal. The Company filed its opposition brief on April 5, 2017, and the plaintiff filed his reply brief on April 25, 2017. On October 25, 2017, the Second Circuit conducted oral arguments on the plaintiff’s appeal. On November 2, 2017, the Second Circuit issued its decision denying the plaintiff’s appeal and affirming the lower court’s dismissal of the case. The plaintiff has until November 16, 2017 to file a petition for a rehearing with the Second Circuit, or until January 31, 2018 to file a petition for appeal with the United States Supreme Court.Form 10-Q.
Other Litigation MattersITEM 1A. RISK FACTORS
Due to the nature of the Company’s activities, it is also, at times, subject to pending and threatened legal actions, including patent and other intellectual property actions, that arise out of the ordinary course of business. In the opinion of management, the disposition of any such matters is not expected, individually or in the aggregate, to have a material effect on the Company’s results of operations, financial condition or cash flows. However, the results of legal actions cannot be predicted with certainty. Therefore, it is possible that the Company’s results of operations, financial condition or cash flows could be materially adversely affected in any particular period by the unfavorable resolution of one or more legal actions.
There have been no material changes in the risk factors from those detailed in our Annual Report on Form 10-K for fiscal 2016 other than as set forth below.2021.
We are undergoing a chief executive officer transition, which could cause disruption to our business.ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In September 2016, James R. Chambers resigned as President and Chief Executive Officer and as a director of the Company. Thereafter, a search was commenced for Mr. Chambers’ successor. Effective July 5, 2017, Mindy Grossman was appointed President and Chief Executive Officer and as a director of the Company.
Nothing to report under this item.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Nothing to report under this item.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Nothing to report under this item.
| Description | |
|
|
|
*Exhibit 31.1 |
| Rule 13a-14(a) Certification by |
|
|
|
*Exhibit 31.2 |
| Rule 13a-14(a) Certification by |
|
|
|
*Exhibit 32.1 |
| |
|
|
|
*Exhibit 101 |
|
|
|
|
|
*EX-101.INS |
| Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
*EX-101.SCH |
| Inline XBRL Taxonomy Extension Schema Document |
|
|
|
*EX-101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
*EX-101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
*EX-101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
*EX-101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
*Exhibit 104 | The cover page from WW International, Inc.’s Quarterly Report on Form 10-Q for the quarter ended October 1, 2022, formatted in Inline XBRL (included within the Exhibit 101 attachments). |
|
|
58
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| |
|
|
|
Date: November | By: | /s/ |
|
|
|
|
|
(Principal Executive Officer) |
Date: November | By: | /s/ |
|
|
|
|
| Chief Financial Officer (Principal Financial |
4559