0001193125-13-207770.txt : 20130508 0001193125-13-207770.hdr.sgml : 20130508 20130508170635 ACCESSION NUMBER: 0001193125-13-207770 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20130331 FILED AS OF DATE: 20130508 DATE AS OF CHANGE: 20130508 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NUTRI SYSTEM INC /DE/ CENTRAL INDEX KEY: 0001096376 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 233012204 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-28551 FILM NUMBER: 13825375 BUSINESS ADDRESS: STREET 1: FORT WASHINGTON EXECUTIVE CENTER STREET 2: 600 OFFICE CENTER DRIVE CITY: FORT WASHINGTON STATE: PA ZIP: 19034 BUSINESS PHONE: 2157065332 MAIL ADDRESS: STREET 1: FORT WASHINGTON EXECUTIVE CENTER STREET 2: 600 OFFICE CENTER DRIVE CITY: FORT WASHINGTON STATE: PA ZIP: 19034 10-Q 1 d529358d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2013

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From             to             

Commission File Number 0-28551

 

 

Nutrisystem, Inc.

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   23-3012204

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

Fort Washington Executive Center

600 Office Center Drive

Fort Washington, Pennsylvania

  19034
(Address of principal executive offices)   (Zip code)

 

(215) 706-5300

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by checkmark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by checkmark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of April 25, 2013:

 

Common Stock, $.001 par value

     28,628,910 shares   

 

 

 


Table of Contents

NUTRISYSTEM, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

 

     Page  

PART I – FINANCIAL INFORMATION

  

Item 1 – Financial Statements (unaudited)

  

Consolidated Balance Sheets

     1   

Consolidated Statements of Operations

     2   

Consolidated Statements of Comprehensive Loss

     3   

Consolidated Statement of Stockholders’ Equity

     4   

Consolidated Statements of Cash Flows

     5   

Notes to Consolidated Financial Statements.

     6   

Item  2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

     15   

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

     21   

Item 4 – Controls and Procedures

     21   

PART II – OTHER INFORMATION

  

Item 1 – Legal Proceedings

     22   

Item 1A – Risk Factors

     23   

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

     23   

Item 3 – Defaults Upon Senior Securities

     23   

Item 4 – Mine Safety Disclosures

     23   

Item 5 – Other Information

     23   

Item 6 – Exhibits.

     24   

SIGNATURES

     25   


Table of Contents

NUTRISYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except share and par value amounts)

 

     March 31,     December 31,  
     2013     2012  

ASSETS

    

CURRENT ASSETS:

    

Cash and cash equivalents

   $ 20,707      $ 16,186   

Short term investments

     14,350        3,205   

Receivables

     12,475        8,487   

Inventories

     22,711        23,637   

Prepaid income taxes

     4,415        4,531   

Deferred income taxes

     2,087        2,969   

Other current assets

     4,212        7,160   
  

 

 

   

 

 

 

Total current assets

     80,957        66,175   

FIXED ASSETS, net

     26,992        28,003   

OTHER ASSETS

     5,394        4,228   
  

 

 

   

 

 

 

Total assets

   $ 113,343      $ 98,406   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

CURRENT LIABILITIES:

    

Accounts payable

   $ 37,091      $ 23,192   

Accrued payroll and related benefits

     3,269        1,326   

Deferred revenue

     5,911        3,343   

Other accrued expenses and current liabilities

     8,295        6,911   
  

 

 

   

 

 

 

Total current liabilities

     54,566        34,772   

NON-CURRENT LIABILITIES

     3,345        3,525   
  

 

 

   

 

 

 

Total liabilities

     57,911        38,297   
  

 

 

   

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 6)

    

STOCKHOLDERS’ EQUITY:

    

Preferred stock, $.001 par value (5,000,000 shares authorized, no shares issued and outstanding)

     0        0   

Common stock, $.001 par value (100,000,000 shares authorized; shares issued – 28,739,718 at March 31, 2013 and 28,631,464 at December 31, 2012)

     29        29   

Additional paid-in capital

     19,615        18,466   

Treasury stock, at cost, 112,366 shares at March 31, 2013 and 72,561 shares at December 31, 2012

     (975     (636

Retained earnings

     36,743        42,254   

Accumulated other comprehensive income (loss)

     20        (4
  

 

 

   

 

 

 

Total stockholders’ equity

     55,432        60,109   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $   113,343      $ 98,406   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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NUTRISYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share amounts)

 

     Three Months Ended
March 31,
 
     2013     2012  

REVENUE

   $ 105,384      $ 128,517   
  

 

 

   

 

 

 

COSTS AND EXPENSES:

    

Cost of revenue

     52,353        70,529   

Marketing

     36,316        45,667   

General and administrative

     15,251        16,315   

Depreciation and amortization

     2,549        2,836   
  

 

 

   

 

 

 

Total costs and expenses

     106,469        135,347   
  

 

 

   

 

 

 

Operating loss

     (1,085     (6,830

INTEREST EXPENSE, net

     (53     (274
  

 

 

   

 

 

 

Loss before income taxes

     (1,138     (7,104

INCOME TAX BENEFIT

     (498     (2,623
  

 

 

   

 

 

 

Net loss

   $ (640   $ (4,481
  

 

 

   

 

 

 

BASIC LOSS PER COMMON SHARE

   $ (0.02   $ (0.16
  

 

 

   

 

 

 

DILUTED LOSS PER COMMON SHARE

   $ (0.02   $ (0.16
  

 

 

   

 

 

 

WEIGHTED AVERAGE SHARES OUTSTANDING:

    

Basic

     27,759        27,321   

Diluted

     27,759        27,321   

DIVIDENDS DECLARED PER COMMON SHARE

   $ 0.175      $ 0.175   

The accompanying notes are an integral part of these consolidated financial statements.

