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, 2017July 3, 2021
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 York 10010
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (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 |
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| Accelerated filer |
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Non-accelerated filer |
| ☐ | Smaller reporting company |
| ☐ |
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| 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, 2017August 3, 2021 was 64,530,211.
69,872,883.
WW INTERNATIONAL, INC.
TABLE OF CONTENTS
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 1A. |
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Item 3. |
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Item 6. |
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58 |
PART I—FINANCIALFINANCIAL INFORMATION
WEIGHT WATCHERSWW INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS AT
(IN THOUSANDS)
|
| September 30, |
|
| December 31, |
|
| July 3, |
|
| January 2, |
| ||||
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2021 |
| ||||
ASSETS |
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CURRENT ASSETS |
|
|
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|
|
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Cash and cash equivalents |
| $ | 178,247 |
|
| $ | 108,656 |
|
| $ | 125,564 |
|
| $ | 165,887 |
|
Receivables (net of allowances: September 30, 2017 - $1,994 and December 31, 2016 - $2,973) |
|
| 22,267 |
|
|
| 27,518 |
| ||||||||
Receivables (net of allowances: July 3, 2021 - $2,169 and January 2, 2021 - $2,298) |
|
| 33,360 |
|
|
| 34,555 |
| ||||||||
Inventories |
|
| 23,421 |
|
|
| 32,629 |
|
|
| 29,354 |
|
|
| 39,456 |
|
Prepaid income taxes |
|
| 33,446 |
|
|
| 35,528 |
|
|
| 42,677 |
|
|
| 20,028 |
|
Prepaid marketing and advertising |
|
| 4,611 |
|
|
| 15,656 |
| ||||||||
Prepaid expenses and other current assets |
|
| 23,166 |
|
|
| 30,880 |
|
|
| 23,860 |
|
|
| 23,610 |
|
TOTAL CURRENT ASSETS |
|
| 280,547 |
|
|
| 235,211 |
|
|
| 259,426 |
|
|
| 299,192 |
|
|
|
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|
| ||||||||
Property and equipment, net |
|
| 48,755 |
|
|
| 49,574 |
|
|
| 42,382 |
|
|
| 51,935 |
|
Operating lease assets |
|
| 101,382 |
|
|
| 119,102 |
| ||||||||
Franchise rights acquired |
|
| 754,652 |
|
|
| 748,619 |
|
|
| 787,472 |
|
|
| 765,850 |
|
Goodwill |
|
| 170,731 |
|
|
| 166,138 |
|
|
| 156,754 |
|
|
| 155,617 |
|
Trademarks and other intangible assets, net |
|
| 48,829 |
|
|
| 58,612 |
| ||||||||
Other intangible assets, net |
|
| 59,600 |
|
|
| 59,709 |
| ||||||||
Deferred income taxes |
|
| 12,272 |
|
|
| 13,625 |
| ||||||||
Other noncurrent assets |
|
| 11,978 |
|
|
| 12,822 |
|
|
| 16,026 |
|
|
| 16,144 |
|
TOTAL ASSETS |
| $ | 1,315,492 |
|
| $ | 1,270,976 |
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| $ | 1,435,314 |
|
| $ | 1,481,174 |
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LIABILITIES AND TOTAL DEFICIT |
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CURRENT LIABILITIES |
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Portion of long-term debt due within one year |
| $ | 31,429 |
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| $ | 21,000 |
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| $ | 10,000 |
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| $ | 77,000 |
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Portion of operating lease liabilities due within one year |
|
| 22,877 |
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|
| 28,551 |
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Accounts payable |
|
| 19,388 |
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|
| 40,639 |
|
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| 25,619 |
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|
| 23,052 |
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Salaries and wages payable |
|
| 51,867 |
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|
| 49,638 |
|
|
| 53,037 |
|
|
| 58,047 |
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Accrued marketing and advertising |
|
| 15,929 |
|
|
| 18,067 |
|
|
| 8,608 |
|
|
| 15,556 |
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Accrued interest |
|
| 16,425 |
|
|
| 16,939 |
|
|
| 5,444 |
|
|
| 2,710 |
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Other accrued liabilities |
|
| 54,383 |
|
|
| 51,251 |
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| 46,476 |
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| 48,615 |
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Derivative payable |
|
| 21,129 |
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| 31,974 |
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| 21,532 |
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| 28,283 |
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Income taxes payable |
|
| 1,664 |
|
|
| 7,810 |
| ||||||||
Deferred revenue |
|
| 82,660 |
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| 62,880 |
|
|
| 51,435 |
|
|
| 50,475 |
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TOTAL CURRENT LIABILITIES |
|
| 293,210 |
|
|
| 292,388 |
|
|
| 246,692 |
|
|
| 340,099 |
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Long-term debt |
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| 1,884,842 |
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| 1,981,299 |
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Long-term debt, net |
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| 1,459,737 |
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| 1,408,800 |
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Long-term operating lease liabilities |
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| 87,664 |
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| 101,561 |
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Deferred income taxes |
|
| 187,676 |
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| 175,115 |
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| 171,472 |
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| 173,713 |
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Other |
|
| 30,480 |
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| 25,048 |
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| 7,646 |
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|
| 5,212 |
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TOTAL LIABILITIES |
|
| 2,396,208 |
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| 2,473,850 |
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| 1,973,211 |
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| 2,029,385 |
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Redeemable noncontrolling interest |
|
| 4,636 |
|
|
| 4,699 |
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TOTAL DEFICIT |
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Common stock, $0 par value; 1,000,000 shares authorized; 118,947 shares issued at September 30, 2017 and at December 31, 2016 |
|
| 0 |
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| 0 |
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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 shares issued at July 3, 2021 and 121,470 shares issued at January 2, 2021 |
|
| 0 |
|
|
| 0 |
| ||||||||
Treasury stock, at cost, 52,211 shares at July 3, 2021 and 52,497 shares at January 2, 2021 |
|
| (3,129,329 | ) |
|
| (3,140,903 | ) | ||||||||
Retained earnings |
|
| 2,144,459 |
|
|
| 2,056,893 |
|
|
| 2,610,250 |
|
|
| 2,617,841 |
|
Accumulated other comprehensive loss |
|
| (14,873 | ) |
|
| (27,120 | ) |
|
| (18,818 | ) |
|
| (25,149 | ) |
TOTAL DEFICIT |
|
| (1,085,352 | ) |
|
| (1,207,573 | ) |
|
| (537,897 | ) |
|
| (548,211 | ) |
TOTAL LIABILITIES AND TOTAL DEFICIT |
| $ | 1,315,492 |
|
| $ | 1,270,976 |
|
| $ | 1,435,314 |
|
| $ | 1,481,174 |
|
The accompanying notes are an integral part of the consolidated financial statements.
WW INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF NET INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
| Three Months Ended |
|
| Nine Months Ended |
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| October 1, |
|
| September 30, |
|
| October 1, |
| July 3, |
|
| June 27, |
|
| July 3, |
|
| June 27, |
| ||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Service revenues, net |
| $ | 273,219 |
|
| $ | 232,571 |
|
| $ | 817,696 |
|
| $ | 727,889 |
| |||||||||||||||
Subscription revenues, net | $ | 272,871 |
|
| $ | 292,997 |
|
| $ | 552,691 |
|
| $ | 617,654 |
| ||||||||||||||||
Product sales and other, net |
|
| 50,468 |
|
|
| 48,248 |
|
|
| 176,726 |
|
|
| 169,601 |
|
| 38,508 |
|
|
| 40,640 |
|
|
| 90,484 |
|
|
| 116,344 |
|
Revenues, net |
|
| 323,687 |
|
|
| 280,819 |
|
|
| 994,422 |
|
|
| 897,490 |
|
| 311,379 |
|
|
| 333,637 |
|
|
| 643,175 |
|
|
| 733,998 |
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| |||||||||||||||
Cost of services |
|
| 118,073 |
|
|
| 111,515 |
|
|
| 363,284 |
|
|
| 355,945 |
| |||||||||||||||
Cost of subscription revenues |
| 95,825 |
|
|
| 108,006 |
|
|
| 194,929 |
|
|
| 243,572 |
| ||||||||||||||||
Cost of product sales and other |
|
| 28,526 |
|
|
| 25,001 |
|
|
| 100,943 |
|
|
| 86,521 |
|
| 29,528 |
|
|
| 30,960 |
|
|
| 68,786 |
|
|
| 84,764 |
|
Cost of revenues |
|
| 146,599 |
|
|
| 136,516 |
|
|
| 464,227 |
|
|
| 442,466 |
|
| 125,353 |
|
|
| 138,966 |
|
|
| 263,715 |
|
|
| 328,336 |
|
Gross profit |
|
| 177,088 |
|
|
| 144,303 |
|
|
| 530,195 |
|
|
| 455,024 |
|
| 186,026 |
|
|
| 194,671 |
|
|
| 379,460 |
|
|
| 405,662 |
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|
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| |||||||||||||||
Marketing expenses |
|
| 30,310 |
|
|
| 30,078 |
|
|
| 158,707 |
|
|
| 157,791 |
|
| 57,154 |
|
|
| 41,894 |
|
|
| 174,088 |
|
|
| 159,828 |
|
Selling, general and administrative expenses |
|
| 55,400 |
|
|
| 47,433 |
|
|
| 153,671 |
|
|
| 143,152 |
|
| 69,199 |
|
|
| 101,792 |
|
|
| 142,870 |
|
|
| 166,318 |
|
Goodwill impairment |
| — |
|
|
| — |
|
|
| — |
|
|
| 3,665 |
| ||||||||||||||||
Operating income |
|
| 91,378 |
|
|
| 66,792 |
|
|
| 217,817 |
|
|
| 154,081 |
|
| 59,673 |
|
|
| 50,985 |
|
|
| 62,502 |
|
|
| 75,851 |
|
|
|
|
|
|
|
|
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|
|
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|
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| |||||||||||||||
Interest expense |
|
| 26,993 |
|
|
| 28,329 |
|
|
| 82,227 |
|
|
| 86,963 |
|
| 20,293 |
|
|
| 30,995 |
|
|
| 49,416 |
|
|
| 62,546 |
|
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 |
| |||||||||||||||
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|
|
|
|
|
|
| |||||||||||||||
Provision for income taxes |
|
| 19,593 |
|
|
| 3,989 |
|
|
| 36,457 |
|
|
| 12,420 |
| |||||||||||||||
Net income |
|
| 44,667 |
|
|
| 34,620 |
|
|
| 100,409 |
|
|
| 54,301 |
| |||||||||||||||
Other expense, net |
| 381 |
|
|
| 416 |
|
|
| 143 |
|
|
| 438 |
| ||||||||||||||||
Early extinguishment of debt |
| 29,169 |
|
|
| — |
|
|
| 29,169 |
|
|
| — |
| ||||||||||||||||
Income (loss) before income taxes |
| 9,830 |
|
|
| 19,574 |
|
|
| (16,226 | ) |
|
| 12,867 |
| ||||||||||||||||
Provision for (benefit from) income taxes |
| 970 |
|
|
| 5,592 |
|
|
| (6,859 | ) |
|
| 4,942 |
| ||||||||||||||||
Net income (loss) |
| 8,860 |
|
|
| 13,982 |
|
|
| (9,367 | ) |
|
| 7,925 |
| ||||||||||||||||
Net loss attributable to the noncontrolling interest |
|
| 52 |
|
|
| 38 |
|
|
| 135 |
|
|
| 99 |
|
| — |
|
|
| 24 |
|
|
| — |
|
|
| 18 |
|
Net income attributable to Weight Watchers International, Inc. |
| $ | 44,719 |
|
| $ | 34,658 |
|
| $ | 100,544 |
|
| $ | 54,400 |
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Earnings Per Share attributable to Weight Watchers International, Inc. |
|
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|
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| |||||||||||||||
Net income (loss) attributable to WW International, Inc. | $ | 8,860 |
|
| $ | 14,006 |
|
| $ | (9,367 | ) |
| $ | 7,943 |
| ||||||||||||||||
Earnings (loss) per share attributable to WW International, Inc. |
|
|
|
|
|
|
|
|
|
|
|
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|
|
| ||||||||||||||||
Basic |
| $ | 0.69 |
|
| $ | 0.54 |
|
| $ | 1.57 |
|
| $ | 0.85 |
| $ | 0.13 |
|
| $ | 0.21 |
|
| $ | (0.14 | ) |
| $ | 0.12 |
|
Diluted |
| $ | 0.65 |
|
| $ | 0.53 |
|
| $ | 1.48 |
|
| $ | 0.83 |
| $ | 0.12 |
|
| $ | 0.20 |
|
| $ | (0.14 | ) |
| $ | 0.11 |
|
|
|
|
|
|
|
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|
|
|
|
|
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| |||||||||||||||
Weighted average common shares outstanding |
|
|
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|
|
|
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|
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|
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|
|
|
|
|
|
Basic |
|
| 64,463 |
|
|
| 63,782 |
|
|
| 64,237 |
|
|
| 63,690 |
|
| 69,588 |
|
|
| 67,641 |
|
|
| 69,336 |
|
|
| 67,538 |
|
Diluted |
|
| 68,686 |
|
|
| 65,841 |
|
|
| 67,939 |
|
|
| 65,872 |
|
| 71,160 |
|
|
| 69,799 |
|
|
| 69,336 |
|
|
| 69,898 |
|
The accompanying notes are an integral part of the consolidated financial statements.
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 : |
|
|
|
|
|
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|
|
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 |
|
| Six Months Ended |
| ||||||||||
| July 3, |
|
| June 27, |
|
| July 3, |
|
| June 27, |
| ||||
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Net income (loss) | $ | 8,860 |
|
| $ | 13,982 |
|
| $ | (9,367 | ) |
| $ | 7,925 |
|
Other comprehensive gain (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss) |
| 2,857 |
|
|
| 4,990 |
|
|
| 1,737 |
|
|
| (4,830 | ) |
Income tax (expense) benefit on foreign currency translation gain (loss) |
| (720 | ) |
|
| (1,267 | ) |
|
| (438 | ) |
|
| 1,232 |
|
Foreign currency translation gain (loss), net of taxes |
| 2,137 |
|
|
| 3,723 |
|
|
| 1,299 |
|
|
| (3,598 | ) |
Gain (loss) on derivatives |
| 1,522 |
|
|
| 364 |
|
|
| 6,726 |
|
|
| (12,592 | ) |
Income tax (expense) benefit on gain (loss) on derivatives |
| (383 | ) |
|
| (93 | ) |
|
| (1,694 | ) |
|
| 3,212 |
|
Gain (loss) on derivatives, net of taxes |
| 1,139 |
|
|
| 271 |
|
|
| 5,032 |
|
|
| (9,380 | ) |
Total other comprehensive gain (loss) |
| 3,276 |
|
|
| 3,994 |
|
|
| 6,331 |
|
|
| (12,978 | ) |
Comprehensive income (loss) |
| 12,136 |
|
|
| 17,976 |
|
|
| (3,036 | ) |
|
| (5,053 | ) |
Net loss attributable to the noncontrolling interest |
| — |
|
|
| 24 |
|
|
| — |
|
|
| 18 |
|
Foreign currency translation (gain) loss, net of taxes attributable to the noncontrolling interest |
| — |
|
|
| (3 | ) |
|
| — |
|
|
| 95 |
|
Comprehensive loss attributable to the noncontrolling interest |
| — |
|
|
| 21 |
|
|
| — |
|
|
| 113 |
|
Comprehensive income (loss) attributable to WW International, Inc. | $ | 12,136 |
|
| $ | 17,997 |
|
| $ | (3,036 | ) |
| $ | (4,940 | ) |
The accompanying notes are an integral part of the consolidated financial statements.
WW INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED Consolidated Statements of Changes in Total Deficit
(IN THOUSANDS)
|
|
|
|
|
|
| WW International, Inc. |
| |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
| |
|
| Redeemable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other |
|
|
|
|
|
|
|
|
| ||
Three Months Ended July 3, 2021 |
| Noncontrolling |
|
|
| Common Stock |
|
| Treasury Stock |
|
| Comprehensive |
|
| Retained |
|
|
|
|
| |||||||||||||
|
| Interest |
|
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Loss |
|
| Earnings |
|
| Total |
| ||||||||
Balance at April 3, 2021 |
| $ | — |
|
|
|
| 121,801 |
|
| $ | 0 |
|
|
| 52,471 |
|
| $ | (3,139,855 | ) |
| $ | (22,094 | ) |
| $ | 2,606,171 |
|
| $ | (555,778 | ) |
Comprehensive income (loss) |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,276 |
|
|
| 8,860 |
|
|
| 12,136 |
|
Issuance of treasury stock under stock plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (260 | ) |
|
| 10,526 |
|
|
|
|
|
|
| (14,384 | ) |
|
| (3,858 | ) |
Compensation expense on share- based awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 7,851 |
|
|
| 7,851 |
|
Issuance of common stock |
|
|
|
|
|
|
| 251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,752 |
|
|
| 1,752 |
|
Balance at July 3, 2021 |
| $ | — |
|
|
|
| 122,052 |
|
| $ | 0 |
|
|
| 52,211 |
|
| $ | (3,129,329 | ) |
| $ | (18,818 | ) |
| $ | 2,610,250 |
|
| $ | (537,897 | ) |
|
|
|
|
|
|
| WW International, Inc. |
| |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
| |
|
| Redeemable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other |
|
|
|
|
|
|
|
|
| ||
Six Months Ended July 3, 2021 |
| Noncontrolling |
|
|
| Common Stock |
|
| Treasury Stock |
|
| Comprehensive |
|
| Retained |
|
|
|
|
| |||||||||||||
|
| Interest |
|
|
| 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 (loss) income |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 6,331 |
|
|
| (9,367 | ) |
|
| (3,036 | ) |
Issuance of treasury stock under stock plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (286 | ) |
|
| 11,574 |
|
|
|
|
|
|
| (15,467 | ) |
|
| (3,893 | ) |
Compensation expense on share- based awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 13,192 |
|
|
| 13,192 |
|
Issuance of common stock |
|
|
|
|
|
|
| 582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,051 |
|
|
| 4,051 |
|
Balance at July 3, 2021 |
| $ | — |
|
|
|
| 122,052 |
|
| $ | 0 |
|
|
| 52,211 |
|
| $ | (3,129,329 | ) |
| $ | (18,818 | ) |
| $ | 2,610,250 |
|
| $ | (537,897 | ) |
5
|
|
|
|
|
|
| WW International, Inc. |
| |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
| |
|
| Redeemable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other |
|
|
|
|
|
|
|
|
| ||
Three Months Ended June 27, 2020 |
| Noncontrolling |
|
|
| Common Stock |
|
| Treasury Stock |
|
| Comprehensive |
|
| Retained |
|
|
|
|
| |||||||||||||
|
| Interest |
|
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Loss |
|
| Earnings |
|
| Total |
| ||||||||
Balance at March 28, 2020 |
| $ | 3,630 |
|
|
|
| 120,352 |
|
| $ | 0 |
|
|
| 52,899 |
|
| $ | (3,156,907 | ) |
| $ | (44,226 | ) |
| $ | 2,496,660 |
|
| $ | (704,473 | ) |
Comprehensive income (loss) |
|
| (21 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,991 |
|
|
| 14,006 |
|
|
| 17,997 |
|
Issuance of treasury stock under stock plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (230 | ) |
|
| 9,149 |
|
|
|
|
|
|
| (12,579 | ) |
|
| (3,430 | ) |
Compensation expense on share- based awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 38,686 |
|
|
| 38,686 |
|
Issuance of common stock |
|
|
|
|
|
| 297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,067 |
|
|
| 2,067 |
| |
Balance at June 27, 2020 |
| $ | 3,609 |
|
|
|
| 120,649 |
|
| $ | 0 |
|
|
| 52,669 |
|
| $ | (3,147,758 | ) |
| $ | (40,235 | ) |
| $ | 2,538,840 |
|
| $ | (649,153 | ) |
|
|
|
|
|
|
| WW International, Inc. |
| |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
| |
|
| Redeemable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other |
|
|
|
|
|
|
|
|
| ||
Six Months Ended June 27, 2020 |
| Noncontrolling |
|
|
| Common Stock |
|
| Treasury Stock |
|
| Comprehensive |
|
| Retained |
|
|
|
|
| |||||||||||||
|
| Interest |
|
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Loss |
|
| Earnings |
|
| Total |
| ||||||||
Balance at December 28, 2019 |
| $ | 3,722 |
|
|
|
| 120,352 |
|
| $ | 0 |
|
|
| 52,933 |
|
| $ | (3,158,274 | ) |
| $ | (27,352 | ) |
| $ | 2,500,083 |
|
| $ | (685,543 | ) |
Comprehensive (loss) income |
|
| (113 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (12,883 | ) |
|
| 7,943 |
|
|
| (4,940 | ) |
Issuance of treasury stock under stock plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (264 | ) |
|
| 10,516 |
|
|
|
|
|
|
| (13,904 | ) |
|
| (3,388 | ) |
Compensation expense on share- based awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 42,651 |
|
|
| 42,651 |
|
Issuance of common stock |
|
|
|
|
|
| 297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,067 |
|
|
| 2,067 |
| |
Balance at June 27, 2020 |
| $ | 3,609 |
|
|
|
| 120,649 |
|
| $ | 0 |
|
|
| 52,669 |
|
| $ | (3,147,758 | ) |
| $ | (40,235 | ) |
| $ | 2,538,840 |
|
| $ | (649,153 | ) |
The accompanying notes are an integral part of the consolidated financial statements.
6
WW INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
|
| Nine Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| September 30, |
|
| October 1, |
|
| July 3, |
|
| June 27, |
| ||||
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 100,409 |
|
| $ | 54,301 |
| ||||||||
Adjustments to reconcile net income to cash provided by operating activities: |
|
|
|
|
|
|
|
| ||||||||
Net (loss) income |
| $ | (9,367 | ) |
| $ | 7,925 |
| ||||||||
Adjustments to reconcile net (loss) income to cash provided by operating activities: |
|
|
|
|
|
|
|
| ||||||||
Depreciation and amortization |
|
| 38,331 |
|
|
| 39,145 |
|
|
| 26,093 |
|
|
| 24,983 |
|
Amortization of deferred financing costs |
|
| 4,292 |
|
|
| 4,631 |
| ||||||||
Amortization of deferred financing costs and debt discount |
|
| 3,533 |
|
|
| 4,383 |
| ||||||||
Goodwill impairment |
|
| — |
|
|
| 3,665 |
| ||||||||
Impairment of intangible and long-lived assets |
|
| 670 |
|
|
| 91 |
|
|
| 224 |
|
|
| — |
|
Write-off of net assets due to cessation of Spain operations |
|
| 70 |
|
|
| 0 |
| ||||||||
Share-based compensation expense |
|
| 9,372 |
|
|
| 4,366 |
|
|
| 13,192 |
|
|
| 42,651 |
|
Deferred tax provision |
|
| 6,393 |
|
|
| 9,171 |
| ||||||||
Deferred tax (benefit) provision |
|
| (2,811 | ) |
|
| 7,209 |
| ||||||||
Allowance for doubtful accounts |
|
| (775 | ) |
|
| 43 |
|
|
| (90 | ) |
|
| 28 |
|
Reserve for inventory obsolescence |
|
| 6,280 |
|
|
| 3,823 |
|
|
| 3,830 |
|
|
| 6,695 |
|
Foreign currency exchange rate loss |
|
| 158 |
|
|
| 222 |
| ||||||||
Gain on early extinguishment of debt |
|
| (1,840 | ) |
| 0 |
| |||||||||
Foreign currency exchange rate (gain) loss |
|
| (44 | ) |
|
| 1,216 |
| ||||||||
Early extinguishment of debt |
|
| 29,169 |
|
|
| — |
| ||||||||
Changes in cash due to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
| 6,768 |
|
|
| 2,546 |
|
|
| 730 |
|
|
| (7,006 | ) |
Inventories |
|
| 4,821 |
|
|
| (4,830 | ) |
|
| 6,527 |
|
|
| (14,198 | ) |
Prepaid expenses |
|
| 9,711 |
|
|
| (8,313 | ) |
|
| (11,481 | ) |
|
| 1,593 |
|
Accounts payable |
|
| (19,622 | ) |
|
| (7,209 | ) |
|
| 3,337 |
|
|
| 202 |
|
Accrued liabilities |
|
| (21,459 | ) |
|
| (20,123 | ) |
|
| (16,699 | ) |
|
| (27,545 | ) |
Deferred revenue |
|
| 16,692 |
|
|
| 12,199 |
|
|
| 976 |
|
|
| (9,252 | ) |
Other long term assets and liabilities, net |
|
| 5,907 |
|
|
| 2,726 |
|
|
| (2,125 | ) |
|
| 3,473 |
|
Income taxes |
|
| 18,627 |
|
|
| 1,128 |
|
|
| (6,742 | ) |
|
| 1,496 |
|
Cash provided by operating activities |
|
| 184,805 |
|
|
| 93,917 |
|
|
| 38,252 |
|
|
| 47,518 |
|
|
|
|
|
|
|
|
|
| ||||||||
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (10,755 | ) |
|
| (4,556 | ) |
|
| (984 | ) |
|
| (19,349 | ) |
Capitalized software expenditures |
|
| (20,242 | ) |
|
| (21,888 | ) |
|
| (17,447 | ) |
|
| (14,849 | ) |
Cash paid for acquisitions |
|
| 0 |
|
|
| (2,898 | ) |
|
| (10,849 | ) |
|
| — |
|
Other items, net |
|
| (130 | ) |
|
| (174 | ) |
|
| (1,534 | ) |
|
| (5,051 | ) |
Cash used for investing activities |
|
| (31,127 | ) |
|
| (29,516 | ) |
|
| (30,814 | ) |
|
| (39,249 | ) |
|
|
|
|
|
|
|
|
| ||||||||
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on revolver |
|
| 0 |
|
|
| (48,000 | ) | ||||||||
Net (payments) borrowings on revolver |
|
| 0 |
|
|
| 0 |
| ||||||||
Proceeds from new long term debt |
|
| 1,500,000 |
|
|
| — |
| ||||||||
Financing costs and debt discount |
|
| (37,315 | ) |
|
| (475 | ) | ||||||||
Payments on long-term debt |
|
| (88,387 | ) |
|
| (160,073 | ) |
|
| (1,509,000 | ) |
|
| (38,500 | ) |
Taxes paid related to net share settlement of equity awards |
|
| (4,894 | ) |
|
| 0 |
|
|
| (4,223 | ) |
|
| (4,152 | ) |
Excess tax benefit of share-based compensation |
|
| 0 |
|
|
| 964 |
| ||||||||
Proceeds from stock options exercised |
|
| 4,925 |
|
|
| 35 |
|
|
| 4,469 |
|
|
| 2,283 |
|
Payment of dividends |
|
| 0 |
|
|
| (11 | ) | ||||||||
Other items, net |
|
| (80 | ) |
|
| (106 | ) | ||||||||
Cash used for financing activities |
|
| (88,356 | ) |
|
| (207,085 | ) |
|
| (46,149 | ) |
|
| (40,950 | ) |
Effect of exchange rate changes on cash and cash equivalents |
|
| 4,269 |
|
|
| 202 |
|
|
| (1,612 | ) |
|
| 354 |
|
Net increase (decrease) in cash and cash equivalents |
|
| 69,591 |
|
|
| (142,482 | ) | ||||||||
Net decrease in cash and cash equivalents |
|
| (40,323 | ) |
|
| (32,327 | ) | ||||||||
Cash and cash equivalents, beginning of period |
|
| 108,656 |
|
|
| 241,526 |
|
|
| 165,887 |
|
|
| 182,736 |
|
Cash and cash equivalents, end of period |
| $ | 178,247 |
|
| $ | 99,044 |
|
| $ | 125,564 |
|
| $ | 150,409 |
|
The accompanying notes are an integral part of the consolidated financial statements.
