Nutrisystem 2005 Annual Report Download - page 52

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 $1,388, $728 and $493, respectively, had the
Company adopted SFAS No. 123.
Use of Estimates
The preparation of financial statements in accordance with U.S. 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 revenue and operating expenses during the
reporting period. Actual results could differ from these estimates.
Reclassifications
Beginning with the second quarter of 2004, the Company reclassified compensation related to fulfillment,
the costs of outside fulfillment and commissions paid on direct sales from general and administrative expenses to
cost of revenue. At the same time, the Company reclassified the cost of non-food materials provided with
customer purchases from marketing to cost of revenue. Prior year and interim quarter amounts have been
reclassified to conform to the current period presentation.
3. ACQUISITION
On December 2, 2004, the Company acquired Slim and Tone to unite diet and exercise for successful weight
loss. The purchase price consists of $1,000 cash payment to the seller at closing, a $450 deposit into an escrow
account for the benefit of the seller and a seller note for $450 (see Note 7). The acquisition was accounted for
under the purchase method of accounting and the operating results of the acquired business have been included in
the consolidated statements of operations and cash flows from the acquisition date through December 31, 2005.
Revenue of Slim and Tone was $2,345 for the year ended December 31, 2005 and $84 for the period from the
date of acquisition (December 2, 2004) through December 31, 2004. Operating costs of Slim and Tone for the
corresponding periods in 2005 and 2004 were $3,467 and $125, respectively.
A summary of the allocation of the purchase price to the net assets acquired is as follows:
Purchase price:
Cash paid for acquisition, net of cash acquired of $38 ............................... $1,412
Note payable to seller, net of discount ............................................ 407
Transaction costs ............................................................ 150
$1,969
Purchase price allocation:
Prepaid expenses ............................................................ $ 134
Fixed assets ................................................................ 15
Identifiable intangible assets ................................................... 1,624
Goodwill ................................................................... 465
Security deposit ............................................................. 2
Deferred revenue ............................................................ (271)
$1,969
Segment disclosures and pro forma statement of operations data for 2004 and 2003 have not been included
for Slim and Tone as the operations and assets are not material in relation to the consolidated financial
statements.
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