Nutrisystem 2005 Annual Report Download - page 35

Seasonality
Typically in the weight loss industry, revenue is strongest in the first quarter and lowest in the fourth
calendar quarter. We believe our business experiences seasonality, driven by the predisposition of dieters to
initiate a diet and the price and availability of certain media. However, in 2005, our revenue increased
sequentially every quarter due to our increased level of advertising spending. We believe the overall impact of
seasonality on revenue is difficult to predict at this time. As a franchisor in the women’s express workout market,
Slim and Tone experiences relatively little seasonality.
Recently Issued Accounting Pronouncements
SFAS 123R, Share-Based Payment. SFAS No. 123R addresses all forms of share-based payment awards,
including shares issued under employee stock purchase plans, stock options, restricted stock and stock
appreciation rights. It requires companies to recognize in the statement of earnings the grant-date fair value of
stock options and other equity-based compensation issued to employees, but expresses no preference for a type of
valuation model. The statement eliminates the intrinsic value-based method prescribed by APB Opinion No. 25,
and related interpretation, that the Company currently uses. The Company will adopt SFAS No. 123R effective
January 1, 2006 using the modified prospective method. The Company’s net income for the years ended
December 31, 2005, 2004 and 2003 would have been reduced by $1.4 million, $728,000 and $493,000,
respectively, had the Company adopted SFAS No. 123.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We do not hold any investments in market risk sensitive instruments. Accordingly, we believe that we are
not subject to any material risks arising from changes in interest rates, foreign currency exchange rates,
commodity prices, equity prices or other market changes that affect market risk instruments. We do not have any
variable interest debt outstanding at December 31, 2005, our cash and cash equivalents at that date of $3.9
million were maintained in bank accounts and our marketable securities at that date of $41.8 million had interest
rate reset dates of three months or less. As such, a change in interest rates of 1 percentage point would not have a
material impact on our operating results and cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is set forth on pages 36 through 56 hereto and is incorporated by
reference herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A.CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’s Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the
design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by
this Report. Based upon this evaluation, they concluded that, as of the date of the evaluation, the Company’s
disclosure controls and procedures as of December 31, 2005 have been designed and are functioning effectively
to provide reasonable assurance that the information required to be disclosed by the Company in reports filed
under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms.
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