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
1. | Basis of Presentation |
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 commitment plan subscribers (including Total Access subscribers),digital product offerings, including Digital 360 and Personal Coaching + Digital. The Company’s “Workshops + Digital” (formerly known as well as access“Studio + Digital”) business refers to meetingsproviding unlimited access to the Company’s “pay-as-you-go” members and other meetings members. “Online” refers to Weight Watchers Online, Weight Watchers OnlinePlus, Personal Coaching and otherworkshops combined with the Company’s digital subscription products.product offerings to commitment plan subscribers. 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.
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. For example, the global outbreak of the coronavirus (COVID-19) has had and will continue to have a significant adverse impact on the Company’s business as well as on the business environment and the markets in which it operates. This global health crisis has also had a significant adverse effect on overall economic conditions and the Company expects consumer demand to continue to be negatively impacted due to changes in consumer behavior and confidence and health concerns. The situation remains dynamic and subject to rapid and possibly significant change, with the United States and other countries continuing to struggle with rolling outbreaks of the virus and its variants. Accordingly, the full extent of the magnitude and duration of the negative impact to the Company’s business from the COVID-19 pandemic cannot be predicted with certainty. The Company considered the impact of COVID-19 on the assumptions and estimates used when preparing its Quarterly Report on Form 10-Q quarterly financial statements. 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.
These statements should be read in conjunction with the Company’s Annual Report on Form 10-K, as amended by Form 10-K/A, for fiscal 20162020 filed on February 25, 2021 and March 1, 2017,30, 2021, respectively, which includesinclude 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.
2. |
|
In February 2016,December 2019, the Financial Accounting Standards Board (the “FASB”)issued updated guidance regarding leases, requiring lessees to recognize a right-of-use asset and a lease liability onsimplifying the balance sheetaccounting for all leases 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 similartaxes by removing certain exceptions to the current model but will be updated to align with certain changes to the lessee model. Lessors will continue to classify leasesgeneral principles in Topic 740 as operating, direct financing or sales-type leases.well as by improving consistent application of GAAP by clarifying and amending existing guidance. The effective date of the new guidance for public companies is for fiscal years beginning after December 15, 20182020 and interim periods within those fiscal years. Early adoption is permitted. The new guidance must beOn January 3, 2021, the Company 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 is effectivesimplifying the accounting for the Company beginning in the first quarter of fiscal 2019. The Company is currently evaluating theincome taxes on a prospective basis, which did not have a material impact that the adoption of this guidance will have on the Company’s consolidated financial statements and related disclosures of the Company.statements.
In March 2016, the FASB issued updated guidance on revenue from contracts with customers, which is intended to clarify the implementation guidance 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 make
6
8
WEIGHT WATCHERSWW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
progress
3. | Leases |
A lease is defined as an arrangement that contractually specifies the right to use and control an identified asset for a specific period of time in its assessmentexchange for consideration. Operating leases are included in operating lease assets, portion of operating lease liabilities due within one year, and long-term operating lease liabilities in the updated guidanceCompany’s consolidated balance sheets. Finance leases are included in property and equipment, net, other accrued liabilities, and other long-term liabilities in evaluating the effect of adoption onCompany’s consolidated balance sheets. Lease assets represent the consolidated financial statements. The Company plans on adopting this guidance on a modified retrospective basis. WhileCompany’s right to use an underlying asset for the completion of this assessment is still ongoing,lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease assets and liabilities are recognized at commencement date based on the progresspresent value of lease payments over the lease term, using the Company’s incremental borrowing rate commensurate with the lease term, since the Company’s lessors do not provide an implicit rate, nor is one readily available. The incremental borrowing rate is calculated based on the Company’s credit yield curve and adjusted for collateralization, credit quality and economic environment impact, all where applicable. The lease asset includes scheduled lease payments and excludes lease incentives, such as free rent periods and tenant improvement allowances. The Company has certain leases that may include an option to date,renew and when it is reasonably probable to exercise such option, the Company will include the renewal option terms in determining the lease asset and lease liability. 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 evaluating the impactrenewal options that the adoption of this guidance will have on 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 notwould have a material impact on the consolidated financial statements and related disclosuresterms of the Company.leases and that are also reasonably expected to be exercised as of July 3, 2021. A lease may contain both fixed and variable payments. Variable lease payments that are linked to an index or rate are measured based on the current index or rate at the implementation of the lease accounting standard, or lease commencement date for new leases, with the impact of future changes in the index or rate being recorded as a period expense. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
The Company’s operating leases are primarily for its studios and corporate offices.
At July 3, 2021 and January 2, 2021, the Company’s lease assets and lease liabilities were as follows:
|
| July 3, 2021 |
|
| January 2, 2021 |
| ||
Assets: |
|
|
|
|
|
|
|
|
Operating lease assets |
| $ | 101,382 |
|
| $ | 119,102 |
|
Finance lease assets |
|
| 205 |
|
|
| 207 |
|
Total leased assets |
| $ | 101,587 |
|
| $ | 119,309 |
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
Operating |
| $ | 22,877 |
|
| $ | 28,551 |
|
Finance |
|
| 116 |
|
|
| 88 |
|
Noncurrent |
|
|
|
|
|
|
|
|
Operating |
| $ | 87,664 |
|
| $ | 101,561 |
|
Finance |
|
| 46 |
|
|
| 93 |
|
Total lease liabilities |
| $ | 110,703 |
|
| $ | 130,293 |
|
For a discussionthe three and six months ended July 3, 2021 and June 27, 2020, the components of the Company’s other significant accounting policies, see “Summary of Significant Accounting Policies” 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.lease expense were as follows:
|
|
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| July 3, |
|
| June 27, |
|
| July 3, |
|
| June 27, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Operating lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed lease cost |
| $ | 9,782 |
|
| $ | 12,356 |
|
| $ | 20,826 |
|
| $ | 24,997 |
|
Lease termination cost |
|
| 3,208 |
|
|
| 143 |
|
|
| 6,360 |
|
|
| 143 |
|
Variable lease cost |
|
| 5 |
|
|
| (15 | ) |
|
| 9 |
|
|
| (4 | ) |
Total operating lease cost |
| $ | 12,995 |
|
| $ | 12,484 |
|
| $ | 27,195 |
|
| $ | 25,136 |
|
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of leased assets |
|
| 37 |
|
|
| 41 |
|
|
| 80 |
|
|
| 106 |
|
Interest on lease liabilities |
|
| 2 |
|
|
| 3 |
|
|
| 5 |
|
|
| 6 |
|
Total finance lease cost |
| $ | 39 |
|
| $ | 44 |
|
| $ | 85 |
|
| $ | 112 |
|
Total lease cost |
| $ | 13,034 |
|
| $ | 12,528 |
|
| $ | 27,280 |
|
| $ | 25,248 |
|
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 the 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, the Company recorded $588 of excess tax benefits in equity. For the first nine months ended October 1, 2016, 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.
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.
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.
79
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”),
At July 3, 2021 and January 2, 2021, the Company entered into the following agreements with Oprah Winfrey: the Strategic Collaboration Agreement, the Winfrey Purchase Agreement (defined below),Company’s weighted average remaining lease term and the Winfrey Option Agreement (defined below). The transactions contemplated by these agreements are collectively referred to hereinweighted average discount rates were 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.follows:
Strategic Collaboration Agreement
|
| July 3, 2021 |
|
| January 2, 2021 |
| ||
Weighted Average Remaining Lease Term (years) |
|
|
|
|
|
|
|
|
Operating leases |
|
| 7.30 |
|
|
| 7.08 |
|
Finance leases |
|
| 1.75 |
|
|
| 2.35 |
|
|
|
|
|
|
|
|
|
|
Weighted Average Discount Rate |
|
|
|
|
|
|
|
|
Operating leases |
|
| 7.06 |
|
|
| 6.95 |
|
Finance leases |
|
| 5.02 |
|
|
| 5.51 |
|
The Company and Ms. Winfrey granted each other certain intellectual property rights under the Strategic Collaboration Agreement. The agreement has an initialCompany’s leases have remaining lease terms of 0 to 11 years with a weighted average lease term of five7.29 years with additional successive one-year renewal terms. Duringas of July 3, 2021.
At July 3, 2021, 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 Leases |
|
| Finance Leases |
|
| Total |
| |||
Remainder of fiscal 2021 | $ | 14,408 |
|
| $ | 53 |
|
| $ | 14,461 |
|
2022 |
| 27,741 |
|
|
| 85 |
|
|
| 27,826 |
|
2023 |
| 20,509 |
|
|
| 27 |
|
|
| 20,536 |
|
2024 |
| 15,977 |
|
|
| 5 |
|
|
| 15,982 |
|
2025 |
| 11,589 |
|
|
| — |
|
|
| 11,589 |
|
Thereafter |
| 54,603 |
|
|
| — |
|
|
| 54,603 |
|
Total lease payments | $ | 144,827 |
|
| $ | 170 |
|
| $ | 144,997 |
|
Less imputed interest |
| 34,286 |
|
|
| 8 |
|
|
| 34,294 |
|
Present value of lease liabilities | $ | 110,541 |
|
| $ | 162 |
|
| $ | 110,703 |
|
Supplemental cash purchase price of $43,199. The Company recorded feesflow information related to the issuance 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 prior to the third anniversary of the Agreement Date, up to 30% prior to the fourth anniversary of the Agreement Date and up to 60% prior to the fifth anniversary of the Agreement Date. On 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 of 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.
Winfrey Option Agreement
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,leases for the Winfrey Option are referred to hereinsix months ended July 3, 2021 and June 27, 2020 were 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.follows:
8
|
| Six Months Ended |
| |||||
|
| July 3, |
|
| June 27, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
| $ | 22,078 |
|
| $ | 24,997 |
|
Operating cash flows from finance leases |
| $ | 5 |
|
| $ | 6 |
|
Financing cash flows from finance leases |
| $ | 80 |
|
| $ | 106 |
|
|
|
|
|
|
|
|
|
|
Leased assets (modified) obtained in exchange for (modified) new operating lease liabilities |
| $ | (1,012 | ) |
| $ | 8,881 |
|
Leased assets obtained in exchange for new finance lease liabilities |
| $ | 81 |
|
| $ | 118 |
|
10
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, shares of common stock issuable upon exercise of the Winfrey Option (the “Winfrey Option Shares”) generally could not be transferred by Ms. Winfrey within the first year of the Agreement Date. Ms. Winfrey generally could have transferred up to 20% of the Winfrey Option Shares prior to the second anniversary of the Agreement Date, and generally may transfer up to 40% prior to the third anniversary of the Agreement Date, up to 60% prior to the fourth anniversary of the Agreement Date and up to 80% prior to the fifth anniversary of the Agreement Date. On or after the fifth anniversary of the Agreement Date, Ms. Winfrey will be permitted to transfer all of the Winfrey Option Shares. Pursuant to the Winfrey Purchase Agreement, in the event that Ms. Winfrey proposes to transfer any Winfrey Option Shares, the Company will have a right of first offer or a right of first refusal with respect to such shares as described above. Such transfer restrictions terminate under the same director service and change of control circumstances that would result in the termination of the transfer restrictions relating to the Purchased Shares as described above.
|
|
Revenues are recognized when control of the promised services or goods is transferred to the Company’s customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those services or goods.
The following table presents the Company’s revenues disaggregated by revenue source:
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| July 3, |
|
| June 27, |
|
| July 3, |
|
| June 27, |
| ||||
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Digital Subscription Revenues | $ | 205,337 |
|
| $ | 177,921 |
|
| $ | 411,398 |
|
| $ | 352,466 |
|
Workshops + Digital Fees |
| 67,534 |
|
|
| 115,076 |
|
|
| 141,293 |
|
|
| 265,188 |
|
Subscription Revenues, net | $ | 272,871 |
|
| $ | 292,997 |
|
| $ | 552,691 |
|
| $ | 617,654 |
|
Product sales and other, net |
| 38,508 |
|
|
| 40,640 |
|
|
| 90,484 |
|
|
| 116,344 |
|
Revenues, net | $ | 311,379 |
|
| $ | 333,637 |
|
| $ | 643,175 |
|
| $ | 733,998 |
|
The following tables present the Company’s revenues disaggregated by revenue source and segment:
| Three Months Ended July 3, 2021 |
| |||||||||||||||||
| North |
|
| Continental |
|
| United |
|
|
|
|
|
|
|
|
| |||
| America |
|
| Europe |
|
| Kingdom |
|
| Other |
|
| Total |
| |||||
Digital Subscription Revenues | $ | 130,255 |
|
| $ | 60,602 |
|
| $ | 9,594 |
|
| $ | 4,886 |
|
| $ | 205,337 |
|
Workshops + Digital Fees |
| 51,699 |
|
|
| 8,732 |
|
|
| 4,606 |
|
|
| 2,497 |
|
|
| 67,534 |
|
Subscription Revenues, net | $ | 181,954 |
|
| $ | 69,334 |
|
| $ | 14,200 |
|
| $ | 7,383 |
|
| $ | 272,871 |
|
Product sales and other, net |
| 25,675 |
|
|
| 8,602 |
|
|
| 2,802 |
|
|
| 1,429 |
|
|
| 38,508 |
|
Revenues, net | $ | 207,629 |
|
| $ | 77,936 |
|
| $ | 17,002 |
|
| $ | 8,812 |
|
| $ | 311,379 |
|
| Three Months Ended June 27, 2020 |
| |||||||||||||||||
| North |
|
| Continental |
|
| United |
|
|
|
|
|
|
|
|
| |||
| America |
|
| Europe |
|
| Kingdom |
|
| Other |
|
| Total |
| |||||
Digital Subscription Revenues | $ | 115,922 |
|
| $ | 50,704 |
|
| $ | 7,571 |
|
| $ | 3,724 |
|
| $ | 177,921 |
|
Workshops + Digital Fees |
| 86,131 |
|
|
| 17,858 |
|
|
| 8,001 |
|
|
| 3,086 |
|
|
| 115,076 |
|
Subscription Revenues, net | $ | 202,053 |
|
| $ | 68,562 |
|
| $ | 15,572 |
|
| $ | 6,810 |
|
| $ | 292,997 |
|
Product sales and other, net |
| 25,472 |
|
|
| 9,257 |
|
|
| 4,165 |
|
|
| 1,746 |
|
|
| 40,640 |
|
Revenues, net | $ | 227,525 |
|
| $ | 77,819 |
|
| $ | 19,737 |
|
| $ | 8,556 |
|
| $ | 333,637 |
|
| Six Months Ended July 3, 2021 |
| |||||||||||||||||
| North |
|
| Continental |
|
| United |
|
|
|
|
|
|
|
|
| |||
| America |
|
| Europe |
|
| Kingdom |
|
| Other |
|
| Total |
| |||||
Digital Subscription Revenues | $ | 262,345 |
|
| $ | 119,515 |
|
| $ | 19,404 |
|
| $ | 10,134 |
|
| $ | 411,398 |
|
Workshops + Digital Fees |
| 106,604 |
|
|
| 19,671 |
|
|
| 9,776 |
|
|
| 5,242 |
|
|
| 141,293 |
|
Subscription Revenues, net | $ | 368,949 |
|
| $ | 139,186 |
|
| $ | 29,180 |
|
| $ | 15,376 |
|
| $ | 552,691 |
|
Product sales and other, net |
| 59,996 |
|
|
| 20,645 |
|
|
| 6,890 |
|
|
| 2,953 |
|
|
| 90,484 |
|
Revenues, net | $ | 428,945 |
|
| $ | 159,831 |
|
| $ | 36,070 |
|
| $ | 18,329 |
|
| $ | 643,175 |
|
| Six Months Ended June 27, 2020 |
| |||||||||||||||||
| North |
|
| Continental |
|
| United |
|
|
|
|
|
|
|
|
| |||
| America |
|
| Europe |
|
| Kingdom |
|
| Other |
|
| Total |
| |||||
Digital Subscription Revenues | $ | 232,272 |
|
| $ | 97,341 |
|
| $ | 15,147 |
|
| $ | 7,706 |
|
| $ | 352,466 |
|
Workshops + Digital Fees |
| 198,974 |
|
|
| 39,377 |
|
|
| 19,130 |
|
|
| 7,707 |
|
|
| 265,188 |
|
Subscription Revenues, net | $ | 431,246 |
|
| $ | 136,718 |
|
| $ | 34,277 |
|
| $ | 15,413 |
|
| $ | 617,654 |
|
Product sales and other, net |
| 79,986 |
|
|
| 21,091 |
|
|
| 10,488 |
|
|
| 4,779 |
|
|
| 116,344 |
|
Revenues, net | $ | 511,232 |
|
| $ | 157,809 |
|
| $ | 44,765 |
|
| $ | 20,192 |
|
| $ | 733,998 |
|
11
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Information about Contract Balances
For Subscription Revenues, the Company can collect payment in advance of providing 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 Company’s deferred revenues are as follows:
|
| Deferred |
|
| Deferred |
| ||
|
| Revenue |
|
| Revenue-Long Term |
| ||
Balance as of January 2, 2021 |
| $ | 50,475 |
|
| $ | 44 |
|
Net increase (decrease) during the period |
|
| 960 |
|
|
| (28 | ) |
Balance as of July 3, 2021 |
| $ | 51,435 |
|
| $ | 16 |
|
Revenue recognized from amounts included in current deferred revenue as of January 2, 2021 was $48,227 for the six months ended July 3, 2021. The Company’s long-term deferred revenue, which is included in other liabilities on the Company’s consolidated balance sheet, had a balance of $16 and $44 at July 3, 2021 and January 2, 2021, respectively, for revenue that will not be recognized during the next 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 applicable agreement.
5. | Acquisitions |
Acquisition of Franchisees
On June 27, 2016,March 22, 2021, the Company acquired substantially all of the assets of its Michigan franchisee, for certain territories in South Florida, Weight Watchers of Greater Miami,The WW Group, Inc., for a purchase price of $3,250 (the “Miami Acquisition”). Payment was in the form of cash ($2,898) plus cash in reserves ($300) and assumed net liabilities of ($52).its Ontario, Canada franchisee, The total purchase price has been allocated to franchise rights acquired ($114)WW Group Co., goodwill ($2,945) and customer relationship value ($191). The acquisition of the franchiseeas follows:
(a) | The Company acquired substantially all of the assets of The WW Group, Inc., which operated franchises in certain territories in Michigan, for an aggregate purchase price of $17,500. Payment was in the form of cash ($8,255), cash payable on July 30, 2021 ($8,750), and assumed net liabilities ($495). Of the $8,750 of cash payable on July 30, 2021, $2,300 will be cash held in reserves. The total purchase price has been allocated to franchise rights acquired ($16,885), customer relationship value ($408), inventories ($162), property and equipment, net ($41) and other assets ($4); and |
(b) | The Company acquired substantially all of the assets of The WW Group Co., which operated franchises in certain territories in Ontario, Canada, for an aggregate purchase price of $3,114. Payment was in the form of cash ($2,605), cash in reserves ($599) and assumed net assets ($90). The total purchase price has been allocated to franchise rights acquired ($3,040), customer relationship value ($42), property and equipment, net ($25), inventories ($6) and other assets ($1). |
Both 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.
6. | Franchise Rights Acquired, Goodwill and Other Intangible Assets |
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 ninesix months ended September 30, 2017,July 3, 2021, the change in the carrying value of franchise rights acquired iswas due to the franchisee acquisitions as described in Note 5 and the effect of exchange rate changes.
Goodwill primarily relates to the acquisition of the Company by H.J. Heinz Company in 1978, the acquisition of WeightWatchers.com, Inc. in 2005, the acquisitions of 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. See Note 5 for additional information about acquisitions by the Company. For the nine months ended September 30, 2017, the change in the carrying amount of goodwill is due to 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 |
|
The Company reviews goodwill and other indefinite-lived intangible assets, including franchise rights acquired with indefinite lives, 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 annual impairment analysis as of May 7, 2017, the Company determined that the carrying amounts of its goodwill reporting units and 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 its carrying value by approximately 10%, and accordingly a relatively small change in the underlying assumptions would likely cause a change in the results of the impairment assessment and, as such, could result in an impairment of the goodwill related to Brazil, for which the carrying amount is $20,044.
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 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. 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
912
WEIGHT WATCHERSWW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
requiredGoodwill primarily relates to reducethe acquisition of the Company by The Kraft Heinz Company (successor to H.J. Heinz Company) in 1978, and the Company’s acquisitions of WW.com, Inc. (formerly known as WeightWatchers.com, Inc.) in 2005 and the Company’s franchised territories. For the six months ended July 3, 2021, the change in the carrying amountsamount of goodwill was due to the related assets on its balance sheet. The Company continues to evaluate these assumptions and believes that these assumptions are appropriate.effect of exchange rate changes as follows:
The following is a discussion of the goodwill and
|
| North |
|
| Continental |
|
| United |
|
|
|
|
|
|
|
|
| |||
|
| America |
|
| Europe |
|
| Kingdom |
|
| Other |
|
| Total |
| |||||
Balance as of January 2, 2021 |
| $ | 145,071 |
|
| $ | 7,792 |
|
| $ | 1,268 |
|
| $ | 1,486 |
|
| $ | 155,617 |
|
Effect of exchange rate changes |
|
| 1,383 |
|
|
| (230 | ) |
|
| 15 |
|
|
| (31 | ) |
|
| 1,137 |
|
Balance as of July 3, 2021 |
| $ | 146,454 |
|
| $ | 7,562 |
|
| $ | 1,283 |
|
| $ | 1,455 |
|
| $ | 156,754 |
|
Franchise Rights Acquired
Finite-lived franchise rights acquired are amortized over the remaining contractual period, which is generally less than one year. Indefinite-lived franchise rights acquired are tested on an annual basis for impairment.
In performing the impairment analysis.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 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 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 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 July 3, 2021 balance sheet date were $698,383, $61,644, $12,459, $6,766 and $4,976, respectively.
In its hypothetical start-up approach analysis for fiscal 2021, 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 Workshops + Digital business in each country based on assumptions regarding revenue growth and operating income margins. 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 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 July 3, 2021 balance sheet date were $102,968, $43,486 and $10,300, respectively.
For all of the Company’s reporting units except for Brazil (see below),tested as of May 9, 2021, 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.
Indefinite-Lived Franchise Rights Acquired and Goodwill Annual Impairment Test
The costCompany 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 equity wasMay 9, 2021 and May 3, 2020, each the first day of fiscal May, on its indefinite-lived intangible assets and goodwill.
In performing its annual impairment analysis as of May 9, 2021 and May 3, 2020, the Company determined by combiningthat the carrying amounts of its franchise rights acquired with indefinite lives units of account and goodwill reporting units did not exceed their respective fair values and, therefore, 0 impairment existed.
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 risk-free ratechange in the results of returnthe 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 market risk premium forresult 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 peer group. The risk-free rateMay 9, 2021 annual franchise rights acquired impairment analysis performed for all of return was determined basedits units of account as of the July 3, 2021 balance sheet date, all units, except for New Zealand, had an estimated fair value at least 45% higher than the respective unit’s carrying amount. Collectively, these units of account represent 99.4% of the Company’s total franchise rights acquired. Based on the average rateresults 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.annual franchise rights acquired impairment test performed for its New Zealand unit of account, which holds 0.6% of the Company’s franchise rights acquired as of the July 3, 2021 balance sheet date, the estimated fair value of this unit of account exceeded its carrying value by approximately 10%. Accordingly, a change in the underlying assumptions for 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 New Zealand, for which the net book value was $4,976 as of July 3, 2021.
Based on the results of the Company’s May 9, 2021 annual goodwill impairment test performed for all of its reporting units as of the July 3, 2021 balance sheet date, there was significant headroom in the goodwill impairment analysis for those units, with the difference between the carrying value and the fair value exceeding 100%.
Brazil Goodwill Impairment
With respect to its Brazil reporting unit, during the first quarter of fiscal 2020, the Company made a strategic decision to shift to an exclusively Digital business in that country. The Company determined that this decision, together with the negative impact of COVID-19, the ongoing challenging economic environment in Brazil and its reduced expectations regarding the reporting unit’s future operating cash flows, required the Company to perform an interim goodwill impairment analysis. In performing this discounted cash flow analysis, the Company determined that the carrying amount of this reporting unit exceeded its fair value and as a result recorded an impairment charge of $3,665, which comprised the remaining balance of goodwill for this reporting unit.
