WeightWatchers 2009 Annual Report Download - page 82

WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
same time payment is received from the customer. Revenue from meeting fees, product sales, commissions and
royalties is recognized when services are rendered, products are shipped to customers and title and risk of loss
pass to the customer, and commissions and royalties are earned. Advertising revenue is recognized when
advertisements are published. Revenue from magazine sales is recognized when the magazine is sent to the
customer. Deferred revenue, consisting of prepaid meeting fees, such as Monthly Pass, and magazine
subscription revenue, is amortized into revenue 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.
The Company grants refunds in 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, online media 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 January 2, 2010, January 3, 2009 and December 29, 2007 were $190,999, $214,218 and
$194,960, respectively.
Income Taxes:
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. The Company considers historic levels of income, estimates of future
taxable income and feasible tax planning strategies in assessing the need for a tax valuation allowance.
On December 31, 2006, the first day of fiscal 2007, the Company adopted new accounting guidance
governing the recognition and measurement of uncertain tax positions. This new accounting guidance prescribes
a recognition threshold and a measurement attribute for the financial statement recognition and measurement of
tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must
be more likely than not to be sustained upon examination by taxing authorities. The amount recognized is
measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate
settlement. As a result of the December 31, 2006 adoption of this accounting guidance, the Company increased
its tax liability for unrecognized tax benefits by $1,907, which was accounted for as a reduction to the opening
balance of retained earnings for fiscal 2007.
In addition, assets and liabilities acquired in purchase business combinations are assigned their fair values
and deferred taxes are provided for lower or higher tax bases.
Derivative Instruments and Hedging:
The Company is exposed to certain risks related to its ongoing business operations, primarily interest rate
risk and foreign currency risk. The primary risk managed by using derivative instruments is interest rate risk.
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