WeightWatchers 2008 Annual Report Download - page 61

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about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related
contingent features in derivative agreements. We are required to adopt the provisions of this statement at the
beginning of fiscal 2009 and we do not expect this adoption to have a material impact on our financial position,
results of operations or cash flows.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (Revised 2007),
“Business Combinations”. This Statement established principles and requirements for how the acquirer
(a) recognizes and measures the identifiable assets acquired, liabilities assumed and any non-controlling interest
in the acquiree; (b) recognizes and measures the goodwill acquired and (c) determines what information to
disclose. This Statement is effective for business combinations for which the acquisition date is on or after
January 4, 2009, the first day of our 2009 fiscal year. The impact on WWI of adopting this standard will depend
on the nature, terms and size of any business combinations completed after the effective date.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160,
“Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51.” This
Statement establishes accounting and reporting standards for noncontrolling interests, sometimes referred to as
minority interests. This statement is effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. We do not expect the adoption of this standard to have a material
impact on our financial position, results of operations or on-going cash flows.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks relating to interest rate changes and foreign currency fluctuations. As of
January 3, 2009, other than as described below, there have been no material changes to the Company’s exposure
to market risk since December 29, 2007.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates to interest expense of variable rate debt. As
of January 3, 2009, we had entered into interest rate swaps with notional amounts totaling $900.0 million to
hedge a substantial portion of our variable rate debt. On January 13, 2009, we entered into an interest rate swap
with an effective date of January 4, 2010 and a termination date of January 27, 2014. The initial notional amount
is $425.0 million. During the term of the interest rate swap, the notional amount will fluctuate. The highest
notional amount will be $755.0 million. Changes in the fair value of these derivatives will be recorded each
period in earnings for non-qualifying derivatives or accumulated other comprehensive income (loss) for
qualifying derivatives.
Based on the amount of our variable rate debt and interest rate swap agreements as of January 3, 2009, a
hypothetical 50 basis point increase or decrease in interest rates on our variable debt would increase or decrease
our annual interest expense by approximately $3.7 million.
Foreign Currency Risk
Other than inter-company transactions between our domestic and foreign entities, we generally do not have
significant transactions that are denominated in a currency other than the functional currency applicable to each
entity. As a result, substantially all of our revenues and expenses, other than those of our WeightWatchers.com
business, in each jurisdiction in which we operate are in the same functional currency. In general, we are a net
receiver of currencies other than the U.S. dollar. Accordingly, changes in exchange rates may negatively affect
our revenues and gross margins as expressed in U.S. dollars. From time to time, we may enter into forward and
swap contracts to hedge transactions denominated in foreign currencies to reduce the currency risk associated
with fluctuating exchange rates. Realized and unrealized gains and losses from any of these transactions may be
included in net income for the period.
48