Nutrisystem 2009 Annual Report Download - page 52

assets and acquired identifiable intangibles. The Company uses methodologies including evaluations based on
the discounted cash flows generated by the underlying assets or other determinants of fair value. As of
December 31, 2009 and 2008, respectively, management believes that no reductions to the remaining useful lives
or write-downs of long-lived assets are required.
Foreign Currency Translation
The functional currency of the Company’s Canadian subsidiary is the Canadian dollar. Assets and liabilities are
translated into U.S. dollars at exchange rates as of the financial statement date and revenues and expenses are
translated at average exchange rates prevailing during the respective periods. Translation adjustments are
included as a separate component of accumulated other comprehensive income (loss) in stockholders’ equity in
the accompanying consolidated balance sheets. Gains and losses from foreign currency transactions are
recognized as other income (expense) in the accompanying consolidated statements of operations and were $407
of income in 2009 and $1,155 of expense in 2008.
Revenue Recognition
Revenue from product sales is recognized when the earnings process is complete, which is upon transfer of title
to the product. This transfer occurs upon shipment. Recognition of revenue upon shipment meets the revenue
recognition criteria in that persuasive evidence of an arrangement exists, delivery has occurred, the selling price
is fixed and determinable and collection is reasonably assured. Deferred revenue consists primarily of
unredeemed prepaid program cards, unshipped frozen foods and promotional offers. Customers may return
unopened product within 30 days of purchase in order to receive a refund or credit. Estimated returns are accrued
at the time the sale is recognized and actual returns are tracked monthly. The Company reviews its history of
actual versus estimated returns to ensure reserves are appropriate.
The Company sells prepaid program cards to wholesalers and retailers. Revenue from these cards is recognized
after the card is redeemed online at the Company’s website by the customer and the product is shipped to the
customer.
Revenue from product sales includes amounts billed for shipping and handling and is presented net of returns and
billed sales tax. Revenue from shipping and handling charges was $5,193, $5,019 and $5,060 in 2009, 2008 and
2007, respectively. Shipping-related costs are included in cost of revenue in the accompanying consolidated
statements of operations.
Dependence on Suppliers
In 2009, approximately 19% and 18%, respectively, of inventory purchases were from two suppliers. The
Company has supply arrangements with these vendors that require the Company to make minimum purchases. In
2008, these vendors supplied approximately 19% and 15%, respectively, of inventory purchases and in 2007,
approximately 24% and 11% of total purchases (see Note 8).
While the Company currently outsources 100% of its fulfillment operations to a third party provider, during
2009, 2008 and 2007, more than 85% of its fulfillment operations was handled by this third party provider.
Vendor Rebates
One of the Company’s suppliers provides for rebates based on purchasing levels. The Company accounts for this
rebate on an accrual basis as purchases are made at a rebate percent determined based upon the estimated total
purchases from the vendor. The estimated rebate is recorded as a reduction in the carrying value of purchased
inventory and is reflected in the consolidated statements of operations when the associated inventory is sold. A
receivable is recorded for the estimate of the rebate earned. A receivable of $1,478 and $1,870 at December 31,
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