Nutrisystem 2008 Annual Report Download - page 48

NUTRISYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
1. BACKGROUND
Nature of the Business
NutriSystem, Inc. (the “Company” or “NutriSystem”) provides weight management products and services. The
Company’s pre-packaged foods are sold to weight loss program participants directly primarily via the Internet
and telephone, referred to as the direct channel and through QVC, a television shopping network. In 2007 and
prior, substantially all of the Company’s revenue was generated domestically. In January 2008, the Company
expanded operations into Canada. In 2008, Canada generated $11,189 in revenue.
In the fourth quarter of 2007, the Company committed to a plan to sell its subsidiary Slim and Tone LLC (“Slim
and Tone”), a franchisor of women’s express fitness centers. This subsidiary has been treated as a discontinued
operation. Accordingly, the operating results of this discontinued operation have been presented separately from
continuing operations and are included in loss on discontinued operation, net of income tax in the accompanying
consolidated statements of operations for all periods presented. The assets and liabilities have also been presented
separately in the accompanying consolidated balance sheets (see Note 12).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Presentation of Financial Statements
The Company’s consolidated financial statements include 100% of the assets and liabilities of NutriSystem, Inc.
and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Cash, Cash Equivalents and Marketable Securities
Cash and cash equivalents include only securities having a maturity of three months or less at the time of
purchase. At December 31, 2008 and December 31, 2007, demand accounts and treasury and money market
accounts comprised all of the Company’s cash and cash equivalents.
As of December 31, 2008, the Company did not hold any marketable securities. As of December 31, 2007,
marketable securities consisted of corporate auction rate securities with original maturities in excess of 10 years.
These securities were redeemed at cost during 2008. The Company’s investment policy permits investments in
auction rate securities that have interest reset dates of three months or less at the time of purchase. The reset date
is the date on which the underlying interest rate is revised based on a Dutch auction. Typically interest reset dates
are every 35 days for these types of securities.
Inventories
Inventories consist principally of packaged food held in the Company’s warehouse or in outside fulfillment
locations. Inventories are valued at the lower of cost or market, with cost determined using the first-in, first-out
(FIFO) method.
Fixed Assets
Fixed assets are stated at cost. Depreciation is provided using the straight-line method over the estimated useful
lives of the related assets, which are generally two to seven years. Leasehold improvements are amortized on a
straight-line basis over the lesser of the estimated useful life of the asset or the related lease term. Expenditures
for repairs and maintenance are charged to expense as incurred, while major renewals and improvements are
capitalized.
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