As it relatesrelated to theits goodwill impairment analysis for Brazil, the Company estimated future debt freedebt-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 asunder the current market conditions in Brazil. 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 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.Intangible Assets
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 toThe carrying values of finite-lived intangible assets as the hypothetical start-up approach for franchise rights related to the Company’s meetings businessof July 3, 2021 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 businessJanuary 2, 2021 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.as follows:
10
|
| July 3, 2021 |
|
| January 2, 2021 |
| ||||||||||
|
| Gross |
|
|
|
|
|
| Gross |
|
|
|
|
| ||
|
| Carrying |
|
| Accumulated |
|
| Carrying |
|
| Accumulated |
| ||||
|
| Amount |
|
| Amortization |
|
| Amount |
|
| Amortization |
| ||||
Capitalized software costs |
| $ | 136,493 |
|
| $ | 115,155 |
|
| $ | 131,420 |
|
| $ | 109,170 |
|
Website development costs |
|
| 105,474 |
|
|
| 76,288 |
|
|
| 95,718 |
|
|
| 67,656 |
|
Trademarks |
|
| 12,044 |
|
|
| 11,567 |
|
|
| 11,999 |
|
|
| 11,457 |
|
Other |
|
| 14,065 |
|
|
| 5,466 |
|
|
| 14,093 |
|
|
| 5,238 |
|
Trademarks and other intangible assets |
| $ | 268,076 |
|
| $ | 208,476 |
|
| $ | 253,230 |
|
| $ | 193,521 |
|
Franchise rights acquired |
|
| 7,949 |
|
|
| 4,705 |
|
|
| 7,925 |
|
|
| 4,575 |
|
Total finite-lived intangible assets |
| $ | 276,025 |
|
| $ | 213,181 |
|
| $ | 261,155 |
|
| $ | 198,096 |
|
14
WEIGHT WATCHERSWW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Finite-lived Intangible Assets
The carrying values of finite-lived intangible assets as of September 30, 2017 and December 31, 2016 were as follows:
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||||||||||
|
| Gross |
|
|
|
|
|
| Gross |
|
|
|
|
| ||
|
| Carrying |
|
| Accumulated |
|
| Carrying |
|
| Accumulated |
| ||||
|
| Amount |
|
| Amortization |
|
| Amount |
|
| Amortization |
| ||||
Capitalized software costs |
| $ | 133,255 |
|
| $ | 114,806 |
|
| $ | 126,737 |
|
| $ | 101,316 |
|
Website development costs |
|
| 132,927 |
|
|
| 103,295 |
|
|
| 119,971 |
|
|
| 87,736 |
|
Trademarks |
|
| 11,220 |
|
|
| 10,792 |
|
|
| 11,092 |
|
|
| 10,647 |
|
Other |
|
| 8,066 |
|
|
| 7,746 |
|
|
| 7,945 |
|
|
| 7,434 |
|
Trademarks and other intangible assets |
| $ | 285,468 |
|
| $ | 236,639 |
|
| $ | 265,745 |
|
| $ | 207,133 |
|
Franchise rights acquired |
|
| 4,593 |
|
|
| 4,593 |
|
|
| 4,551 |
|
|
| 4,551 |
|
Total finite-lived intangible assets |
| $ | 290,061 |
|
| $ | 241,232 |
|
| $ | 270,296 |
|
| $ | 211,684 |
|
Aggregate amortization expense for finite-lived intangible assets was recorded in the amounts of $9,120$8,035 and $27,310$16,033 for the three and ninesix months ended September 30, 2017,July 3, 2021, respectively. Aggregate amortization expense for finite-lived intangible assets was recorded in the amounts of $9,137$7,386 and $26,161$14,551 for the three and ninesix months ended October 1, 2016,June 27, 2020, 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 2021 |
| $ | 15,016 |
|
Fiscal 2022 |
| $ | 22,673 |
|
Fiscal 2023 |
| $ | 12,535 |
|
Fiscal 2024 |
| $ | 3,113 |
|
Fiscal 2025 and thereafter |
| $ | 9,507 |
|
7. | Long-Term Debt |
The components of the Company’s long-term debt were as follows:
|
| 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 |
|
|
|
|
|
|
| July 3, 2021 |
|
| January 2, 2021 |
| ||||||||||||||||||||||||||
|
| Principal Balance |
|
| Unamortized Deferred Financing Costs |
|
| Unamortized Debt Discount |
|
| Effective Rate (1) |
|
| Principal Balance |
|
| Unamortized Deferred Financing Costs |
|
| Unamortized Debt Discount |
|
| Effective Rate (1) |
| ||||||||
Revolving Credit Facility due April 13, 2026 |
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| 2.61 | % |
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| 0.00 | % |
Term Loan Facility due April 13, 2028 |
|
| 1,000,000 |
|
|
| 7,900 |
|
|
| 16,372 |
|
|
| 4.51 | % |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.00 | % |
Senior Secured Notes due April 15, 2029 |
|
| 500,000 |
|
|
| 5,991 |
|
|
| — |
|
|
| 4.73 | % |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.00 | % |
Revolving Credit Facility due November 29, 2022 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.00 | % |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3.03 | % |
Term Loan Facility due November 29, 2024 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6.03 | % |
|
| 1,209,000 |
|
|
| 5,113 |
|
|
| 17,233 |
|
|
| 6.60 | % |
Senior Notes due December 1, 2025 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8.62 | % |
|
| 300,000 |
|
|
| 854 |
|
|
| — |
|
|
| 8.71 | % |
Total |
| $ | 1,500,000 |
|
| $ | 13,891 |
|
| $ | 16,372 |
|
|
| 5.66 | % |
| $ | 1,509,000 |
|
| $ | 5,967 |
|
| $ | 17,233 |
|
|
| 6.94 | % |
Less: Current portion |
|
| 10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 77,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized deferred financing costs |
|
| 13,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 5,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized debt discount |
|
| 16,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 17,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
| $ | 1,459,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,408,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Includes amortization of deferred financing |
On 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 and (2) redeemed all of the $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 0 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 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”). These transactions are collectively referred to herein as the “April 2021 debt refinancing”. The Company’s new credit facilities atconsist of a $1,000,000 term loan facility and a $175,000 revolving credit facility (which includes borrowing capacity available for letters of credit) (collectively, as amended from time to time, the end of“New Credit Facilities”). During the firstsecond 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 credit facilities:$5,000 of a tranche B loan (“debt discount on its New Term B Loan”Loan Facility (as defined below)), in connection with the April 2021 debt refinancing. In addition, the Company recorded a tranche C loan (“Term C Loan”),loss on early extinguishment of debt of $29,169 in connection thereto. This early extinguishment of debt write-off was comprised of $12,939 of a tranche D loan (“Term D Loan”), a tranche E loan (“Term E Loan”), a tranche F loan (“Term F Loan”), revolving credit facility A-1 (“Revolver A-1”)prepayment penalty on the Discharged Senior Notes, $9,017 of financing fees paid in connection with the April 2021 debt refinancing and revolving credit facility A-2 (“Revolver A-2”).$7,213 of pre-existing deferred financing fees and debt discount.
1115
WEIGHT WATCHERSWW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
The New Credit Facilities were issued under a credit agreement, dated April 2, 2013,13, 2021 (as amended from time to time, the “New Credit Agreement”), among the Company, refinanced its credit facilities pursuant to a new Credit Agreement (as amended, supplemented or otherwise modified, the “Credit Agreement”) among the Company,as borrower, the lenders party thereto, JPMorgan Chaseand Bank of America, N.A. (“Bank of America”), as administrative agent and an issuing bank,bank. The BankNew Credit Facilities consist 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)(1) $1,000,000 in an initial aggregate principal amount of $250,000 that will mature on April 2, 2018senior secured tranche B term loans due in 2028 (the “Revolving“New Term Loan Facility”), (b) an initial term B-1 loan credit facility and (2) $175,000 in an aggregate principal amount of $300,000 that matured on April 2, 2016commitments under a senior secured revolving credit facility (which includes borrowing capacity available for letters of credit) due in 2026 (the “Tranche B-1 Term“New Revolving Credit Facility”) and (c) an initial term B-2 loan credit facility.
As of July 3, 2021, the Company had $1,000,000 in an aggregate principal amount of $2,100,000 that will mature on April 2, 2020 (the “Tranche B-2 Term Facility”,loans outstanding under the New Credit Facilities, with $173,846 of availability and together with$1,154 in issued but undrawn letters of credit outstanding under the Tranche B-1 Term Facility, the “Term Facilities”; the Term Facilities andNew Revolving Facility collectively, the “WWI Credit Facility”). In connection with this refinancing, the Company used the proceeds fromFacility. There were 0 outstanding borrowings under the New Revolving Credit Facility as of July 3, 2021.
All obligations under the New 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 New 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:
• | a pledge of 100% of the equity interests directly held by the Company and each guarantor in any wholly-owned material subsidiary of the Company or any guarantor (which pledge, in the case of any non-U.S. subsidiary of a U.S. subsidiary, will not include more than 65% of the voting stock of such first-tier non-U.S. subsidiary), subject to certain exceptions; and |
• | a security interest in substantially all other tangible and intangible assets of the Company and each guarantor, subject to certain exceptions. |
The New Credit Facilities require the Company to prepay outstanding term loans, subject to certain exceptions, with:
• | 50% (which percentage will be reduced to 25% and 0% if the Company attains certain first lien secured net leverage ratios) of the Company’s annual excess cash flow; |
• | 100% of the net cash proceeds of certain non-ordinary course asset sales by the Company and its restricted subsidiaries (including casualty and condemnation events, subject to de minimis thresholds), and subject to the right to reinvest 100% of such proceeds, subject to certain qualifications; and |
• | 100% of the net proceeds of any issuance or incurrence of debt by the Company or any of its restricted subsidiaries, other than certain debt permitted under the New Credit Agreement. |
The foregoing mandatory prepayments will be used to reduce the installments of principal on the New Term Facilities to pay off a total of $2,399,904 ofLoan Facility. The Company may voluntarily repay 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 ofNew Credit Facilities at any time without premium or penalty, except (1) for customary “breakage” costs with respect to LIBOR 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 TermNew Credit Facilities and $248,848 of availability under the Revolving Facility. The Company incurred fees of $44,817(2) during the second quarter of fiscal 2013 in connection with this refinancing. Insix months following 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 CovenantClosing Date (as defined in the New 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 amountcertain voluntary prepayments or refinancings of the RevolvingNew Term Loan Facility from $250,000 to $50,000.
Underthat reduce the termseffective yield 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 requiredNew Term Loan Facility, which will be subject 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 flow1.00% 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.premium.
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.
1216
WEIGHT WATCHERSWW 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.
Borrowings under the Credit AgreementNew 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 TermNew Revolving 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 baseLIBOR rate underdetermined by reference to the Tranche B-2 Term Facilitycost 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 subjectnot 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 minimum interest ratefloor of 1.75%. Under the terms0. As of the Credit Agreement, in the event the Company receives a corporate rating of BB- (or lower) from S&P and a corporate rating of Ba3 (or lower) from Moody’s,July 3, 2021, the applicable margin relating tomargins for 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 onLIBOR rate borrowings under the Tranche B-1New Term Loan Facility wentand the New Revolving Credit Facility were 3.50% and 2.50%, respectively. In the event that LIBOR is phased out as is currently expected, the New Credit Agreement provides that the Company and the administrative agent may amend the New 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 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 paymentlenders holding at least a majority of the aggregate principal amount of loans and commitments then outstanding under the Tranche B-1 Term Facility discussed above,New 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 New 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.New Credit Facility).
The New 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.
The availability of certain circumstances, restrictbaskets and the Company’s ability to incur additional indebtedness, pay dividends on and redeem capital stock, make other payments, including investments, sell its assets and enter into consolidations, mergers and transferscertain transactions are also subject to compliance with certain financial ratios. In addition, if the aggregate principal amount of all or substantially allextensions of its assets. The WWIcredit outstanding under the New Revolving Credit Facility does not requireas of any fiscal quarter end exceeds 35% of the amount of the aggregate commitments under the New Revolving Credit Facility in effect on such date, the Company must be in compliance with a Consolidated First Lien Leverage Ratio of, on or prior to meet any financial maintenance covenants and is guaranteed by certainthe end of the Company’s existingfirst fiscal quarter of 2022, 6.00:1.00, with a step down to 5.75:1.00 for the period ending after the first fiscal quarter of 2022 through and future subsidiaries. Substantially allincluding with first fiscal quarter of 2023, with an additional step down to 5.50:1.00 for the Company’s assets secureperiod ending after the WWI Credit Facility.first fiscal quarter of 2023 through and including with first fiscal quarter of 2024, with a step down to 5.25:1.00 for the period ending after the first fiscal quarter of 2024 through and including with first fiscal quarter of 2025 and again to 5.00:1.00, for the period following the first fiscal quarter of 2025.
At September 30, 2017Senior 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 “New Indenture”), among the Company, the guarantors named therein and December 31, 2016, the Company’sThe Bank of New York Mellon, as trustee and notes collateral agent. The New Indenture contains customary terms, events of default and covenants for an issuer of non-investment grade debt consisted entirelysecurities. These covenants include limitations on indebtedness, liens, mergers, acquisitions, asset sales, investments, distributions, prepayments of variable-rate instruments. An interest rate swap was entered intosubordinated debt and transactions with affiliates, in each case subject to hedge a portion of the cash flow exposure associated with the Company’s variable-rate borrowings. The weighted average interest rate (which includes amortization of deferred financing costs) on the Company’s outstanding debt, exclusive of the impact of the swap, was approximately 4.68%baskets, thresholds and 4.41% per annum based on interest rates at September 30, 2017 and December 31, 2016, respectively. The weighted average interest rate (which includes amortization of deferred financing costs) on the Company’s outstanding debt, including the impact of the swap, was approximately 5.19% and 5.32% per annum based on interest rates at September 30, 2017 and December 31, 2016, respectively.other exceptions.
1317
WEIGHT WATCHERSWW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
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 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, 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 subsidiaries that guarantee the New Credit Facilities. The Senior Secured Notes and the note guarantees are secured by a first-priority lien on all the collateral that secures the New Credit Facilities, subject to a shared lien of equal priority with the Company’s and each guarantor’s obligations under the New Credit Facilities and subject to certain thresholds, exceptions and permitted liens. Outstanding Debt At July 3, 2021, the Company had $1,500,000 outstanding under the New Credit Facilities and the Senior Secured Notes, consisting of borrowings under the New Term Loan Facility of $1,000,000, $0 drawn down on the New Revolving Credit Facility and $500,000 in aggregate principal amount of Senior Secured Notes issued and outstanding. At July 3, 2021 and January 2, 2021, the Company’s debt consisted of both fixed and variable-rate instruments. Interest rate swaps 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 and debt discount) on the Company’s outstanding debt, exclusive of the impact of the swaps then in effect, was approximately 5.67% and 7.03% per annum at July 3, 2021 and January 2, 2021, respectively, based on interest rates on these dates. The weighted average interest rate (which includes amortization of deferred financing costs and debt discount) on the Company’s outstanding debt, including the impact of the swaps then in effect, was approximately 6.17% and 7.41% per annum at July 3, 2021 and January 2, 2021, respectively, based on interest rates on these dates. 8.Earnings Per Share |
Basic earnings per share (“EPS”) areis calculated utilizing the weighted average number of common shares outstanding during the periods presented. Diluted EPS is calculated utilizing the weighted average number of common shares outstanding during the periods presented adjusted for the effect of dilutive common stock equivalents.
18
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
The following table sets forth the computation of basic and diluted EPS:earnings (loss) per share:
|
| Three Months Ended |
|
| Nine Months Ended |
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| October 1, |
|
| September 30, |
|
| October 1, |
| July 3, |
|
| June 27, |
|
| July 3, |
|
| June 27, |
| ||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Weight Watchers International, Inc. |
| $ | 44,719 |
|
| $ | 34,658 |
|
| $ | 100,544 |
|
| $ | 54,400 |
| |||||||||||||||
Net income (loss) attributable to WW International, Inc. | $ | 8,860 |
|
| $ | 14,006 |
|
| $ | (9,367 | ) |
| $ | 7,943 |
| ||||||||||||||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding |
|
| 64,463 |
|
|
| 63,782 |
|
|
| 64,237 |
|
|
| 63,690 |
|
| 69,588 |
|
|
| 67,641 |
|
|
| 69,336 |
|
|
| 67,538 |
|
Effect of dilutive common stock equivalents |
|
| 4,223 |
|
|
| 2,059 |
|
|
| 3,702 |
|
|
| 2,182 |
|
| 1,572 |
|
|
| 2,158 |
|
|
| — |
|
|
| 2,360 |
|
Weighted average diluted common shares outstanding |
|
| 68,686 |
|
|
| 65,841 |
|
|
| 67,939 |
|
|
| 65,872 |
|
| 71,160 |
|
|
| 69,799 |
|
|
| 69,336 |
|
|
| 69,898 |
|
Earnings per share attributable to Weight Watchers International, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Earnings (loss) per share attributable to WW International, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
| $ | 0.69 |
|
| $ | 0.54 |
|
| $ | 1.57 |
|
| $ | 0.85 |
| $ | 0.13 |
|
| $ | 0.21 |
|
| $ | (0.14 | ) |
| $ | 0.12 |
|
Diluted |
| $ | 0.65 |
|
| $ | 0.53 |
|
| $ | 1.48 |
|
| $ | 0.83 |
| $ | 0.12 |
|
| $ | 0.20 |
|
| $ | (0.14 | ) |
| $ | 0.11 |
|
The number of anti-dilutive common stock equivalents excluded from the calculation of the weighted average number of common shares for diluted EPS was 1,8624,724 and 1,9214,075 for the three months ended September 30, 2017July 3, 2021 and October 1, 2016, respectively,June 27, 2020, respectively. The number of anti-dilutive common stock equivalents excluded from the calculation of the weighted average number of common shares for diluted EPS was 6,426 and 1,230 and 1,4482,849 for the ninesix months ended September 30, 2017July 3, 2021 and October 1, 2016,June 27, 2020, respectively.
|
|
On May 6, 20089.Income Taxes
The effective tax rates for the three and May 12, 2004, respectively,six months ended July 3, 2021 were 9.9% and 42.3%, respectively. The effective tax rates for the three and six months ended June 27, 2020 were 28.6% and 38.4%, respectively. For the six months ended July 3, 2021, the tax expense was impacted by tax windfalls from stock compensation. For the six months ended July 3, 2021, the difference between the U.S. federal statutory tax rate and the Company’s shareholders approvedconsolidated 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 foreign-derived intangible income. For the 2008 Stock Incentive Plan (the “2008 Plan”) andsix months ended June 27, 2020, 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 Companytax expense was impacted 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.
Pursuant to the restricted stock provisions of the 2014 Plan, in fiscal 2016 the Compensation and Benefits Committeean impairment of the Company’s Board of Directors (the “Compensation Committee”) determinedBrazil reporting unit which had a full valuation allowance and tax reserves related to grant 289.9 performance-baseda foreign income tax audit, partially offset by tax windfalls from stock unit (“PSU”) awards having both time-compensation. For the six months ended June 27, 2020, the difference between the U.S. federal statutory tax rate and performance-vesting criteria. The time-vesting criteria for these PSUs will be satisfied on the third anniversaryCompany’s consolidated effective tax rate was primarily due to tax expense related to global intangible low-taxed income, state income tax expense and tax expense from income earned in foreign jurisdictions.
10.Legal
Securities Class Action and Derivative Matters
In March 2019, two substantially identical class action complaints alleging violations of the grant date (i.e., May 16, 2019). The performance-vesting criteria for these PSUs will be satisfied iffederal securities laws were filed by individual shareholders against the Company, has achieved a Debt Ratio (as definedcertain of the Company’s current officers and the Company’s former controlling shareholder, Artal Group S.A. (“Artal”), in the applicable term sheetUnited States District Court for these PSU awardsthe Southern District of New York. The actions were consolidated and basedlead plaintiffs were appointed in June 2019. A consolidated amended complaint was filed on a Debt to EBITDAS ratio (each,July 29, 2019, naming as defined therein)) at levels at or above a “threshold” level performancedefendants the Company, certain 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 numbercurrent officers and directors, and Artal and certain of sharesits affiliates. A second consolidated amended complaint was filed on September 27, 2019. The operative complaint asserted claims on behalf of all purchasers of the Company’s common stock issuablebetween May 4, 2018 and February 26, 2019, inclusive (the “Class Period”), including purchasers of the Company’s common stock traceable to the May 2018 secondary offering of the Company’s common stock by certain of its shareholders. The complaint alleged that, during the Class Period, the defendants disseminated materially false and misleading statements and/or concealed or recklessly disregarded material adverse facts. The complaint alleged claims under these PSUs range from 61.7Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 thereunder, and with respect to 308.4.the secondary offering, under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as amended. The plaintiffs sought to recover unspecified damages on behalf of the class members. The Company is currently accruing compensation expensefiled a motion to what it believes isdismiss the probable outcome upon vesting.complaint on October 31, 2019. On November 30, 2020, the Court granted the Company’s motion to dismiss in full and dismissed the complaint. The plaintiffs did not appeal.
14
19
WEIGHT WATCHERSWW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Between March and July 2019, the Company received shareholder litigation demands alleging breaches of fiduciary duties by certain current and former Company directors and executive officers, to the alleged injury of the Company. The allegations in the demands related to those contained in the dismissed securities class action litigation. In response to the demands, pursuant to Virginia law, the restricted stock provisionsBoard of Directors created a special committee to investigate and evaluate 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,claims made in the case of the May 2017 awards,demands. In addition, four derivative complaints were filed, each making allegations against 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 isofficers and directors and/or Artal and certain of its affiliates. First, on June 13, 2019, a shareholder derivative complaint was filed in 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, 2016 were 10.3% and 18.6%, respectively.
For the nine months ended September 30, 2017, the primary difference between the US federal statutory tax rate and the Company’s consolidated effective tax rate was due to the $11,633 tax benefit related to the cessationSouthern District of operationsNew York against certain of the Company’s Spanish subsidiary recordedofficers and directors alleging, among other things, that the defendants breached fiduciary duties to the alleged injury of the Company. The plaintiff voluntarily dismissed the complaint on July 8, 2019 and the Company agreed to treat the complaint as a litigation demand. Second, on July 23, 2019, another shareholder derivative complaint was filed in the first quarterSouthern District of fiscal 2017New York against certain of the Company’s officers and directors alleging, among other things, that the defendants breached fiduciary duties to the alleged injury of the Company. The plaintiff voluntarily dismissed the complaint the same day. Third, on October 25, 2019, another shareholder derivative complaint was filed in the Southern District of New York against certain of the Company’s officers and directors alleging, among other things, that the defendants breached fiduciary duties to the alleged injury of the Company. Finally, on December 16, 2019, a $2,255 reversalshareholder derivative complaint was filed in New York Supreme Court against certain of tax reserves resulting from an updated transfer pricing study.
For the three monthsCompany’s officers and nine months ended October 1, 2016directors, and Artal and certain of its affiliates, alleging, among other things, that the primary differences betweendefendants breached fiduciary duties to the US federal statutory tax ratealleged injury of the Company. This action and the Company’s consolidated effective tax ratederivative action filed October 25, 2019 (collectively, the “Derivative Actions”) were dueinitially stayed pending a decision on the defendants’ motion to $11,438 net tax benefits arising from a researchdismiss the securities class action, and development tax credit and a Section 199 deduction forall parties agreed to an additional stay until June 24, 2021. On June 24, 2021, the tax years 2012 through 2016, partially offset by $2,684parties to the Derivative Actions jointly notified the Southern District of income tax expenses recorded for out-of-period adjustments. See Note 1 for additional information on these adjustments. For the nine months ended October 1, 2016, the difference between the US federal statutory tax rateNew York and the Company’s consolidated effective tax rate was also dueNew York Supreme Court that the parties reached an agreement-in-principle to resolve the reversal ofDerivative Actions. The parties will participate in settlement approval proceedings in the coming months.
Member Class Action Matter
In June 2020, a $2,500 valuation allowance related to tax benefits for foreign losses that are now expected to be realized.
The differences between the US federal statutory tax rate and the Company’s consolidated effective tax rate isWorkshops + Digital (then known as follows:
|
| 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 | % |
15
WEIGHT WATCHERS 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 OnlinePlusStudio + Digital) member filed a putative class action complaint against the Company in the SupremeSuperior Court of New York, New York County, asserting classCalifornia in Ventura County. The complaint was filed on behalf of all Workshops + Digital members nationwide and regarded the fees charged for Workshops + Digital memberships since the replacement of in-person workshops with virtual workshops in March 2020 in response to the COVID-19 pandemic. The complaint alleged, among other things, that the Company’s decision to charge its members the full Workshops + Digital membership fee while only providing a virtual workshop experience violated California state consumer protection laws and gave rise to claims for breach of contract, fraud, and violationsother tort causes of action based on the same factual allegations that were the basis for the breach of contract claim. The plaintiff sought to recover damages plus injunctive relief to enjoin the Company from engaging in similar conduct in the future on behalf of the New York General Business Law. class members.
On February 5, 2016,July 30, 2020, the Company removedfiled a notice to remove the casematter to the United States District Court for the Central District of California, and per the parties’ stipulation, on August 7, 2020, the case was transferred to the United States District Court for the Southern District of New York. On March 18, 2016,September 23, 2020, the Company filed a motion to dismiss all of the plaintiff’s claims with prejudice. At the parties’ September 29, 2020 preliminary conference, the court issued an order permitting the plaintiff to either submit her opposition to the motion to dismiss or file an amended complaint by October 14, 2020. On October 14, 2020, the plaintiff filed an amended complaint alleging that, as a result ofwith predominantly 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.same claims. The Company filed aanother motion to dismiss the matter on May 6, 2016.November 4, 2020. The plaintiff filed hisher opposition papersbrief on June 9, 2016November 19, 2020, and the Company filed its reply papersbrief on June 23, 2016. The CourtNovember 25, 2020. On May 24, 2021, 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.prejudice.
Other Litigation Matters
Due to the nature of the Company’s activities, it is also, at times, subject to other 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.
20
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
| Derivative Instruments and Hedging |
As of September 30, 2017July 3, 2021 and December 31, 2016,January 2, 2021, the Company had in effect an interest rate swapswaps with aan aggregate notional amount totaling $1,250,000$500,000 and $1,500,000,$750,000, respectively.
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 (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, 2017July 3, 2021 and December 31, 2016,January 2, 2021, cumulative unrealized losses for qualifying hedges were reported as a component of accumulated other comprehensive loss in the amounts of $10,828$15,947 ($17,75121,435 before taxes) and $16,002$20,979 ($26,23228,161 before taxes), respectively. As of July 3, 2021 and January 2, 2021, the aggregate fair values of the Company’s current swaps were liabilities of $21,532 and $28,283, respectively, which were included in derivative payable in the consolidated balance sheets.
The Company is hedging forecasted transactions for periods not exceeding the next three years. The Company expects approximately $5,183$4,921 ($8,4976,578 before taxes) of derivative losses included in accumulated other comprehensive loss at September 30, 2017,July 3, 2021, based on current market rates, will be reclassified into earnings within the next 12 months.
| Fair Value Measurements |
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
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
| • | Level 1 – Quoted prices in active markets for identical assets or liabilities. |
• | Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
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, 2017July 3, 2021 and December 31, 2016.January 2, 2021. The fair value of the Company’s borrowings under the New Revolving Credit Facility approximated a carrying value of $0 at July 3, 2021. The fair value of the Company’s borrowings under the then-existing Revolving Credit Facility approximated a carrying value of $0 at January 2, 2021.
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, 2017July 3, 2021 and December 31, 2016,January 2, 2021, the fair value of the Company’s long-term debt was approximately $1,897,108$1,476,884 and $1,671,920,$1,501,148, respectively, as compared to the carrying value (net of deferringdeferred financing costs)costs and debt discount) of $1,916,271$1,469,737 and $2,002,299,$1,485,800, 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.
21
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
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 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 July 3, 2021 |
| $ | 21,532 |
|
|
| $ | — |
|
| $ | 21,532 |
|
| $ | — |
|
Interest rate swap liability at January 2, 2021 |
| $ | 28,283 |
|
|
| $ | — |
|
| $ | 28,283 |
|
| $ | — |
|
The Company did not0t 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 ninesix months ended September 30, 2017July 3, 2021 and the fiscal year ended December 31, 2016.January 2, 2021.
