Nutrisystem 2015 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 $15,022 and $13,162 at December 31, 2015 and December 31, 2014,
respectively.
Intangible Assets
Intangible assets consist of a trade name from the acquisition of the South Beach Diet (“SBD”) brand in
December 2015 and domain names (see Note 6). The trade name is presented at cost, net of accumulated
amortization, and is amortized on a straight-line basis over its estimated useful life. The domain names have
indefinite lives and are not being amortized but are reviewed for impairment.
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, 2015, management believes that no reductions to the remaining useful lives or
write-downs of long-lived assets are required.
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 food. When a customer
orders the frozen program, two separate shipments are delivered. One contains Nutrisystem’s standard shelf-
stable food and the second contains the frozen foods. Both shipments qualify as separate units of accounting and
the fair value is based on estimated selling prices of both units.
Direct to consumer customers may return unopened shelf-stable products within 30 days of purchase in order to
receive a refund or credit. Frozen products are non-returnable and they are non-refundable unless the order is
canceled within 14 days of delivery. Estimated returns are accrued at the time the sale is recognized and actual
returns are tracked monthly.
The Company reviews its history of actual versus estimated returns to ensure reserves are appropriate.
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