WeightWatchers 2007 Annual Report Download - page 45

Revenue Recognition
We earn revenue by conducting meetings, selling products in our meetings and to our franchisees, selling
Internet subscription products, collecting commissions from franchisees, collecting royalties related to licensing
agreements and selling advertising space in and copies of our magazine. We charge non-refundable registration
fees in exchange for an introductory information session and materials we provide to new members in our
meeting business. Revenue from these registration fees is recognized when the service and products are provided,
which is generally at the same time payment is received from the customer. Revenue from meeting fees, product
sales, commissions and royalties is recognized when services are rendered, products are shipped to customers
and title and risk of loss pass to the customer, and commissions and royalties are earned. Advertising revenue is
recognized when advertisements are published. Revenue from magazine sales is recognized when the magazine
is sent to the customer. Deferred revenue, consisting of prepaid meeting fees, such as Monthly Pass, and
magazine subscription revenue, is amortized into income over the period earned. Discounts to customers,
including free registration offers, are recorded as a deduction from gross revenue in the period such revenue was
recognized.
WeightWatchers.com primarily generates revenue from monthly Internet subscriptions. Subscription fee
revenues are recognized over the period that products are provided. One time sign up fees are 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.
We grant refunds at aggregate amounts that historically have not been material. Because the period of
payment of the refund generally approximates the period revenue was originally recognized, refunds are recorded
as a reduction of revenue when paid.
Goodwill and Other Indefinite-lived Intangible Assets
We review goodwill and other indefinite-lived intangible assets for potential impairment on at least an
annual basis. We performed fair value impairment testing as of December 29, 2007 and December 30, 2006 on
our goodwill and other indefinite-lived intangible assets and determined that the carrying amounts of these assets
did not exceed their respective fair values, and therefore, no impairment existed. When determining fair value,
we utilize various assumptions, including projections of future cash flows and interest rates. A change in these
underlying assumptions will cause a change in the results of the tests and, as such, could cause fair value to be
less than the carrying amounts. Upon such an event, we would be required to record a corresponding charge,
which would impact earnings. We would also be required to reduce the carrying amounts of the related assets on
our balance sheet. We continue to evaluate these estimates and assumptions and believe that these assumptions
are appropriate.
Derivative Instruments and Hedging
We enter into interest rate swaps to hedge a substantial portion of our variable rate debt. We account for our
hedging instruments under the provisions of SFAS No. 133, “Accounting for Derivative Instruments and
Hedging Activities,” and its related amendments, SFAS No. 138, “Accounting for Certain Derivative Instruments
and Certain Hedging Activities” and SFAS No. 149, “Amendment of Statement on Derivative Instruments and
Hedging Activities,” which require that all derivative financial instruments be recorded on the consolidated
balance sheet at fair value as either assets or liabilities. Fair value adjustments for qualifying derivative
instruments are recorded as a component of other comprehensive income and will be included in earnings in the
periods in which earnings are affected by the hedged item. Fair value adjustments for non-qualifying derivative
instruments are recorded in our results of operations.
Consolidation
On January 17, 2003, the Financial Accounting Standards Board, or FASB, issued Interpretation No. 46
(“FIN 46”), to clarify when an entity should consolidate another entity known as a variable interest entity
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