Nutrisystem 2006 Annual Report Download - page 49

estimated useful life of the asset, which is generally two years. Costs incurred related to planning or maintenance
of i
nterna
l
-use so
f
tware are c
h
arge
d
to expense as
i
ncurre
d
.
I
dentifiable Intangible Assets and Goodwil
l
I
dentifiable intan
g
ible assets and
g
oodwill arose from the acquisition of Slim and Tone in December 200
4
(see Note 3). Identifiable intangible assets represent trade names and trademarks, customer relationships,
proce
d
ura
l
manua
l
san
d
covenants not to compete acqu
i
re
di
nt
h
e transact
i
on. Goo
d
w
ill
represents t
h
e excess o
f
the purchase price over the net tan
g
ible and identifiable intan
g
ible assets acquired of Slim and Tone. Th
e
C
ompany does not amortize trade names, trademarks and goodwill due to their indefinite life, but management
rev
i
ews t
h
ese assets at
l
east annua
ll
y
f
or
i
mpa
i
rment. T
h
eot
h
er
i
ntang
ibl
e assets are presente
d
at cost, net o
f
a
ccumulated amortization, and are amortized over their estimated useful lives (see Note
6
).
Valuat
i
on o
f
Lon
g
-L
i
ved Asset
s
T
he Company continually evaluates whether events or circumstances have occurred that indicate that the
rema
i
n
i
ng use
f
u
lli
ves o
fi
ts
l
ong-
li
ve
d
assets, pr
i
mar
il
y
fi
xe
d
assets an
d
purc
h
ase
did
ent
ifi
a
bl
e
i
ntang
ibl
e
s
sub
j
ect to amortization, should be revised or that the remainin
g
balance of such assets ma
y
not be recoverabl
e
u
sing objective methodologies. Such methodologies include evaluations based on the undiscounted cash flow
s
g
enerated by the underlying assets or other determinants of fair value. As of December 31, 200
6
and
December 31, 200
5
, respectivel
y
, mana
g
ement believes that no reductions to the remainin
g
useful lives or write
-
d
owns of long-lived assets are required.
R
evenue Recogn
i
t
i
on
R
evenue
f
rom pro
d
uct sa
l
es
i
s recogn
i
ze
d
w
h
en t
h
e earn
i
ngs process
i
s comp
l
ete, w
hi
c
hi
s upon trans
f
er o
f
title to the product. This transfer occurs upon shipment. Reco
g
nition of revenue upon shipment meets the revenue
recognition criteria in that persuasive evidence of an arrangement exists, delivery has occurred, the selling pric
e
i
s
fi
xe
d
an
dd
eterm
i
na
bl
ean
d
co
ll
ect
i
on
i
s reasona
bl
y assure
d
. Customers may return unopene
d
pro
d
uct w
i
t
hin
30 da
y
s of purchase in order to receive a refund or credit. Estimated returns are accrued at the time the sale i
s
recognized and actual returns are tracked monthly and the estimated returns reserve is adjusted quarterly.
R
evenue from product sales includes amounts billed for shippin
g
and handlin
g
and is presented net o
f
returns, free food products provided to consumers and billed sales tax. Revenue from shipping and handling
charges was
$
2,567,
$
1,125 and
$
401 in 2006, 2005 and 2004, respectively. Shipping-related costs are include
d
in cost of revenue.
R
evenue
f
or S
li
man
d
Tone cons
i
sts pr
i
mar
il
yo
f
roya
l
t
i
es an
df
ranc
hi
se
f
ees. Revenue
f
or
f
ranc
hi
se
f
ees
is
reco
g
nized when a franchise center opens for business. Slim and Tone franchise fee pa
y
ments received prior to a
f
ranchise center opening are recorded as deferred revenue. Royalties are paid monthly and recognized in th
e
mont
h
t
h
e roya
l
ty
i
s earne
d
.
Dependence on Key Customer / Suppliers
A
pproximatel
y5
%, 7% and 11% of the Compan
y
’s revenue for the
y
ears ended December 31, 2006, 200
5
a
nd 2004, respectively, relates to sales through QVC. Accounts receivable from QVC at December 31, 2006 an
d
December 31, 2005, were
$
498 and
$
410, respectively
.
I
n 2006, approximately 32%, 12%, 11% and 10%, respectively, of inventory purchases were from fou
r
supp
li
ers. T
h
e Company
h
as supp
l
y arrangements w
i
t
h
two o
f
t
h
ese ven
d
ors t
h
at requ
i
re t
h
e Company to ma
ke
minimum
p
urchases (see Note 8). In 200
5
, these vendors su
pp
lied 3
5
%, 11%, 1% and 13% of total
p
urchases and
in 2004 these vendors su
pp
lied 46%, 6%, 0% and 26% of total
p
urchases
.
43