UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 30, 2019
OR
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☐ |
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 WATCHERS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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Virginia |
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11-6040273 |
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(State or other jurisdiction of incorporation or organization) |
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(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)
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 every Interactive Data File required to be submitted 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 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.
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Large accelerated filer |
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☒ |
Accelerated filer |
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☐ |
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Non-accelerated filer |
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☐ |
Smaller reporting company |
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☐ |
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Emerging growth company |
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☐ |
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 ☒
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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Common Stock |
WW |
The Nasdaq Stock Market LLC |
The number of shares of common stock outstanding as of April 26, 2019 was 66,998,390.
WEIGHT WATCHERS INTERNATIONAL, INC.
TABLE OF CONTENTS
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Item 1. |
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2 |
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Unaudited Consolidated Balance Sheets at March 30, 2019 and December 29, 2018 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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24 |
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Item 3. |
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36 |
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Item 4. |
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37 |
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Item 1. |
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38 |
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Item 1A. |
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38 |
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Item 2. |
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38 |
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Item 3. |
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38 |
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Item 4. |
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38 |
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Item 5. |
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38 |
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Item 6. |
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39 |
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40 |
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WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS AT
(IN THOUSANDS)
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March 30, |
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December 29, |
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2019 |
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2018 |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
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$ |
193,358 |
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$ |
236,974 |
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Receivables (net of allowances: March 30, 2019 - $1,601 and December 29, 2018 - $1,743) |
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32,104 |
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27,247 |
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Inventories |
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31,859 |
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25,851 |
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Prepaid income taxes |
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39,572 |
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33,997 |
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Prepaid expenses and other current assets |
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30,543 |
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42,355 |
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TOTAL CURRENT ASSETS |
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327,436 |
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366,424 |
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Property and equipment, net |
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51,843 |
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52,202 |
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Operating lease assets |
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148,447 |
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|
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0 |
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Franchise rights acquired |
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752,638 |
|
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|
751,134 |
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Goodwill |
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153,172 |
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152,519 |
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Other intangible assets, net |
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57,864 |
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57,162 |
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Deferred income taxes |
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17,468 |
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16,230 |
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Other noncurrent assets |
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17,316 |
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18,870 |
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TOTAL ASSETS |
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$ |
1,526,184 |
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$ |
1,414,541 |
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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 |
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$ |
57,750 |
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$ |
77,000 |
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Portion of operating lease liabilities due within one year |
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36,125 |
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0 |
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Accounts payable |
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29,139 |
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27,098 |
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Salaries and wages payable |
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50,462 |
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64,600 |
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Accrued marketing and advertising |
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23,972 |
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14,052 |
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Accrued interest |
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35,912 |
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28,651 |
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Other accrued liabilities |
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46,599 |
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48,218 |
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Derivative payable |
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9,961 |
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5,578 |
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Income taxes payable |
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21,635 |
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22,618 |
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Deferred revenue |
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60,597 |
|
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53,501 |
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TOTAL CURRENT LIABILITIES |
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372,152 |
|
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341,316 |
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Long-term debt, net |
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1,651,952 |
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1,669,708 |
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Long-term operating lease liabilities |
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121,308 |
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0 |
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Deferred income taxes |
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189,226 |
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190,258 |
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Other |
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6,612 |
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18,289 |
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TOTAL LIABILITIES |
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2,341,250 |
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2,219,571 |
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Redeemable noncontrolling interest |
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3,868 |
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3,913 |
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TOTAL DEFICIT |
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Common stock, $0 par value; 1,000,000 shares authorized; 120,352 shares issued at March 30, 2019 and December 29, 2018 |
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0 |
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0 |
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Treasury stock, at cost, 53,375 shares at March 30, 2019 and 53,396 shares at December 29, 2018 |
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(3,174,871 |
) |
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(3,175,624 |
) |
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Retained earnings |
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2,375,903 |
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2,382,438 |
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Accumulated other comprehensive loss |
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(19,966 |
) |
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(15,757 |
) |
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TOTAL DEFICIT |
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(818,934 |
) |
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(808,943 |
) |
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TOTAL LIABILITIES AND TOTAL DEFICIT |
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$ |
1,526,184 |
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$ |
1,414,541 |
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The accompanying notes are an integral part of the consolidated financial statements.
