Nutrisystem 2009 Annual Report Download - page 50

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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”), a provider of weight management products and services,
offers weight-loss programs based on nutritious, portion-controlled, lower Glycemic Index prepared meals. The
Company’s pre-packaged foods are sold to weight loss program participants directly primarily via the Internet
and telephone (including the redemption of prepaid program cards), 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 2009 and 2008,
Canada generated $9,164 and $11,189, respectively, in revenue.
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, 2009 and December 31, 2008, demand accounts and money market accounts
comprised all of the Company’s cash and cash equivalents.
As of December 31, 2009, marketable securities consist of investments in a publicly traded bond fund that holds
short-term U.S. government securities with original maturities of greater than three months. The Company
classifies these as available-for-sale securities. The marketable securities are reported at fair value with the
related unrealized gains and losses included in accumulated other comprehensive income (loss), a component of
stockholders’ equity, net of related tax effects. As of December 31, 2008, the Company did not hold any
marketable securities.
The Company evaluates its investments for other-than-temporary impairment by reviewing factors such as the
length of time and extent to which fair value has been below cost basis and the Company’s ability and intent to
hold the investment for a period of time which may be sufficient for anticipated recovery of the market value.
There were no other-than-temporary impairments in 2009.
Inventories
Inventories consist principally of packaged food held 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. Quantities of
inventory on hand are continually assessed to identify excess or obsolete inventory and a provision is recorded
for any estimated loss. The reserve is estimated for excess and obsolete inventory based primarily on forecasted
demand and/or the Company’s ability to sell the products, future production requirements and changes in
customers’ behavior. The reserve for excess and obsolete inventory was $1,179 and $796 at December 31, 2009
and 2008, respectively.
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