WeightWatchers 2005 Annual Report Download - page 41

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As discussed above, WeightWatchers.com is now a wholly-owned subsidiary of Weight Watchers
International. Therefore, we consolidate 100% of the results of WeightWatchers.com under the
traditional rules of consolidation rather than under the provisions of FIN 46R. Since we adopted FIN
46R on the last day of the first quarter of fiscal 2004, commencing in the second quarter of fiscal 2005
and forward, our quarterly consolidated results are comparable with respect to the inclusion of
WeightWatchers.com’s results.
Income Taxes
Deferred income taxes result primarily from temporary differences between financial and tax
reporting. If it is more likely than not that some portion of a deferred tax asset will not be realized, a
valuation allowance is recognized. We consider historic levels of income, estimates of future taxable
income and feasible tax planning strategies in assessing the need for a tax valuation allowance. We also
establish an appropriate level of additional provisions for income taxes in the event that certain
positions, which we believe are fully supportable, are challenged by the tax authorities. We adjust these
additional provisions in light of changing facts and circumstances. If our filing positions are ultimately
upheld under audits by respective taxing authorities, the provision for income taxes in future years will
reflect favorable adjustments.
Capitalized Software Development
We follow the provisions of AICPA Statement of Position 98-1, ‘‘Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use’’, or SOP 98-1, which requires the
capitalization of certain costs incurred in connection with developing or obtaining software for internal
use. These costs are amortized to cost of revenue over a period of three years, the estimated useful life
of the software. We periodically evaluate for impairment capitalized software development costs by
considering, among other factors, whether the software is still expected to provide substantive service
potential, and whether a significant change is being made or will be made to the software.
Weight Watchers International Results of Operations
As explained above under ‘‘—Critical Accounting Policies,’’ since April 3, 2004, we have
consolidated WeightWatchers.com, initially pursuant to FIN 46R and beginning with the second quarter
of fiscal 2005, pursuant to Accounting Research Bulletin No. 51, ‘‘Consolidated Financial Statements’’
as a result of our increased ownership interest in WeightWatchers.com.
Comparison of Fiscal 2005 (52 weeks) to Fiscal 2004 (52 weeks)
As a result of the July 2, 2005 transaction which increased Weight Watchers International’s
ownership in WeightWatchers.com from approximately 20% to approximately 53%, our consolidated
results for fiscal 2005 include certain transaction-related expenses.
31