 

2


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NUTRISYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited, in thousands)

 

     Three Months Ended
March  31,
 
         2013             2012      

Net loss

   $ (640   $ (4,481
  

 

 

   

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS):

    

Short term investments:

    

Unrealized gain on short term investments, net of income tax expense of $8 and $8, respectively

     19        12   

Reclassification adjustments, net of income tax expense of $2

     5        0   
  

 

 

   

 

 

 

Short term investments, net

     24        12   
  

 

 

   

 

 

 

Interest rate swaps:

    

Unrealized loss on interest rate swaps, net of income tax benefit of $10

     0        (16
  

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     24        (4
  

 

 

   

 

 

 

Comprehensive loss

   $ (616   $ (4,485
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3


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NUTRISYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited, in thousands, except share amounts)

 

     Common
Shares
     Common
Stock
     Additional
Paid-in
Capital
    Treasury
Stock
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income (Loss)
    Total  

BALANCE, January 1, 2013

     28,631,464       $ 29       $ 18,466      $ (636   $ 42,254      $ (4   $ 60,109   

Net loss

     0         0         0        0        (640     0        (640

Share-based compensation expense

     107,654         0         1,502        0        0        0        1,502   

Exercise of stock options

     600         0         0        0        0        0        0   

Equity compensation awards, net

     0         0         (353     0        0        0        (353

Cash dividends

     0         0         0        0        (4,871     0        (4,871

Employee tax withholdings related to the vesting of equity awards

     0         0         0        (339     0        0        (339

Other comprehensive income, net of tax

     0         0         0        0        0        24        24   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, March 31, 2013

     28,739,718       $ 29       $ 19,615      $ (975   $ 36,743      $ 20      $ 55,432   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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NUTRISYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

 

     Three Months Ended March 31,  
     2013     2012  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net loss

   $ (640   $ (4,481

Adjustments to reconcile net loss to net cash provided by operating activities:

    

Depreciation and amortization

     2,549        2,836   

Loss on disposal of fixed assets

     42        6   

Share–based compensation expense

     1,502        1,845   

Deferred income tax benefit

     (609     (904

Other non-cash charges

     29        0   

Changes in operating assets and liabilities:

    

Receivables

     (3,988     (2,670

Inventories

     926        5,644   

Other assets

     2,915        1,693   

Accounts payable

     13,995        9,854   

Accrued payroll and related benefits

     1,943        2,477   

Deferred revenue

     2,568        571   

Income taxes

     71        (1,916

Other accrued expenses and liabilities

     1,094        117   
  

 

 

   

 

 

 

Net cash provided by operating activities

     22,397        15,072   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Purchases of short term investments

     (14,524     (28

Proceeds from sales of short term investments

     3,371        0   

Capital additions

     (1,555     (1,345
  

 

 

   

 

 

 

Net cash used in investing activities

     (12,708     (1,373
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Exercise of stock options

     0        9   

Taxes related to equity compensation awards, net

     (297     (250

Payment of dividends

     (4,871     (4,937
  

 

 

   

 

 

 

Net cash used in financing activities

     (5,168     (5,178
  

 

 

   

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

     4,521        8,521   

CASH AND CASH EQUIVALENTS, beginning of period

     16,186        47,594   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, end of period

   $ 20,707      $ 56,115   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5


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NUTRISYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, 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 over 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, through QVC, a television shopping network and a new retail program.

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.

Interim Financial Statements

The Company’s consolidated financial statements as of and for the three months ended March 31, 2013 and 2012 are unaudited and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the Company’s financial position and results of operations for these interim periods. Accordingly, readers of these consolidated financial statements should refer to the Company’s audited consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), and the related notes thereto, for the year ended December 31, 2012, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 as certain footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report pursuant to the rules of the Securities and Exchange Commission (the “SEC”). The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results to be expected for the year ending December 31, 2013.

Cash Equivalents and Short Term Investments

Cash equivalents include only securities having a maturity of three months or less at the time of purchase. At March 31, 2013 and December 31, 2012, demand accounts and money market accounts comprised all of the Company’s cash and cash equivalents.

Short term investments at March 31, 2013, consist of investments in government and agency securities and corporate debt securities. Short term investments at December 31, 2012, consisted of investments in corporate debt securities and time deposits with original maturities of greater than three months at the time of purchase. The Company classifies these as available-for-sale securities. These investments are reported at fair value with the related unrealized gains and losses included in accumulated other comprehensive income (loss), a component of stockholders’ equity, net of related tax effects.

