Nutrisystem 2011 Annual Report Download - page 53

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. 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 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. The net book
value of capitalized software was $10,285 and $12,845 at December 31, 2011 and 2010, respectively.
Long-Lived Assets
The Company continually evaluates whether events or circumstances have occurred that would indicate that the
remaining estimated useful lives of long-lived assets may warrant revision or that the remaining balance may not
be recoverable. Long-lived assets are evaluated for indicators of impairment. When factors indicate that long-
lived assets should be evaluated for possible impairment, an estimate of the related undiscounted cash flows over
the remaining life of the long-lived assets is used to measure recoverability. If any impairment is indicated,
measurement of the impairment will be based on the difference between the carrying value and fair value of the
asset, generally determined based on the present value of expected future cash flows associated with the use of
the asset. As of December 31, 2011, 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, which has been legally dissolved, was the
Canadian dollar. Assets and liabilities were translated into U.S. dollars at exchange rates as of the financial
statement date and revenues and expenses were translated at average exchange rates prevailing during the
respective periods. Translation adjustments were included as a separate component of accumulated other
comprehensive loss in stockholders’ equity in the accompanying consolidated balance sheets. Gains and losses
from foreign currency transactions were recognized as other (expense) income in the accompanying consolidated
statements of operations and were $0 in 2011, $32 of expense in 2010 and $407 of income in 2009.
Derivative Instruments
Interest rate swap agreements, a type of financial derivative instrument, are utilized by the Company to reduce
interest rate risk on credit facility borrowings. The Company recognizes the interest rate swaps in the
accompanying consolidated balance sheets at fair value. The Company has designated and accounted for its
interest rate swaps as cash flow hedges of variable-rate debt. The effective portion of the gain or loss on the
derivative is reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity
in the accompanying consolidated balance sheets, net of tax, and reclassified into earnings in the periods during
which the hedged transactions affect earnings. To the extent that the change in value of the derivative does not
perfectly offset the change in value of the items being hedged, that ineffective portion is immediately recognized
in earnings.
Revenue Recognition
Revenue from product sales is recognized when the earnings process is complete, which is upon transfer of title
to the product. Recognition of revenue upon shipment meets the revenue recognition criteria in that persuasive
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