Nutrisystem 2009 Annual Report Download - page 53

2009 and 2008, respectively, has been recorded in receivables in the accompanying consolidated balance sheets.
Historically, the actual rebate received from the vendor has closely matched the estimated rebate recorded. An
adjustment is made to the estimate upon determination of the final rebate.
Marketing Expense
Marketing expense includes media, advertising production, marketing and promotional expenses and payroll-
related expenses for personnel engaged in these activities. Media expense was $126,534, $153,610 and $162,691
in 2009, 2008 and 2007, respectively. Direct-mail advertising costs are capitalized if the primary purpose was to
elicit sales to customers who could be shown to have responded specifically to the direct mailing and results in
probable future economic benefits. The capitalized costs are amortized to expense over the period during which
the future benefits are expected to be received. Typically, this period falls within 40 days of the initial direct
mailing. All other advertising costs are charged to expense as incurred or the first time the advertising takes
place. At December 31, 2009 and 2008, $3,529 and $2,066, respectively, of costs have been prepaid for future
advertisements and promotions.
Accounting for Lease Related Expenses
Certain of the Company’s lease contracts contain rent holidays, various escalation clauses, or landlord/tenant
incentives. The Company records rental costs, including costs related to fixed rent escalation clauses and rent
holidays, on a straight-line basis over the lease term. Lease allowances utilized for space improvement are
recorded as leasehold improvement assets and amortized over the shorter of the economic useful life of the asset
or the lease term. Tenant lease incentive allowances received are recorded as deferred rent and amortized as
reductions to rent expense over the lease term.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and the respective tax bases
and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the
consolidated statements of operations in the period that includes the enactment date.
A tax benefit from an uncertain tax position may be recognized only if it is “more likely than not” that the
position is sustainable, based on its technical merits. The tax benefit of a qualifying position is the largest amount
of tax benefit that is greater than 50% likely of being realized upon settlement with a taxing authority having full
knowledge of all relevant information. The liability for unrecognized tax benefits is classified as noncurrent
unless the liability is expected to be settled in cash within 12 months of the reporting date. The Company records
accrued interest and penalties related to unrecognized tax benefits as part of interest expense.
Fair Value of Financial Instruments
A three-tier fair value hierarchy has been established by the Financial Accounting Standards Board (“FASB”) to
prioritize the inputs used in measuring fair value. These tiers are as follows:
Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted
prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and
liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable
market data.
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