Nutrisystem 2011 Annual Report Download - page 52

NUTRISYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
1. BACKGROUND
Nature of the Business
Nutrisystem, Inc. (the “Company” or “Nutrisystem”), a provider of weight management products and services,
offers nutritionally balanced weight loss programs designed for women, men, and seniors, as well as the
Nutrisystem®D®program, specifically designed to help people with type 2 diabetes who want to lose weight and
manage their diabetes. The Nutrisystem®programs are based on 40 years of nutrition research and on the science
of the low glycemic index. The Company’s pre-packaged foods are sold directly to weight loss program
participants primarily through the Internet and telephone (including the redemption of prepaid program cards),
referred to as the direct channel, and through QVC, a television shopping network. Approximately 99%, 98% and
98% of revenues for the years ended December 31, 2011, 2010 and 2009, respectively, were generated in the
United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Presentation of Financial Statements
The Company’s consolidated financial statements include 100% of the assets and liabilities of Nutrisystem, Inc.
and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Cash Equivalents and Marketable Securities
Cash equivalents include only securities having a maturity of three months or less at the time of purchase. At
December 31, 2011 and December 31, 2010, demand accounts and money market accounts comprised all of the
Company’s cash and cash equivalents.
Marketable securities at December 31, 2011 consist of investments in an income fund that principally holds
short-term municipal securities of the U.S. and at December 31, 2010 consisted of investments in a bond fund
that held short-term U.S. government securities with original maturities of greater than three months. The
Company classifies these as available-for-sale securities. The marketable securities are reported at fair value with
the related unrealized gains and losses included in accumulated other comprehensive loss, a component of
stockholders’ equity, net of related tax effects.
The Company evaluates its investments for other-than-temporary impairment by reviewing factors such as the
length of time and extent to which fair value has been below cost basis and the Company’s ability and intent to
hold the investment for a period of time which may be sufficient for anticipated recovery of the market value.
There were no other-than-temporary impairments in 2011 or 2010.
Inventories
Inventories consist principally of packaged food held 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. Quantities of
inventory on hand are continually assessed to identify excess or obsolete inventory and a provision is recorded
for any estimated loss. The reserve is estimated for excess and obsolete inventory based primarily on forecasted
demand and/or the Company’s ability to sell the products, introduction of new products, future production
requirements and changes in customers’ behavior. The reserve for excess and obsolete inventory was $769 and
$419 at December 31, 2011 and 2010, respectively.
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