Nutrisystem 2007 Annual Report Download - page 51

Inventories
Inventories consist principally of packaged food held in the Company’s warehouse or in outside fulfillment
locations. Inventories are valued at the lower of cost or market, with cost determined using the first-in, first-out
(FIFO) method.
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 two to seven years. Leasehold improvements are amortized on a
straight-line basis over the lesser of the estimated useful life of the asset or the related lease term. Capital leases
are amortized on a straight-line basis over the respective lease terms. Expenditures for repairs and maintenance
are charged to expense as incurred, while major renewals and improvements are capitalized.
Included in fixed assets is the capitalized cost of internal-use software and website development of $5,467 and
$335 in 2007 and 2006, respectively, incurred during the application development stage. Capitalized costs are
amortized using the straight-line method over the estimated useful life of the asset, which is generally two to five
years. Costs incurred related to planning or maintenance of internal-use software and website development are
charged to expense as incurred.
Valuation of Long-Lived Assets
The Company continually evaluates whether events or circumstances have occurred that indicate that the
remaining useful lives of its 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, 2007 and 2006, respectively, management believes that no reductions to the
remaining useful lives or write-downs of long-lived assets are required.
Foreign Currency Translation
The functional currency of the Company’s Canadian subsidiary is the Canadian dollar. Assets and liabilities are
translated into U.S. dollars at year-end exchange rates and revenues and expenses are translated at average
exchange rates prevailing during the year. Translation adjustments are included as a separate component of
accumulated other comprehensive income in stockholders’ equity in the accompanying consolidated balance
sheet. Realized gains and losses from foreign currency transactions are recognized as other income (expense) in
the accompanying consolidated statement of operations.
Revenue Recognition
Revenue from product sales is recognized when the earnings process is complete, which is upon transfer of title
to the product. This transfer occurs upon shipment. Recognition of revenue upon shipment meets the revenue
recognition criteria in that persuasive evidence of an arrangement exists, delivery has occurred, the selling price
is fixed and determinable and collection is reasonably assured. Customers may return unopened product within
30 days of purchase in order to receive a refund or credit. Estimated returns are accrued at the time the sale is
recognized and actual returns are tracked monthly and the estimated returns reserve is adjusted monthly.
Revenue from product sales includes amounts billed for shipping and handling and is presented net of returns and
billed sales tax. Revenue from shipping and handling charges was $5,060, $2,564 and $1,125 in 2007, 2006 and
2005, respectively. Shipping-related costs are included in cost of revenue in the accompanying consolidated
statement of operations.
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