13. | Accumulated Other Comprehensive Loss |
Amounts reclassified out of accumulated other comprehensive loss are as follows:
17Changes in Accumulated Other Comprehensive Loss by Component (a)
|
| Six Months Ended July 3, 2021 |
| |||||||||
|
| Loss on Qualifying Hedges |
|
| Loss on Foreign Currency Translation |
|
| Total |
| |||
Beginning balance at January 2, 2021 |
| $ | (20,979 | ) |
| $ | (4,170 | ) |
| $ | (25,149 | ) |
Other comprehensive income before reclassifications, net of tax |
|
| 659 |
|
|
| 1,299 |
|
|
| 1,958 |
|
Amounts reclassified from accumulated other comprehensive loss, net of tax(b) |
|
| 4,373 |
|
|
| — |
|
|
| 4,373 |
|
Net current period other comprehensive income |
|
| 5,032 |
|
|
| 1,299 |
|
|
| 6,331 |
|
Ending balance at July 3, 2021 |
| $ | (15,947 | ) |
| $ | (2,871 | ) |
| $ | (18,818 | ) |
(a) | Amounts in parentheses indicate debits |
(b) | See separate table below for details about these reclassifications |
|
| Six Months Ended June 27, 2020 |
| |||||||||
|
| Loss on Qualifying Hedges |
|
| Loss on Foreign Currency Translation |
|
| Total |
| |||
Beginning balance at December 28, 2019 |
| $ | (15,529 | ) |
| $ | (11,823 | ) |
| $ | (27,352 | ) |
Other comprehensive loss before reclassifications, net of tax |
|
| (12,765 | ) |
|
| (3,598 | ) |
|
| (16,363 | ) |
Amounts reclassified from accumulated other comprehensive loss, net of tax(b) |
|
| 3,385 |
|
|
| — |
|
|
| 3,385 |
|
Net current period other comprehensive loss including noncontrolling interest |
|
| (9,380 | ) |
|
| (3,598 | ) |
|
| (12,978 | ) |
Less: Net current period other comprehensive loss attributable to the noncontrolling interest |
|
| — |
|
|
| 95 |
|
|
| 95 |
|
Ending balance at June 27, 2020 |
| $ | (24,909 | ) |
| $ | (15,326 | ) |
| $ | (40,235 | ) |
(a) | Amounts in parentheses indicate debits |
(b) | See separate table below for details about these reclassifications |
22
WEIGHT WATCHERSWW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Amounts reclassified out of accumulated other comprehensive loss are as follows:
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 | ) |
|
|
|
|
|
| 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)
|
| Three Months Ended |
|
| Nine Months Ended |
|
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||||
|
| September 30, |
|
| October 1, |
|
| September 30, |
|
| October 1, |
|
|
| July 3, |
|
| June 27, |
|
| July 3, |
|
| June 27, |
|
|
| ||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
|
| ||||||||
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 | 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 | $ | (2,213 | ) |
| $ | (3,438 | ) |
| $ | (5,846 | ) |
| $ | (4,537 | ) |
| Interest expense |
|
|
| (3,422 | ) |
|
| (6,185 | ) |
|
| (12,577 | ) |
|
| (18,555 | ) |
| Income before income taxes |
| (2,213 | ) |
|
| (3,438 | ) |
|
| (5,846 | ) |
|
| (4,537 | ) |
| Income (loss) before income taxes |
|
|
| 1,335 |
|
|
| 2,412 |
|
|
| 4,905 |
|
|
| 7,236 |
|
| Provision for income taxes |
| 557 |
|
|
| 873 |
|
|
| 1,473 |
|
|
| 1,152 |
|
| Provision for (benefit from) income taxes |
|
| $ | (2,087 | ) |
| $ | (3,773 | ) |
| $ | (7,672 | ) |
| $ | (11,319 | ) |
| Net income | $ | (1,656 | ) |
| $ | (2,565 | ) |
| $ | (4,373 | ) |
| $ | (3,385 | ) |
| Net income (loss) |
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 |
(a) | Amounts in parentheses indicate debits to profit/loss |
| Segment Data |
The Company has four4 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 Revenue |
| Total Revenues, net |
|
| Total Revenues, net |
|
| |||||||||||||||||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
| Three Months Ended |
|
| Six Months Ended |
|
| ||||||||||||||||||||
|
| September 30, 2017 |
|
| October 1, 2016 |
|
| September 30, 2017 |
|
| October 1, 2016 |
| July 3, 2021 |
|
| June 27, 2020 |
|
| July 3, 2021 |
|
| June 27, 2020 |
|
| ||||||||
North America |
| $ | 223,677 |
|
| $ | 192,899 |
|
| $ | 695,397 |
|
| $ | 613,287 |
| $ | 207,629 |
|
| $ | 227,525 |
|
| $ | 428,945 |
|
| $ | 511,232 |
|
|
Continental Europe |
| 77,936 |
|
|
| 77,819 |
|
|
| 159,831 |
|
|
| 157,809 |
|
| ||||||||||||||||
United Kingdom |
|
| 25,473 |
|
|
| 23,480 |
|
|
| 75,907 |
|
|
| 80,093 |
|
| 17,002 |
|
|
| 19,737 |
|
|
| 36,070 |
|
|
| 44,765 |
|
|
Continental Europe |
|
| 60,665 |
|
|
| 50,675 |
|
|
| 179,580 |
|
|
| 163,429 |
| ||||||||||||||||
Other |
|
| 13,872 |
|
|
| 13,765 |
|
|
| 43,538 |
|
|
| 40,681 |
|
| 8,812 |
|
|
| 8,556 |
|
|
| 18,329 |
|
|
| 20,192 |
|
|
Total revenue |
| $ | 323,687 |
|
| $ | 280,819 |
|
| $ | 994,422 |
|
| $ | 897,490 |
| ||||||||||||||||
Total revenues, net | $ | 311,379 |
|
| $ | 333,637 |
|
| $ | 643,175 |
|
| $ | 733,998 |
|
|
19
| Net Income |
|
| Net (Loss) Income |
|
| ||||||||||
| Three Months Ended |
|
| Six Months Ended |
|
| ||||||||||
| July 3, 2021 |
|
| June 27, 2020 |
|
| July 3, 2021 |
|
| June 27, 2020 |
|
| ||||
Segment operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America | $ | 61,395 |
|
| $ | 79,526 |
|
| $ | 88,977 |
|
| $ | 124,771 |
|
|
Continental Europe |
| 33,451 |
|
|
| 41,629 |
|
|
| 53,505 |
|
|
| 55,200 |
|
|
United Kingdom |
| 2,040 |
|
|
| 4,187 |
|
|
| 2,583 |
|
|
| 3,350 |
|
|
Other |
| 1,983 |
|
|
| 2,804 |
|
|
| 2,087 |
|
|
| 30 |
|
|
Total segment operating income |
| 98,869 |
|
|
| 128,146 |
|
|
| 147,152 |
|
|
| 183,351 |
|
|
General corporate expenses |
| 39,196 |
|
|
| 77,161 |
|
|
| 84,650 |
|
|
| 107,500 |
|
|
Interest expense |
| 20,293 |
|
|
| 30,995 |
|
|
| 49,416 |
|
|
| 62,546 |
|
|
Other expense, net |
| 381 |
|
|
| 416 |
|
|
| 143 |
|
|
| 438 |
|
|
Early extinguishment of debt |
| 29,169 |
|
|
| — |
|
|
| 29,169 |
|
|
| — |
|
|
Provision for (benefit from) income taxes |
| 970 |
|
|
| 5,592 |
|
|
| (6,859 | ) |
|
| 4,942 |
|
|
Net income (loss) | $ | 8,860 |
|
| $ | 13,982 |
|
| $ | (9,367 | ) |
| $ | 7,925 |
|
|
Net loss attributable to the noncontrolling interest |
| — |
|
|
| 24 |
|
|
| — |
|
|
| 18 |
|
|
Net income (loss) attributable to WW International, Inc. | $ | 8,860 |
|
| $ | 14,006 |
|
| $ | (9,367 | ) |
| $ | 7,943 |
|
|
23
WEIGHT WATCHERSWW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
|
| 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 |
| Depreciation and Amortization |
|
| Depreciation and Amortization |
|
| |||||||||||||||||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
| Three Months Ended |
|
| Six Months Ended |
|
| ||||||||||||||||||||
|
| September 30, 2017 |
|
| October 1, 2016 |
|
| September 30, 2017 |
|
| October 1, 2016 |
| July 3, 2021 |
|
| June 27, 2020 |
|
| July 3, 2021 |
|
| June 27, 2020 |
|
| ||||||||
North America |
| $ | 9,764 |
|
| $ | 9,917 |
|
| $ | 29,632 |
|
| $ | 31,694 |
| $ | 9,804 |
|
| $ | 10,019 |
|
| $ | 20,118 |
|
| $ | 20,546 |
|
|
Continental Europe |
| 397 |
|
|
| 396 |
|
|
| 831 |
|
|
| 784 |
|
| ||||||||||||||||
United Kingdom |
|
| 259 |
|
|
| 229 |
|
|
| 887 |
|
|
| 746 |
|
| 221 |
|
|
| 248 |
|
|
| 478 |
|
|
| 510 |
|
|
Continental Europe |
|
| 306 |
|
|
| 397 |
|
|
| 907 |
|
|
| 1,281 |
| ||||||||||||||||
Other |
|
| 187 |
|
|
| 181 |
|
|
| 462 |
|
|
| 650 |
|
| 104 |
|
|
| 86 |
|
|
| 217 |
|
|
| 182 |
|
|
Total segment depreciation and amortization |
|
| 10,516 |
|
|
| 10,724 |
|
|
| 31,888 |
|
|
| 34,371 |
|
| 10,526 |
|
|
| 10,749 |
|
|
| 21,644 |
|
|
| 22,022 |
|
|
General corporate depreciation and amortization |
|
| 3,692 |
|
|
| 4,128 |
|
|
| 10,735 |
|
|
| 9,405 |
|
| 3,688 |
|
|
| 4,222 |
|
|
| 7,982 |
|
|
| 7,344 |
|
|
Depreciation and amortization |
| $ | 14,208 |
|
| $ | 14,852 |
|
| $ | 42,623 |
|
| $ | 43,776 |
| $ | 14,214 |
|
| $ | 14,971 |
|
| $ | 29,626 |
|
| $ | 29,366 |
|
|
| Related Party |
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 consideration of Ms. Winfrey entering into the amendment to the Strategic Collaboration Agreement and the performance of her obligations thereunder, on December 15, 2019 the Company granted Ms. Winfrey a fully vested option to purchase 3,276 shares of the Company’s common stock (the "Winfrey Amendment Option") which became exercisable on May 6, 2020, the date on which shareholder approval of such option was obtained. The amendment to the Strategic Collaboration Agreement became operative on May 6, 2020 when the Company’s shareholders approved the Winfrey Amendment Option. Based on the Black Scholes option pricing method as of May 6, 2020, the Company recorded $32,686 of compensation expense in the second quarter of fiscal 2020 for the Winfrey Amendment Option. The Company used a dividend yield of 0.0%, 63.68% volatility and a risk-free interest rate of 0.41%. Compensation expense was included as a component of selling, general and administrative expenses.
In addition to the Strategic Collaboration Agreement, Ms. Winfrey and her related entities provided services to the Company totaling $364$192 and $2,920$666 for the three and ninesix months ended September 30, 2017,July 3, 2021, respectively, and $368$823 and $2,054$1,761 for the three and ninesix months ended October 1, 2016,June 27, 2020, respectively, which services included advertising, production and related fees.
Entities related to Ms. Winfrey were reimbursed for actual costs incurred in connection with the WW Presents: Oprah’s 2020 Vision tour totaling $141 and $1,650 for the three and six months ended June 27, 2020, respectively.
The Company’s accounts payable to parties related to Ms. Winfrey at September 30, 2017July 3, 2021 and December 31, 2016January 2, 2021 was $364$0 and $1,123,$76, respectively.
During the six months ended July 3, 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 (the “Purchase Agreement”), and the previously disclosed Winfrey Option Agreement, dated October 18, 2015, between the Company and Ms. Winfrey (the “Initial Option Agreement”), Ms. Winfrey sold shares she purchased under such purchase agreement and exercised a portion of her stock options granted in 2015 resulting in the sale of shares issuable under such options, respectively, as follows: (i) in the second quarter of fiscal 2021, 666 purchased shares and 251 option shares and (ii) in the first quarter of fiscal 2021, 875 purchased shares and 330 option shares.
In the second quarter of fiscal 2020, as permitted by the transfer provisions set forth in the Purchase Agreement and the Initial Option Agreement, Ms. Winfrey sold 604 of the shares she purchased under such purchase agreement and exercised a portion of her stock options granted in 2015 resulting in the sale of 297 shares issuable under such options.
24
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
16.Restructuring
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 and will result in the termination of operating leases and elimination of certain positions worldwide. The Company had previously estimated this plan would cost approximately $11,000 in fiscal 2021. The Company revised its estimate and currently expects to record restructuring expenses of approximately $22,000 in fiscal 2021 related to this plan. During the three and six months ended July 3, 2021, the Company recorded restructuring expenses totaling $6,036 ($4,515 after tax) and $11,574 ($8,659 after tax), respectively.
For the three and six months ended July 3, 2021, the components of the Company’s restructuring expenses were as follows:
| Three Months Ended |
|
| Six Months Ended |
| ||
| July 3, 2021 |
|
| July 3, 2021 |
| ||
Lease termination and other related costs | $ | 4,789 |
|
| $ | 9,509 |
|
Employee termination benefit costs |
| 1,247 |
|
|
| 2,065 |
|
Total restructuring expenses | $ | 6,036 |
|
| $ | 11,574 |
|
For the three and six months ended July 3, 2021, restructuring expenses were recorded in the Company’s consolidated statements of net income as follows:
| Three Months Ended |
|
| Six Months Ended |
| ||
| July 3, 2021 |
|
| July 3, 2021 |
| ||
Cost of revenues | $ | 5,579 |
|
| $ | 10,781 |
|
Selling, general and administrative expenses |
| 457 |
|
|
| 793 |
|
Total restructuring expenses | $ | 6,036 |
|
| $ | 11,574 |
|
All expenses were recorded to general corporate expenses and, therefore, there was no impact to the segments.
For the six months ended July 3, 2021, the Company made payments of $4,567 towards the liability for the lease termination costs and increased provision estimates by $16. For the six months ended July 3, 2021, the Company made payments of $566 towards the liability for the employee termination benefit costs and decreased provision estimates by $9. The Company expects the remaining lease termination liability of $1,809 and the remaining employee termination benefit liability of $1,490 to be paid in full no later than 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 |
|
25
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 six months ended July 3, 2021, the Company made payments of $4,569 towards the liability for the lease termination costs and decreased provision estimates by $449. For the six months ended July 3, 2021, the Company made payments of $5,521 towards the liability for the employee termination benefit costs and decreased provision estimates by $901.
The Company expects the remaining lease termination liability of $303 and the remaining employee termination benefit liability of $3,427 to be paid in full no later than the end of fiscal 2023.
26
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:
competition from other weight management industry participants or the development of more effective or more favorably perceived weight management methods;
• | the impact of the global outbreak of the COVID-19 virus on our business and liquidity and on the business environment and markets in which we operate; |
our ability to continue to develop new, innovative services and products and enhance our existing services and products or the failure of our services and products to continue to appeal to the market, or our ability to successfully expand into new channels of distribution or respond to consumer trends;
• | competition from other weight management and wellness industry participants or the development of more effective or more favorably perceived weight management methods; |
the ability to successfully implement new strategic initiatives;
• | our failure to continue to retain and grow our subscriber base; |
the effectiveness of our advertising and marketing programs, including the strength of our social media presence;
• | our ability to continue to develop new, innovative services and products and enhance our existing services and products or the failure of our services, products or brands to continue to appeal to the market, or our ability to successfully expand into new channels of distribution or respond to consumer trends; |
the impact on the Weight Watchers brand of actions taken by our franchisees, licensees, suppliers and other partners;
• | the ability to successfully implement strategic initiatives; |
the inability to refinance our debt obligations on favorable terms or at all;
• | the effectiveness of our advertising and marketing programs, including the strength of our social media presence; |
the impact of our debt service obligations and restrictive debt covenants;
• | the impact on our reputation of actions taken by our franchisees, licensees, suppliers and other partners; |
uncertainties regarding the satisfactory operation of our information technology or systems;
• | the recognition of asset impairment charges; |
the impact of security breaches or privacy concerns;
• | the loss of key personnel, strategic partners or consultants or failure to effectively manage and motivate our workforce; |
the recognition of asset impairment charges;
• | the inability to renew certain of our licenses, or the inability to do so on terms that are favorable to us; |
the loss of key personnel, strategic partners or consultants or failure to effectively manage and motivate our workforce;
• | the expiration or early termination by us of leases; |
our chief executive officer transition;
• | uncertainties related to a downturn in general economic conditions or consumer confidence; |
the inability to renew certain of our licenses, or the inability to do so on terms that are favorable to us;
• | our ability to successfully make acquisitions or enter into joint ventures, including our ability to successfully integrate, operate or realize the anticipated benefits of such businesses; |
the expiration or early termination by us of leases;
• | the seasonal nature of our business; |
risks and uncertainties associated with our international operations, including regulatory, economic, political and social risks and foreign currency risks;
• | the impact of events that discourage or impede people from gathering with others or accessing resources; |
uncertainties related to a downturn in general economic conditions or consumer confidence;
• | our failure to maintain effective internal control over financial reporting; |
our ability to successfully make acquisitions or enter into joint ventures, including our ability to successfully integrate, operate or realize the anticipated benefits of such businesses;
• | the impact of our substantial amount of debt, debt service obligations and debt covenants, and our exposure to variable rate indebtedness; |
the seasonal nature of our business;
• | the ability to generate sufficient cash to service our debt and satisfy our other liquidity requirements; |
the impact of events that discourage or impede people from gathering with others or accessing resources;
• | uncertainties regarding the satisfactory operation of our technology or systems; |
our ability to enforce our intellectual property rights both domestically and internationally, as well as the impact of our involvement in any claims related to intellectual property rights;
• | the impact of data security breaches or privacy concerns, including the costs of compliance with evolving privacy laws and regulations; |
the outcomes of litigation or regulatory actions;
• | our ability to enforce our intellectual property rights both domestically and internationally, as well as the impact of our involvement in any claims related to intellectual property rights; |
the impact of existing and future laws and regulations;
• | risks and uncertainties associated with our international operations, including regulatory, economic, political, social, intellectual property, and foreign currency risks; |
our failure to maintain effective internal control over financial reporting;
• | the outcomes of litigation or regulatory actions; |
the possibility that the interests of Artal Group S.A., who effectively controls us, will conflict with other holders of our common stock; and
• | the impact of existing and future laws and regulations; |
• | the possibility that the interests of Artal Group S.A., or 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; |
• | the impact that the sale of substantial amounts of our common stock by existing large shareholders, or the perception that such sales could occur, could have on the market price of our common stock; and |
• | other risks and uncertainties, including those detailed from time to time in our periodic reports filed with the Securities and Exchange Commission. |
other risks and uncertainties, including those detailed from time to time in our periodic reports filed with the Securities and Exchange Commission.
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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.
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ITEM 2. |
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WW International, Inc., formerly known as Weight Watchers 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” 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 Digital 360 and Personal Coaching + Digital. Our “Workshops + Digital” (formerly known as “Studio + 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), as well assubscribers. It also includes the provision of access to meetingsworkshops for members who do not subscribe to commitment plans, including 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.
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 |
• | “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 (included a 53rd week); |
• | “fiscal 2021” refers to our fiscal year ended January 1, 2022; |
• | “fiscal 2022” refers to our fiscal year ended December 31, 2022; |
• | “fiscal 2023” refers to our fiscal year ended December 30, 2023; |
• | “fiscal 2024” refers to our fiscal year ended December 28, 2024; |
• | “fiscal 2025” refers to our fiscal year ended January 3, |
“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 a 53rd week); and
“fiscal 2021” refers to our fiscal year ended January 1, 2022.
• | “fiscal 2026” refers to our fiscal year ended January 2, 2027. |
The following termterms used in this Quarterly Report on Form 10-Q isare our trademark: trademarks: Digital 360TM, myWW® and Weight Watchers®.
You should read the following discussion in conjunction with our Annual Report on Form 10-K for fiscal 20162020 as amended 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”).
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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 income and operating income margin 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 second quarter and first six months of fiscal 2021 to exclude the net impact of (x) charges associated with our previously disclosed 2021 organizational restructuring plan and (y) the reversal of certain of the charges associated with our previously disclosed 2020 organizational restructuring plan; (ii) the second quarter of fiscal 2020 to exclude the impact of (x) the one-time stock compensation expense associated with the previously disclosed option granted to Ms. Oprah Winfrey in connection with the Company extending its partnership with Ms. Winfrey (the “Winfrey Stock Compensation expense”) and (y) charges associated with our previously disclosed 2020 organizational restructuring plan (the “2020 restructuring charges”); and (iii) the first six months of fiscal 2020 to exclude the impact of (x) the Winfrey Stock Compensation expense, (y) the 2020 restructuring charges and (z) the impairment charge for our goodwill related to our Brazil reporting unit. We generally refer to such non-GAAP measures as follows: (i) with respect to the adjustments for the second quarter and first six months of fiscal 2021, as excluding or adjusting for the net impact of restructuring charges; and (ii) with respect to the adjustments for the second quarter and first six months of fiscal 2020, as applicable, as excluding or adjusting for the impact of the Winfrey Stock Compensation expense, the restructuring charges and/or the goodwill impairment charge. 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, early extinguishment of debt, restructuring charges (including the net impact where applicable) and goodwill impairment (“Adjusted EBITDAS”); total debt less unamortized deferred financing costs, unamortized debt discount and cash on hand (i.e., net debt.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 POLICIES
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, for potential impairmentare amortized over the remaining contractual period, which is generally less than one year. Indefinite-lived franchise rights acquired are tested 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. impairment.
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 July 3, 2021 balance sheet date were $698.4 million, $61.6 million, $12.5 million, $6.8 million and $5.0 million, respectively.
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In our hypothetical start-up approach analysis for fiscal 2021, 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. 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%.July 3, 2021 balance sheet date were $103.0 million, $43.5 million and $10.3 million, respectively.
For all of our reporting units except for Brazil (see below),tested as of May 9, 2021, 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 9, 2021 and May 3, 2020, 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 2017as of May 9, 2021 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% |
|
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As it relates to our impairment analysis for Brazil,May 3, 2020, we estimated future debt free cash flows in contemplationdetermined that the carrying amounts of our growth strategies for that market. In developing thesefranchise rights acquired with indefinite lives units of account and goodwill reporting units did not exceed their respective fair values and, therefore, no impairment existed.
When determining fair value, we utilize various assumptions, including projections we considered the historical impact of similar growth strategies in other markets as well as the current market conditions in Brazil. We then discounted the estimated future cash flows, utilizinggrowth rates and discount rates. A change in these underlying assumptions could cause 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 projectedchange in the analysis. The costresults of debt was determined by estimating the Company’s current borrowing rate.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.
The following are the more significant assumptions utilized inIn performing our annual impairment analysis, for Brazilwe also considered the trading value of both our equity and debt. If the trading values of both our equity and debt were to significantly decline from their current levels, we may have to take an impairment charge at the appropriate time, which could be material. For additional information on risks associated with our recognizing asset impairment charges, see “Item 1A. Risk Factors” of our Annual Report on Form 10-K 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 over 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 for our franchise rights acquired is estimated using a discounted cash flow approach referred to2020 as the hypothetical start-up approach for our franchise rights related to our meetings business and a relief from royalty methodology for our franchise rights related to our 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. We have 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. 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.amended.
Based on the results of our fiscal 2017May 9, 2021 annual franchise rights acquired impairment analysis weperformed for all of our units of account as of the July 3, 2021 balance sheet date, all units, except for New Zealand, had an estimated that approximately 100.0%fair value at least 45% higher than the respective unit’s carrying amount. Collectively, these units of account represent 99.4% of our total franchise rights acquired. Based on the results of our annual franchise rights acquired impairment test performed for our New Zealand unit of account, which holds 0.6% of our franchise rights acquired had aas of the July 3, 2021 balance sheet date, the estimated fair value at least 40% higher than theirof this unit of account exceeded its carrying amount.
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 ofvalue by approximately 10%. Accordingly, a market-based royalty rate. The cash flows for the meetings and Online businesses were discounted utilizing rates consistent with those utilizedchange in the goodwillunderlying assumptions for New Zealand may change the results of the impairment analysis.assessment and, as such, could result in an impairment of the franchise rights acquired related to New Zealand, for which the net book value was $5.0 million as of July 3, 2021.
In performing this impairment analysis for fiscal 2017,2021, 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%(41.5%) to 58.3%5.6% in the year of maturity from fiscal 2016,2020, 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%1.8%. For the year of maturity and beyond, we assumed operating income margin rates of 7.1% to 22.5%11.7%.
Based on the results of our May 9, 2021 annual goodwill impairment test performed for all of our reporting units as of the July 3, 2021 balance sheet date, there was significant headroom in the goodwill impairment analysis for those units, with the difference between the carrying value and the fair value exceeding 100%.
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The following are the more significant assumptions utilized in our annual impairment analyses for fiscal 2021 and fiscal 2020:
|
| Fiscal |
|
| Fiscal |
|
|
| 2021 |
|
| 2020 |
|
Debt-Free Cumulative Annual Cash Flow Growth Rate |
| 0.2% to 2.6% |
|
| 4.0% to 13.9% |
|
Discount Rate |
| 8.5% |
|
| 9.5% |
|
Brazil Goodwill Impairment
With respect to our Brazil reporting unit, during the first quarter of fiscal 2020, we made a strategic decision to shift to an exclusively Digital business in that country. We determined that this decision, together with the negative impact of COVID-19, the ongoing challenging economic environment in Brazil and our reduced expectations regarding the reporting unit’s future operating cash flows, required us to perform an interim goodwill impairment analysis. In performing this discounted cash flow analysis, we determined that the carrying amount of this reporting unit exceeded its fair value and as a result recorded an impairment charge of $3.7 million, which comprised the remaining balance of goodwill for this reporting unit.
As it related to our goodwill impairment analysis for Brazil, we estimated future debt-free cash flows in contemplation of our growth strategies for that market. In developing these projections, we considered the growth strategies under the current market conditions in Brazil. We then discounted the estimated future cash flows utilizing a discount rate which was calculated using the weighted-average cost of capital, which included the cost of equity and the cost of debt.
Other Critical Accounting Policies
For a discussion of the other critical accounting policies affecting us, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” of our Annual Report on Form 10-K for fiscal 2016.2020 as amended. Our critical accounting policies have not changed since the end of fiscal 2016.2020.
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:
Revenues—Our “Service Revenues” consist of “Meeting Fees”are useful to both management and “Online Subscription Revenues”. “Meeting Fees” consist of the fees associated withinvestors for forecasting purposes and to facilitate comparisons to our subscription plans for combined meetings and digital offerings and other payment arrangements for accesshistorical operating results. These metrics are supplemental to meetings. “Online Subscription Revenues” consist of the fees associated with subscriptions for our Online subscription products, including our Personal Coaching product. In addition, “product sales and other” consists of sales of products to members in meetings and online, revenues from licensing, magazine subscriptions, 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 financialGAAP results and Other reportable segment, franchise fees with respect to commitment plans and commissions.include operational measures.
• | Revenues—Our “Subscription Revenues” consist of “Digital Subscription Revenues” and “Workshops + Digital Fees” (formerly known as “Studio + Digital Fees”). “Digital Subscription Revenues” consist of the fees associated with subscriptions for our Digital offerings, including Digital 360 and Personal Coaching + Digital. “Workshops + Digital Fees” consist of the fees associated with our subscription plans for combined workshops and digital offerings and other payment arrangements for access to workshops. In addition, “product sales and other” consists of sales of consumer products via e-commerce, in studios and through our trusted partners, revenues from licensing and publishing, other revenues (including revenues from the WW Presents: Oprah’s 2020 Vision tour), and, in the case of the consolidated financial results and Other reportable segment, franchise fees with respect to commitment plans and royalties. |
Paid Weeks—The “Paid Weeks” metric reports paid weeks by Weight Watchers 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 Paid Weeks” is the total paid subscription weeks for our digital subscription products (including Personal Coaching); and (iii) “Total Paid Weeks” is the sum of Meeting Paid Weeks and Online Paid Weeks.
