WeightWatchers 2010 Annual Report Download - page 107

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WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIE
S
NO
TE
S
T
OCO
N
SO
LIDATED FINAN
C
IAL
S
TATEMENT
S
(
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
)
1
6. Fa
i
r Value Measurements
A
ccounting guidance on fair value measurements for certain financial assets and liabilities requires that
assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
•
Level 1—Quoted
p
rices in active markets for identical assets or liabilities
.
•
Level 2—Observable in
p
uts other than Level 1
p
rices, such as
q
uoted
p
rices for similar assets o
r
l
iabilities;
q
uoted
p
rices in markets that are not active; or other in
p
uts that are observable or can be
c
orroborated by observable market data for substantially the full term of the assets or liabilities.
•
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant
t
o the fair value of the assets or liabilities.
When measuring fair value, the Company is required to maximize the use of observable inputs and
minimize the use of unobservable in
p
uts.
F
air Value of Financial Instruments:
The Company’s significant financial instruments include long-term debt and interest rate swap agreements.
The fair value of the Company’s long-term debt is determined by utilizing average bid prices on or near th
e
end of each fiscal quarter. As of January 1, 2011, the fair value of the Company’s long-term debt was
approximately
$
1,358,738.
Derivative Financial Instrument
s
The fair values for the Company’s derivative financial instruments are determined using observable current
market information such as the prevailing LIBOR interest rate and LIBOR yield curve rates and include
consideration of counterparty credit risk. See Note 17 for disclosures related to derivative financial instruments.
T
he following table presents the aggregate fair value of the Company’s derivative financial instruments:
F
a
i
r Value Measurements Us
i
ng
:
T
ota
l
F
a
i
r
Valu
e
Q
uoted Pr
i
ces
i
n
Act
i
ve Market
s
fo
rI
de
nti
ca
lA
sse
t
s
(
Level 1
)
S
ignificant Othe
r
O
bservable Inputs
(
Level 2
)
Significant
U
no
b
serva
bl
e
Input
s
(
Level 3
)
Interest rate swap asset at January
1
,
2011
.
......
$
—
$
—
$
—
$
—
Interest rate swap asset at January
2
,
2010
.
......
$
1,692
$
—
$
1,692
$
—
Interest rate swap liability at January 1, 201
1
.....
$
39,753
$
—
$
39,753
$
—
Interest rate swap liability at January 2, 2010
.....
$
40,947
$
—
$
40,947
$
—
1
7. Der
i
vat
i
ve Instruments and Hedg
i
ng
A
s of January 1, 2011 and January 2, 2010, the Company had in effect interest rate swaps with notiona
l
amounts of
$
1,110,000 and
$
900,000, respectively. In January 2009, the Company entered into a forward-startin
g
interest rate swap with an effective date of January 4, 2010 and a termination date of January 27, 2014. Durin
g
the term of this forward-starting interest rate swap, the notional amount will fluctuate. The initial notiona
l
amount was
$
425,000 and the highest notional amount will be
$
755,000
.
F-
2
7