 

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At March 31, 2013, cash, cash equivalents and short term investments consisted of the following:

 

     Cost      Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Estimated
Fair Value
 

Cash

   $ 15,045       $ 0       $ 0       $ 15,045   

Money market account

     5,662         0         0         5,662   

Government and agency securities

     9,794         12         0         9,806   

Corporate debt securities

     4,529         15         0         4,544   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $   35,030       $ 27       $ 0       $   35,057   
  

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2012, cash, cash equivalents and short term investments consisted of the following:

 

     Cost      Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair Value
 

Cash

   $ 9,323       $ 0       $ 0      $ 9,323   

Money market account

     6,863         0         0        6,863   

Corporate debt securities

     1,692         14         (24     1,682   

Time deposits

     1,519         4         0        1,523   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $   19,397       $ 18       $ (24   $   19,391   
  

 

 

    

 

 

    

 

 

   

 

 

 

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 $10,534 and $10,511 at March 31, 2013 and December 31, 2012, respectively

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 and 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 by the customer and the product is shipped to the customer. Revenue from the retail program is recognized typically when the product is received at the retailer’s location.

Deferred revenue consists primarily of unredeemed prepaid program cards and unshipped frozen foods. When a customer orders the Nutrisystem® Select® 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.

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 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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The Company reviews the reserves for customer returns at each reporting period and adjusts them to reflect data available at that time. To estimate reserves for returns, the Company considers actual return rates in preceding periods and changes in product offerings or marketing methods that might impact returns going forward. To the extent the estimate of returns changes, the Company will adjust the reserve, which will impact the amount of product sales revenue recognized in the period of the adjustment. The provision for estimated returns for the three months ended March 31, 2013 and 2012 was $3,845 and $3,101, respectively. The reserve for estimated returns incurred but not received and processed was $1,224 and $652 at March 31, 2013 and December 31, 2012, respectively, and has been included in other accrued expenses and current liabilities in the accompanying consolidated balance sheets.

Revenue from product sales includes amounts billed for shipping and handling and is presented net of returns and billed sales tax. Revenue from the new retail program is also net of any trade allowances or broker commissions. Revenue from shipping and handling charges were $641 and $969 for the three months ended March 31, 2013 and 2012, respectively. Shipping-related costs are included in cost of revenue in the accompanying consolidated statements of operations.

Dependence on Suppliers

Approximately 13% and 10% of inventory purchases for the three months ended March 31, 2013 were from two suppliers. The Company has a supply arrangement with one of these suppliers that requires the Company to make minimum purchases. For the three months ended March 31, 2012, these suppliers supplied approximately 16% and 5% of inventory purchases. Additionally, a third supplier during the three months ended March 31, 2012 supplied approximately 14% of inventory purchases.

The Company outsources 100% of its fulfillment operations to a third-party provider and more than 90% of its orders are shipped by one third party provider.

Vendor Rebates

One of the Company’s suppliers provides for rebates based on purchasing levels. The Company accounts for this rebate on an accrual basis as purchases are made at a rebate percentage determined based upon the estimated total purchases from the vendor. The estimated rebate is recorded as a receivable from the vendor with a corresponding reduction in the carrying value of purchased inventory, and is reflected in the consolidated statements of operations when the associated inventory is sold. The rebate period is June 1 through May 31 of each year. For the three months ended March 31, 2013 and 2012, the Company reduced cost of revenue by $358 and $506, respectively, for these rebates. A receivable of $922 and $637 at March 31, 2013 and December 31, 2012, respectively, has been recorded in receivables in the accompanying consolidated balance sheets. Historically, the actual rebate received from the vendor has closely matched the estimated rebate recorded. An adjustment is made to the estimate upon determination of the final rebate.

Fair Value of Financial Instruments

A three-tier fair value hierarchy has been established by the Financial Accounting Standards Board (“FASB”) to prioritize the inputs used in measuring fair value. These tiers are as follows:

Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3—Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

The fair values of the Company’s Level 1 instruments are based on quoted prices in active exchange markets for identical assets. The Company had no Level 2 or 3 instruments at March 31, 2013 and December 31, 2012.

 

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Table of Contents

The following table summarizes the Company’s financial assets measured at fair value at March 31, 2013:

 

     Total Fair Value      Quoted Prices in Active
Markets for Identical
Assets (Level 1)
 

Money market account

   $ 5,662       $ 5,662   

Government and agency securities

     9,806         9,806   

Corporate debt securities

     4,544         4,544   
  

 

 

    

 

 

 

Total assets

   $ 20,012       $ 20,012   
  

 

 

    

 

 

 

The following table summarizes the Company’s financial assets measured at fair value at December 31, 2012:

 

     Total Fair Value      Quoted Prices in Active
Markets for Identical
Assets (Level 1)
 

Money market account

   $ 6,863       $ 6,863   

Corporate debt securities

     1,682         1,682   

Time deposits

     1,523         1,523   
  

 

 

    

 

 

 

Total assets

   $ 10,068       $ 10,068   
  

 

 

    

 

 

 

Earnings Per Share

The Company uses the two-class method to calculate earnings per share (“EPS”) as the unvested restricted stock issued under the Company’s equity incentive plans are participating shares with nonforfeitable rights to dividends. Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings to common stockholders and undistributed earnings allocated to common stockholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and participating securities based on the number of weighted average shares outstanding during the period. Undistributed losses are not allocated to unvested restricted stock as the restricted stockholders are not obligated to share in the losses. The following table sets forth the computation of basic and diluted EPS:

 

     Three Months Ended
March 31,
 
     2013     2012  

Net loss

   $ (640   $ (4,481

Net loss allocated to unvested restricted stock

     0        0   
  

 

 

   

 

 

 

Net loss allocated to common shares

   $ (640   $ (4,481
  

 

 

   

 

 

 

