WeightWatchers 2005 Annual Report Download - page 86

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WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
liabilities at the date of the financial statements, and the reported amounts of revenues and expenses
during the reporting period. On an ongoing basis, the Company evaluates its estimates and judgments,
including those related to inventories, the impairment analysis for goodwill and other indefinite-lived
intangible assets, income taxes, and contingencies and litigation. The Company bases its estimates on
historical experience and on various other factors and assumptions that it believes to be reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual amounts could
differ from these estimates.
Translation of Foreign Currencies:
For all foreign operations, the functional currency is the local currency. Assets and liabilities of
these operations are translated into U.S. dollars using the exchange rate in effect at the end of each
reporting period. Income statement accounts are translated at the average rate of exchange prevailing
during each reporting period. Translation adjustments arising from the use of differing exchange rates
from period to period are included in accumulated other comprehensive income (loss).
Foreign currency gains and losses arising from the translation of intercompany receivables with the
Company’s international subsidiaries are recorded as a component of other (income)/expense, net,
unless the receivable is considered long-term in nature, in which case the foreign currency gains and
losses are recorded as a component of other comprehensive income (loss).
Cash Equivalents:
Cash and cash equivalents are defined as highly liquid investments with original maturities of three
months or less. Cash balances may, at times, exceed insurable amounts. The Company believes it
mitigates this risk by investing in or through major financial institutions.
Inventories:
Inventories, which consist of finished goods, are stated at the lower of cost or market on a first-in,
first-out basis, net of reserves for obsolescence and shrinkage.
Property and Equipment:
Property and equipment are recorded at cost. For financial reporting purposes, equipment is
depreciated on the straight-line method over the estimated useful lives of the assets (3 to 10 years).
Leasehold improvements are amortized on the straight-line method over the shorter of the term of the
lease or the useful life of the related assets. Expenditures for new facilities and improvements that
substantially extend the useful life of an asset are capitalized. Ordinary repairs and maintenance are
expensed as incurred. When assets are retired or otherwise disposed of, the cost and related
depreciation are removed from the accounts and any related gains or losses are included in income.
Impairment of Long Lived Assets:
In accordance with the provisions of Statement of Financial Accounting Standards (‘‘SFAS’’)
No. 144, ‘‘Accounting for the Impairment or Disposal of Long-Lived Assets,’’ the Company reviews
long-lived assets, including amortizable intangible assets, for impairment whenever events or changes in
business circumstances indicate that the carrying amount of the assets may not be fully recoverable.
F-10