2
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF NET INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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Three Months Ended |
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March 30, |
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March 31, |
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2019 |
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2018 |
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Service revenues, net |
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$ |
306,726 |
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$ |
328,669 |
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Product sales and other, net |
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56,438 |
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79,554 |
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Revenues, net |
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363,164 |
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408,223 |
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Cost of services |
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128,957 |
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139,778 |
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Cost of product sales and other |
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33,259 |
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47,442 |
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Cost of revenues |
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162,216 |
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187,220 |
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Gross profit |
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200,948 |
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221,003 |
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Marketing expenses |
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114,249 |
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98,919 |
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Selling, general and administrative expenses |
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64,802 |
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60,011 |
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Operating income |
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21,897 |
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62,073 |
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Interest expense |
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35,195 |
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35,866 |
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Other expense (income), net |
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303 |
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(235 |
) |
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(Loss) income before income taxes |
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(13,601 |
) |
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26,442 |
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Benefit from income taxes |
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(2,875 |
) |
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(12,617 |
) |
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Net (loss) income |
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(10,726 |
) |
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39,059 |
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Net loss attributable to the noncontrolling interest |
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|
39 |
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53 |
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Net (loss) income attributable to Weight Watchers International, Inc. |
|
$ |
(10,687 |
) |
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$ |
39,112 |
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(Loss) Earnings Per Share attributable to Weight Watchers International, Inc. |
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Basic |
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$ |
(0.16 |
) |
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$ |
0.60 |
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Diluted |
|
$ |
(0.16 |
) |
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$ |
0.56 |
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Weighted average common shares outstanding |
|
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Basic |
|
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66,964 |
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65,123 |
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Diluted |
|
|
66,964 |
|
|
|
69,501 |
|
The accompanying notes are an integral part of the consolidated financial statements.
3
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
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Three Months Ended |
|
|||||
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March 30, |
|
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March 31, |
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||
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2019 |
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2018 |
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Net (loss) income |
|
$ |
(10,726 |
) |
|
$ |
39,059 |
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Other comprehensive (loss) gain: |
|
|
|
|
|
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Foreign currency translation gain (loss) |
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1,714 |
|
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(3,425 |
) |
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Income tax (expense) benefit on foreign currency translation gain (loss) |
|
|
(435 |
) |
|
|
868 |
|
|
Foreign currency translation gain (loss), net of taxes |
|
|
1,279 |
|
|
|
(2,557 |
) |
|
(Loss) gain on derivatives |
|
|
(7,361 |
) |
|
|
11,167 |
|
|
Income tax benefit (expense) on (loss) gain on derivatives |
|
|
1,867 |
|
|
|
(2,832 |
) |
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(Loss) gain on derivatives, net of taxes |
|
|
(5,494 |
) |
|
|
8,335 |
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Total other comprehensive (loss) gain |
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(4,215 |
) |
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|
5,778 |
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Comprehensive (loss) income |
|
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(14,941 |
) |
|
|
44,837 |
|
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Net loss attributable to the noncontrolling interest |
|
|
39 |
|
|
|
53 |
|
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Foreign currency translation loss, net of taxes attributable to the noncontrolling interest |
|
|
6 |
|
|
|
236 |
|
|
Comprehensive loss attributable to the noncontrolling interest |
|
|
45 |
|
|
|
289 |
|
|
Comprehensive (loss) income attributable to Weight Watchers International, Inc. |
|
$ |
(14,896 |
) |
|
$ |
45,126 |
|
The accompanying notes are an integral part of the consolidated financial statements.