Weighted average shares outstanding:

    

Basic

     27,759        27,321   

Effect of dilutive securities

     0        0   
  

 

 

   

 

 

 

Diluted

     27,759        27,321   
  

 

 

   

 

 

 

Basic loss per common share

   $ (0.02   $ (0.16
  

 

 

   

 

 

 

Diluted loss per common share

   $ (0.02   $ (0.16
  

 

 

   

 

 

 

In both the three months ended March 31, 2013 and 2012, diluted loss per common share is identical to basic loss per common share as the Company is in a net loss position and the impact of including common stock equivalents is anti-dilutive. In the three months ended March 31, 2013 and 2012, common stock equivalents representing 1,767,989 and 1,588,234 shares of common stock, respectively, were excluded from weighted average shares outstanding for diluted income per common share purposes because the effect would be anti-dilutive.

 

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Cash Flow Information

The Company made no payments for income taxes in both the three months ended March 31, 2013 and 2012, respectively. Interest payments in the three months ended March 31, 2013 and 2012 were $40 and $238, respectively. For the three months ended March 31, 2013, the Company had non-cash capital additions of $586 of unpaid invoices in accounts payable and accrued expenses. For the three months ended March 31, 2012, the Company had non-cash capital additions of $2,298 of unpaid invoices in accounts payable and accrued expenses.

Recently Issued Accounting Pronouncements

In February 2013, the FASB issued ASU No. 2013-02 which requires companies to present information about reclassifications out of accumulated other comprehensive income in a single note or on the face of the financial statements. The updated standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2012, with early adoption permitted. The adoption of this standard update did not impact the Company’s consolidated financial statements.

Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and operating expenses during the reporting period. Actual results could differ from these estimates.

Reclassifications

Certain reclassifications have been made to prior year amounts to conform to the current year presentation.

3. CREDIT FACILITY

On November 8, 2012, the Company entered into a $40,000 secured revolving credit facility, as amended, (the “Credit Facility”) with a lender. The Credit Facility can be drawn upon through November 8, 2015, at which time all amounts must be repaid. There were no borrowings outstanding at March 31, 2013.

The Credit Facility provides for interest at either a base rate or a LIBOR rate, in each case plus an applicable margin. The base rate will be the highest of (i) the Administrative Agent’s prime rate, (ii) 0.50% percent above the Federal Funds Rate and (iii) the LIBOR rate for deposits in dollars for a one-month interest period as determined three business days prior to such date, plus 1.50%. The LIBOR rate is equal to the London Inter-Bank Offered Rate for the relevant term. The applicable margin is subject to adjustment based on the Company’s consolidated fixed charge coverage ratio and ranges from 0.25-1.25% per year for base rate loans and from 1.75-2.75% per year for LIBOR rate loans. The Company will also pay an unused line fee. The unused line fee is subject to adjustment based on the Company’s consolidated fixed charge coverage ratio and ranges from 0.25-0.375% per year. During the three months ended March 31, 2013 and 2012, the Company incurred $0 and $194 in interest, respectively, and $40 and $53 in an unused line fee, respectively. Interest payments and unused line fees are classified within interest expense, net in the accompanying consolidated statements of operations.

The Credit Facility contains financial and other covenants including a minimum consolidated fixed charge ratio, a minimum consolidated tangible net worth and a minimum consolidated liquidity ratio, and includes limitations on, among other things, capital expenditures, additional indebtedness, acquisitions, stock repurchases and restrictions on paying dividends in certain circumstances. As of March 31, 2013, the Company was in compliance with all covenants contained in the Credit Facility. Any obligations under the Credit Facility by the Company, as well as certain banking services and hedging obligations, are secured by substantially all of the assets of the Company and certain subsidiaries.

At March 31, 2013, the Company had $183 of unamortized debt issuance costs associated with the Credit Facility that are being amortized over the remaining term of the Credit Facility.

 

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4. CAPITAL STOCK

Common Stock

The Company issued 600 and 4,668 shares of common stock upon the exercise of stock options in the three months ended March 31, 2013 and 2012, respectively. During the three months ended March 31, 2013 and 2012, employees surrendered to the Company 39,805 and 39,274 shares of common stock, respectively, valued at $339 and $446, respectively, in satisfaction of minimum tax withholding obligations associated with the vesting of equity awards. Subsequent to the approval of the Amended and Restated 2008 Long-Term Incentive Plan in September 2012, any of such shares are now included in treasury stock. Previously, these shares were retired. Costs recognized for common stock previously issued to board members and third-party marketing vendors as compensation were $195 and $224 for the three months ended March 31, 2013 and 2012, respectively. No new shares of common stock were issued to board members or third-party marketing vendors during either the three months ended March 31, 2013 or 2012. During both the three months ended March 31, 2013 and 2012, the Company paid a dividend of $0.175 per share to all stockholders of record.

In 2011, the Board of Directors of the Company authorized a stock repurchase program of up to $150,000 of the Company’s outstanding shares of common stock in open-market transactions on the NASDAQ Stock Market or through privately negotiated transactions, including block transactions. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, limitations under the credit facility, alternative investment opportunities and other market conditions. This stock repurchase program has an expiration date of June 30, 2013, but may be limited or terminated at any time by the Board of Directors without prior notice. No shares of common stock were repurchased during the three months ended March 31, 2013 or 2012.

