WeightWatchers 2005 Annual Report Download - page 111

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WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Derivative Instruments and Hedging:
Prior to the extinguishment of the Euro Notes (as described in Note 6), 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 those foreign currency denominated debt
obligations. The Company currently enters into interest rate swaps to hedge a substantial portion of its
variable rate debt. These contracts are used primarily to reduce the risk associated with variable
interest rate debt obligations. As of December 31, 2005, the Company held contracts to purchase
interest rate swaps with notional amounts totaling $257,500 and to sell interest rate swaps with notional
amounts totaling $257,500. 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. The Company is hedging forecasted transactions for periods not exceeding the next
three years. At December 31, 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 December 31, 2005 and January 1, 2005, cumulative losses for qualifying hedges were
reported as a component of accumulated other comprehensive income(loss) in the amount of $1,402
($2,300 before taxes) and $(70) ($(115) 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 year ended January 1, 2005 fair value adjustments for non-qualifying hedges resulted
in a reduction to net income of $798 ($1,309 before taxes), included within other expense, net.
F-35