WeightWatchers 2012 Annual Report Download - page 56

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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. Monthly Pass, prepaid meeting fees and magazine subscription
revenue is recorded to deferred revenue and amortized into revenue over the period earned. Revenue from “pay-
as-you-go” 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, respectively. Advertising revenue is recognized when advertisements are published. Revenue from
magazine sales is recognized when the magazine is sent to the customer. 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. 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 subscriptions for our Internet subscription
products as well as Online advertising. 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. Online advertising revenue is recognized when the advertisement is viewed by the user of
the website.
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.
Franchise Rights Acquired, Goodwill and 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 2012 and fiscal 2011 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 that is allocated to either of the WWI reporting segment or the WeightWatchers.com reporting segment
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. We have concluded that the appropriate unit of accounting for franchise rights acquired
allocated to either of the WWI reporting segment or the WeightWatchers.com reporting segment is the country
corresponding to the acquired franchise territory. The carrying values of these franchise rights acquired for both
of these reporting segments in the United States, Canada, United Kingdom, Australia/New Zealand and other
countries at December 29, 2012 were $667.3 million, $82.3 million, $16.8 million, $15.1 million and $5.5
million, respectively, totaling $787.0 million.
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