• | Paid Weeks—The “Paid Weeks” metric reports paid weeks by WW customers in Company-owned operations for a given period as follows: (i) “Digital Paid Weeks” is the total paid subscription weeks for our digital subscription products (including Digital 360 and Personal Coaching + Digital); (ii) “Workshops + Digital Paid Weeks” (formerly known as “Studio + 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 Digital Paid Weeks and Workshops + Digital Paid Weeks. |
Incoming Subscribers—“Subscribers” refer to meetings members and Online subscribers who participate in recurring billing programs. The “Incoming Subscribers” metric reports Weight Watchers subscribers in Company-owned operations at a given period start as follows: (i) “Incoming Meeting Subscribers” is the total number of Weight Watchers commitment plan subscribers (including Total Access); (ii) “Incoming Online Subscribers” is the total number of Weight Watchers Online, Weight Watchers OnlinePlus and Personal Coaching subscribers; and (iii) “Incoming Subscribers” is the sum of Incoming Meeting Subscribers and Incoming Online Subscribers. Recruitment and retention are key drivers for this metric.
• | Incoming Subscribers—“Subscribers” refer to Digital subscribers and Workshops + Digital subscribers who participate in recur bill programs in Company-owned operations. The “Incoming Subscribers” metric reports WW subscribers in Company-owned operations at a given period start as follows: (i) “Incoming Digital Subscribers” is the total number of Digital, including Digital 360 and Personal Coaching + Digital, subscribers; (ii) “Incoming Workshops + Digital Subscribers” (formerly known as “Incoming Studio + Digital Subscribers”) is the total number of commitment plan subscribers that have access to combined workshops and digital offerings; and (iii) “Incoming Subscribers” is the sum of Incoming Digital Subscribers and Incoming Workshops + Digital Subscribers. Recruitment and retention are key drivers for this metric. |
|
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• End of Period Subscribers—The “End of Period Subscribers” metric reports WW subscribers in Company-owned operations at a given period end as follows: (i) “End of Period Digital Subscribers” is the total number of Digital, including Digital 360 and Personal Coaching + Digital, subscribers; (ii) “End of Period Workshops + Digital Subscribers” (formerly known as “End of Period Studio + Digital Subscribers”) is the total number of commitment plan subscribers that have access to combined workshops and digital offerings; and (iii) “End of Period Subscribers” is the sum of End of Period Digital Subscribers and End of Period Workshops + Digital Subscribers. Recruitment and retention are key drivers for this metric.End of Period Subscribers—The “End of Period Subscribers” metric reports Weight Watchers subscribers in Company-owned operations at a given period end as follows: (i) “End of Period Meeting Subscribers” is the total number of Weight Watchers commitment plan subscribers (including Total Access); (ii) “End of Period Online Subscribers” is the total number of Weight Watchers Online, Weight Watchers OnlinePlus
• | Gross profit and operating expenses as a percentage of revenue. |
COVID-19 PANDEMIC
The novel coronavirus (including its variants, COVID-19) pandemic continues to impact our business operations and the markets in which we operate. While the outbreak of COVID-19 did not have a significant effect on our reported results for the first quarter of fiscal 2020, it did have a significant effect on our reported results for the remainder of fiscal 2020 and the first half of fiscal 2021. The number of End of Period Meeting Subscribers andfor the second quarter of fiscal 2021 decreased 1.9% versus the prior year period. The challenging COVID-19 environment for our Workshops + Digital business drove a significant decrease in End of Period OnlineWorkshops + Digital Subscribers for the second quarter of fiscal 2021 versus the prior year period, which was partially offset by the increase in End of Period Digital Subscribers. RecruitmentThe negative impact of COVID-19 is expected to continue to significantly impact the Workshops + Digital business in the third quarter of fiscal 2021 and retentionpotentially in subsequent periods.
The extent to which our operations and business trends will continue in future periods to be impacted by, and any unforeseen costs will result from, the ongoing outbreak of COVID-19 will depend largely on future developments, which are key drivershighly uncertain and cannot be accurately predicted. These developments include, among other things, new information that may emerge concerning the severity of the outbreak, health implications and vaccine availability, actions by government authorities to contain the outbreak or treat its impact, and changes in consumer behavior resulting from the outbreak and such government actions. We continue to actively monitor the ongoing global outbreak of COVID-19 and its impact and related developments and expect that it will significantly impact our reported results for the third quarter of fiscal 2021 and may potentially do so in subsequent periods.
In response to the public health crisis posed by COVID-19, in March 2020, we suspended our in-person workshops and moved quickly to transition these workshops to an entirely virtual experience. In June 2020, we began a phased re-opening with reduced operations of a limited number of our studio locations. We continue to evolve our workshop strategy as we evaluate our cost structure and respond to shifting consumer sentiment. We are selectively resuming in-person workshops where we can in a cost-efficient manner that promotes the health and safety of our employees and members. However, during these uncertain times, we will continue to adhere to the requirements in local jurisdictions to close re-opened studios as necessary, and we may not be able to open studios as planned or may need to further reduce operations. We continue to serve our members virtually, both via our Digital business and through virtual workshops now available to our Workshops + Digital subscribers. Nevertheless, our Workshops + Digital business, including its business operations, number of subscribers and in-studio product sales, remain substantially affected by the evolving COVID-19 environment. We expect that applicable regulatory restrictions, including stay-at-home requirements and restrictions on in-person group gatherings, may continue to impact our studio operations, including how we conduct our in-person workshops.
As we continue to address the impact of the pandemic, and the related evolving legal and consumer landscape, we are focused on how to best meet our members’ and consumers’ needs as restrictions are lifted or reinstated. We consolidated certain of our studios into branded studio locations and continue to close certain other branded studio locations. The decision to re-open a studio location, if at all, or further consolidate studio locations, will be influenced by a number of factors, including applicable legal restrictions, consumer confidence and preferences, changes in consumer behavior, and the protection of the health and safety of our employees and members, and will be dependent on cost efficiencies and alignment with our digital and brand strategy. 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 will incur significant costs associated with our real estate realignment.
While we expect the effects of the pandemic and the related responses 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 economic and operational impacts of COVID-19 means we cannot reasonably estimate the related financial impact at this metric.
gross profittime. For more information, see “Item 1A. Risk Factors” in Part I of our Annual Report on Form 10-K for fiscal 2020 as amended. We continue to believe that our powerful communities and operating expensesour ability to inspire people to adopt healthy habits will be invaluable to people across the globe as a percentage of revenuethey continue to acclimate to new social and economic environments, and that they uniquely position us in the markets in which we operate.
33
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2017JULY 3, 2021 COMPARED TO THE THREE MONTHS ENDED OCTOBER 1, 2016JUNE 27, 2020
The table below sets forth selected financial information for the thirdsecond quarter of fiscal 20172021 from our consolidated statements of net income for the three months ended September 30, 2017July 3, 2021 versus selected financial information for the thirdsecond quarter of fiscal 20162020 from our consolidated statements of net income for the three months ended October 1, 2016:June 27, 2020.
Summary of Selected Financial Data
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| For The Three Months Ended |
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| For The Three Months Ended |
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| September 30, 2017 |
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| October 1, 2016 |
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| Increase/ (Decrease) |
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| % Change |
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| % Change Constant Currency |
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| July 3, 2021 |
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| June 27, 2020 |
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| Increase/ (Decrease) |
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| % Change |
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| % Change Constant Currency |
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Revenues, net |
| $ | 323.7 |
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| $ | 280.8 |
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| $ | 42.9 |
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| 15.3 | % |
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| 13.9 | % |
| $ | 311.4 |
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| $ | 333.6 |
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| $ | (22.3 | ) |
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| (6.7 | %) |
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| (10.2 | %) |
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Cost of revenues |
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| 146.6 |
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| 136.5 |
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| 10.1 |
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| 7.4 | % |
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| 6.3 | % |
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| 125.4 |
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| 139.0 |
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| (13.6 | ) |
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| (9.8 | %) |
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| (12.4 | %) |
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Gross profit |
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| 177.1 |
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| 144.3 |
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| 32.8 |
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| 22.7 | % |
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| 21.0 | % |
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| 186.0 |
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| 194.7 |
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| (8.6 | ) |
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| (4.4 | %) |
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| (8.7 | %) |
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Gross Margin % |
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| 54.7 | % |
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| 51.4 | % |
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| 59.7 | % |
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| 58.3 | % |
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Marketing expenses |
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| 30.3 |
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| 30.1 |
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| 0.2 |
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| 0.8 | % |
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| (0.6 | )% |
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| 57.2 |
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| 41.9 |
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| 15.3 |
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| 36.4 | % |
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| 30.7 | % |
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Selling, general & administrative expenses |
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| 55.4 |
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| 47.4 |
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| 8.0 |
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| 16.8 | % |
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| 15.8 | % |
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| 69.2 |
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| 101.8 |
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| (32.6 | ) |
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| (32.0 | %) |
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| (33.7 | %) |
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Operating income |
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| 91.4 |
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| 66.8 |
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| 24.6 |
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| 36.8 | % |
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| 34.4 | % |
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| 59.7 |
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| 51.0 |
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| 8.7 |
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| 17.0 | % |
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| 8.9 | % |
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Operating Income Margin % |
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| 28.2 | % |
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| 23.8 | % |
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| 19.2 | % |
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| 15.3 | % |
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Interest expense |
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| 27.0 |
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| 28.3 |
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| (1.3 | ) |
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| (4.7 | %) |
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| (4.7 | %) |
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| 20.3 |
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| 31.0 |
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| (10.7 | ) |
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| (34.5 | %) |
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| (34.5 | %) |
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Other expense (income), net |
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| 0.1 |
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| (0.1 | ) |
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| 0.2 |
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| 100.0 | % |
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Other expense, net |
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| 0.4 |
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| 0.4 |
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| (0.0 | ) |
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| (8.9 | %) |
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| (8.9 | %) |
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Early extinguishment of debt |
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| 29.2 |
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| 0.0 |
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| 29.2 |
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| 100.0 | % |
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| 100.0 | % |
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Income before income taxes |
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| 64.3 |
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| 38.6 |
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| 25.7 |
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| 66.4 | % |
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| 62.3 | % |
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| 9.8 |
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| 19.6 |
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| (9.7 | ) |
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| (49.8 | %) |
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| (71.1 | %) |
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Provision for income taxes |
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| 19.6 |
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| 4.0 |
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| 15.6 |
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| 100.0% |
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| 100.0% |
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| 1.0 |
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| 5.6 |
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| (4.6 | ) |
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| (82.7 | %) |
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| (100.0 | %) | * | ||
Net income |
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| 44.7 |
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| 34.6 |
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| 10.0 |
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| 29.0 | % |
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| 25.8 | % |
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| 8.9 |
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| 14.0 |
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| (5.1 | ) |
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| (36.6 | %) |
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| (57.8 | %) |
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Net loss attributable to the noncontrolling interest |
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| 0.1 |
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| 0.0 |
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| 0.0 |
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| 35.6 | % |
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| 31.7 | % |
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| — |
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| 0.0 |
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| (0.0 | ) |
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| (100.0 | %) |
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Net income attributable to Weight Watchers International, Inc. |
| $ | 44.7 |
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| $ | 34.7 |
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| $ | 10.1 |
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| 29.0 | % |
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| 25.8 | % | |||||||||||||||||||||
Net income attributable to WW International, Inc. |
| $ | 8.9 |
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| $ | 14.0 |
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| $ | (5.1 | ) |
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| (36.7 | %) |
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| (57.9 | %) |
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Weighted average diluted shares outstanding |
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| 68.7 |
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| 65.8 |
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| 2.8 |
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| 4.3 | % |
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| 4.3 | % |
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| 71.2 |
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| 69.8 |
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| 1.4 |
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| 1.9 | % |
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| 1.9 | % |
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Diluted earnings per share |
| $ | 0.65 |
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| $ | 0.53 |
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| $ | 0.12 |
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| 23.7 | % |
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| 20.6 | % |
| $ | 0.12 |
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| $ | 0.20 |
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| $ | (0.08 | ) |
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| (37.9 | %) |
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| (58.7 | %) |
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Note: Totals may not sum due to rounding.
*Note: Percentage in excess of 100.0%.
34
Certain results for the second quarter of fiscal 2021 are adjusted to exclude the impact of the $6.0 million of 2021 plan restructuring charges and the reversal of $0.8 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 July 3, 2021 which have been adjusted.
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(in millions except percentages) |
| Profit |
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| Margin |
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| Income |
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| Margin |
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Second Quarter of Fiscal 2021 |
| $ | 186.0 |
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| 59.7 | % |
| $ | 59.7 |
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| 19.2 | % |
Adjustments to reported amounts (1) |
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2021 plan restructuring charges |
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| 5.6 |
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| 6.0 |
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2020 plan restructuring charges |
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| (0.6 | ) |
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| (0.8 | ) |
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Total adjustments (1) |
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| 5.0 |
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| 5.2 |
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Second Quarter of Fiscal 2021, as adjusted (1) |
| $ | 191.0 |
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| 61.3 | % |
| $ | 64.9 |
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| 20.8 | % |
Note: Totals may not sum due to rounding.
(1) | The “As adjusted” measure is a non-GAAP financial measure that adjusts the consolidated statements of net income for the second quarter of fiscal 2021 to exclude the impact of the $6.0 million ($4.5 million after tax) of 2021 plan restructuring charges and the reversal of $0.8 million ($0.6 million after tax) of 2020 plan restructuring charges. See “Non-GAAP Financial Measures” above for an explanation of our use of non-GAAP financial measures. |
Certain results for the second quarter of fiscal 2020 are adjusted to exclude the impact of the $32.7 million Winfrey Stock Compensation expense and the $11.2 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 June 27, 2020 which have been adjusted.
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| Gross |
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(in millions except percentages) |
| Profit |
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| Margin |
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| Income |
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| Margin |
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Second Quarter of Fiscal 2020 |
| $ | 194.7 |
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| 58.3 | % |
| $ | 51.0 |
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| 15.3 | % |
Adjustments to reported amounts (1) |
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Winfrey Stock Compensation expense |
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| — |
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| 32.7 |
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2020 plan restructuring charges |
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| 6.5 |
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| 11.2 |
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Total adjustments (1) |
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| 6.5 |
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| 43.9 |
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Second Quarter of Fiscal 2020, as adjusted (1) |
| $ | 201.2 |
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| 60.3 | % |
| $ | 94.9 |
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| 28.4 | % |
Note: Totals may not sum due to rounding.
(1) | The “As adjusted” measure is a non-GAAP financial measure that adjusts the consolidated statements of net income for the second quarter of fiscal 2020 to exclude the impact of the $32.7 million ($24.4 million after tax) Winfrey Stock Compensation expense and the $11.2 million ($8.3 million after tax) of 2020 plan restructuring charges. See “Non-GAAP Financial Measures” above for an explanation of our use of non-GAAP financial measures. |
Consolidated Results
Revenues
Revenues in the thirdsecond quarter of fiscal 20172021 were $323.7$311.4 million, an increasea decrease of $42.9$22.3 million, or 15.3%6.7%, versus the thirdsecond quarter of fiscal 2016.2020. Excluding the impact of foreign currency, which positively impacted our revenues for the thirdsecond quarter of fiscal 20172021 by $3.9$11.9 million, revenues in the thirdsecond quarter of fiscal 20172021 would have increased 13.9%decreased 10.2% versus the prior year period. This increasedecrease was driven primarily by revenue growth in all major markets.lower revenues related to Workshops + Digital Fees as a result of the closure of our studios and reduced operations related to the COVID-19 pandemic. See “—Segment Results” for additional details on revenues.
Cost of Revenues and Gross Profit
Total cost of revenues in the thirdsecond quarter of fiscal 2017 increased $10.12021 decreased $13.6 million, or 7.4%9.8%, versus the prior year period. Excluding the net impact of the $5.0 million of restructuring charges in the second quarter of fiscal 2021 and the impact of the $6.5 million of restructuring charges in the second quarter of fiscal 2020, total cost of revenues in the second quarter of fiscal 2021 would have decreased by 9.1%, or 11.8% on a constant currency basis, versus the prior year period. Gross profit increased $32.8decreased $8.6 million, or 22.7%4.4%, in the thirdsecond quarter of fiscal 20172021 compared to the thirdsecond quarter of fiscal 2016 primarily due to the increase in revenues.2020. Excluding the impact of foreign currency, which positively impacted gross profit for the thirdsecond quarter of fiscal 20172021 by $2.5$8.3 million, gross profit in the thirdsecond quarter of fiscal 20172021 would have decreased 8.7% versus the prior year period. Excluding the net impact of the $5.0 million of restructuring charges in the second quarter of fiscal 2021 and the impact of the $6.5 million of restructuring charges in the second quarter of fiscal 2020, gross profit in the second quarter of fiscal 2021 would have decreased by 5.1%, or 9.2% on a constant currency basis, versus the prior year period primarily due to the decrease in revenues. Gross margin in the second quarter of fiscal 2021 increased 1.4% to 59.7% versus 58.3% in the second quarter of fiscal 2020. Excluding the impact of foreign currency, gross margin in the second quarter of fiscal 2021 would have increased 21.0%1.0% to 59.4% versus the prior year period. Excluding the net impact of restructuring charges in the second quarter of fiscal 2021 and the impact of restructuring charges in the second quarter of fiscal 2020, gross margin in the second quarter of fiscal 2021 would have increased 1.0% to 61.3% versus the prior year period. Excluding the impact of foreign currency, the net impact of restructuring charges in the second quarter of fiscal 2021 and the impact of restructuring charges in the second quarter of fiscal 2020, gross margin in the second quarter of fiscal 2021 would have increased 0.7% to 61.0% versus the prior year period. Gross margin in the third quarter of fiscal 2017 increased 3.3% to 54.7% versus 51.4% in the third quarter of fiscal 2016. Gross margin expansionincrease was driven primarily driven by improved leverage in both the meetings and Online businesses and a mix shift to theour higher margin Online business. This expansion was partiallyDigital business, offset in part by a contraction of margins in the Workshops + Digital business and lower revenues in our high margin licensing business.margins related to consumer product sales.
Marketing
Marketing expenses forin the thirdsecond quarter of fiscal 20172021 increased $0.2$15.3 million, or 0.8%36.4%, versus the thirdsecond quarter of fiscal 2016.2020. Excluding the impact of foreign currency, which increased marketing expenses for the thirdsecond quarter of fiscal 20172021 by $0.4$2.4 million, marketing expenses in the thirdsecond quarter of fiscal 20172021 would have decreased 0.6%increased 30.7% versus the thirdsecond quarter of fiscal 2016.2020. This increase in marketing expenses was primarily due to cycling against lower than usual second quarter marketing expenses in the second quarter of fiscal 2020 given the then-uncertain COVID-19 environment. Marketing expenses as a percentage of revenue were 9.4% infor the thirdsecond quarter of fiscal 2017 as compared2021 increased to 10.7% in18.4% from 12.6% for the prior year period.second quarter of fiscal 2020.
Selling, General and Administrative
Selling, general and administrative expenses forin the thirdsecond quarter of fiscal 2017 increased $8.02021 decreased $32.6 million, or 16.8%32.0%, versus the thirdsecond quarter of fiscal 2016.2020. Excluding the impact of foreign currency, which increased selling, general and administrative expenses for the thirdsecond quarter of fiscal 20172021 by $0.4$1.7 million, selling, general and administrative expenses in the thirdsecond quarter of fiscal 20172021 would have increased 15.8%decreased 33.7% versus the prior year period. TheExcluding the net impact of the $0.2 million of restructuring charges in the second quarter of fiscal 2021 and the impact of both the $32.7 million of Winfrey Stock Compensation expense and $4.7 million of restructuring charges in the second quarter of fiscal 2020, selling, general and administrative expenses in the second quarter of fiscal 2021 would have increased by 7.1%, or 4.5% on a constant currency basis, versus the prior year period. This increase in selling, general and administrative expenses in the thirdsecond quarter of fiscal 20172021 was driven primarily driven by higher employee compensation and incentive related costs.expenses. Selling, general and administrative expenses as a percentage of revenue were 17.1% for the thirdsecond quarter of fiscal 2017 as compared2021 decreased to 16.9%22.2% from 30.5% for the thirdsecond quarter of fiscal 2016.2020.
Operating Income
Operating income forin the thirdsecond quarter of fiscal 20172021 increased $24.6$8.7 million, or 36.8%17.0%, versus the third quarter of fiscal 2016.prior year period. Excluding the impact of foreign currency, which positively impacted operating income for the thirdsecond quarter of fiscal 20172021 by $1.6$4.2 million, operating income in the thirdsecond quarter of fiscal 20172021 would have increased 34.4%8.9% versus the prior year period. This increaseExcluding the net impact of the $5.2 million of restructuring charges in operating income was driven by higherthe second quarter of fiscal 2021 and the impact of both the $32.7 million Winfrey Stock Compensation expense and the $11.2 million of restructuring charges in the second quarter of fiscal 2020, operating income in all major markets as compared tothe second quarter of fiscal 2021 would have decreased by 31.6%, or 36.0% on a constant currency basis, versus the prior year period. Operating income margin increased 4.4% forin the thirdsecond quarter of fiscal 2017 compared2021 increased 3.9% to 19.2% versus 15.3% in the thirdsecond quarter of fiscal 2016.2020. Excluding the net impact of restructuring charges in the second quarter of fiscal 2021 and the impact of both the Winfrey Stock Compensation expense and restructuring charges in the second quarter of fiscal 2020, operating income margin in the second quarter of fiscal 2021 would have decreased by 7.6%, or 8.2% on a constant currency basis, versus the prior year period. This increasedecrease in operating income margin was driven primarily drivenby an increase in marketing expenses as a percentage of revenue and an increase in selling, general and administrative expenses as a percentage of revenue, minimally offset by an increase in gross margin, as compared toversus the prior year period.
36
Interest Expense
Interest expense in the thirdsecond quarter of fiscal 20172021 decreased $1.3$10.7 million, or 4.7%34.5%, versus the thirdsecond quarter of fiscal 2016.2020. The decrease in interest expense was driven primarily by (i) the decrease in the notional amountlower interest rates under our New Term Loan Facility (as defined below) 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 and (ii) the decrease in our averageApril 2021 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 offset by an increase in LIBOR rates. 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 thirdsecond quarter of fiscal 20172021 and the thirdsecond quarter of fiscal 20162020 and excluding the impact of our interest rate swap, increasedswaps then in effect, decreased to 4.85%4.73% per annum at the end of the thirdsecond quarter of fiscal 20172021 from 4.33%6.42% per annum at the end of the thirdsecond quarter of fiscal 2016.2020. 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 thirdsecond quarter of fiscal 20172021 and the thirdsecond quarter of fiscal 2016, increased2020, decreased to 5.56%5.32% per annum at the end of the thirdsecond quarter of fiscal 20172021 from 5.53%7.25% per annum at the end of the thirdsecond quarter of fiscal 2016. 2020. 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 $0.2was $0.4 million in the thirdsecond quarter of fiscal 2017 to $0.1 million of expense as2021, flat compared to $0.1 million of income in the prior year period.
Early Extinguishment of Debt
In the second quarter of fiscal 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
Our effective tax rate for the thirdsecond quarter of fiscal 20172021 was 30.5%9.9% as compared to 10.3%28.6% for the thirdsecond quarter of fiscal 2016.2020. The tax expense in the second quarter of fiscal 2021 was impacted by tax windfalls from stock compensation. For the second quarter of fiscal 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 foreign-derived intangible income, or FDII. The tax expense in the thirdsecond quarter of fiscal 2017 reflects a one-time2020 was impacted by tax benefit of $2.3 millionreserves related to a reversalforeign income tax audit, partially offset by tax windfalls from stock compensation. For the second quarter of fiscal 2020, the difference between the U.S. federal statutory tax reserves resulting from an updated transfer pricing study. Therate and our consolidated effective tax rate in the third quarter of fiscal 2016 was impacted by an $11.4 million net tax benefitprimarily due to a researchtax expense related to global intangible low-taxed income, or GILTI, and development credit and a Section 199 deduction forstate income tax years 2012 through 2015, partially offset by $2.7 million of out-of-period adjustments in income taxes in the third quarter of fiscal 2016.expense.
Net Income Attributable to the Company and Earnings Per Share
Net income attributable to the Company in the thirdsecond quarter of fiscal 2017 increased $10.12021 reflected a $5.1 million, or 29.0%36.7%, decrease from the thirdsecond quarter of fiscal 2016. 2020. Excluding the impact of foreign currency, which positively impacted net income attributable to the Company in the thirdsecond quarter of fiscal 20172021 by $1.1$3.0 million, net income attributable to the Company in the thirdsecond quarter of fiscal 20172021 would have increased by 25.8% versusdecreased 57.9% from the prior year period. second quarter of fiscal 2020. Net income attributable to the Company in the second quarter of fiscal 2021 included a $21.8 million impact from the write-off of fees related to our April 2021 debt refinancing and a $3.9 million net impact from restructuring charges. Net income attributable to the Company in the second quarter of fiscal 2020 included a $24.4 million impact from the Winfrey Stock Compensation expense and an $8.3 million impact from restructuring charges.
Earnings per fully diluted share, or EPS, in the thirdsecond quarter of fiscal 20172021 was $0.65$0.12 compared to $0.53$0.20 in the thirdsecond quarter of fiscal 2016. Earnings per fully diluted share2020. EPS for the thirdsecond quarter of fiscal 20172021 included a $0.03 tax benefit$0.31 impact from the write-off of fees related to our April 2021 debt refinancing and a $0.05 net impact from restructuring charges. EPS for the reversal of tax reserves resulting from an updated transfer pricing study. This benefit was offset by the higher share count in the thirdsecond quarter of fiscal 2017 which was driven by the higher average stock price, which, diluted EPS by $0.03. Earnings per fully diluted share for the third quarter of fiscal 20162020 included a $0.13 net benefit driven by a lower tax rate of 10.3% for$0.35 impact from the third quarter of fiscal 2016. This benefit was primarily comprised of a $0.17 net tax benefit in connection with a research and development creditWinfrey Stock Compensation expense 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. $0.12 impact from restructuring charges.
