WeightWatchers 2005 Annual Report Download - page 87

WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Intangible Assets:
In accordance with the provisions of SFAS No. 141, ‘‘Business Combinations’’ and SFAS No. 142,
‘‘Goodwill and Other Intangible Assets,’’ the Company no longer amortizes goodwill and other
indefinite-lived intangible assets but conducts an annual review of these assets for potential impairment.
Finite-lived intangible assets are amortized using the straight-line method over their estimated useful
lives of 3 to 20 years.
The Company accounts for software costs under the American Institute of Certified Public
Accountants (‘‘AICPA’’) Statement of Position No. 98-1, ‘‘Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use,’’ which requires capitalization of certain costs
incurred in connection with developing or obtaining internally used software. Software costs are
amortized over 3 to 5 years.
Pursuant to Emerging Issues Task Force No. 00-2, ‘‘Web Site Development Costs’’ (‘‘EITF 00-2’’),
WeightWatchers.com applies AICPA Statement of Position No. 98-1 to account for web site
development costs. In accordance with EITF 00-2, WeightWatchers.com expenses all costs incurred
during the preliminary project stage and capitalizes all internal and external direct costs of materials
and services consumed in developing the software, once the development has reached the application
development stage. Application development stage costs generally include software configuration,
coding, installation to hardware and testing. These costs are amortized over their estimated useful life,
which can range from 1.5 to 2 years. All costs incurred for upgrades, maintenance and enhancements,
including the cost of web site content, that does not result in additional functionality, are expensed as
incurred.
Revenue Recognition:
WWI earns revenue by conducting meetings, selling products and aids in our meetings and to our
franchisees, selling Internet subscription products, collecting commissions from franchisees, collecting
royalties related to licensing agreements and selling advertising space in and copies of our magazine.
We charge non-refundable registration fees in exchange for an introductory information session and
materials we provide to new members in our meeting 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 customer, and commissions and royalties are earned. Advertising revenue is recognized
when ads are published. Revenue from magazine sales is recognized when the magazine is sent to the
customer. Deferred revenue, consisting of prepaid meeting fees and magazine subscription revenue, is
amortized into income 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 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 under limited circumstances and at 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.
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