WeightWatchers 2009 Annual Report Download - page 83

WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Interest rate swaps are entered into to hedge a portion of the cash flow exposure associated with the Company’s
variable-rate borrowings. The Company does not use any derivative instruments for trading or speculative
purposes.
The Company recognizes the fair value of all derivative instruments as either assets or liabilities on the
balance sheet. The Company has designated and accounted for interest rate swaps as cash flow hedges of its
variable-rate borrowings. For derivative instruments that are designated and qualify as cash flow hedges, the
effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income/
(loss) and reclassified into earnings in the periods during which the hedged transactions affect earnings. Gains
and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the
assessment of effectiveness are recognized in current earnings.
The fair value of the Company’s interest rate swaps is reported in derivative payable and prepaid expenses
and other current assets on its balance sheet. See Note 16 for a further discussion regarding the fair value of the
Company’s interest rate swaps. The net effect of the interest payable and receivable under the Company’s
interest rate swaps is included in interest expense on the statement of operations.
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 January 2, 2010 and December 29,
2007, the Company incurred deferred financing costs of $4,058 and $5,417, respectively, associated with the
refinancing of WWI’s Credit Facility (as defined in Note 7) and the establishment of the WW.com Credit
Facilities (as defined in Note 7). Such costs are being amortized using the straight-line method over the term of
the related debt. Amortization expense for the fiscal years ended January 2, 2010, January 3, 2009 and
December 29, 2007 was $2,097, $1,440 and $1,713, respectively. In connection with the paydown of the
WW.com Credit Facilities, the Company wrote off deferred financing costs of $3,021 in the fiscal year ended
December 29, 2007. This amount has been recorded as a component of early extinguishment of debt. See Note 7
for details of the early extinguishment.
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 January 2, 2010 and January 3, 2009, the cumulative balance of changes in fair value of
derivative instruments, net of taxes, is ($23,735) and ($37,326), respectively. At January 2, 2010 and January 3,
2009, the cumulative balance of the effects of foreign currency translations, net of taxes, is $16,052 and $8,393,
respectively.
Share-Based Compensation:
On January 1, 2006, the Company adopted accounting guidance on share-based compensation and began
recognizing the cost of all share-based awards based on their estimated grant-date fair value over the related
service period of such awards. Upon adoption of this accounting guidance, the Company elected to apply the
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