WeightWatchers 2006 Annual Report Download - page 74

WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
shipped to customers and title and risk of loss pass to the customer, and commissions and royalties are earned.
Advertising revenue is recognized when ads are published. Revenue from magazine sales is recognized when the
magazine is sent to the customer. Deferred revenue, consisting of prepaid meeting fees and magazine
subscription revenue, is amortized into income over the period earned. Discounts to customers, including free
registration offers, are recorded as a deduction from gross revenue in the period such revenue was recognized.
WeightWatchers.com primarily generates revenue from monthly Internet subscriptions. Subscription fee
revenues are recognized over the period that products are provided. One time sign up fees are deferred and
recognized over the expected customer relationship period. Subscription fee revenues that are paid in advance are
deferred and recognized on a straight-line basis over the subscription period.
We grant refunds under limited circumstances and at 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 when paid.
Advertising Costs:
Advertising costs consist primarily of national and local direct mail, television, and spokesperson’s fees. All
costs related to advertising are expensed in the period incurred, except for media production related costs that are
expensed the first time the advertising takes place. Total advertising expenses for the fiscal years ended
December 30, 2006, December 31, 2005 and January 1, 2005 were $149,856, $151,533 and $128,116,
respectively.
Income Taxes:
The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income
Taxes.” Under SFAS No. 109, deferred income tax assets and liabilities result primarily from temporary
differences between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect
for the year in which differences are expected to reverse. If it is more likely than not that some portion of a
deferred tax asset will not be realized, a valuation allowance is recognized. We consider historic levels of
income, estimates of future taxable income and feasible tax planning strategies in assessing the need for a tax
valuation allowance. We also establish an appropriate level of additional provisions for income taxes in the event
that certain positions, which we believe are fully supportable, are challenged by the tax authorities. We adjust
these additional provisions in light of changing facts and circumstances. If our filing positions are ultimately
upheld under audits by respective taxing authorities, the provision for income taxes in future years will reflect
favorable adjustments. In addition, under SFAS No. 109 assets and liabilities acquired in purchase business
combinations are assigned their fair values and deferred taxes are provided for lower or higher tax bases. See also
Note 10.
Derivative Instruments and Hedging:
Prior to the extinguishment of the euro denominated notes in 2004 (as described in Note 6), the Company
entered into forward and swap contracts to hedge payments arising from foreign currency denominated
obligations. The Company currently enters into interest rate swaps to hedge a substantial portion of its variable
rate debt.
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