WeightWatchers 2011 Annual Report Download - page 79

In January 2010, the FASB issued authoritative guidance revising certain disclosure requirements
concerning fair value measurements. The guidance requires an entity to disclose separately significant transfers
into and out of Levels 1 and 2 of the fair value hierarchy and to disclose the reasons for such transfers. It also
requires the presentation of purchases, sales, issuances and settlements within Level 3, on a gross basis rather
than a net basis. These new disclosure requirements were effective for the Company beginning with its first fiscal
quarter of 2010, except for the additional disclosure of Level 3 activity, which is effective for fiscal years
beginning after December 15, 2010. We did not have any such transfers into and out of Levels 1 and 2 during the
twelve months ended January 1, 2011. We adopted the guidance based on its effective dates. The adoption of the
guidance did not have a material impact on the disclosures in our consolidated financial statements.
In October 2009, new revenue recognition guidance was issued regarding arrangements with multiple
deliverables. The new guidance permits companies to recognize revenue from certain deliverables earlier than
previously permitted, if certain criteria are met. The new guidance was effective for fiscal years beginning on or
after June 15, 2010 and did not have a material impact on our financial position, results of operations or cash
flows.
Subsequent Events
On February 23, 2012, we commenced the Pending Tender Offer in which we are seeking to acquire up to
$720 million of our common stock at a price between $72.00 and $83.00 per share. Prior to the Pending Tender
Offer, we entered into an agreement with Artal Holdings whereby Artal Holdings agreed to sell us, at the same
price as determined in the Pending Tender Offer, the number of its shares of our common stock necessary to keep
its current percentage ownership in us at substantially the same level after the Pending Tender Offer. Artal
Holdings also agreed not to participate in the Pending Tender Offer so that it would not affect the determination
of the price in the Pending Tender Offer. The Pending Tender Offer will expire at midnight, New York time, on
March 22, 2012, unless we extend it. We have reserved the right to purchase up to an additional 2% of our shares
outstanding without amending or extending the Pending Tender Offer. We expect to fund the purchases in the
Pending Tender Offer and the Pending Share Repurchase through new borrowings under an amended and
extended version of our existing credit facilities that we are currently negotiating.
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 the
end of fiscal 2011, other than as described below, there have been no material changes to the Company’s
exposure to market risk since the end of fiscal 2010.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates to interest expense of variable rate debt. As
of the end of fiscal 2011, we had entered into interest rate swaps with notional amounts totaling $800.0 million to
hedge a substantial portion of our variable rate debt. Our interest rate swap that went effective on January 4, 2010
and terminates on January 27, 2014 had an initial notional amount of $425.0 million, which amount will fluctuate
during the term of that swap to a maximum of $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 the end of fiscal 2011,
a hypothetical 50 basis point increase or decrease in interest rates on our variable rate debt would increase or
decrease our annual interest expense by approximately $1.3 million.
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