Nutrisystem 2003 Annual Report Download - page 38

36
has elected to continue to apply the intrinsic-value based method of accounting under Accounting Principals Board (APB)
Opinion No. 25,  Accounting for Stock Issued to Employees, and related interpretations. The disclosure requirements
of SFAS No. 148 are included in Note 2.
In December 2003, the FASB issued FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable
Interest Entities, (FIN 46R) which addresses how a business enterprise should evaluate whether it has a controlling
financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN
46R replaces FASB Interpretation No. 46, Consolidation of Variable Interest Entities, which was issued January 2003.
The Company will be required to apply FIN 46R to variable interests in variable interest entities (VIEs) created after
December 31, 2003. For variable interests in VIEs created before January 1, 2004, the Interpretation will be applied
beginning on January 1, 2005. For any VIEs that must be consolidated under FIN 46R that were created before January 1,
2004, the assets, liabilities and noncontrolling interests of the VIE initially would be measured at their carrying amounts
with any difference between the net amount added to the balance sheet and any previously recognized interest being
recognized as the cumulative effect of an accounting change. If determining the carrying amounts is not practicable, fair
value at the date FIN 46R first applies may be used to measure the assets, liabilities and noncontrolling interest of the
VIE. The Company is evaluating the impact of applying FIN 46R to existing VIEs in which it has variable interests and
has not yet completed this analysis. At this time, it is anticipated that the adoption of FIN 46R will not have an impact on
the Companys consolidated financial statements.
In November 2002, FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107 and a
rescission of FASB Interpretation No. 34, was issued. This Interpretation enhances the disclosures to be made by a
guarantor in its interim and annual financial statements about its obligations under guarantees issued. The Interpretation
also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the
obligation undertaken. The initial recognition and measurement provisions of the Interpretation were applicable to
guarantees issued or modified after December 31, 2002 and the disclosure requirements were effective for financial
statements of interim or annual periods ending after December 15, 2002. The adoption of this recently issued accounting
standard did not have an impact on the Companys consolidated financial statements.
The FASB recently issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities and SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and
Equity. In addition, the Emerging Issues Task Force recently issued EITF Issue 00-21, Revenue Arrangements with
Multiple Deliverables. The adoption of these accounting pronouncements did not have an impact on the Companys
consolidated financial position or results of operations.
Use of Estimates
The preparation of financial statements in accordance with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and operating expenses during the reporting period. Actual results could
differ from these estimates.
Certain Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation
.
3. DISCONTINUED OPERATION
On August 25, 2000, the Company acquired certain assets of the Sweet Success product line from Nestle USA, Inc. (the
Seller) in return for 900,000 shares of the Companys common stock, representing 3.1% of the shares outstanding after
the transaction. The acquisition was recorded using the purchase method of accounting. In the transaction, the Company
acquired certain assets directly related to the Sweet Success product line, including inventory, books and records,
contracts and intellectual property such as trademarks and product specifications. The Company did not acquire any
customer receivables or fixed assets, and the Company did not assume any liabilities beyond those obligations associated
with certain contracts, in connection with the acquisition. The shares of common stock issued to the Seller were included
in a registration statement that became effective in December 2003.