4
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED Consolidated Statements of Changes in Total Deficit
(IN THOUSANDS)
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Weight Watchers International, Inc. |
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Accumulated |
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Redeemable |
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Other |
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Noncontrolling |
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Common Stock |
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Treasury Stock |
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Comprehensive |
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Retained |
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Three months ended March 30, 2019 |
Interest |
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Shares |
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Amount |
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Shares |
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Amount |
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Loss |
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Earnings |
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Total |
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Balance at December 29, 2018 |
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$ |
3,913 |
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|
|
|
120,352 |
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|
$ |
0 |
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|
53,396 |
|
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$ |
(3,175,624 |
) |
|
$ |
(15,757 |
) |
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$ |
2,382,438 |
|
|
$ |
(808,943 |
) |
|
|
|
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Comprehensive Loss |
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(45 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,209 |
) |
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(10,687 |
) |
|
|
(14,896 |
) |
|
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Issuance of treasury stock under stock plans |
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|
|
|
|
|
|
|
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(21 |
) |
|
|
753 |
|
|
|
|
|
|
|
(660 |
) |
|
|
93 |
|
|
Compensation expense on share- based awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
4,812 |
|
|
|
4,812 |
|
|
Balance at March 30, 2019 |
|
$ |
3,868 |
|
|
|
|
120,352 |
|
|
$ |
0 |
|
|
|
53,375 |
|
|
$ |
(3,174,871 |
) |
|
$ |
(19,966 |
) |
|
$ |
2,375,903 |
|
|
$ |
(818,934 |
) |
|
|
|
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Weight Watchers International, Inc. |
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Accumulated |
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Redeemable |
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Other |
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|
|||
|
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Noncontrolling |
|
|
|
Common Stock |
|
|
Treasury Stock |
|
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Comprehensive |
|
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Retained |
|
|
|
|
|
||||||||||||||
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Three months ended March 31, 2018 |
Interest |
|
|
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Shares |
|
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Amount |
|
|
Shares |
|
|
Amount |
|
|
Loss |
|
|
Earnings |
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Total |
|
||||||||||
|
Balance at December 30, 2017 |
|
$ |
4,467 |
|
|
|
|
118,947 |
|
|
$ |
0 |
|
|
|
54,258 |
|
|
$ |
(3,208,836 |
) |
|
$ |
(10,467 |
) |
|
$ |
2,203,317 |
|
|
$ |
(1,015,986 |
) |
|
|
|
|
|
|
|
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|
|
|
|
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|
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|
|
|
|
|
|
Comprehensive Income |
|
|
(289 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,014 |
|
|
|
39,112 |
|
|
|
45,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of treasury stock under stock plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(144 |
) |
|
|
5,505 |
|
|
|
|
|
|
|
(2,447 |
) |
|
|
3,058 |
|
|
Compensation expense on share- based awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,384 |
|
|
|
4,384 |
|
|
Issuance of common stock |
|
|
|
|
|
|
|
1,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,796 |
|
|
|
9,796 |
|
|
Cumulative effect of revenue accounting change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,933 |
|
|
|
2,933 |
|
|
Cumulative effect of tax accounting change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,485 |
) |
|
|
(46,927 |
) |
|
|
(49,412 |
) |
|
Balance at March 31, 2018 |
|
$ |
4,178 |
|
|
|
|
120,352 |
|
|
$ |
0 |
|
|
|
54,114 |
|
|
$ |
(3,203,331 |
) |
|
$ |
(6,938 |
) |
|
$ |
2,210,168 |
|
|
$ |
(1,000,101 |
) |
The accompanying notes are an integral part of the consolidated financial statements.
5
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
|
|
|
Three Months Ended |
|
|||||
|
|
|
March 30, |
|
|
March 31, |
|
||
|
|
|
2019 |
|
|
2018 |
|
||
|
Operating activities: |
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(10,726 |
) |
|
$ |
39,059 |
|
|
Adjustments to reconcile net (loss) income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
11,405 |
|
|
|
11,154 |
|
|
Amortization of deferred financing costs and debt discount |
|
|
2,208 |
|
|
|
1,914 |
|
|
Share-based compensation expense |
|
|
4,812 |
|
|
|
4,384 |
|
|
Deferred tax benefit |
|
|
(433 |
) |
|
|
(457 |
) |
|
Allowance for doubtful accounts |
|
|
(290 |
) |
|
|
(49 |
) |
|
Reserve for inventory obsolescence |
|
|
2,243 |
|
|
|
6,423 |
|
|
Foreign currency exchange rate loss (gain) |
|
|
173 |
|
|
|
(367 |
) |
|
Changes in cash due to: |
|
|
|
|
|
|
|
|
|
Receivables |
|
|
