WeightWatchers 2015 Annual Report Download - page 47

Goodwill, Franchise Rights Acquired, and Other Intangible Assets
Finite-lived intangible assets are amortized using the straight-line method over their estimated useful lives
of 3 to 20 years or, in the case of amortizable franchise rights acquired, over the remaining contractual period,
which is generally less than one year.
We review goodwill and other indefinite-lived intangible assets, including franchise rights acquired with
indefinite lives, for potential impairment on at least an annual basis or more often if events so require. In
performing our goodwill impairment analysis for fiscal 2015, 2014 and 2013, no impairment was identified for
any of our reporting units as the fair value of those units exceeded their carrying value. In performing the
impairment analysis for fiscal 2015 and fiscal 2014, we determined that the carrying amounts of our franchise
rights acquired with indefinite lives did not exceed their respective fair values and therefore, no impairment
existed. In performing the impairment analysis for fiscal 2013, we determined that, based on the fair values
calculated, the carrying amounts of the indefinite-lived franchise rights acquired related to our Mexico and
Hong Kong operations exceeded their respective fair values and recorded impairment charges of $0.9 million and
$0.2 million, respectively. We determined that the carrying amounts of the remainder of our franchise rights
acquired with indefinite lives did not exceed their respective fair values as of the end of fiscal 2013, and
therefore, no other impairment existed.
Although there is generally significant headroom in our impairment analysis (except for Brazil as discussed
below), a change in the underlying assumptions will cause a change in the results of the tests and, as such, could
result in an impairment of those assets, 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 our annual impairment analysis, we also considered the trading value of both our equity and
debt. We continue to believe that these trading values do not reflect the anticipated positive impact of our
transformation plan. For additional information on our transformation plan, see “—Transformation Plan”.
However, if our transformation plan does not meet our expectations, or the trading values of both our equity and
debt were to significantly decline from their current levels, we may have to take an impairment charge at the
appropriate time, which could be material. For additional information on risks associated with our recognizing
asset impairment charges, see “Item 1A. Risk Factors”.
The following is a more detailed discussion of our goodwill and franchise rights acquired impairment
analysis.
Goodwill
In performing the impairment analysis for goodwill, the fair value for our reporting units is estimated using
a discounted cash flow approach. This approach involves projecting future cash flows attributable to the
reporting unit and discounting those estimated cash flows using an appropriate discount rate. The estimated fair
value is then compared to the carrying value of the reporting unit. We have determined the appropriate reporting
unit for purposes of assessing annual impairment to be the country for all reporting units. The values of goodwill
in the United States, Canada, Brazil and other countries at January 2, 2016 were $94.8 million, $38.6 million,
$15.9 million and $10.0 million, respectively.
Based on the results of our fiscal 2015 impairment analysis, we estimated that approximately 90% of our
reporting units had a fair value at least 50% higher than the respective reporting unit’s carrying amount. In
Brazil, which holds 10% of the Company’s goodwill, the fair value of this reporting unit exceeded its carrying
value by approximately 20%.
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