WeightWatchers 2010 Annual Report Download - page 88

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
)
Cash Equivalents
:
Cash and cash equivalents are defined as highly liquid investments with original maturities of three months
o
r less. Cash balances may, at times, exceed insurable amounts. The Company believes it mitigates this risk b
y
investing in or through major financial institutions.
In
v
entories:
I
nventories, 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 o
n
the straight-line method over the estimated useful lives of the assets (3 to 10 years). Leasehold improvements ar
e
amortized on the straight-line method over the shorter of the term of the lease or the useful life of the relate
d
assets. Expenditures for new facilities and improvements that substantially extend the useful life of an asset ar
e
capitalized. Ordinary repairs and maintenance are expensed as incurred. When assets are retired or otherwis
e
disposed of, the cost and related depreciation are removed from the accounts and any related gains or losses ar
e
included in income
.
Impairment of Long Lived Assets
:
The Company reviews long-lived assets, including amortizable intangible assets, for impairment wheneve
r
events or changes in business circumstances indicate that the carrying amount of the assets may not be fully
r
ecoverable.
Goodwill and 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. The Company reviews goodwill and other indefinite-lived intangible assets, including franchise
r
ights acquired, for potential impairment on at least an annual basis or more often if events so require. Th
e
Company performed fair value impairment testing as of the end of fiscal 2010 and fiscal 2009 on its goodwil
l
and other indefinite-lived intangible assets and determined that the carrying amounts of these assets did no
t
exceed their respective fair values, and therefore, no impairment existed. When determining fair value, th
e
Company utilizes various assumptions, including projections of future cash flows, growth rates and discoun
t
r
ates. 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. In the event such a decrease occurred, the Company would
be required to record a corresponding charge, which would impact earnings. The Company would also be
r
equired to reduce the carrying amounts of the related assets on its balance sheet. The Company continues to
evaluate these estimates and assum
p
tions and believes that these assum
p
tions are a
pp
ro
p
riate.
I
n performing the impairment analysis for franchise rights acquired, the fair value for the Company’s
f
ranchise rights acquired is estimated using a discounted cash flow approach. This approach involves projectin
g
f
uture cash flows attributable to the franchise rights acquired and discounting those estimated cash flows using an
appropriate discount rate. The estimated fair value is then compared to the carrying value of the unit o
f
accounting for those franchise rights. In determining the appropriate unit of accounting, the Company has
concluded that the unit of accounting for each franchise right acquired is the country corresponding to the
F-
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