Nutrisystem 2014 Annual Report Download - page 49

Fixed Assets
Fixed assets are stated at cost. Depreciation expense is calculated 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 $13,162 and $11,473 at December 31, 2014 and 2013, 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, 2014, management believes that no reductions to the remaining useful lives or
write-downs of long-lived assets are required.
Derivative Instruments
Interest rate swap agreements, a type of financial derivative instrument, have been utilized by the Company to
reduce interest rate risk on credit facility borrowings. The Company 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 was
reported as a component of accumulated other comprehensive income in stockholders’ equity in the
accompanying consolidated balance sheets, net of tax, and reclassified into earnings in the periods during which
the hedged transactions affected earnings. To the extent that the change in value of the derivative did not
perfectly offset the change in value of the items being hedged, that ineffective portion was immediately
recognized in earnings. There were no interest rate swap agreements at December 31, 2014 and 2013.
Revenue Recognition
Revenue from direct to consumer 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 evidence of an arrangement exists, delivery has occurred, the selling price is fixed or
determinable and collection is reasonably assured. The Company also sells prepaid program cards to wholesalers
and retailers. Revenue from these cards is recognized after the card is redeemed online at the Company’s website
or via telephone by the customer and the product is shipped to the customer. Revenue from the retail programs is
recognized when the product is received at the seller’s location.
Deferred revenue consists primarily of unredeemed prepaid gift cards and unshipped frozen foods. When a
customer orders the frozen program, two separate shipments are delivered. The first shipment contains
Nutrisystem’s standard shelf-stable food. The second shipment contains the frozen foods and is generally
delivered within a week of a customer’s order. Both shipments qualify as separate units of accounting and the
fair value is based on estimated selling prices of both units.
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