WeightWatchers 2015 Annual Report Download - page 85

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WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
In fiscal 2013, the Company commenced the shutdown of its China operations and, as a result, recorded an
impairment charge of $1,607 related to property, plant and equipment ($372) and amortizable intangible assets
($1,235). The Company also recorded an impairment charge of $2,653 in fiscal 2013 related to internal-use
computer software that was not expected to provide substantive service potential.
Goodwill and 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.
The Company reviews 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. The Company performed fair value impairment testing as of the end of fiscal 2015 and fiscal 2014 on its
goodwill and other indefinite-lived intangible assets.
In performing the impairment analysis for the fiscal year ended January 2, 2016 and for the fiscal year
ended January 3, 2015, the Company determined that the carrying amounts of its franchise rights acquired with
indefinite lives did not exceed their respective fair values and therefore, no impairment existed. In performing the
impairment analysis for the fiscal year ended December 28, 2013, the Company determined that, based on the
fair values calculated, the carrying amounts of the indefinite-lived franchise rights acquired related to its Mexico
and Hong Kong operations exceeded their respective fair values and recorded impairment charges of $935 and
$231, respectively. The Company determined that the carrying amounts of the remainder of its 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.
When determining fair value, the Company utilizes 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 and result in an
impairment of those assets. In the event such a result occurred, the Company would be required to record a
corresponding charge, which would impact earnings. The Company would also be required to reduce the carrying
amounts of the related assets on its balance sheet. The Company continues to evaluate these estimates and
assumptions and believes that these assumptions are appropriate.
The following is a discussion of the goodwill and franchise rights acquired impairment analysis.
Goodwill
In performing the impairment analysis for goodwill, the fair value for the Company’s 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. The Company has
determined the appropriate reporting unit for purposes of assessing annual impairment to be the country for all
reporting units. To date, the Company has not recorded an impairment of goodwill.
For all of the Company’s reporting units except for Brazil (see below), the Company estimated future cash
flows by utilizing the historical debt-free cash flows attributable to that country and then applied expected future
operating income growth rates for such country. The Company utilized operating income as the basis for
measuring its potential growth because it believes it is the best indicator of the performance of its business. The
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