Segment Results
Metrics and Business Trends
The following tables set forth key metrics by reportable segment for the thirdsecond quarter of fiscal 20172021 and the percentage change in those metrics versus the prior year period:
(in millions except percentages and as noted)
|
| Q3 2017 |
|
| Q2 2021 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| GAAP |
|
| Constant Currency |
|
|
|
|
|
|
|
|
|
|
|
|
|
| GAAP |
|
| Constant Currency |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| Product |
|
|
|
|
|
|
|
|
|
| Product |
|
|
|
|
|
| Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Product |
|
|
|
|
|
|
|
|
|
| Product |
|
|
|
|
|
| Total |
|
|
|
|
|
|
|
|
| ||||||
|
| Service |
|
| Sales & |
|
| Total |
|
| Service |
|
| Sales & |
|
| Total |
|
| Paid |
|
| Incoming |
|
| EOP |
|
| Subscription |
|
| Sales & |
|
| Total |
|
| Subscription |
|
| Sales & |
|
| Total |
|
| Paid |
|
| Incoming |
|
| EOP |
| ||||||||||||||||||
|
| Revenues |
|
| Other |
|
| Revenues |
|
| Revenues |
|
| Other |
|
| Revenues |
|
| Weeks |
|
| Subscribers |
|
| Subscribers |
|
| Revenues |
|
| Other |
|
| Revenues |
|
| Revenues |
|
| Other |
|
| Revenues |
|
| Weeks |
|
| Subscribers |
|
| Subscribers |
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
| ||||||||||
North America |
| $ | 193.7 |
|
| $ | 29.9 |
|
| $ | 223.7 |
|
| $ | 193.2 |
|
| $ | 29.9 |
|
| $ | 223.0 |
|
|
| 30.0 |
|
|
| 2,332.5 |
|
|
| 2,200.2 |
|
| $ | 182.0 |
|
| $ | 25.7 |
|
| $ | 207.6 |
|
| $ | 180.5 |
|
| $ | 25.4 |
|
| $ | 206.0 |
|
|
| 41.3 |
|
|
| 3,160.5 |
|
|
| 3,158.4 |
|
CE |
|
| 69.3 |
|
|
| 8.6 |
|
|
| 77.9 |
|
|
| 63.0 |
|
|
| 7.8 |
|
|
| 70.8 |
|
|
| 17.2 |
|
|
| 1,349.1 |
|
|
| 1,273.9 |
| ||||||||||||||||||||||||||||||||||||
UK |
|
| 19.0 |
|
|
| 6.5 |
|
|
| 25.5 |
|
|
| 19.1 |
|
|
| 6.5 |
|
|
| 25.6 |
|
|
| 4.4 |
|
|
| 332.9 |
|
|
| 320.7 |
|
|
| 14.2 |
|
|
| 2.8 |
|
|
| 17.0 |
|
|
| 12.6 |
|
|
| 2.5 |
|
|
| 15.1 |
|
|
| 4.5 |
|
|
| 340.3 |
|
|
| 337.3 |
|
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 |
|
|
| 7.4 |
|
|
| 1.4 |
|
|
| 8.8 |
|
|
| 6.4 |
|
|
| 1.3 |
|
|
| 7.6 |
|
|
| 1.3 |
|
|
| 107.0 |
|
|
| 98.2 |
|
Total |
| $ | 273.2 |
|
| $ | 50.5 |
|
| $ | 323.7 |
|
| $ | 269.9 |
|
| $ | 49.9 |
|
| $ | 319.8 |
|
|
| 45.4 |
|
|
| 3,527.2 |
|
|
| 3,355.5 |
|
| $ | 272.9 |
|
| $ | 38.5 |
|
| $ | 311.4 |
|
| $ | 262.5 |
|
| $ | 37.0 |
|
| $ | 299.5 |
|
|
| 64.3 |
|
|
| 4,956.9 |
|
|
| 4,867.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| % Change Q3 2017 vs. Q3 2016 |
|
| % Change Q2 2021 vs. Q2 2020 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
North America |
|
| 17.0 | % |
|
| 9.5 | % |
|
| 16.0 | % |
|
| 16.7 | % |
|
| 9.2 | % |
|
| 15.6 | % |
|
| 21.0 | % |
|
| 21.5 | % |
|
| 19.1 | % |
|
| (9.9 | %) |
|
| 0.8 | % |
|
| (8.7 | %) |
|
| (10.7 | %) |
|
| (0.1 | %) |
|
| (9.5 | %) |
|
| 0.6 | % |
|
| (2.8 | %) |
|
| (1.6 | %) |
CE |
|
| 1.1 | % |
|
| (7.1 | %) |
|
| 0.2 | % |
|
| (8.1 | %) |
|
| (15.5 | %) |
|
| (9.0 | %) |
|
| 4.3 | % |
|
| 6.8 | % |
|
| 0.1 | % | ||||||||||||||||||||||||||||||||||||
UK |
|
| 9.8 | % |
|
| 4.7 | % |
|
| 8.5 | % |
|
| 10.2 | % |
|
| 4.9 | % |
|
| 8.8 | % |
|
| 9.5 | % |
|
| 10.9 | % |
|
| 6.5 | % |
|
| (8.8 | %) |
|
| (32.7 | %) |
|
| (13.9 | %) |
|
| (19.0 | %) |
|
| (40.4 | %) |
|
| (23.5 | %) |
|
| (10.0 | %) |
|
| (15.8 | %) |
|
| (12.1 | %) |
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 | % |
|
| 8.4 | % |
|
| (18.1 | %) |
|
| 3.0 | % |
|
| (6.6 | %) |
|
| (26.9 | %) |
|
| (10.7 | %) |
|
| (1.9 | %) |
|
| (7.8 | %) |
|
| 0.6 | % |
Total |
|
| 17.5 | % |
|
| 4.6 | % |
|
| 15.3 | % |
|
| 16.1 | % |
|
| 3.3 | % |
|
| 13.9 | % |
|
| 19.8 | % |
|
| 20.1 | % |
|
| 18.4 | % |
|
| (6.9 | %) |
|
| (5.2 | %) |
|
| (6.7 | %) |
|
| (10.4 | %) |
|
| (8.9 | %) |
|
| (10.2 | %) |
|
| 0.7 | % |
|
| (1.5 | %) |
|
| (1.9 | %) |
Note: Totals may not sum due to rounding.
(1) | Represents Australia, New Zealand and emerging markets operations and franchise revenues. |
(in millions except percentages and as noted)
|
| Q3 2017 |
|
| Q2 2021 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| Meeting Fees |
|
| Meeting |
|
| Incoming |
|
| EOP |
|
| Online Subscription Revenues |
|
| Online |
|
| Incoming |
|
| EOP |
|
| Digital Subscription Revenues |
|
| Digital |
|
| Incoming |
|
| EOP |
|
| Workshops + Digital Fees |
|
| Workshops + Digital |
|
| Incoming Workshops |
|
| EOP Workshops |
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
| Constant |
|
| Paid |
|
| Meeting |
|
| Meeting |
|
|
|
|
|
| Constant |
|
| Paid |
|
| Online |
|
| Online |
|
|
|
|
|
| Constant |
|
| Paid |
|
| Digital |
|
| Digital |
|
|
|
|
|
| Constant |
|
| Paid |
|
| + Digital |
|
| + Digital |
| ||||||||||||||||
|
| GAAP |
|
| Currency |
|
| Weeks |
|
| Subscribers |
|
| Subscribers |
|
| GAAP |
|
| Currency |
|
| Weeks |
|
| Subscribers |
|
| Subscribers |
|
| GAAP |
|
| Currency |
|
| Weeks |
|
| Subscribers |
|
| Subscribers |
|
| GAAP |
|
| Currency |
|
| Weeks |
|
| Subscribers |
|
| Subscribers |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (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 |
|
| $ | 130.3 |
|
| $ | 129.1 |
|
|
| 34.2 |
|
|
| 2,630.7 |
|
|
| 2,604.5 |
|
| $ | 51.7 |
|
| $ | 51.4 |
|
|
| 7.1 |
|
|
| 529.8 |
|
|
| 554.0 |
|
CE |
|
| 60.6 |
|
|
| 55.1 |
|
|
| 15.9 |
|
|
| 1,237.8 |
|
|
| 1,179.6 |
|
|
| 8.7 |
|
|
| 7.9 |
|
|
| 1.3 |
|
|
| 111.3 |
|
|
| 94.3 |
| ||||||||||||||||||||||||||||||||||||||||
UK |
|
| 13.3 |
|
|
| 13.4 |
|
|
| 2.6 |
|
|
| 188.8 |
|
|
| 180.3 |
|
|
| 5.7 |
|
|
| 5.7 |
|
|
| 1.8 |
|
|
| 144.1 |
|
|
| 140.4 |
|
|
| 9.6 |
|
|
| 8.5 |
|
|
| 3.5 |
|
|
| 267.2 |
|
|
| 260.7 |
|
|
| 4.6 |
|
|
| 4.1 |
|
|
| 1.0 |
|
|
| 73.0 |
|
|
| 76.5 |
|
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 |
|
|
| 4.9 |
|
|
| 4.2 |
|
|
| 1.0 |
|
|
| 81.7 |
|
|
| 74.8 |
|
|
| 2.5 |
|
|
| 2.2 |
|
|
| 0.3 |
|
|
| 25.3 |
|
|
| 23.4 |
|
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 |
|
| $ | 205.3 |
|
| $ | 196.9 |
|
|
| 54.5 |
|
|
| 4,217.5 |
|
|
| 4,119.5 |
|
| $ | 67.5 |
|
| $ | 65.6 |
|
|
| 9.8 |
|
|
| 739.5 |
|
|
| 748.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| % Change Q3 2017 vs. Q3 2016 |
|
| % Change Q2 2021 vs. Q2 2020 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
North America |
|
| 13.8 | % |
|
| 13.4 | % |
|
| 14.5 | % |
|
| 16.2 | % |
|
| 14.1 | % |
|
| 23.1 | % |
|
| 22.7 | % |
|
| 26.5 | % |
|
| 25.7 | % |
|
| 23.1 | % |
|
| 12.4 | % |
|
| 11.4 | % |
|
| 12.3 | % |
|
| 13.8 | % |
|
| 5.2 | % |
|
| (40.0 | %) |
|
| (40.3 | %) |
|
| (33.0 | %) |
|
| (43.6 | %) |
|
| (24.5 | %) |
CE |
|
| 19.5 | % |
|
| 8.6 | % |
|
| 14.1 | % |
|
| 19.9 | % |
|
| 6.8 | % |
|
| (51.1 | %) |
|
| (55.8 | %) |
|
| (48.6 | %) |
|
| (51.8 | %) |
|
| (43.8 | %) | ||||||||||||||||||||||||||||||||||||||||
UK |
|
| 5.2 | % |
|
| 5.6 | % |
|
| 4.6 | % |
|
| 6.1 | % |
|
| 1.1 | % |
|
| 22.4 | % |
|
| 22.8 | % |
|
| 17.3 | % |
|
| 18.1 | % |
|
| 14.4 | % |
|
| 26.7 | % |
|
| 12.6 | % |
|
| 15.1 | % |
|
| 21.0 | % |
|
| 4.3 | % |
|
| (42.4 | %) |
|
| (48.9 | %) |
|
| (48.4 | %) |
|
| (60.1 | %) |
|
| (42.8 | %) |
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 | % |
|
| 31.2 | % |
|
| 12.9 | % |
|
| 10.9 | % |
|
| 13.2 | % |
|
| 7.3 | % |
|
| (19.1 | %) |
|
| (30.1 | %) |
|
| (28.2 | %) |
|
| (42.3 | %) |
|
| (16.1 | %) |
Total |
|
| 12.0 | % |
|
| 10.8 | % |
|
| 11.2 | % |
|
| 12.5 | % |
|
| 10.6 | % |
|
| 27.1 | % |
|
| 25.2 | % |
|
| 26.7 | % |
|
| 25.8 | % |
|
| 24.4 | % |
|
| 15.4 | % |
|
| 10.7 | % |
|
| 13.0 | % |
|
| 16.0 | % |
|
| 5.6 | % |
|
| (41.3 | %) |
|
| (43.0 | %) |
|
| (37.4 | %) |
|
| (47.1 | %) |
|
| (29.6 | %) |
Note: Totals may not sum due to rounding.
(1) | Represents Australia, New Zealand and emerging markets operations and franchise |
North America Performance
The increasedecrease in North America revenues in the thirdsecond quarter of fiscal 20172021 versus the prior year period was driven primarily driven by the increasea decrease in ServiceSubscription Revenues. The increasedecrease in North America Total Paid WeeksSubscription Revenues in the second quarter of fiscal 2021 versus the prior year period was driven by a decrease in Workshops + Digital Fees, partially offset by an increase in Digital Subscription Revenues. Workshops + Digital Fees were negatively impacted by the highersignificant decline in the number of Incoming Workshops + Digital Subscribers at the beginning of the thirdsecond quarter of fiscal 2017 versus the beginning of the third quarter of fiscal 2016, improved retention2021 versus the prior year period driven by the closure of certain of our studios and recruitment strength in our Online business in the third quarterlimited reopening of fiscal 2017 versusothers primarily related to the prior year period.COVID-19 environment.
The increase in North America product sales and other in the thirdsecond quarter of fiscal 20172021 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 increase in UK revenues in the third quarter of fiscal 2017 versus the prior year period was primarily driven by the increase in Service Revenues. This increase in Service Revenues in the third quarterimpact of fiscal 2017 versus the prior year period was primarily the result of an increase in Online Subscription Revenues and improved retention.
The increase in UKforeign currency. Excluding foreign currency, North America product sales and other in the thirdsecond quarter of fiscal 2017 versus2021 would have been flat compared to the prior year period wasdriven primarily driven by an increase in in-studio product sales, partially offset by a declinedecrease in licensing revenue.e-commerce product sales and licensing.
Continental Europe Performance
The increase in Continental Europe revenues in the thirdsecond quarter of fiscal 20172021 versus the prior year period was primarily driven by the impact of foreign currency. Excluding foreign currency, Continental Europe revenues in the second quarter of fiscal 2021 would have decreased versus the prior year period driven primarily by a decrease in Subscription Revenues. The decrease in Subscription Revenues in the second quarter of fiscal 2021 versus the prior year period was driven by a decrease in Workshops + Digital Fees, partially offset by an increase in ServiceDigital Subscription Revenues. Workshops + Digital Fees were negatively impacted by the significant decline in the number of Incoming Workshops + Digital Subscribers at the beginning of the second quarter of fiscal 2021 versus the prior year period driven by the closure of certain of our studios and the limited reopening of others primarily related to the COVID-19 environment. The increase in Continental Europe Total Paid Weeks in the second quarter of fiscal 2021 versus the prior year period was driven primarily by the higher number of Incoming Digital Subscribers at the beginning of the thirdsecond quarter of fiscal 20172021 versus the beginning of the thirdsecond 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.2020.
The increase in Continental Europe Service Revenues was partially offset by the declinedecrease in Continental Europe product sales and other in the thirdsecond quarter of fiscal 2017 versus the prior year period.
Other Performance
The decline in Other revenues in the third quarter of fiscal 20172021 versus the prior year period was driven primarily by a decrease in e-commerce product sales.
United Kingdom Performance
The decrease in UK revenues in the second quarter of fiscal 2021 versus the prior year period was driven by both a decrease in Subscription Revenues and a decrease in product sales and other. The decrease in Subscription Revenues in the positive impactsecond quarter of foreign currency. Excludingfiscal 2021 versus the impact of foreign currency, Other revenues would have decreased,prior year period was driven by a decrease in Service Revenues dueWorkshops + Digital Fees, partially offset by an increase in Digital Subscription Revenues. Workshops + Digital Fees were negatively impacted by the significant decline in the number of Incoming Workshops + Digital Subscribers at the beginning of the second quarter of fiscal 2021 versus the prior year period driven by the closure of certain of our studios and the limited reopening of others primarily related to price discounting.the COVID-19 environment. The decrease in UK Total Paid Weeks in the second quarter of fiscal 2021 versus the prior year period was driven primarily by the lower number of Incoming Workshops + Digital Subscribers at the beginning of the second quarter of fiscal 2021 versus the beginning of the second quarter of fiscal 2020.
The decrease in UK product sales and other in the thirdsecond quarter of fiscal 20172021 versus the thirdprior year period was driven primarily by a decrease in e-commerce product sales.
Other Performance
The increase in Other revenues in the second quarter of fiscal 20162021 versus the prior year period was primarilydriven by the impact of foreign currency. Excluding foreign currency, Other revenues in the second quarter of fiscal 2021 would have decreased versus the prior year period driven by a decrease in otherboth product sales and other and Subscription Revenues. The decrease in Subscription Revenues in the second quarter of fiscal 2021 versus the prior year period was driven by a decrease in Workshops + Digital Fees, partially offset by commissions received froman increase in Digital Subscription Revenues. Workshops + Digital Fees were negatively impacted by the significant decline in the number of Incoming Workshops + Digital Subscribers at the beginning of the second quarter of fiscal 2021 versus the prior year period driven by the closure of certain of our franchisees.studios and the limited reopening of others primarily related to the COVID-19 environment.
The decrease in Other product sales and other in the second quarter of fiscal 2021 versus the prior year period was driven primarily by a decrease in franchise commissions.
39
RESULTS OF OPERATIONS
NINESIX MONTHS ENDED SEPTEMBER 30, 2017JULY 3, 2021 COMPARED TO THE NINESIX MONTHS ENDED OCTOBER 1, 2016JUNE 27, 2020
The table below sets forth selected financial information for the first ninesix months of fiscal 20172021 from our consolidated statements of net income for the ninesix months ended September 30, 2017July 3, 2021 versus selected financial information for the first ninesix months of fiscal 20162020 from our consolidated statements of net income for the ninesix months ended October 1, 2016:June 27, 2020.
Summary of Selected Financial Data
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| For The Nine Months Ended |
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| For The Six Months Ended |
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| September 30, 2017 |
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| October 1, 2016 |
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| Increase/ (Decrease) |
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| % Change |
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| % Change Constant Currency |
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| July 3, 2021 |
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| June 27, 2020 |
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| Increase/ (Decrease) |
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| % Change |
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| % Change Constant Currency |
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Revenues, net |
| $ | 994.4 |
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| $ | 897.5 |
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| $ | 96.9 |
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| 10.8 | % |
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| 11.5 | % |
| $ | 643.2 |
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| $ | 734.0 |
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| $ | (90.8 | ) |
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| (12.4 | %) |
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| (15.4 | %) |
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Cost of revenues |
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| 464.2 |
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| 442.5 |
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| 21.8 |
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| 4.9 | % |
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| 5.6 | % |
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| 263.7 |
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| 328.3 |
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| (64.6 | ) |
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| (19.7 | %) |
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| (21.7 | %) |
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Gross profit |
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| 530.2 |
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| 455.0 |
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| 75.2 |
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| 16.5 | % |
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| 17.2 | % |
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| 379.5 |
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| 405.7 |
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| (26.2 | ) |
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| (6.5 | %) |
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| (10.3 | %) |
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Gross Margin % |
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| 53.3 | % |
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| 50.7 | % |
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| 59.0 | % |
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| 55.3 | % |
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Marketing expenses |
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| 158.7 |
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| 157.8 |
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| 0.9 |
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| 0.6 | % |
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| 1.7 | % |
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| 174.1 |
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| 159.8 |
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| 14.3 |
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| 8.9 | % |
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| 5.0 | % |
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Selling, general & administrative expenses |
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| 153.7 |
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| 143.2 |
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| 10.5 |
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| 7.3 | % |
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| 7.7 | % |
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| 142.9 |
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| 166.3 |
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| (23.4 | ) |
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| (14.1 | %) |
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| (15.8 | %) |
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Goodwill impairment |
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| — |
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| 3.7 |
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| (3.7 | ) |
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| (100.0 | %) |
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| (100.0 | %) |
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Operating income |
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| 217.8 |
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| 154.1 |
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| 63.7 |
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| 41.4 | % |
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| 41.7 | % |
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| 62.5 |
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| 75.9 |
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| (13.3 | ) |
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| (17.6 | %) |
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| (26.0 | %) |
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Operating Income Margin % |
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| 21.9 | % |
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| 17.2 | % |
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| 9.7 | % |
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| 10.3 | % |
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Interest expense |
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| 82.2 |
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| 87.0 |
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| (4.7 | ) |
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| (5.4 | %) |
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| (5.4 | %) |
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| 49.4 |
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| 62.5 |
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| (13.1 | ) |
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| (21.0 | %) |
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| (21.0 | %) |
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Other expense, net |
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| 0.3 |
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| 0.4 |
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|
| (0.1 | ) |
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| 29.9 | % |
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| 29.9 | % |
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| 0.1 |
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| 0.4 |
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| (0.3 | ) |
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| (67.4 | %) |
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| (67.4 | %) |
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Gain on early extinguishment of debt |
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| (1.6 | ) |
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| 0.0 |
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| (1.6 | ) |
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| 100.0 | % |
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| 100.0 | % | |||||||||||||||||||||
Income before income taxes |
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| 136.9 |
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| 66.7 |
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| 70.2 |
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| 105.1 | % |
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| 106.0 | % | |||||||||||||||||||||
Early extinguishment of debt |
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| 29.2 |
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| 0.0 |
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| 29.2 |
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| 100.0 | % |
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| 100.0 | % |
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(Loss) income before income taxes |
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| (16.2 | ) |
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| 12.9 |
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| (29.1 | ) |
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| (100.0 | %) | * |
| (100.0 | %) | * | ||||||||||||||||||||
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Provision for income taxes |
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| 36.5 |
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| 12.4 |
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| 24.0 |
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| 100.0% |
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| 100.0% |
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Net income |
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| 100.4 |
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| 54.3 |
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| 46.1 |
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| 84.9 | % |
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| 85.4 | % | |||||||||||||||||||||
(Benefit from) provision for income taxes |
|
| (6.9 | ) |
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| 4.9 |
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| (11.8 | ) |
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| (100.0 | %) | * |
| (100.0 | %) | * | ||||||||||||||||||||
Net (loss) income |
|
| (9.4 | ) |
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| 7.9 |
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| (17.3 | ) |
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| (100.0 | %) | * |
| (100.0 | %) | * | ||||||||||||||||||||
Net loss attributable to the noncontrolling interest |
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| 0.1 |
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| 0.1 |
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| 0.0 |
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| 36.4 | % |
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| 18.5 | % |
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| — |
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| 0.0 |
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| (0.0 | ) |
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| (100.0 | %) |
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| (100.0 | %) |
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Net income attributable to Weight Watchers International, Inc. |
| $ | 100.5 |
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| $ | 54.4 |
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| $ | 46.1 |
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| 84.8 | % |
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| 85.3 | % | |||||||||||||||||||||
Net (loss) income attributable to WW International, Inc. |
| $ | (9.4 | ) |
| $ | 7.9 |
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| $ | (17.3 | ) |
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| (100.0 | %) | * |
| (100.0 | %) | * | ||||||||||||||||||||
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Weighted average diluted shares outstanding |
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| 67.9 |
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| 65.9 |
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|
| 2.1 |
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|
| 3.1 | % |
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| 3.1 | % |
|
| 69.3 |
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|
| 69.9 |
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|
| (0.6 | ) |
|
| (0.8 | %) |
|
| (0.8 | %) |
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Diluted earnings per share |
| $ | 1.48 |
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| $ | 0.83 |
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| $ | 0.65 |
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|
| 79.2 | % |
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| 79.7 | % | |||||||||||||||||||||
Diluted (loss) earnings per share |
| $ | (0.14 | ) |
| $ | 0.11 |
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| $ | (0.25 | ) |
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| (100.0 | %) | * |
| (100.0 | %) | * |
Note: Totals may not sum due to rounding.
*Note: Percentage in excess of 100.0%.
40
Certain results for the first six months of fiscal 2021 are adjusted to exclude the impact of the $11.6 million of 2021 plan restructuring charges and the reversal of $0.8 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 six months ended July 3, 2021 which have been adjusted.
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| Gross |
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| Operating |
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| Gross |
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| Profit |
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| Operating |
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| Income |
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(in millions except percentages) |
| Profit |
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| Margin |
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| Income |
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| Margin |
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First Six Months of Fiscal 2021 |
| $ | 379.5 |
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|
| 59.0 | % |
| $ | 62.5 |
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|
| 9.7 | % |
Adjustments to reported amounts (1) |
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2021 plan restructuring charges |
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| 10.8 |
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| 11.6 |
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2020 plan restructuring charges |
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| (0.6 | ) |
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| (0.8 | ) |
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Total adjustments (1) |
|
| 10.2 |
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| 10.7 |
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First Six Months of Fiscal 2021, as adjusted (1) |
| $ | 389.6 |
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|
| 60.6 | % |
| $ | 73.2 |
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|
| 11.4 | % |
Note: Totals may not sum due to rounding.
(1) | The “As adjusted” measure is a non-GAAP financial measure that adjusts the consolidated statements of net income for the first six months of fiscal 2021 to exclude the impact of the $11.6 million ($8.7 million after tax) of 2021 plan restructuring charges and the reversal of $0.8 million ($0.6 million after tax) of 2020 plan restructuring charges. See “Non-GAAP Financial Measures” above for an explanation of our use of non-GAAP financial measures. |
Certain results for the first six months of fiscal 2020 are adjusted to exclude the impact of the $32.7 million Winfrey Stock Compensation expense, the $11.2 million of 2020 plan restructuring charges and the $3.7 million goodwill impairment charge related to our Brazil reporting unit. 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 six months ended June 27, 2020 which have been adjusted.
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| Gross |
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| Operating |
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| Gross |
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| Profit |
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| Operating |
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| Income |
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(in millions except percentages) |
| Profit |
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| Margin |
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| Income |
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| Margin |
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First Six Months of Fiscal 2020 |
| $ | 405.7 |
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| 55.3 | % |
| $ | 75.9 |
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|
| 10.3 | % |
Adjustments to reported amounts (1) |
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Winfrey Stock Compensation expense |
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| — |
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| 32.7 |
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2020 plan restructuring charges |
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| 6.5 |
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| 11.2 |
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Goodwill impairment |
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| — |
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|
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|
|
| 3.7 |
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Total adjustments (1) |
|
| 6.5 |
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| 47.6 |
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First Six Months of Fiscal 2020, as adjusted (1) |
| $ | 412.2 |
|
|
| 56.2 | % |
| $ | 123.4 |
|
|
| 16.8 | % |
Note: Totals may not sum due to rounding.
(1) | The “As adjusted” measure is a non-GAAP financial measure that adjusts the consolidated statements of net income for the first six months of fiscal 2020 to exclude the impact of the $32.7 million ($24.4 million after tax) Winfrey Stock Compensation expense, the $11.2 million ($8.3 million after tax) of 2020 plan restructuring charges and the $3.7 million ($2.7 million after tax) goodwill impairment charge. See “Non-GAAP Financial Measures” above for an explanation of our use of non-GAAP financial measures. |
Consolidated Results
Revenues
Revenues in the first ninesix months of fiscal 20172021 were $994.4$643.2 million, an increasea decrease of $96.9$90.8 million, or 10.8%12.4%, versus the first ninesix months of fiscal 2016.2020. Excluding the impact of foreign currency, which negativelypositively impacted our revenues for the first ninesix months of fiscal 20172021 by $6.0$22.3 million, revenues in the first ninesix months of fiscal 20172021 would have increased 11.5%decreased 15.4% versus the prior year period. This increasedecrease was driven primarily by lower revenues related to Workshops + Digital Fees and in-studio product sales as a result of the closure of our studios and reduced operations related to the COVID-19 pandemic. In North America, revenue growth, on a constant currency basis, in all major markets.also declined as we cycled against the revenues from the WW Presents: Oprah’s 2020 Vision tour. See “—Segment Results” for additional details on revenues.