(3,316 |
) |
|
|
(5,562 |
) |
|
Inventories |
|
|
(8,059 |
) |
|
|
1,241 |
|
|
Prepaid expenses |
|
|
1,105 |
|
|
|
(15,088 |
) |
|
Accounts payable |
|
|
2,171 |
|
|
|
7,510 |
|
|
Accrued liabilities |
|
|
(326 |
) |
|
|
(2,175 |
) |
|
Deferred revenue |
|
|
6,925 |
|
|
|
22,932 |
|
|
Other long term assets and liabilities, net |
|
|
272 |
|
|
|
(6,328 |
) |
|
Income taxes |
|
|
(940 |
) |
|
|
8,868 |
|
|
Cash provided by operating activities |
|
|
7,224 |
|
|
|
73,459 |
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(4,059 |
) |
|
|
(1,753 |
) |
|
Capitalized software expenditures |
|
|
(7,167 |
) |
|
|
(5,966 |
) |
|
Other items, net |
|
|
3 |
|
|
|
(24 |
) |
|
Cash used for investing activities |
|
|
(11,223 |
) |
|
|
(7,743 |
) |
|
Financing activities: |
|
|
|
|
|
|
|
|
|
Net payments on revolver |
|
|
0 |
|
|
|
(25,000 |
) |
|
Payments on long-term debt |
|
|
(38,500 |
) |
|
|
(19,250 |
) |
|
Taxes paid related to net share settlement of equity awards |
|
|
(381 |
) |
|
|
(2,128 |
) |
|
Proceeds from stock options exercised |
|
|
127 |
|
|
|
14,679 |
|
|
Other items, net |
|
|
(80 |
) |
|
|
0 |
|
|
Cash used for financing activities |
|
|
(38,834 |
) |
|
|
(31,699 |
) |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(783 |
) |
|
|
544 |
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(43,616 |
) |
|
|
34,561 |
|
|
Cash and cash equivalents, beginning of period |
|
|
236,974 |
|
|
|
83,054 |
|
|
Cash and cash equivalents, end of period |
|
$ |
193,358 |
|
|
$ |
117,615 |
|
The accompanying notes are an integral part of the consolidated financial statements.
6
WEIGHT WATCHERS 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 Watchers International, Inc. and all of its subsidiaries. The terms “Company” and “WW” as used throughout these notes are used to indicate Weight Watchers International, Inc. and all of its operations consolidated for purposes of its financial statements. The Company’s “Digital” business refers to providing subscriptions to the Company’s digital product offerings, including the Personal Coaching + Digital product. The Company’s “Studio + Digital” business refers to providing access to the Company’s weekly in-person workshops combined with the Company’s digital subscription product offerings to commitment plan subscribers. The “Studio + Digital” business 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. 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 for fiscal 2018 filed on February 26, 2019, which includes additional information about the Company, its results of operations, its financial position and its cash flows.
|
2. |
Recently Issued Accounting Standards |
For a discussion of the Company’s 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 2018. For a discussion of accounting standards adopted in the current period, see Note 3.
|
3. |
Accounting Standards Adopted in Current Year |
In February 2016, 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 on the balance sheet 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 similar to the current model but will be updated to align with certain changes to the lessee model. Lessors will continue to classify leases as operating, direct financing or sales-type leases. The effective date of the new guidance for public companies is for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. In July 2018, the FASB issued updated guidance by providing an entity with an additional and optional transition method to adopt the new lease guidance. On December 30, 2018, the Company adopted the updated lease guidance on a modified retrospective basis as of the adoption date. Periods prior to the adoption date continue to be reported under the historical lease accounting guidance. See Note 4 for further details.
|
4. |
Leases |
Adoption of Lease Standard
On December 30, 2018, the Company adopted the updated guidance on leases using the modified retrospective transition method. Results for reporting periods beginning on or after December 30, 2018 are presented under the updated guidance, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historical lease accounting.
The adoption of the standard had a material impact on the Company’s consolidated balance sheets but did not have a material impact on its consolidated statements of net income. The Company recorded $158,773 as a right of use asset, $167,081 of lease
7
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
liabilities and $0 for retained earnings for operating leases upon adoption of the updated guidance. The standard did not have a material impact on the Company’s finance lease contracts.
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 exchange 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 Company’s 2019 consolidated balance sheet. Finance leases are included in property and equipment, net, other accrued liabilities, and other long-term liabilities in the Company’s 2019 consolidated balance sheet. Lease assets represent the Company’s right to use an underlying asset for the 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 present value of lease payments over the lease term, using the Company’s incremental borrowing rate commensurate with the lease term, based on the information available at adoption of the updated guidance. The lease asset includes scheduled lease payments made and excludes lease incentives, such as free rent periods and tenant improvement allowances. The Company has certain leases that may include an option to 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 have any renewal options that would have a material impact on the terms of the leases and that are also reasonably expected to be exercised at this time. 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 adoption of the updated guidance, 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 and finance leases are primarily for its studio locations, corporate offices, data centers and certain equipment, including automobiles.