Preferred Stock

The Company has authorized 5,000,000 shares of preferred stock issuable in series upon resolution of the Board of Directors. Unless otherwise required by law, the Board of Directors can, without stockholder approval, issue preferred stock in the future with voting and conversion rights that could adversely affect the voting power of the common stock. The issuance of preferred stock may have the effect of delaying, averting or preventing a change in control of the Company.

5. SHARE-BASED COMPENSATION EXPENSE

The following table summarizes the Company’s stock option activity during the three months ended March 31, 2013:

 

     Number of
Shares
    Weighted-
Average
Exercise Price
Per Share
     Weighted-
Average
Remaining
Contractual
Life (years)
     Aggregate
Intrinsic Value
 

Outstanding, January 1, 2013

     674,082      $ 11.65         

Granted

     384,895        8.49         

Exercised

     (600     0.58         

Forfeited/expired

     (276,074     14.19         
  

 

 

         

Outstanding, March 31, 2013

     782,303      $ 9.21         6.56       $ 267   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable, March 31, 2013

     82,102      $ 13.84         5.46       $ 2   
  

 

 

   

 

 

    

 

 

    

 

 

 

Expected to vest at March 31, 2013

     765,128      $ 9.20         6.56       $ 267   
  

 

 

   

 

 

    

 

 

    

 

 

 

The Company recorded compensation expense of $146 and $89 in the accompanying consolidated statements of operations during the three months ended March 31, 2013 and 2012, respectively, for stock option awards. The total intrinsic value of stock options exercised during the three months ended March 31, 2013 and 2012 was $4 and $43, respectively.

 

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The Company has issued restricted stock to employees generally with vesting terms ranging from two to five years. The fair value is equal to the market price of the Company’s common stock on the date of grant. Expense for restricted stock is amortized ratably over the vesting period. The following table summarizes the restricted stock activity for the three months ended March 31, 2013:

 

     Number of
Shares
    Weighted-
Average
Grant-Date
Fair Value
     Aggregate
Intrinsic Value
 

Nonvested, January 1, 2013

     830,128      $ 13.71      

Granted

     200,017        8.47      

Vested

     (131,664     13.36      

Forfeited

     (125,904     12.75      
  

 

 

      

Nonvested, March 31, 2013

     772,577      $ 12.57       $ 6,551   
  

 

 

   

 

 

    

 

 

 

Additionally, the Company grants restricted stock units. Prior to 2012 and in 2013, the restricted stock units were performance-based units. The performance-based units have performance conditions and service-based vesting conditions. Each vesting tranche is treated as an individual award and the compensation expense is recognized on a straight-line basis over the requisite service period for each tranche. The requisite service period is a combination of the performance period and the subsequent vesting period based on continued service. The level of achievement of such goals may cause the actual amount of units that ultimately vest to range from 0% to 200% of the original units granted. The Company recognizes expense ratably over the vesting period for performance-based restricted stock units when it is probable that the performance criteria specified will be achieved. The fair value is equal to the market price of the Company’s common stock on the date of grant.

In 2012, grants of restricted stock units contained market-based conditions. Market-based awards entitle employees to vest in a number of units determined by the Company’s stock price return as compared to a set of comparator companies over a period, and will range from 0% to 200% of the original units granted. The fair value is calculated using a Monte Carlo simulation model on the date of grant. Compensation expense is recognized over the derived service periods using the straight-line method regardless of the outcome of the market conditions, so long as the award holder remains an employee through the requisite service period.

The following table summarizes the restricted stock unit activity for the three months ended March 31, 2013:

 

     Number of
Restricted
Stock Units
    Weighted-
Average
Grant-Date
Fair Value
     Aggregate
Intrinsic Value
 

Nonvested, January 1, 2013

     133,190      $ 11.76      

Granted

     129,108        8.52      

Vested

     (33,541     17.53      

Forfeited

     (15,648     11.72      
  

 

 

      

Nonvested, March 31, 2013

     213,109      $ 8.89       $ 1,807   
  

 

 

   

 

 

    

 

 

 

The Company recorded compensation of $1,161 and $1,532 in the accompanying consolidated statements of operations for the three months ended March 31, 2013 and 2012, respectively, in connection with the issuance of the restricted stock and restricted stock units. As of March 31, 2013, 740,671 shares of restricted stock and 206,977 restricted stock units were expected to vest.

As of March 31, 2013, there was $10,091 of total unrecognized compensation expense related to unvested share-based compensation arrangements, including market-based units, which is expected to be recognized over a weighted-average period of 1.5 years. The total unrecognized compensation expense will be fully expensed through the first quarter of 2017.

6. COMMITMENTS AND CONTINGENCIES

Litigation

On August 5, 2011, a lawsuit was filed by a stockholder in the United States District Court for the Eastern District of Pennsylvania naming Nutrisystem, Inc., certain of its current directors and certain of its former officers and directors as defendants and alleging breaches by defendants of their fiduciary duties of candor, good faith and loyalty, unjust enrichment, and aiding and abetting from 2010 to the present in connection with the award of allegedly excessive and unwarranted 2010 executive compensation. Plaintiff specifically claims the action to be a failed “say-on-pay”

 

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shareholder derivative action stemming from the advisory, non-binding vote of the Company’s stockholders at its May 12, 2011 annual meeting in which the Company’s stockholders did not approve the Company’s 2010 executive compensation. On September 5, 2012 plaintiff, defendants and the plaintiff in the related state court lawsuit discussed in the following paragraph entered into a Stipulation and Agreement of Settlement with respect to all of the claims at issue under the respective lawsuits. On December 12, 2012, the court issued a final order and judgment approving the settlement. The Company’s entire exposure for these matters was expensed in 2012.