Cost of Revenues and Gross Profit
Total cost of revenues in the first ninesix months of fiscal 2017 increased $21.82021 decreased $64.6 million, or 4.9%19.7%, versus the prior year period. Excluding the net impact of the $10.2 million of restructuring charges in the first six months of fiscal 2021 and the impact of the $6.5 million of restructuring charges in the first six months of fiscal 2020, total cost of revenues in the first six months of fiscal 2021 would have decreased by 21.2%, or 23.3% on a constant currency basis, versus the prior year period. Gross profit increased $75.2decreased $26.2 million, or 16.5%6.5%, in the first ninesix months of fiscal 20172021 compared to the first ninesix months of fiscal 2016 primarily due to the increase in revenues.2020. Excluding the impact of foreign currency, which negativelypositively impacted gross profit for the first ninesix months of fiscal 20172021 by $2.9$15.5 million, gross profit in the first ninesix months of fiscal 20172021 would have decreased 10.3% versus the prior year period. Excluding the net impact of the $10.2 million of restructuring charges in the first six months of fiscal 2021 and the impact of the $6.5 million of restructuring charges in the first six months of fiscal 2020, gross profit in the first six months of fiscal 2021 would have decreased by 5.5%, or 9.2% on a constant currency basis, versus the prior year period primarily due to the decrease in revenues. Gross margin increased to 59.0% in the first six months of fiscal 2021 as compared to 55.3% in the prior year period. Excluding the impact of foreign currency, gross margin in the first six months of fiscal 2021 would have increased 17.2%3.4% to 58.6% versus the prior year period. Excluding the net impact of restructuring charges in the first six months of fiscal 2021 and the impact of restructuring charges in the first six months of fiscal 2020, gross margin in the first six months of fiscal 2021 would have increased 4.4% to 60.6% versus the prior year period. Excluding the impact of foreign currency, the net impact of restructuring charges in the first six months of fiscal 2021 and the impact of restructuring charges in the first six months of fiscal 2020, gross margin in the first six months of fiscal 2021 would have increased 4.1% to 60.3% versus the prior year period. Gross margin in the first nine months of fiscal 2017 increased 2.6% to 53.3% versus 50.7% in the first nine months of fiscal 2016. Gross margin expansionincrease was driven primarily driven by improved leverage in both the meetings and Online businesses and a mix shift to theour higher margin Online business. This expansion was partiallyDigital business and cycling against the net profit from the WW Presents: Oprah’s 2020 Vision tour as a percentage of revenue, offset in part by a contraction of margins in the Workshops + Digital business and lower revenues in our high margin licensing business.margins related to consumer product sales.
Marketing
Marketing expenses forin the first ninesix months of fiscal 20172021 increased $0.9$14.3 million, or 0.6%8.9%, versus the first ninesix months of fiscal 2016.2020. Excluding the impact of foreign currency, which decreasedincreased marketing expenses for the first ninesix months of fiscal 20172021 by $1.8$6.3 million, marketing expenses in the first ninesix months of fiscal 20172021 would have increased 1.7%5.0% versus the first ninesix months of fiscal 2016. 2020. This increase in marketing expenses was primarily due to cycling against lower than usual second quarter marketing expenses in the second quarter of fiscal 2020 given the then-uncertain COVID-19 environment.Marketing expenses as a percentage of revenue decreasedincreased to 16.0%27.1% in the first ninesix months of fiscal 20172021 as compared to 17.6%21.8% in the prior year period.
Selling, General and Administrative
Selling, general and administrative expenses forin the first ninesix months of fiscal 2017 increased $10.52021 decreased $23.4 million, or 7.3%14.1%, versus the first ninesix months of fiscal 2016.2020. Excluding the impact of foreign currency, which decreasedincreased selling, general and administrative expenses for the first ninesix months of fiscal 20172021 by $0.5$2.9 million, selling, general and administrative expenses in the first ninesix months of fiscal 20172021 would have increased 7.7%decreased 15.8% versus the prior year period. TheExcluding the net impact of the $0.6 million of restructuring charges in the first six months of fiscal 2021 and the impact of both the $32.7 million Winfrey Stock Compensation expense and the $4.7 million of restructuring charges in the first six months of fiscal 2020, selling, general and administrative expenses in the first six months of fiscal 2021 would have increased by 10.4%, or 8.1% on a constant currency basis, versus the prior year period. This increase in selling, general and administrative expenses in the first ninesix months of fiscal 20172021 was driven primarily driven by higher employee compensation and incentive related costs.expenses. Selling, general and administrative expenses as a percentage of revenue decreased to 22.2% in the first six months of fiscal 2021 as compared to 22.7% in the prior year period.
Impairment
In performing our interim impairment analysis for our Brazil reporting unit during the first quarter of fiscal 2020, we determined that, based on the fair values calculated, the carrying amount of goodwill related to our Brazil reporting unit exceeded our fair value and recorded an impairment charge of $3.7 million for the first ninesix months of fiscal 2017 decreased to 15.5% from 16.0% for the first nine months of fiscal 2016.2020.
42
Operating Income
Operating income forin the first ninesix months of fiscal 2017 increased $63.72021 decreased $13.3 million, or 41.4%17.6%, versus the first nine months of fiscal 2016.prior year period. Excluding the impact of foreign currency, which negativelypositively impacted operating income for the first ninesix months of fiscal 20172021 by $0.6$6.4 million, operating income in the first ninesix months of fiscal 20172021 would have increased 41.7%decreased 26.0% versus the prior year period. This increaseExcluding the net impact of the $10.7 million of restructuring charges in operating income was driven by higherthe first six months of fiscal 2021 and the impact of the $32.7 million Winfrey Stock Compensation expense, the $11.2 million of restructuring charges and the $3.7 million goodwill impairment charge related to our Brazil reporting unit in the first six months of fiscal 2020, operating income in all major markets as compared tothe first six months of fiscal 2021 would have decreased by 40.7%, or 45.8% on a constant currency basis, versus the prior year period. Operating income margin increased 4.7% forin the first ninesix months of fiscal 2017 compared2021 decreased 0.6% to 9.7% versus 10.3% in the first ninesix months of fiscal 2016.2020. Excluding the net impact of restructuring charges in the first six months of fiscal 2021 and the impact of the Winfrey Stock Compensation expense, restructuring charges and the goodwill impairment charge in the first six months of fiscal 2020, operating income margin in the first six months of fiscal 2021 would have decreased by 5.4%, or 6.0% on a constant currency basis, versus the prior year period. This increasedecrease in operating income margin was driven primarily driven by an increase in gross margin and to a lesser extent a decrease in marketing expenses as a percentage of revenue and a decreasean increase in selling, general and administrative expenses as a percentage of revenue, all as compared topartially offset by an increase in gross margin, versus the prior year period.
Interest Expense
Interest expense in the first ninesix months of fiscal 20172021 decreased $4.7$13.1 million, or 5.4%21.0%, versus the first ninesix months of fiscal 2016.2020. The decrease in interest expense was driven primarily by (i) the decrease in the notional amountlower interest rates under our New Term Loan Facility and on our Senior Secured Notes 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. 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 ninesix months of fiscal 20172021 and the first ninesix months of fiscal 20162020 and excluding the impact of our interest rate swap, increasedswaps then in effect, decreased to 4.68%5.66% per annum at the end of the first ninesix months of fiscal 20172021 from 4.31%6.97% per annum at the end of the first ninesix months of fiscal 2016.2020. 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 ninesix months of fiscal 20172021 and the first ninesix months of fiscal 2016, increased2020, decreased to 5.52%6.43% per annum at the end of the first ninesix months of fiscal 20172021 from 5.48%7.52% per annum at the end of the first ninesix months of fiscal 2016. 2020. 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, decreased by $0.1$0.3 million in the first ninesix months of fiscal 20172021 to $0.3$0.1 million of expense as compared to $0.4 million of expense in the prior year period.
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, $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
Our effective tax rate in the first six months of fiscal 2021 was 42.3% as compared to 38.4% in the first six months of fiscal 2020. The tax expense for the first ninesix months of fiscal 20172021 was 26.6% as compared to 18.6% forimpacted by tax windfalls from stock compensation. For the first ninesix months of fiscal 2016. The2021, the difference between the U.S. federal statutory tax rate and our consolidated effective tax rate for the first nine months of fiscal 2017 was impactedprimarily due to state income tax expense and tax expense from income earned in foreign jurisdictions, partially offset by the following one-time discrete items occurring in the first nine months of fiscal 2017: (i) an $11.6 milliona tax benefit related to FDII. The tax expense for the cessationfirst six months of operationsfiscal 2020 was impacted by an impairment of our Spanish subsidiaryBrazil reporting unit which had a full valuation allowance and (ii) by $2.3 milliontax reserves related to a foreign income tax audit, partially offset by tax windfalls from stock compensation. For the reversalfirst six months of fiscal 2020, the difference between the U.S. federal statutory tax reserves resulting from an updated transfer pricing study. Therate and our consolidated effective tax rate for the first nine months of fiscal 2016 was impacted by: (i) an $11.4 million net tax benefitprimarily due to a research and development credit and a Section 199 deduction for tax years 2012 through 2015 and (ii) the reversal of a $2.5 million valuation allowanceexpense related to GILTI, state income tax benefits forexpense and tax expense from income earned in 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.jurisdictions.
43
Net (Loss) Income Attributable to the Company and (Loss) Earnings Per Share
Net incomeloss attributable to the Company in the first ninesix months of fiscal 2017 increased $46.12021 was $9.4 million, which reflected a $17.3 million, or 84.8%217.9%, decrease from the first nine months of fiscal 2016. Excluding the impact of foreign currency, which negatively impacted net income attributable to the Company in the first ninesix months of fiscal 2020 of $7.9 million. Excluding the impact of foreign currency, which positively impacted net loss attributable to the Company in the first six months of fiscal 20172021 by $0.3$4.6 million, net loss attributable to the Company in the first six months of fiscal 2021 would have decreased 275.3% from net income attributable to the Company in the first ninesix months of fiscal 2017 would have increased by 85.3% versus2020. Net loss attributable to the prior year period.
Earnings per fully diluted share, or EPS,Company in the first ninesix months of fiscal 2017 was $1.48 compared2021 included a $21.8 million impact from the write-off of fees related to $0.83our April 2021 debt refinancing and an $8.0 million net impact from restructuring charges. Net income attributable to the Company in the first ninesix months of fiscal 2016. Earnings2020 included a $24.4 million impact from the Winfrey Stock Compensation expense, an $8.3 million impact from restructuring charges and a $2.7 million impact from the goodwill impairment charge related to our Brazil reporting unit.
Diluted net loss per fully diluted share in the first ninesix months of fiscal 2017 included (i) a tax benefit2021 was $0.14 compared to EPS of $0.18 that was offset by $0.01 of expense, both related 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$0.11 in the first ninesix months of fiscal 20162020. Diluted net loss per share for the first six months of fiscal 2021 included (i) a $0.17$0.31 impact from the write-off of fees related to our April 2021 debt refinancing and a $0.12 net tax benefit in connection withimpact from restructuring charges. EPS for the first six months of fiscal 2020 included a research and development credit$0.35 impact from the Winfrey Stock Compensation expense, a $0.12 impact from restructuring charges and a Section 199 deduction for$0.04 impact from the tax years 2012 through 2015 and (ii) a $0.04 benefit for the reversal of a valuation allowancegoodwill impairment charge related to tax benefits for foreign losses that are expected to be realized, partially offset by a $0.04 expense for out-of-period tax adjustments. our Brazil reporting unit.
44
Segment Results
Metrics and Business Trends
The following tables set forth key metrics by reportable segment for the first ninesix months of fiscal 20172021 and the percentage change in those metrics versus the prior year period:
(in millions except percentages and as noted)
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| First Nine Months Of Fiscal 2017 |
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| First Half of Fiscal 2021 |
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| GAAP |
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| Constant Currency |
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| GAAP |
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| Constant Currency |
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| Service |
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| Sales & |
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| Total |
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| Service |
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| Sales & |
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| Total |
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| Paid |
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| Incoming |
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| EOP |
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| Subscription |
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| Sales & |
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| Total |
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| Subscription |
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| Sales & |
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| Total |
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| Paid |
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| Incoming |
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| EOP |
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| Revenues |
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| Other |
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| Revenues |
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| Revenues |
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| Other |
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| Revenues |
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| Weeks |
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| Subscribers |
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| Subscribers |
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| Revenues |
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| Other |
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| Revenues |
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| Revenues |
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| Other |
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| Revenues |
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| Weeks |
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| Subscribers |
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| Subscribers |
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| (in thousands) |
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| (in thousands) |
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North America |
| $ | 589.1 |
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| $ | 106.3 |
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| $ | 695.4 |
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| $ | 588.7 |
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| $ | 106.2 |
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| $ | 695.0 |
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| 91.0 |
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| 1,719.2 |
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| 2,200.2 |
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| $ | 368.9 |
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| $ | 60.0 |
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| $ | 428.9 |
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| $ | 366.8 |
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| $ | 59.6 |
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| $ | 426.4 |
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| 81.5 |
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| 2,822.3 |
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| 3,158.4 |
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CE |
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| 139.2 |
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| 20.7 |
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| 159.8 |
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| 126.7 |
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| 18.8 |
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| 145.6 |
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| 34.3 |
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| 1,179.6 |
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| 1,273.9 |
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UK |
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| 55.3 |
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| 20.6 |
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| 75.9 |
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| 60.3 |
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| 22.5 |
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| 82.9 |
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| 13.3 |
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| 265.1 |
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| 320.7 |
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| 29.2 |
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| 6.9 |
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| 36.1 |
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| 26.5 |
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| 6.3 |
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| 32.8 |
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| 8.9 |
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| 323.5 |
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| 337.3 |
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CE |
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| 145.2 |
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| 34.4 |
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| 179.6 |
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| 145.8 |
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| 34.8 |
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| 180.6 |
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| 29.7 |
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| 564.7 |
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| 756.7 |
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Other (1) |
|
| 28.1 |
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| 15.4 |
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| 43.5 |
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| 26.9 |
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| 15.1 |
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| 42.0 |
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| 3.7 |
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| 72.2 |
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| 77.9 |
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| 15.4 |
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| 3.0 |
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| 18.3 |
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| 13.4 |
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| 2.7 |
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| 16.1 |
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| 2.7 |
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| 97.7 |
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| 98.2 |
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Total |
| $ | 817.7 |
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| $ | 176.7 |
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| $ | 994.4 |
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| $ | 821.7 |
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| $ | 178.7 |
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| $ | 1,000.4 |
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| 137.7 |
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| 2,621.1 |
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| 3,355.5 |
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| $ | 552.7 |
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| $ | 90.5 |
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| $ | 643.2 |
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| $ | 533.5 |
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| $ | 87.4 |
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| $ | 620.9 |
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| 127.4 |
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| 4,423.0 |
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| 4,867.7 |
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| % Change First Nine Months of Fiscal 2017 vs. First Nine Months of Fiscal 2016 |
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| % Change First Half of Fiscal 2021 vs. First Half of Fiscal 2020 |
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North America |
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| 13.8 | % |
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| 11.4 | % |
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| 13.4 | % |
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| 13.7 | % |
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| 11.3 | % |
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| 13.3 | % |
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| 17.8 | % |
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| 12.3 | % |
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| 19.1 | % |
|
| (14.4 | %) |
|
| (25.0 | %) |
|
| (16.1 | %) |
|
| (14.9 | %) |
|
| (25.5 | %) |
|
| (16.6 | %) |
|
| (2.4 | %) |
|
| 3.7 | % |
|
| (1.6 | %) |
CE |
|
| 1.8 | % |
|
| (2.1 | %) |
|
| 1.3 | % |
|
| (7.3 | %) |
|
| (10.7 | %) |
|
| (7.8 | %) |
|
| 5.6 | % |
|
| 11.3 | % |
|
| 0.1 | % | ||||||||||||||||||||||||||||||||||||
UK |
|
| (4.1 | %) |
|
| (8.1 | %) |
|
| (5.2 | %) |
|
| 4.6 | % |
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| 0.6 | % |
|
| 3.5 | % |
|
| 6.2 | % |
|
| 0.8 | % |
|
| 6.5 | % |
|
| (14.9 | %) |
|
| (34.3 | %) |
|
| (19.4 | %) |
|
| (22.7 | %) |
|
| (39.9 | %) |
|
| (26.7 | %) |
|
| (14.9 | %) |
|
| (10.5 | %) |
|
| (12.1 | %) |
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 | % |
|
| (0.2 | %) |
|
| (38.2 | %) |
|
| (9.2 | %) |
|
| (12.9 | %) |
|
| (44.2 | %) |
|
| (20.3 | %) |
|
| (4.7 | %) |
|
| (4.3 | %) |
|
| 0.6 | % |
Total |
|
| 12.3 | % |
|
| 4.2 | % |
|
| 10.8 | % |
|
| 12.9 | % |
|
| 5.4 | % |
|
| 11.5 | % |
|
| 16.4 | % |
|
| 9.7 | % |
|
| 18.4 | % |
|
| (10.5 | %) |
|
| (22.2 | %) |
|
| (12.4 | %) |
|
| (13.6 | %) |
|
| (24.9 | %) |
|
| (15.4 | %) |
|
| (1.5 | %) |
|
| 4.2 | % |
|
| (1.9 | %) |
Note: Totals may not sum due to rounding.
(1) | Represents Australia, New Zealand and emerging markets operations and franchise |
(in millions except percentages and as noted)
|
| First Nine Months Of Fiscal 2017 |
|
| First Half of Fiscal 2021 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Meeting Fees |
|
| Meeting |
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| Incoming |
|
| EOP |
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| Online Subscription Revenues |
|
| Online |
|
| Incoming |
|
| EOP |
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| Digital Subscription Revenues |
|
| Digital |
|
| Incoming |
|
| EOP |
|
| Workshops + Digital Fees |
|
| Workshops + Digital |
|
| Incoming Workshops |
|
| EOP Workshops |
| ||||||||||||||||||||||||||||||||
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|
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|
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| Constant |
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| Paid |
|
| Meeting |
|
| Meeting |
|
|
|
|
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| Constant |
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| Paid |
|
| Online |
|
| Online |
|
|
|
|
|
| Constant |
|
| Paid |
|
| Digital |
|
| Digital |
|
|
|
|
|
| Constant |
|
| Paid |
|
| + Digital |
|
| + Digital |
| ||||||||||||||||
|
| GAAP |
|
| Currency |
|
| Weeks |
|
| Subscribers |
|
| Subscribers |
|
| GAAP |
|
| Currency |
|
| Weeks |
|
| Subscribers |
|
| Subscribers |
|
| GAAP |
|
| Currency |
|
| Weeks |
|
| Subscribers |
|
| Subscribers |
|
| GAAP |
|
| Currency |
|
| Weeks |
|
| Subscribers |
|
| Subscribers |
| ||||||||||||||||||||
|
|
|
|
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|
|
|
|
|
|
|
|
| (in thousands) |
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|
|
|
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|
|
|
| (in thousands) |
|
|
|
|
|
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|
|
|
|
| (in thousands) |
|
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|
|
|
|
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|
|
|
|
|
|
| (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 |
|
| $ | 262.3 |
|
| $ | 260.7 |
|
|
| 67.7 |
|
|
| 2,334.1 |
|
|
| 2,604.5 |
|
| $ | 106.6 |
|
| $ | 106.2 |
|
|
| 13.8 |
|
|
| 488.2 |
|
|
| 554.0 |
|
CE |
|
| 119.5 |
|
|
| 108.9 |
|
|
| 31.5 |
|
|
| 1,059.9 |
|
|
| 1,179.6 |
|
|
| 19.7 |
|
|
| 17.9 |
|
|
| 2.8 |
|
|
| 119.7 |
|
|
| 94.3 |
| ||||||||||||||||||||||||||||||||||||||||
UK |
|
| 39.4 |
|
|
| 43.1 |
|
|
| 7.9 |
|
|
| 154.8 |
|
|
| 180.3 |
|
|
| 15.9 |
|
|
| 17.3 |
|
|
| 5.4 |
|
|
| 110.3 |
|
|
| 140.4 |
|
|
| 19.4 |
|
|
| 17.6 |
|
|
| 6.9 |
|
|
| 235.0 |
|
|
| 260.7 |
|
|
| 9.8 |
|
|
| 8.9 |
|
|
| 2.1 |
|
|
| 88.5 |
|
|
| 76.5 |
|
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 |
|
|
| 10.1 |
|
|
| 8.8 |
|
|
| 2.1 |
|
|
| 74.0 |
|
|
| 74.8 |
|
|
| 5.2 |
|
|
| 4.6 |
|
|
| 0.7 |
|
|
| 23.7 |
|
|
| 23.4 |
|
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 |
|
| $ | 411.4 |
|
| $ | 396.0 |
|
|
| 108.1 |
|
|
| 3,703.0 |
|
|
| 4,119.5 |
|
| $ | 141.3 |
|
| $ | 137.5 |
|
|
| 19.4 |
|
|
| 720.0 |
|
|
| 748.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| % Change First Nine Months of Fiscal 2017 vs. First Nine Months of Fiscal 2016 |
|
| % Change First Half of Fiscal 2021 vs. First Half of Fiscal 2020 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
North America |
|
| 12.5 | % |
|
| 12.5 | % |
|
| 13.5 | % |
|
| 15.3 | % |
|
| 14.1 | % |
|
| 16.0 | % |
|
| 15.9 | % |
|
| 21.4 | % |
|
| 10.0 | % |
|
| 23.1 | % |
|
| 12.9 | % |
|
| 12.2 | % |
|
| 13.0 | % |
|
| 24.8 | % |
|
| 5.2 | % |
|
| (46.4 | %) |
|
| (46.7 | %) |
|
| (41.5 | %) |
|
| (42.7 | %) |
|
| (24.5 | %) |
CE |
|
| 22.8 | % |
|
| 11.8 | % |
|
| 16.9 | % |
|
| 22.8 | % |
|
| 6.8 | % |
|
| (50.0 | %) |
|
| (54.6 | %) |
|
| (49.1 | %) |
|
| (39.1 | %) |
|
| (43.8 | %) | ||||||||||||||||||||||||||||||||||||||||
UK |
|
| (8.4 | %) |
|
| (0.0 | %) |
|
| 0.5 | % |
|
| 1.1 | % |
|
| 1.1 | % |
|
| 8.6 | % |
|
| 18.1 | % |
|
| 15.6 | % |
|
| 0.3 | % |
|
| 14.4 | % |
|
| 28.1 | % |
|
| 16.3 | % |
|
| 16.5 | % |
|
| 23.9 | % |
|
| 4.3 | % |
|
| (48.9 | %) |
|
| (53.5 | %) |
|
| (55.1 | %) |
|
| (48.5 | %) |
|
| (42.8 | %) |
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 | % |
|
| 31.5 | % |
|
| 14.3 | % |
|
| 13.1 | % |
|
| 20.1 | % |
|
| 7.3 | % |
|
| (32.0 | %) |
|
| (40.2 | %) |
|
| (36.6 | %) |
|
| (41.5 | %) |
|
| (16.1 | %) |
Total |
|
| 8.8 | % |
|
| 9.4 | % |
|
| 9.5 | % |
|
| 10.4 | % |
|
| 10.6 | % |
|
| 18.6 | % |
|
| 19.1 | % |
|
| 22.1 | % |
|
| 9.2 | % |
|
| 24.4 | % |
|
| 16.7 | % |
|
| 12.3 | % |
|
| 14.4 | % |
|
| 24.0 | % |
|
| 5.6 | % |
|
| (46.7 | %) |
|
| (48.1 | %) |
|
| (44.4 | %) |
|
| (42.9 | %) |
|
| (29.6 | %) |
Note: Totals may not sum due to rounding.
(1) | Represents Australia, New Zealand and emerging markets operations and franchise |
North America Performance
The increasedecrease in North America revenues in the first ninesix months of fiscal 20172021 versus the prior year period was primarilydriven by both a decrease in Subscription Revenues and a decrease in product sales and other. The decrease in Subscription Revenues in the first six months of fiscal 2021 versus the prior year period was driven by a decrease in Workshops + Digital Fees, partially offset by an increase in Digital Subscription Revenues. Workshops + Digital Fees were negatively impacted by both the lower number of Incoming Workshops + Digital Subscribers at the beginning of fiscal 2021 versus the prior year period and the significant recruitment decline in the first six months of fiscal 2021 driven by the increase in Service Revenues.closure of certain of our studios and the limited reopening of others primarily related to the COVID-19 environment. The increasedecrease 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 ninesix months of fiscal 20172021 was driven primarily by lower recruitments versus the prior year period.period due to the COVID-19 environment and cycling against the successful launch of the myWW program in the first six months of fiscal 2020.
The increasedecrease in North America product sales and other in the first ninesix 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 20172021 versus the prior year period was driven primarily by cycling against the negative impact of foreign currency. Excludingrevenue received in connection with the impact of foreign currency, UK revenues would have increased, driven by an increase in Service Revenues on a constant currency basis. This increase in Service Revenues was the result of recruitment strength in our Online businessWW Presents: Oprah’s 2020 Vision tour in the first ninesix months of fiscal 2017 versus the prior year period.
The increase in UK product sales and other in the first nine months of fiscal 2017 versus the prior year period was driven by in meeting and other products sales, almost entirely offset by the decline in licensing revenue. 2020.
Continental Europe Performance
The increase in Continental Europe revenues in the first ninesix months of fiscal 20172021 versus the prior year period was primarily driven by the increaseimpact of foreign currency. Excluding foreign currency, Continental Europe revenues in Servicethe first six months of fiscal 2021 would have decreased versus the prior year period driven primarily by a decrease in Subscription Revenues. This increaseThe decrease in ServiceSubscription Revenues in the first ninesix months of fiscal 20172021 versus the prior year period was primarilydriven by a decrease in Workshops + Digital Fees, partially offset by an increase in Digital Subscription Revenues. Workshops + Digital Fees were negatively impacted by both the lower number of Incoming Workshops + Digital Subscribers at the beginning of fiscal 2021 versus the prior year period and the significant recruitment decline in the first six months of fiscal 2021 driven by the increase in Online Subscription Revenues.closure of certain of our studios and the limited reopening of others primarily related to the COVID-19 environment. The increase in Continental Europe Total Paid Weeks in the first six months of fiscal 2021 versus the prior year periodwas driven primarily driven by the higher number of Incoming Digital Subscribers at the beginning of fiscal 20172021 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.2020.
The increase in Continental Europe revenues was partially offset by the declinedecrease in Continental Europe product sales and other in the first ninesix months of fiscal 2017 versus the prior year period.
Other Performance
The increase in Other revenues in the first nine months of fiscal 20172021 versus the prior year period was driven primarily by a decrease in in-studio product sales, partially offset by an increase in e-commerce product sales.
United Kingdom Performance
The decrease in UK revenues in the first six months of fiscal 2021 versus the prior year period was driven by both a decrease in Subscription Revenues and a decrease in product sales and other. The decrease in Subscription Revenues in the first six months of fiscal 2021 versus the prior year period was driven by a decrease in Workshops + Digital Fees, partially offset by an increase in ServiceDigital Subscription Revenues. The increase in Other Total Paid Weeks was primarily drivenWorkshops + Digital Fees were negatively impacted by both the higherlower number of Incoming Workshops + Digital Subscribers at the beginning of fiscal 20172021 versus the beginningprior year period and the significant recruitment decline in the first six months of fiscal 2016.2021 driven by the closure of certain of our studios and the limited reopening of others primarily related to the COVID-19 environment. The decrease in UK Total Paid Weeks in the first six months of fiscal 2021 was driven primarily by lower recruitments versus the prior year period due to the COVID-19 environment and cycling against the successful launch of the myWW program in the first six months of fiscal 2020.
