WeightWatchers 2010 Annual Report Download - page 53

Download and view the complete annual report

Please find page 53 of the 2010 WeightWatchers annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 128

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128

goodwill and other indefinite-lived intangible assets, share-based compensation, income taxes, tax contingencies
and litigation. We base our estimates on historical experience and on various other factors and assumptions tha
t
we believe to be reasonable under the circumstances, the results of which form the basis for making judgment
s
about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates.
We believe the following accounting policies are most important to the portrayal of our financial conditio
n
and results of operations and require our most significant judgments and estimates
.
R
evenue Recogn
i
t
i
on
WWI earns revenue by conducting meetings, selling products in its meetings and to its franchisees,
collecting commissions from franchisees, collecting royalties related to licensing agreements and sellin
g
advertising space in and copies of its magazines. We charge non-refundable registration fees in exchange for an
introductory information session and materials we provide to new members in our meetings business. Revenu
e
f
rom 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
r
oyalties is recognized when services are rendered, products are shipped to customers and title and risk of loss
p
ass to the customer, and commissions and royalties are earned. Advertising revenue is recognized whe
n
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
.
WeightWatchers.com primarily generates revenue from monthly Internet product 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 in aggregate amounts that historically have not been material. Because the period o
f
p
ayment of the refund generally approximates the period revenue was originally recognized, refunds are recorde
d
as a reduction of revenue when
p
aid
.
Goodwill and Other Indefinite-lived Intangible Assets
F
inite-lived intangible assets are amortized using the straight-line method over their estimated useful live
s
o
f 3 to 20 years. We review goodwill and other indefinite-lived intangible assets, including franchise right
s
ac
q
uired, for
p
otential im
p
airment on at least an annual basis or more often if events so re
q
uire. We
p
erforme
d
f
air value impairment testing as of the end of fiscal 2010 and fiscal 2009 on our goodwill and other indefinite-
lived intangible assets and determined that the carrying amounts of these assets did not exceed their respectiv
e
f
air values, and therefore, no impairment existed. When determining fair value, we utilize various assumptions,
including projections of future cash flows, growth rates and discount rates. A change in these underlyin
g
assumptions will cause a change in the results of the tests and, as such, could cause fair value to be less than th
e
carrying amounts. In the event such a decrease occurred, 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 o
n
o
ur balance sheet. We continue to evaluate these estimates and assum
p
tions and believe that these assum
p
tion
s
are a
pp
ro
p
riate.
I
n performing the impairment analysis for franchise rights acquired, the fair value for our franchise rights
acquired is estimated using a discounted cash flow approach. This approach involves projecting future cash flow
s
attributable to the franchise rights acquired and discounting those estimated cash flows using an appropriat
e
discount rate. The estimated fair value is then compared to the carrying value of the unit of accounting for thos
e
f
ranchise rights. In determining the appropriate unit of accounting, we have concluded that the unit of accountin
g
3
7