Nutrisystem 2003 Annual Report Download - page 35

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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 three to seven years. Leasehold improvements and equipment under capital leases
are amortized on a straight-line basis over the lesser of the estimated useful life of the asset or the related lease terms.
Expenditures for repairs and maintenance are charged to expense as incurred, while major renewals and improvements are
capitalized.
Goodwill
Goodwill represented the excess of the consideration paid over the fair value of net assets acquired. As of December 31,
2002 goodwill was $527 and accumulated amortization was $237. Consistent with the Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other Intangible Assets (SFAS 142), effective January 1, 2002, the
Company no longer amortized goodwill. Amortization of goodwill in 2001 was $93 and, had SFAS No. 142 been in
effect in 2001 net income would have been increased by this amount and net income per share would have increased by
$0.01. In June 2003, the Company eliminated goodwill in connection with the recognition of deferred tax assets (see
Note 8).
Investment Carried Under the Equity Method
The Company has invested $93 in 2003 and $155 in 2002 for a 25% interest in Imagine Weight Loss Center, LLC
(Imagine), formerly known as Turning Point Weight Loss Centers, LLC, a start up company formed to provide diet and
fitness programs in center locations. In addition to the cash investments, the Company has provided indemnifications to
certain affiliates of Imagine amounting to $52 at December 31, 2003. For the years ended December 31, 2003 and 2002,
the Company recorded losses of $157 and $143, respectively, in the statement of operations under the caption Equity in
losses of affiliate, representing the Companys portion of the losses incurred by Imagine. As of December 31, 2003, the
Company had no commitment to make further investments in Imagine
. A liability of $52 at December 31, 2003 is
included in Other current liabilities and the net investment of $13 at December 31, 2002 is included in Other assets in
the accompanying consolidated balance sheets.
Valuation of Long-Lived Assets
In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long Lived Assets (SFAS 144),
management continually evaluates whether events or circumstances have occurred that indicate that the remaining useful
lives of the Companys long-lived assets, primarily fixed assets, should be revised or that the remaining balance of such
assets may not be recoverable using objective methodologies. Such methodologies include evaluations based on the
undiscounted cash flows generated by the underlying assets or other determinants of fair value. As of December 31, 2003
and 2002, respectively, management believes that no reductions to the remaining useful lives or write-downs of long-lived
assets are required.
Revenue Recognition
Revenues are recognized when the related products are shipped to the end-consumer or to franchise or Case Distributors.
Revenues for products distributed by QVC are recognized when QVC ships the products from their distribution center to
the end-consumer. Product inventory held by QVC is carried in the Companys inventories and payments received from
QVC in advance of shipments to the end-consumer are recorded as deferred revenue in the consolidated balance sheet.
Prior to 2003, the Company shipped products sold through QVC directly to the consumer.
Revenues are primarily from pre-packaged food sales, which include amounts billed for shipping and handling, and are
presented net of returns and free food products provided to consumers. Revenues also include the sale of print materials
to franchisees and independent distributors, as well as franchise royalty fees. Revenues from shipping and handling
charges were $359, $361, and $491 in 2003, 2002 and 2001, respectively.
Marketing Expense
Marketing expense includes advertising, marketing and promotional expenses and payroll related expenses for personnel
engaged in these activities. The Company follows the American Institute of Certified Public Accountants (AICPA)
Statement of Position 93-7, Reporting for Advertising Costs to account for Internet site-linking arrangements. Internet
advertising expense is recognized based on either the rate of delivery of a guaranteed number of impressions over the