On September 1, 2011, a lawsuit was filed by another stockholder in the Court of Common Pleas of Montgomery County, Pennsylvania naming Nutrisystem, Inc., certain of its current directors and certain of its former officers and directors as defendants and alleging breaches by defendants of their fiduciary duties of care, candor, good faith and loyalty, unjust enrichment, and aiding and abetting from 2010 to the present in connection with the award of excessive and unwarranted 2010 executive compensation. This action stems from the same failed “say-on-pay” advisory, non-binding vote of the Company’s stockholders at its May 12, 2011 annual meeting in which the Company’s stockholders did not approve the Company’s 2010 executive compensation. On September 5, 2012 plaintiff, defendants and the plaintiff in the related federal court lawsuit discussed in the preceding paragraph entered into a Stipulation and Agreement of Settlement with respect to all of the claims at issue under the respective lawsuits. On December 12, 2012, the federal court issued a final order and judgment approving the settlement. On December 20, 2012, the state court judge issued an order to settle, discontinue, and end, and dismissed the state action with prejudice.

On March 6, 2012, in response to the filing by a competitor of numerous trademark applications containing the term “NUTRILITE” in various weight-loss and weight-management classes, the Company sent a cease and desist letter to the competitor claiming that its use of such mark is very similar to the Company’s “NUTRISYSTEM” mark for very similar Company goods and services in the weight-loss and weight-management industries. The Company alleged that such use would result in confusion amongst consumers with respect to the source of such goods and services and would constitute an infringement of the Company’s mark in violation of the Trademark Act of 1946 (the Lanham Act), as well as various other federal and state laws governing trademarks, unfair competition and deceptive trade practices, and would likely cause dilution of the Company’s famous and distinctive mark. On March 16, 2012, the competitor responded to such letter by filing a complaint for declaratory relief against the Company in the United States District Court for the Western District of Michigan (listed under docket number 1:12-cv-00256-RHB) asking the court to declare that plaintiff’s use and registration of its mark does not (i) constitute trademark infringement, federal unfair competition, federal dilution, (ii) violate certain Michigan statutes; and (iii) constitute common law trademark infringement or common law unfair competition. On April 27, 2012, the Company filed a motion to dismiss the complaint pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure for lack of subject matter jurisdiction. On May 29, 2012 plaintiff filed its brief in opposition to the Company’s motion to dismiss the complaint, and on June 15, 2012, the Company filed its reply brief in support of its motion to dismiss the complaint. On October 9, 2012, the court denied the Company’s motion to dismiss for lack of subject matter jurisdiction. On October 23, 2012, the Company filed its answer and affirmative defenses to plaintiff’s complaint for declaratory relief and counterclaims for trademark infringement in which it (i) denied each of plaintiff’s counts in the complaint, (ii) set forth various affirmative defenses to plaintiff’s claims, and (iii) asserted by way of counterclaim claims for trademark infringement and dilution arising from plaintiff’s intentional use of a confusingly similar mark for the purpose of unlawfully trading upon the Company’s goodwill, good name, and valuable business identity. On December 20, 2012, the court held a Rule 16 scheduling conference. On December 21, 2012, plaintiff filed its first request for production of documents and things to the Company and plaintiff’s first set of interrogatories to the Company. On February 1, 2013, the Company filed its first request for production of documents directed to plaintiff. On March 8, 2013, (i) plaintiff filed a motion for leave to file its first amended complaint and its memorandum in support thereof, and (ii) the Company moved for leave to file amended counterclaims and included its memorandum in support thereof. The Company opposed plaintiff’s request for leave to amend as futile, and after argument held April 3, 2013 on plaintiff’s motion, the Court granted both plaintiff and the Company leave to file their amended pleadings and declared the pleadings to be filed that same day. As a consequence, plaintiff’s amended complaint now asserts, in the alternative, affirmative claims for trademark infringement and unfair competition under federal law and for violation of the Michigan Consumer Protection Act, and the Company’s amended counterclaims now assert federal trademark infringement, false designation of origin and federal unfair competition, federal trademark dilution, federal cyberpiracy, and state law trademark infringement, unfair competition and other claims. The parties are about to embark on discovery. The Company believes that plaintiff’s claims against the Company are without merit and intends to defend the litigation vigorously.

 

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The Company is also involved in other various claims and routine litigation matters. In the opinion of management, after consultation with legal counsel, the outcomes of such matters are not anticipated to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows in future years.

Contractual Commitments

The Company has entered into supply agreements with various food vendors. The majority of these agreements provide for annual pricing and annual purchase obligations, as well as exclusivity in the production of certain products, with terms of five years or less. One agreement also provides rebates if certain volume thresholds are exceeded. The Company anticipates it will meet all annual purchase obligations in 2013.

