Nutrisystem 2003 Annual Report Download - page 34

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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. (a Delaware corporation) together with its subsidiaries (the Company) provides weight loss programs
and distributes pre-packaged foods. In September 2000, the Company changed its name from nutrisystem.com inc. to
Nutri/System, Inc. and in 2003 the Company changed its name to NutriSystem, Inc.
NutriSystem, Inc. and its predecessor businesses, including NutriSystem L.P. and NutriSystem Direct, L.L.C.
(collectively, the Predecessor Businesses), have historically operated through Company-owned and franchised weight
loss centers. Currently, 24 independent center-based distributors operate without franchise agreements (Case
Distributors) and there are no Company-operated or franchised weight loss centers. In 1998, the Company initiated
NutriSystem Direct, L.L.C., a marketing program using independent commissioned representatives. In late 1999, the
Company began selling directly to the consumer through the Internet and by telephone. In 2001, the Company began
selling foods through QVC, a shopping television network. The Companys pre-packaged foods are now sold to weight
loss program participants directly through the Internet, telephone, QVC, independent commissioned representatives and
Case Distributor weight loss centers.
Since the inception of the NutriSystem business in 1972, the Company and its predecessors have operated in various
organizational and legal structures. In early 1993, the business was party to a bankruptcy proceeding. This case was
converted to a Chapter 11 proceeding effective June 4, 1993. One of the Companys predecessors operated as a debtor in
possession through December 1993. In 1999, the Company acquired the Predecessor Businesses for cash of $3,400 plus
17,500,000 shares of common stock. In order to fund the Companys purchase of the Predecessor Businesses and planned
investments, the Company completed a private placement in 1999 that raised net proceeds of approximately $7,574. The
Company completed another private placement in 2000 that raised net proceeds of $2,462. In September 2003, the
Company completed a private placement that raised $2,300 from the sale of 2,300,000 shares of common stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Presentation of Financial Statements
The Companys consolidated financial statements include the accounts of NutriSystem, Inc. and its wholly owned
subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months of less when purchased to
be cash equivalents for the purpose of determining cash flow. Cash and cash equivalents include cash on hand, cash in
bank and money market investments.
Restricted Cash
Restricted cash represents minimum cash deposited in banks required under certain vendor arrangements. The restrictions
were eliminated on January 30, 2004.
Inventories
Inventories consist principally of packaged food held in the Companys warehouse, outside fulfillment locations or in a
QVC distribution center (see Revenue Recognition below). Inventories are valued at the lower of cost or market, with
cost determined using the first-in, first-out (FIFO) method.