The increasedecrease in UK product sales and other in the first ninesix months of fiscal 20172021 versus the prior year period was driven primarily by a decrease in in-studio product sales.
Other Performance
The decrease in Other revenues in the first ninesix months of fiscal 20162021 versus the prior year period was driven primarily by a decrease in product sales and other. The decrease in Subscription Revenues in the first six months of fiscal 2021 versus the prior year period was driven by a decrease in Workshops + Digital Fees, partially offset by an increase in in-meetingDigital Subscription Revenues. Workshops + Digital Fees were negatively impacted by both the lower number of Incoming Workshops + Digital Subscribers at the beginning of fiscal 2021 versus the prior year period and the significant recruitment decline in the first six months of fiscal 2021 driven by the closure of certain of our studios and the limited reopening of others primarily related to the COVID-19 environment.
The decrease in Other product sales and commissions from our franchisees partially offsetother in the first six months of fiscal 2021 versus the prior year period was driven primarily by a declinedecrease in licensing revenue.franchise commissions.
46
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 $125.6 million at September 30, 2017July 3, 2021, our $173.8 million of availability under our New Revolving Credit Facility (as defined below) at July 3, 2021 and our continued cost focus will provide us with sufficient liquidity to meet our obligations for the next twelve months.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 arising from the COVID-19 pandemic. 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 and the availability of our New Revolving Credit Facility. In connection with our continued focus on maintaining flexibility and exercising cost discipline, in the third quarter we revised our previously disclosed fiscal 2021 restructuring plan and now estimate this plan will cost approximately $22.0 million in fiscal 2021. The evolving nature, and uncertain economic impact, of COVID-19 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 access our New Revolving Credit Facility, may be adversely affected.
As market conditions warrant, we may, from time to time, seek to purchase our outstanding debt securities or loans, including the Senior Secured Notes and borrowings under the New Credit Facilities (each as defined below). Such transactions could be privately negotiated or open market transactions, pursuant to tender offers or otherwise. Subject to any applicable limitations contained in the agreements governing, or terms of, our indebtedness, any such purchases made by us may be funded by the use of cash on our balance sheet, the incurrence of new secured or unsecured debt, the issuance of our equity 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 a substantial amount of a particular class or series of debt, which may reduce the trading liquidity of such class or series.
Balance Sheet Working Capital
We generally operate with negative working capital that is driven in part by our commitment and subscription plans which are our primary payment method. These plans require members and subscribers to pay us for meetings and Online subscription products before we pay for our obligations in the normal course of business. These prepayments are recorded as a current liability on our balance sheet which has resulted in, and in certain circumstances has helped drive, negative working capital. This core characteristic of our business model is expected to continue. However, in a period in which revenue is increasing, we get higher working capital benefit from this deferred revenue.
The following table sets forth certain relevant measures of our balance sheet working capital deficit, excluding cash and cash equivalents and current portion of long-term debt at:
|
| September 30, |
|
| December 31, |
|
| Increase/ |
|
| July 3, |
|
| January 2, |
|
| Increase/ |
| ||||||
|
| 2017 |
|
| 2016 |
|
| (Decrease) |
|
| 2021 |
|
| 2021 |
|
| (Decrease) |
| ||||||
|
| (in millions) |
|
| (in millions) |
| ||||||||||||||||||
Total current assets |
| $ | 280.5 |
|
| $ | 235.2 |
|
| $ | 45.3 |
|
| $ | 259.4 |
|
| $ | 299.2 |
|
| $ | (39.8 | ) |
Total current liabilities |
|
| 293.2 |
|
|
| 292.4 |
|
|
| 0.8 |
|
|
| 246.7 |
|
|
| 340.1 |
|
|
| (93.4 | ) |
Working capital deficit |
|
| (12.7 | ) |
|
| (57.2 | ) |
|
| (44.5 | ) | ||||||||||||
Working capital surplus (deficit) |
|
| 12.7 |
|
|
| (40.9 | ) |
|
| (53.6 | ) | ||||||||||||
Cash and cash equivalents |
|
| 178.2 |
|
|
| 108.7 |
|
|
| 69.5 |
|
|
| 125.6 |
|
|
| 165.9 |
|
|
| (40.3 | ) |
Current portion of long-term debt |
|
| 31.4 |
|
|
| 21.0 |
|
|
| 10.4 |
|
|
| 10.0 |
|
|
| 77.0 |
|
|
| (67.0 | ) |
Working capital deficit, excluding cash and cash equivalents and current portion of long-term debt | Working capital deficit, excluding cash and cash equivalents and current portion of long-term debt | $ | (159.5 | ) |
| $ | (144.9 | ) |
| $ | 14.6 |
|
| $ | (102.8 | ) |
| $ | (129.8 | ) |
| $ | (27.0 | ) |
Note: Totals may not sum due to rounding.
47
The following table sets forth a summary of the primary factors contributing to this $14.6the $27.0 million increasedecrease in our working capital deficit:deficit, excluding cash and cash equivalents and current portion of long-term debt:
|
| September 30, |
|
| December 31, |
|
| Increase/ |
|
| Impact to |
|
| July 3, |
|
| January 2, |
|
| Increase/ |
|
| Impact to Working |
| ||||||||
|
| 2017 |
|
| 2016 |
|
| (Decrease) |
|
| Working Capital Deficit |
|
| 2021 |
|
| 2021 |
|
| (Decrease) |
|
| Capital Deficit |
| ||||||||
|
| (in millions) |
|
| (in millions) |
| ||||||||||||||||||||||||||
Prepaid income taxes |
| $ | 42.7 |
|
| $ | 20.0 |
|
| $ | 22.6 |
|
| $ | (22.6 | ) | ||||||||||||||||
Derivative payable |
| $ | 21.1 |
|
| $ | 32.0 |
|
| $ | (10.8 | ) |
| $ | (10.8 | ) |
| $ | 21.5 |
|
| $ | 28.3 |
|
| $ | (6.8 | ) |
| $ | (6.8 | ) |
Income taxes payable |
| $ | 1.7 |
|
| $ | 7.8 |
|
| $ | (6.1 | ) |
| $ | (6.1 | ) | ||||||||||||||||
Portion of operating lease liabilities due within one year |
| $ | 22.9 |
|
| $ | 28.6 |
|
| $ | (5.7 | ) |
| $ | (5.7 | ) | ||||||||||||||||
Deferred revenue |
| $ | 51.4 |
|
| $ | 50.5 |
|
| $ | 1.0 |
|
| $ | 1.0 |
| ||||||||||||||||
Accrued interest |
| $ | 5.4 |
|
| $ | 2.7 |
|
| $ | 2.7 |
|
| $ | 2.7 |
| ||||||||||||||||
Operational liabilities and other, net of assets |
| $ | 60.4 |
|
| $ | 66.8 |
|
| $ | (6.4 | ) |
| $ | (6.4 | ) |
| $ | 42.5 |
|
| $ | 32.0 |
|
| $ | 10.5 |
|
| $ | 10.5 |
|
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 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Working capital deficit change, excluding cash and cash equivalents and current portion of long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (27.0 | ) |
Note: Totals may not sum due to rounding.
The increase in prepaid income taxes was primarily due to an accrual of tax benefits from the pre-tax loss and tax windfalls from stock options exercised by Ms. Oprah Winfrey, each in the first six months of fiscal 2021. The decrease in derivative payable was due to a change in fair value driven by the change in interest rates. The decrease in income taxes payable was primarily due to foreign tax payments, partially offset by foreign tax accruals. The decrease in the portion of operating lease liabilities due within one year was due to the increase in lease terminations. The increase in operational liabilities and other, net of assets, which includes accrued salaries and wages, was driven primarily driven by declines in inventory balances due to seasonality and prepaid advertising due to seasonality and timing of payments, and seasonality. The increasepartially offset by a decline in deferred revenue was driven by improved business performance.accrued liabilities due to the timing of payments.
Cash Flows
The following table sets forth a summary of the Company’sour cash flows for the ninesix months ended:
|
| September 30, 2017 |
|
| October 1, 2016 |
|
| July 3, 2021 |
|
| June 27, 2020 |
| ||||
|
| (in millions) |
|
| (in millions) |
| ||||||||||
Net cash provided by operating activities |
| $ | 184.8 |
|
| $ | 93.9 |
|
| $ | 38.3 |
|
| $ | 47.5 |
|
Net cash used for investing activities |
| $ | (31.1 | ) |
| $ | (29.5 | ) |
| $ | (30.8 | ) |
| $ | (39.2 | ) |
Net cash used for financing activities |
| $ | (88.4 | ) |
| $ | (207.1 | ) |
| $ | (46.1 | ) |
| $ | (41.0 | ) |
Operating Activities
First NineSix Months of Fiscal 20172021
Cash flows provided by operating activities of $184.8$38.3 million forin the first ninesix months of fiscal 20172021 reflected an increasea decrease of $90.9$9.3 million from $93.9$47.5 million of cash flows used forprovided by operating activities in the first ninesix months of fiscal 2016.2020. The increasedecrease in cash provided by operating activities was primarily the result of $46.1 million of higher net income as well as the $43.3 million of benefit from the year-over-yeara change in working capitalnet (loss) income attributable to the Company of $17.3 million in the first ninesix months of fiscal 20172021 as compared to the prior year period.
First NineSix Months of Fiscal 20162020
Cash flows provided by operating activities of $93.9$47.5 million forin the first ninesix months of fiscal 20162020 reflected an increasea decrease of $41.0$32.3 million from $52.9$79.8 million of cash flows provided by operating activities in the first ninesix months of fiscal 2015.2019. The increasedecrease in cash provided by operating activities was primarily the result of $30.1a decrease in net income attributable to the Company of $35.2 million of benefit from year-over-year change in working capital in the first ninesix months of fiscal 20162020 as compared to the prior year period.
48
Investing Activities
First NineSix Months of Fiscal 20172021
Net cash used for investing activities totaled $31.1$30.8 million in the first ninesix months of fiscal 2017,2021, a decrease of $1.6$8.4 million as compared to the first ninesix months of fiscal 2016, which included2020. This decrease was primarily attributable to lower capital expenditures, partially offset by an increase in cash paid for acquisitions, in the acquisitionfirst six months of its franchisee for certain territories in South Florida for $2.9 million.fiscal 2021 as compared to the prior year period.
First NineSix Months of Fiscal 20162020
Net cash used for investing activities totaled $29.5$39.2 million in the first ninesix months of fiscal 2016,2020, an increase of $3.3$15.6 million as compared to the first ninesix months of fiscal 2015. Our technology and operating infrastructure required less investment2019. This increase was primarily attributable to higher capital expenditures in the first ninesix months of fiscal 2016 as compared to2020. In the first ninesix months of fiscal 2015.2020, we entered into a strategic collaboration agreement with ClassPass Inc. (“ClassPass”) and also invested $5.0 million in ClassPass’ $285.0 million Series E Preferred Stock funding round.
Financing Activities
First NineSix Months of Fiscal 20172021
Net cash used for financing activities totaled $88.4$46.1 million in the first ninesix 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 $37.3 million of prepayment penalties, financing costs and debt prepayment and other scheduled debt repayments of $15.4 milliondiscount in connection with the Tranche B-2 Term FacilityApril 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 nine monthsquarter of fiscal 2017.2021. These payments were partially offset by the proceeds received of $1,000.0 million in an aggregate principal amount of borrowings under our New Term Loan Facility (as defined below) 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. See “—Long-Term Debt” for additional details on debt.
First NineSix Months of Fiscal 20162020
Net cash used for financing activities totaled $207.1$41.0 million in the first ninesix months of fiscal 2016,2020 primarily due to a $144.3$38.5 million debt repayment in connection with the Tranche B-1 Term Facility and otherused for scheduled 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 benefitour then-existing term loan facility. 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:July 3, 2021:
Long-Term Debt
At September 30, 2017July 3, 2021
(Balances in millions)
|
| 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 |
|
|
| Balance |
| |
Term Loan Facility due April 13, 2028 |
| $ | 1,000.0 |
|
Senior Secured Notes due April 15, 2029 |
|
| 500.0 |
|
Total |
|
| 1,500.0 |
|
Less: Current portion |
|
| 10.0 |
|
Unamortized deferred financing costs |
|
| 13.9 |
|
Unamortized debt discount |
|
| 16.4 |
|
Total long-term debt |
| $ | 1,459.7 |
|
Note: Totals may not sum due to rounding.
49
OurOn 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 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. These transactions are collectively referred to herein as the April 2021 debt refinancing. Our new credit facilities consist of a $1,000.0 million term loan facility and a $175.0 million revolving credit facility (which includes borrowing capacity available for letters of credit) (collectively, as amended from time to time, referred to herein as the New Credit Facilities). 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 New 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 write-off 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 $7.2 million of pre-existing deferred financing fees and debt discount.
New Credit Facilities
The New 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 New 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,bank. The BankNew Credit Facilities consist 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)(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 RevolvingNew Term Loan Facility, (b) an initial term B-1 loan credit facilityand (2) $175.0 million in an aggregate principal amount of $300.0 million that matured on April 2, 2016, or Tranche B-1 Term Facility, and (c) an initial term B-2 loancommitments under a senior secured revolving credit facility (which includes borrowing capacity available for letters of credit) due in 2026, or the New Revolving Credit Facility.
As of July 3, 2021, we had $1,000.0 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 New Credit Facilities, and $248.8with $173.8 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$1.2 million in issued but undrawn letters of credit outstanding thereunder and $47.8 million in available unused commitments thereunder. The proceeds fromunder the New Revolving Credit Facility. There were no outstanding borrowings under the New Revolving Credit Facility (including swing lineas of July 3, 2021.
All obligations under the New 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 New 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:
• | a pledge of 100% of the equity interests directly held by the Company and each guarantor in any wholly-owned material subsidiary of the Company or any guarantor (which pledge, in the case of any non-U.S. subsidiary of a U.S. subsidiary, will not include more than 65% of the voting stock of such first-tier non-U.S. subsidiary), subject to certain exceptions; and |
• | a security interest in substantially all other tangible and intangible assets of the Company and each guarantor, subject to certain exceptions. |
The New Credit Facilities require the Company to prepay outstanding term loans, subject to certain exceptions, with:
• | 50% (which percentage will be reduced to 25% and 0% if the Company attains certain first lien secured net leverage ratios) of the Company’s annual excess cash flow; |
• | 100% of the net cash proceeds of certain non-ordinary course asset sales by the Company and its restricted subsidiaries (including casualty and condemnation events, subject to de minimis thresholds), and subject to the right to reinvest 100% of such proceeds, subject to certain qualifications; and |
• | 100% of the net proceeds of any issuance or incurrence of debt by the Company or any of its restricted subsidiaries, other than certain debt permitted under the New Credit Agreement. |
The foregoing mandatory prepayments will be used to reduce the installments of principal on the New Term Loan Facility. We may voluntarily repay outstanding loans under the New Credit Facilities at any time without premium or penalty, except (1) for customary “breakage” costs with respect to LIBOR loans under the New Credit Facilities and (2) during the six months following the Closing Date (as defined in the New Credit Agreement), with respect to certain voluntary prepayments or refinancings of the New Term Loan Facility that reduce the effective yield of the New Term Loan Facility, which will be subject to a 1.00% prepayment premium.
50
Borrowings under the New 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 New 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 July 3, 2021, the applicable margins for the LIBOR rate borrowings under the New Term Loan Facility and the New Revolving Credit Facility were 3.50% and 2.50%, respectively. In the event that LIBOR is phased out as is currently expected, the New Credit Agreement provides that we and the administrative agent may amend the New 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 letterscommitments then outstanding under the New 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 credit)the alternative base rate plus a margin.
On a quarterly basis, we pay a commitment fee to the lenders under the New 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 New Credit Facility).
The New 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 availablealso subject to compliance with certain financial ratios. In addition, if the aggregate principal amount of extensions of credit outstanding under the New Revolving Credit Facility as of any fiscal quarter end exceeds 35% of the amount of the aggregate commitments under the New Revolving Credit Facility in effect on such date, we must be in compliance with a Consolidated First Lien Leverage Ratio of, on or prior to the end of the first fiscal quarter of 2022, 6.00:1.00, with a step down to 5.75:1.00 for the period ending after the first fiscal quarter of 2022 through and including with first fiscal quarter of 2023, with an additional step down to 5.50:1.00 for the period ending after the first fiscal quarter of 2023 through and including with first fiscal quarter of 2024, with a step down to 5.25:1.00 for the period ending after the first fiscal quarter of 2024 through and including with first fiscal quarter of 2025 and again to 5.00:1.00, for the period following the first fiscal quarter of 2025.
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 New Indenture, among the Company, the guarantors named therein and The Bank of New York Mellon, as trustee and notes collateral agent. The New 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.
51
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 New Credit Facilities. The Senior Secured Notes and the note guarantees are secured by a first-priority lien on all the collateral that secures the New Credit Facilities, subject to a shared lien of equal priority with the Company’s and each guarantor’s obligations under the New Credit Facilities and subject to certain thresholds, exceptions and permitted liens.
Outstanding Debt
At September 30, 2017July 3, 2021, we had $1,500.0 million outstanding under the New Credit Facilities and December 31, 2016,the Senior Secured Notes, consisting of borrowings under the New Term Loan Facility of $1,000.0 million, $0.0 drawn down on the New Revolving Credit Facility and $500.0 million in aggregate principal amount of Senior Secured Notes issued and outstanding.
At July 3, 2021 and January 2, 2021, 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%5.67% and 4.41%7.03% per annum at September 30, 2017July 3, 2021 and December 31, 2016,January 2, 2021, 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%6.17% and 5.32%7.41% per annum at September 30, 2017July 3, 2021 and December 31, 2016,January 2, 2021, 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:July 3, 2021:
Total Debt Obligation
(Including Current Portion)
At September 30, 2017July 3, 2021
(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 2021 |
| $ | 5.0 |
|
Fiscal 2022 |
|
| 10.0 |
|
Fiscal 2023 |
|
| 10.0 |
|
Fiscal 2024 |
|
| 7.5 |
|
Fiscal 2025 |
|
| 12.5 |
|
Fiscal 2026 and thereafter |
|
| 1,455.0 |
|
Total |
| $ | 1,500.0 |
|
Note: Totals may not sum due to rounding.
52
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, 2017July 3, 2021 and October 1, 2016,June 27, 2020, the cumulative balance of changes in the fair value of derivative instruments, net of taxes, was a loss of $10.8$15.9 million and $29.3$24.9 million, respectively. At September 30, 2017July 3, 2021 and October 1, 2016,June 27, 2020, the cumulative balance of the effects of foreign currency translations, net of taxes, was a loss of $4.0$2.9 million and $8.3$15.3 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 New Credit Agreement governing the New Credit Facilities and the New 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 ninesix months ended September 30, 2017July 3, 2021 and October 1, 2016,June 27, 2020, 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 dividends 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.
EBITDAS, Adjusted EBITDAS and Net Debt
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, early extinguishment of debt, restructuring charges (including the net impact where applicable) and goodwill impairment.
The table below sets forth the calculationsreconciliations for EBITDAS and Adjusted EBITDAS, each a non-GAAP financial measure, to net income (loss), the most comparable GAAP financial measure, for the three and ninesix months ended September 30, 2017July 3, 2021 and October 1, 2016,June 27, 2020, and EBITDAS and Adjusted EBITDAS to net income for the trailing twelve months ended September 30, 2017:July 3, 2021:
(in millions)
|
| Three Months Ended |
|
| Six Months Ended |
|
|
|
|
| ||||||||||
|
| July 3, 2021 |
|
| June 27, 2020 |
|
| July 3, 2021 |
|
| June 27, 2020 |
|
| Trailing Twelve Months |
| |||||
Net income (loss) |
| $ | 8.9 |
|
| $ | 14.0 |
|
| $ | (9.4 | ) |
| $ | 7.9 |
|
| $ | 57.8 |
|
Interest |
|
| 20.3 |
|
|
| 31.0 |
|
|
| 49.4 |
|
|
| 62.5 |
|
|
| 110.2 |
|
Taxes |
|
| 1.0 |
|
|
| 5.6 |
|
|
| (6.9 | ) |
|
| 4.9 |
|
|
| 5.7 |
|
Depreciation and amortization |
|
| 11.4 |
|
|
| 12.8 |
|
|
| 23.3 |
|
|
| 25.0 |
|
|
| 48.4 |
|
Stock-based compensation |
|
| 7.9 |
|
|
| 38.7 |
|
|
| 13.2 |
|
|
| 42.7 |
|
|
| 25.6 |
|
EBITDAS |
| $ | 49.4 |
|
| $ | 102.1 |
|
| $ | 69.7 |
|
| $ | 143.1 |
|
| $ | 247.5 |
|
Early extinguishment of debt |
|
| 29.2 |
|
|
| — |
|
|
| 29.2 |
|
|
| — |
|
|
| 29.2 |
|
2021 plan restructuring charges |
|
| 6.0 |
|
|
| — |
|
|
| 11.6 |
|
|
| — |
|
|
| 11.6 |
|
2020 plan restructuring charges |
|
| (0.8 | ) |
|
| 11.2 |
|
|
| (0.8 | ) |
|
| 11.2 |
|
|
| 21.0 |
|
Goodwill impairment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3.7 |
|
|
| — |
|
Adjusted EBITDAS (1) |
| $ | 83.7 |
|
| $ | 113.3 |
|
| $ | 109.6 |
|
| $ | 157.9 |
|
| $ | 309.3 |
|
Note: Totals may not sum due to rounding.
|
| 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 |
|
(1) | The “Adjusted EBITDAS” measure is a non-GAAP financial measure that adjusts the consolidated statements of net income for the three months ended July 3, 2021 to exclude the $29.2 million early extinguishment of debt, the $6.0 million of 2021 plan restructuring charges and the reversal of $0.8 million of 2020 plan restructuring charges; adjusts the consolidated statements of net income for the three months ended June 27, 2020 to exclude the $11.2 million of 2020 plan restructuring charges; adjusts the consolidated statements of net income for the six months ended July 3, 2021 to exclude the $29.2 million early extinguishment of debt, the $11.6 million of 2021 plan restructuring charges and the reversal of $0.8 million of 2020 plan restructuring charges; and adjusts the consolidated statements of net income for the six months ended June 27, 2020 to exclude the $11.2 million of 2020 plan restructuring charges and the $3.7 million impairment charge for goodwill related to our Brazil reporting unit. See “Non-GAAP Financial Measures” above for an explanation of our use of non-GAAP financial measures. |
53
Reducing leverage is a capital structure priority for the Company. As of July 3, 2021, our net debt/Adjusted EBITDAS ratio was 4.3x.
The table below sets forth the reconciliation for net debt, a non-GAAP financial measure, to total debt, the most comparable GAAP financial measure, for the six months ended:
(in millions)
|
| July 3, 2021 |
| |
Total debt |
| $ | 1,500.0 |
|
Less: Unamortized deferred financing costs |
|
| 13.9 |
|
Less: Unamortized debt discount |
|
| 16.4 |
|
Less: Cash on hand |
|
| 125.6 |
|
Net debt |
| $ | 1,344.2 |
|
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 and our net debt/EBITDAS ratio was 5.3x.
The table below sets forth the calculation for net debt, a non-GAAP financial measure:
(in millions)
|
| 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.
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.
54 ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
As of September 30, 2017,July 3, 2021, 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 20162020 as amended have not materially changed from December 31, 2016.January 2, 2021.
At the end of the thirdsecond quarter of fiscal 2017,2021, borrowings under the Tranche B-2 Term FacilityNew Credit Facilities bore interest at LIBOR plus an applicable margin of 3.25%3.50%. For the Tranche B-2New Term Loan Facility, the minimum interest rate for LIBOR applicable to such facility pursuant to the terms of the New 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,July 3, 2021, 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,July 3, 2021, 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$4.5 million, and adriven primarily by the interest rate applicable to our New Term Loan Facility. A hypothetical 5090 basis point decrease in interest rates would have decreasedresulted in no change to annual interest expense, by approximately $4.0 million. This increase isdriven primarily driven by the interest rate applicable to our Tranche B-2 Term 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.LIBOR Floor.
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,July 3, 2021, the end of the thirdsecond quarter of fiscal 2017.2021. 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 thirdsecond quarter of fiscal 2017,2021, 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.
55
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 claimsThe 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.
Other Litigation Matters
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.Form 10-Q.
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 than2020 as set forth below.
We are undergoing a chief executive officer transition, which could cause disruption to our business.
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.amended.
Nothing to report under this item.
Nothing to report under this item.
Not applicable.
NothingOn May 10, 2021, the Compensation and Benefits Committee of our Board of Directors determined to reportpay all eligible Company employees in the second quarter of fiscal 2021 that portion of the fiscal 2021 annual, performance-based cash bonus that was accrued based on the Company’s first quarter fiscal 2021 operating income performance under this item.the Company’s previously-approved fiscal 2021 bonus plan.
56
Exhibit Number |
| Description |
**Exhibit 4.1 | Indenture, dated as of April 13, 2021, among WW International, Inc., the guarantors party thereto and The Bank of New York Mellon, as trustee and notes collateral agent, relating to $500.0 million in aggregate principal amount of 4.500% Senior Secured Notes due 2029 (the “Notes”) (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K, as filed on April 13, 2021 (File No. 001-16769), and incorporated herein by reference). | |
**Exhibit 4.2 | ||
**Exhibit 10.1 | Credit Agreement, dated as of April 13, 2021, among WW International, Inc., as borrower, the lenders party thereto and Bank of America, N.A., as administrative agent and issuing bank(filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed on April 13, 2021 (File No. 001-16769), and incorporated herein by reference). | |
**Exhibit 10.2 | Equal Priority Intercreditor Agreement, dated as of April 13, 2021, among WW International, Inc., the guarantors party thereto, Bank of America, N.A., as collateral agent under the Credit Agreement and The Bank of New York Mellon, as notes collateral agent(filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, as filed on April 13, 2021 (File No. 001-16769), and incorporated herein by reference). | |
†**Exhibit 10.3 | Third Amended and Restated WW International, Inc. 2014 Stock Incentive Plan(filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed on May 12, 2021 (File No. 001-16769), and incorporated herein by reference). | |
|
|
|
*Exhibit 31.1 |
| Rule 13a-14(a) Certification by Mindy Grossman, Chief Executive Officer. |
|
|
|
*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 July 3, 2021, formatted in Inline XBRL (included within the Exhibit 101 attachments). |
* | Filed herewith. |
** | Previously filed. |
† | Represents a management arrangement or compensatory plan. |
57
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: | By: | /s/ Mindy Grossman |
|
| Mindy Grossman |
|
| President, Chief Executive Officer and Director (Principal Executive Officer) |
Date: | By: | /s/ |
|
|
|
|
| Chief Financial Officer (Principal Financial |
58
45