WeightWatchers 2004 Annual Report Download - page 95

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WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
17. Financial Instruments (Continued)
Derivative Instruments and Hedging:
The Company entered into forward and swap contracts to hedge transactions denominated in
foreign currencies to reduce currency risk associated with fluctuating exchange rates. These contracts
were used primarily to hedge certain foreign currency cash flows and for payments arising from some
of the Company’s foreign currency denominated debt obligations. In addition, the Company enters into
interest rate swaps to hedge a substantial portion of its variable rate debt. As of January 1, 2005, the
Company held contracts to purchase interest rate swaps with notional amounts totaling $150,000 and to
sell interest rate swaps with notional amounts totaling $150,000. As of January 3, 2004 and
December 28, 2002 the Company held currency and interest rate swap contracts to purchase certain
foreign currencies and interest rate swaps totaling $255,156 and $92,936, respectively. The Company
also held separate currency and interest rate swap contracts to sell foreign currencies and interest rate
swaps of $256,564 and $96,051, respectively. The Company is hedging forecasted transactions for
periods not exceeding the next three years. At January 1, 2005, given the current configuration of its
debt, the Company estimates that no derivative gains or losses reported in accumulated other
comprehensive income (loss) will be reclassified to the Statement of Operations within the next twelve
months.
As of January 1, 2005 and January 3, 2004, cumulative losses for qualifying hedges were reported
as a component of accumulated other comprehensive loss in the amount of $70 ($115 before taxes) and
$270 ($443 before taxes), respectively. The Company discontinued certain of its cash flow hedges that
were associated with the euro denominated Notes that were extinguished, as described in Note 6. As
such, in fiscal 2003, the Company reclassified a net loss of $5,381 from accumulated other
comprehensive income to other expense, net. In addition, the Company recorded net proceeds of
$2,710 from the gain on settlement in cash from financing activities in the Statement of Cash Flows as
cash flows from hedge transactions are classified in a manner consistent with the item being hedged.
The ineffective portion of changes in fair values of qualifying cash flow hedges was not material. Prior
to the extinguishment of the euro denominated Notes, the Company hedged 24% of the outstanding
principal of the euro Notes via forward contracts, subsequent to the extinguishment, but prior to the
repurchase of the remaining Notes, the Company was 100% hedged. As such, to offset gains or losses
from changes in foreign exchange rates related to the euro denominated Notes for the fiscal years
ended January 1, 2005 and January 3, 2004, the Company reclassified $6 ($9 before taxes) and $310
($508 before taxes) from accumulated other comprehensive income (loss) to other expense, net.
For the fiscal years ended January 1, 2005 and January 3, 2004 fair value adjustments for
non-qualifying hedges resulted in a reduction to net income of $798 ($1,309 before taxes) and $2,136
($3,502 before taxes), included within other expense, net, respectively. In addition, for the fiscal year
ended December 28, 2002, the Company terminated all non-qualifying hedges resulting in an increase
to net income of $1,439 ($2,359 before taxes), included within other expense, net.
F-33