WeightWatchers 2006 Annual Report Download - page 75

WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
In accordance with the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities,” and its related amendments, SFAS No. 138, “Accounting for Certain Derivative Instruments and
Certain Hedging Activities” and SFAS No. 149, “Amendment of Statement on Derivative Instruments and
Hedging Activities,” all derivative financial instruments are recorded on the consolidated balance sheets at their
fair value as either assets or liabilities. Changes in the fair value of derivatives are recorded each period in
earnings or comprehensive income (loss), depending on whether a derivative is designated and effective as part
of a hedge transaction and, if it is, the type of hedge transaction. Gains and losses on derivative instruments
reported in accumulated other comprehensive income (loss) are included in earnings in the periods in which
earnings are affected by the hedged item. The receivable or payable associated with derivative contracts is
included in the balance of prepaid expenses or accounts payable, respectively.
Investments:
The Company uses the cost method to account for investments in which it holds 20% or less of the
investee’s voting stock and over which it does not have significant influence.
Deferred Financing Costs:
Deferred financing costs consist of fees paid by the Company as part of the establishment, exchange and/or
modification of the Company’s long-term debt. During the fiscal years ended December 30, 2006, December 31,
2005 and January 1, 2005, the Company incurred deferred financing costs of $1,980, $3,758 and $2,896,
respectively, associated with the establishment of the WW.com Credit Facilities (as defined in Note 6) and the
refinancing of WWI’s Credit Facility (as defined in Note 6). Such costs are being amortized using the straight-
line method over the term of the related debt. Amortization expense for the fiscal years ended December 30,
2006, December 31, 2005 and January 1, 2005 was $1,529, $879 and $1,308, respectively. In connection with the
refinancing of WWI’s Credit Facility, the Company wrote off deferred financing costs of $1,321 and $2,933 in
the fiscal years ended December 30, 2006 and January 1, 2005, respectively. These amounts have been recorded
as components of early extinguishment of debt. See Note 6 for details of the early extinguishment and
refinancing.
Comprehensive Income (Loss):
Comprehensive income (loss) represents the change in shareholders’ equity (deficit) resulting from
transactions other than shareholder investments and distributions. The Company’s comprehensive income (loss)
includes net income, changes in the fair value of derivative instruments and the effects of foreign currency
translations. At December 30, 2006 and December 31, 2005, the cumulative balance of changes in fair value of
derivative instruments, net of taxes, is $955 and $1,402, respectively. At December 30, 2006 and December 31,
2005, the cumulative balance of the effects of foreign currency translations, net of taxes, is $5,292 and $4,592,
respectively.
Share Based Compensation:
The Company has share-based employee compensation plans, which are described more fully in Note 9.
Through December 31, 2005, as permitted by SFAS No. 123, the Company applied the recognition and
measurement principles of APB No. 25 “Accounting for Stock Issued to Employees,” and related interpretations
in accounting for those plans. As such, for all periods presented through fiscal 2005, except for costs incurred in
connection with the acquisition of WW.com (See Note 3), no compensation expense for employee stock options
was reflected in earnings, as all options were granted with an exercise price equal to the fair market price as
determined in accordance with our Stock Plans.
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