7. INCOME TAXES

The Company recorded income taxes at an estimated effective income tax rate applied to loss before income taxes of 43.8% and 36.9% in the three months ended March 31, 2013 and 2012, respectively. The Company offsets taxable income for state tax purposes with net operating loss carryforwards. At December 31, 2012, the Company had net operating loss carryforwards of approximately $14,526 for state tax purposes. For state tax purposes, there is a limitation on the amount of net operating loss carryforwards that can be utilized in a given year to offset state taxable income and management believes that some of the net operating loss carryforwards will be subject to this annual limit in 2013. State net operating loss carryforwards will begin to expire in 2024. The total amount of gross unrecognized tax benefits as of both March 31, 2013 and December 31, 2012 was $1,474. The total amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate is approximately $958.

Based on the projected level of future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the net deferred tax assets.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Special Note Regarding Forward-Looking Statements

From time to time, information provided by us, including but not limited to statements in this Quarterly Report, or other statements made by or on our behalf, may contain “forward-looking” information within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “believe,” “estimate,” “will be,” “will,” “would,” “expect,” “anticipate,” “plan,” “project,” “intend,” “could,” “should,” or other similar words or expressions often identify forward-looking statements.

Such statements are based on current expectations only, and are subject to certain risks, uncertainties, and assumptions, many of which are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results, performance, or achievements may vary materially from those anticipated, estimated, or projected. Among the factors that could cause actual results to materially differ include:

 

   

competition from other weight management industry participants or the development of more effective or more favorably perceived weight management methods;

 

   

our ability to continue to develop innovative new programs and enhance our existing programs, or the failure of our programs to continue to appeal to the market;

 

   

the effectiveness of our marketing and advertising programs;

 

   

loss, or disruption in the business of, any of our food suppliers;

 

   

loss, or disruption in the business, of our fulfillment provider;

 

   

disruptions in the shipping of our food products;

 

   

health or advertising related claims by consumers;

 

   

failure to attract or negative publicity with respect to any of our spokespersons;

 

   

our ability to successfully make acquisitions or enter into joint ventures, including our ability to successfully integrate, operate or realize the projected benefits of such businesses;

 

   

general business and economic conditions, particularly the pace, continuation, and possible reversal of the recovery in the worldwide economy;

 

   

the seasonal nature of our business;

 

   

our ability to enforce our intellectual property rights, as well as the impact of our involvement in any claims related to intellectual property rights;

 

   

uncertainties regarding the satisfactory operation of our information technology or systems;

 

   

risks associated with unauthorized penetration of our information security;

 

   

the impact of existing and future laws and regulations;

 

   

the impact of our debt service obligations and restrictive debt covenants;

 

   

our inability to recruit and retain key executive officers; and

 

   

other risks and uncertainties, including those detailed from time to time in our periodic reports filed with the Securities and Exchange Commission.

 

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We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Our 2012 Annual Report on Form 10-K listed various important factors that could cause actual results to differ materially from projected and historic results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. Readers can find them in Part I, Item 1A, of that filing under the heading “Risk Factors.” We incorporate that section of that Annual Report on Form 10-K in this filing and investors should refer to it. Reference is also made to Part II, Item 1A, “Risk Factors,” of this Quarterly Report on Form 10-Q. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

The following discussion should be read in conjunction with the financial information included elsewhere in this Quarterly Report on Form 10-Q.

Background

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 over 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, through QVC, a television shopping network and a new retail program.

Revenue consists primarily of food sales. For the three months ended March 31, 2013, the direct channel accounted for 92% of total revenue compared to 5% for QVC and 3% for retail. For the three months ended March 31, 2012, the direct channel accounted for 95% of total revenue compared to 4% for QVC and 1% for other. We incur significant marketing expenditures to support our brand as we continue to advertise across various media channels. New media channels are tested on a continual basis and we consider our media mix to be diverse. We market our weight management system through television, print, direct mail, Internet, public relations and social media. We review and analyze a number of key operating and financial metrics to manage our business, including the number of new customers, revenue per customer, total revenues, marketing per new customer, operating margins and reactivation revenue.

Our mix of revenue can be divided into three categories. First, new customer revenue is all revenue within a quarter from customers joining within that quarter. New customer revenue is the main driver of revenue growth. Second, on-program revenue is all revenue from customers who joined in previous quarters but who are still within their first nine months on the program. Third, reactivation revenue is all revenue generated from customers who are more than nine months from their initial purchase.

Our eCommerce, direct-to-consumer business model provides flexibility which allows us to manage marketing spend according to customer demand. We believe this flexibility is especially valuable due to the current instability in general economic conditions. Additionally, we initiated a concerted effort to improve lifetime customer economics, length of stay, and overall customer satisfaction and are continuously redesigning our eCommerce platform and website. Our product offerings have expanded to include frozen foods, and we entered into the retail channel and introduced the Nutrisystem® D® program during the last several years. Further, we have taken steps to reduce our overall operating costs.

Over the past several years our financial performance has been adversely impacted by a number of factors, including the economic downturn, declines in consumers’ discretionary spending and increased competitive activity. We believe these factors have primarily driven the decline in the number of new customer starts. We have been hampered by continued bargain-focused consumer behavior and economic concerns and reacted with discounted sales promotions, thus reducing average selling prices and gross margins which have been partially offset by increased marketing efficiency.

