Nutrisystem 2010 Annual Report Download - page 49

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 nutritionally balanced weight loss programs based on over 35 years of nutrition research and on the
science of the low glycemic index. The Company’s pre-packaged foods are sold directly to weight loss program
participants primarily through the Internet and telephone (including the redemption of prepaid program cards),
referred to as the direct channel and through QVC, a television shopping network. Approximately 98% of
revenues for each the years ended December 31, 2010, 2009 and 2008 were generated in the United States.
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, 2010 and December 31, 2009, demand accounts and money market accounts
comprised all of the Company’s cash and cash equivalents.
Marketable securities consist of investments in a 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 loss, a component of stockholders’ equity, net of related tax effects.
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 2010 or 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 $419 and $1,179 at December 31, 2010
and 2009, respectively.
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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