WeightWatchers 2010 Annual Report Download - page 90

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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
)
advertisements are published. Revenue from magazine sales is recognized when the magazine is sent to th
e
customer. Deferred revenue, consisting of prepaid meeting fees, such as Monthly Pass, and magazin
e
subscription revenue, is amortized into revenue over the period earned. Discounts to customers, including free
r
egistration offers, are recorded as a deduction from gross revenue in the period such revenue was recognized
.
WW.com primarily generates revenue from monthly subscriptions for its Internet subscription products.
Subscription fee revenues are recognized over the period that products are provided. One-time sign-up fees ar
e
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
p
eriod of payment of the refund generally approximates the period revenue was originally recognized, refunds
are recorded as a reduction of revenue when
p
aid.
Advertising Costs:
A
dvertising costs consist primarily of national and local direct mail, television, online media an
d
spokesperson’s fees. All costs related to advertising are expensed in the period incurred, except for media
p
roduction related costs, which are expensed the first time the advertising takes place. Total advertising expense
s
f
or the fiscal years ended January 1, 2011, January 2, 2010 and January 3, 2009 were
$
208,604,
$
190,999 an
d
$
214,218, respectively
.
Income Taxe
s
:
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 difference
s
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 futur
e
taxable income and feasible tax planning strategies in assessing the need for a tax valuation allowance.
I
n addition, assets and liabilities acquired in purchase business combinations are assigned their fair value
s
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
r
isk and foreign currency risk. The primary risk managed by using derivative instruments is interest rate risk.
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
p
u
rposes.
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 it
s
variable-rate borrowings. For derivative instruments that are designated and qualify as cash flow hedges, th
e
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. Gain
s
and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the
assessment of effectiveness are recognized in current earnings
.
F-
10