At March 30, 2019, the Company’s lease assets and lease liabilities were as follows:
|
|
|
March 30, 2019 |
|
|
|
|
|
|
|
|
|
Operating lease assets |
|
$ |
148,447 |
|
|
Finance lease assets |
|
|
573 |
|
|
Total leased assets |
|
$ |
149,020 |
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
Current |
|
|
|
|
|
Operating |
|
$ |
36,125 |
|
|
Finance |
|
|
376 |
|
|
Noncurrent |
|
|
|
|
|
Operating |
|
$ |
121,308 |
|
|
Finance |
|
|
107 |
|
|
Total lease liabilities |
|
$ |
157,916 |
|
For the three months ended March 30, 2019, the components of the Company’s lease expense were as follows:
|
|
|
Three Months Ended |
|
|
|
|
March 30, |
|
||
|
|
|
2019 |
|
|
|
Operating lease cost |
|
$ |
13,372 |
|
|
Finance lease cost: |
|
|
|
|
|
Amortization of leased assets |
|
|
80 |
|
|
Interest on lease liabilities |
|
|
8 |
|
|
Total finance lease cost |
|
$ |
88 |
|
|
Total lease cost |
|
$ |
13,460 |
|
8
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
At March 30, 2019, the Company’s weighted average remaining lease term and weighted average discount rates were as follows:
|
|
|
March 30, 2019 |
|
|
|
Weighted Average Remaining Lease Term (years) |
|
|
|
|
|
Operating leases |
|
|
7.47 |
|
|
Finance leases |
|
|
1.21 |
|
|
|
|
|
|
|
|
Weighted Average Discount Rate |
|
|
|
|
|
Operating leases |
|
|
7.03 |
|
|
Finance leases |
|
|
4.74 |
|
The Company’s leases have remaining lease terms of 0 to 14 years with a weighted average lease term of 7.45 years.
At March 30, 2019, the maturity of the Company’s lease liabilities in each of the next five fiscal years and thereafter were as follows:
|
|
Operating Leases |
|
|
Finance Leases |
|
|
Total |
|
|||
|
Remainder of fiscal 2019 |
$ |
35,516 |
|
|
$ |
360 |
|
|
$ |
35,876 |
|
|
2020 |
|
36,625 |
|
|
|
110 |
|
|
|
36,735 |
|
|
2021 |
|
27,812 |
|
|
|
27 |
|
|
|
27,839 |
|
|
2022 |
|
18,965 |
|
|
|
— |
|
|
|
18,965 |
|
|
2023 |
|
14,252 |
|
|
|
— |
|
|
|
14,252 |
|
|
Thereafter |
|
75,909 |
|
|
|
— |
|
|
|
75,909 |
|
|
Total lease payments |
$ |
209,079 |
|
|
$ |
497 |
|
|
$ |
209,576 |
|
|
Less imputed interest |
|
51,646 |
|
|
|
14 |
|
|
|
51,660 |
|
|
Present value of lease liabilities |
$ |
157,433 |
|
|
$ |
483 |
|
|
$ |
157,916 |
|
Minimum commitments under non-cancelable obligations, primarily for office and rental facilities operating leases at December 29, 2018, consisted of the following:
|
|
$ |
63,261 |
|
|
|
2020 |
|
|
38,491 |
|
|
2021 |
|
|
22,341 |
|
|
2022 |
|
|
14,017 |
|
|
2023 |
|
|
9,192 |
|
|
2024 and thereafter |
|
|
37,704 |
|
|
Total |
|
$ |
185,006 |
|
Total rent expense charged to operations for office and rental facilities under these operating leases for the three months ended March 31, 2018 was $10,791.
