WeightWatchers 2011 Annual Report Download - page 57

and litigation. We base our estimates on historical experience and on various other factors and assumptions that
we believe 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 results
may differ from these estimates.
We believe the following accounting policies are most important to the portrayal of our financial condition
and results of operations and require our most significant judgments and estimates.
Revenue Recognition
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 selling
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. 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 customers, 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 revenue 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 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 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
Finite-lived intangible assets are amortized using the straight-line method over their estimated useful lives
of 3 to 20 years. We review goodwill and other indefinite-lived intangible assets, including franchise rights
acquired, for potential impairment on at least an annual basis or more often if events so require. We performed
fair value impairment testing as of the end of fiscal 2011 and fiscal 2010 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, growth rates and discount 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. 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 on
our balance sheet. We continue to evaluate these estimates and assumptions and believe that these assumptions
are appropriate.
In 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 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 of accounting for those
franchise rights. In determining the appropriate unit of accounting, we have concluded that the unit of accounting
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