9
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Supplemental cash flow information related to leases for the three months ended March 30, 2019 were as follows:
|
|
|
Three Months Ended |
|
|
|
|
|
March 30, |
|
|
|
|
|
2019 |
|
|
|
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
Operating cash flows from operating leases |
|
$ |
12,742 |
|
|
Operating cash flows from finance leases |
|
$ |
8 |
|
|
Financing cash flows from finance leases |
|
$ |
80 |
|
|
|
|
|
|
|
|
Leased assets obtained in exchange for new operating lease liabilities |
|
$ |
887 |
|
|
Leased assets obtained in exchange for new finance lease liabilities |
|
$ |
— |
|
Practical Expedients and Accounting Policy Elections
The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed the Company not to reassess whether any expired or existing contracts contained leases, to carry forward existing lease classifications and not to reassess initial direct costs for existing leases. In addition, the Company elected the benefit of hindsight practical expedient in determining the lease term for existing leases upon adoption of the updated guidance.
The Company has lease agreements with lease and non-lease components and has elected the practical expedient not to separate non-lease components from lease components and instead to account for each separate lease component and non-lease component as a single lease component.
The Company has elected the short-term lease exception accounting policy, whereby the recognition requirements of the updated guidance is not applied and lease expense is recorded on a straight-line basis with respect to leases with an initial term of 12 months or less.
|
5. |
Revenue |
Adoption of Revenue from Contracts with Customers
On December 31, 2017, the Company adopted the updated guidance on revenue from contracts with customers using the modified retrospective method applied to those contracts which were not completed as of December 31, 2017. Results for reporting periods beginning after December 31, 2017 are presented under the updated guidance, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historical revenue accounting.
The Company recorded a net increase to opening retained earnings of $2,145 as of December 31, 2017 due to the cumulative impact of adopting the updated guidance, inclusive of a $3,501 decrease to deferred revenue, a decrease of $568 to prepaid expenses and other current assets and an increase to the deferred income tax liability of $788.
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 Company earns revenue from subscriptions for its digital products and by conducting workshops, for which it charges a fee, predominantly through commitment plans, prepayment plans or the “pay-as-you-go” arrangement. The Company also earns revenue by selling consumer products (including publications) in its workshops, online through its ecommerce platform and to its franchisees, collecting commissions from franchisees, collecting royalties related to licensing agreements, selling magazine subscriptions, publishing, selling advertising space on its websites and in copies of its publications and By Mail product sales.
Commitment plan revenues, prepaid workshop fees and magazine subscription revenue are recorded to deferred revenue and amortized into revenue as control is transferred over the period earned since these performance obligations are satisfied over time. Digital subscription revenues, consisting of the fees associated with subscriptions for the Company’s Digital products, including its
10
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Personal Coaching + Digital product, are deferred and recognized on a straight-line basis as control is transferred over the subscription period. One-time Digital sign-up fees are considered immaterial in the context of the contract and the related revenue is recorded to deferred revenue and amortized into revenue over the commitment period. In the Studio + Digital business, the Company generally charges non-refundable registration and starter fees in exchange for access to the Company’s digital subscription products, an introductory information session and materials it provides to new members. Revenue from these registration and starter fees is considered immaterial in the context of the contract and is recorded to deferred revenue and amortized into revenue over the commitment period. Revenue from “pay-as-you-go” workshop fees, consumer product sales and By Mail, commissions and royalties is recognized at the point in time control is transferred, which is when services are rendered, products are shipped to customers and title and risk of loss passes to the customers, and commissions and royalties are earned, respectively. Revenue from advertising in magazines is recognized when advertisements are published. Revenue from magazine sales is recognized when the magazine is sent to the customer. For revenue transactions that involve multiple performance obligations, the amount of revenue recognized is determined using the relative fair value approach, which is generally based on each performance obligation’s stand-alone selling price. Discounts to customers, including free registration offers, are recorded as a deduction from gross revenue in the period such revenue was recognized. Revenue from advertising on its websites is recognized when the advertisement is viewed by the user.
The Company grants refunds in aggregate amounts that historically have not been material. Because the period of payment of the refund generally approximates the period revenue was originally recognized, refunds are recorded as a reduction of revenue over the same period.
The following table presents the Company’s revenues disaggregated by revenue source:
|
|
|
Three Months Ended |
|
||||||
|
|
|
March 30, |
|
March 31, |
|
||||
|
|
|
2019 |
|
2018 |
|
||||
|
Digital Subscription Revenues |
|
$ |
148,855 |
|
|
|
$ |
138,547 |
|
|
Studio + Digital Fees |
|
|
157,871 |
|
|
|
|
190,122 |
|
|
Service Revenues, net |
|
$ |
306,726 |
|
|
|
$ |
328,669 |
|
|
Product sales and other, net |
|
||||||||