 

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As we began 2013, we renewed our focus to the following key areas: 1) a return to direct marketing fundamentals including building and leveraging our database; 2) margin improvement; 3) product and program innovation; and 4) prioritization of growth initiatives. During the three months ended March 31, 2013, we have reduced the size of the senior management team and reorganized the workforce to align around key priorities resulting in approximately $1.4 million in severance, including $326,000 of non-cash expense related to the acceleration of previously awarded equity-based awards. Gross margins have improved by eliminating free promotional items and process re-engineering. Additionally, we have continued to optimize our marketing spend and have worked to reduce our reliance on price discounting. We expect continued pressure on revenue growth at least through the first six months of 2013.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. Our significant accounting policies are described in Note 2 of the consolidated financial statements included in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2012.

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Management develops, and changes periodically, these estimates and assumptions based on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The accounting estimates we consider critical include reserves for returns, excess and obsolete inventory and income taxes. These critical accounting estimates are discussed with our audit committee quarterly.

During the three months ended March 31, 2013, we did not make any material change to our critical accounting policies.

Results of Operations

Revenue and expenses consist of the following components:

Revenue. Revenue consists primarily of food sales. Food sales include sales of food, supplements, shipping and handling charges billed to customers and sales credits and adjustments, including product returns. No revenue is recorded for food products provided at no charge as part of promotions.

Cost of Revenue. Cost of revenue consists primarily of the cost of the products sold, including compensation related to fulfillment, the costs of outside fulfillment, incoming and outgoing shipping costs, charge card fees and packing material. Cost of products sold includes products provided at no charge as part of promotions and the non-food materials provided with customer orders.

Marketing Expense. Marketing expense includes media, advertising production, marketing and promotional expenses and payroll-related expenses, including share-based payment arrangements, for personnel engaged in these activities. Internet advertising expense is recorded based on either the rate of delivery of a guaranteed number of impressions over the advertising contract term or on a cost per customer acquired, depending upon the terms. Direct-mail advertising costs are capitalized if the primary purpose was to elicit sales to customers who could be shown to have responded specifically to the advertising and results in probable future economic benefits. The capitalized costs are amortized to expense over the period during which the future benefits are expected to be received. All other advertising costs are charged to expense as incurred or the first time the advertising takes place.

General and Administrative Expense. General and administrative expense consists of compensation for administrative, information technology, counselors, customer service and sales personnel, share-based payment arrangements for related employees, facility expenses, website development costs, professional service fees and other general corporate expenses.

Interest Expense, Net. Interest expense, net consists of interest expense on our outstanding indebtedness net of interest income earned on cash balances and short term investments.

Income Taxes. We are subject to corporate level income taxes and record a provision (benefit) for income taxes based on an estimated effective income tax rate for the year.

 

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Overview of the Direct Channel

In the three months ended March 31, 2013 and 2012, the direct channel represented 92% and 95%, respectively, of our revenue. Revenues through the direct channel were $97.1 million in the three months ended March 31, 2013 compared to $121.5 million in the same period of 2012. Revenue is primarily generated through customer starts, reactivation of former customers and the customer ordering behavior, including length of time on our program and the diet program selection. The decrease in revenue is primarily attributable to declines in new customers and on-program revenue which offset increased reactivation revenue. We experienced a weak response to our 2013 diet season creative and began 2013 with lower on-program customers. Critical to increasing customer starts is our ability to deploy marketing dollars while maintaining marketing effectiveness. Factors influencing our marketing effectiveness include the quality of the advertisements, promotional activity by our competitors, as well as the price and availability of appropriate media.

 

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Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

 

     Three Months Ended March 31,  
     2013     2012     $ Change     % Change  
     (in thousands)  

REVENUE

   $ 105,384      $ 128,517      $ (23,133     (18 )% 
  

 

 

   

 

 

   

 

 

   

COSTS AND EXPENSES:

        

Cost of revenue

     52,353        70,529        (18,176     (26 )% 

Marketing

     36,316        45,667        (9,351     (20 )% 

General and administrative

     15,251        16,315        (1,064     (7 )% 

Depreciation and amortization

     2,549        2,836        (287     (10 )% 
  

 

 

   

 

 

   

 

 

   

Total costs and expenses

     106,469        135,347        (28,878     (21 )% 
  

 

 

   

 

 

   

 

 

   

Operating loss

     (1,085     (6,830     5,745        84

INTEREST EXPENSE, net

     (53     (274     221        81
  

 

 

   

 

 

   

 

 

   

Loss before income taxes

     (1,138     (7,104     5,966        84

INCOME TAX BENEFIT

     (498     (2,623     2,125        81
  

 

 

   

 

 

   

 

 

   

Net loss

   $ (640   $ (4,481   $ 3,841        86
  

 

 

   

 

 

   

 

 

   

% of revenue

        

Gross margin

     50.3     45.1    

Marketing

     34.5     35.5    

General and administrative

     14.5     12.7    

Operating loss

     (1.0 )%      (5.3 )%     

Revenue. Revenue decreased to $105.4 million in the first quarter of 2013 from $128.5 million for the first quarter of 2012. The decrease in revenue is primarily attributable to declines in new customers and on-program revenue which offset increased reactivation revenue. We experienced a weak response to our 2013 diet season creative and began 2013 with lower on-program customers. In the first quarter of 2013, the direct channel accounted for 92% of total revenue compared to 5% for QVC and 3% for retail. In the first quarter of 2012, the direct channel accounted for 95% of total revenue compared to 4% for QVC and 1% for other.

Costs and Expenses. Cost of revenue decreased to $52.4 million in the first quarter of 2013 from $70.5 million in the first quarter of 2012. Gross margin as a percent of revenue increased to 50.3% in the first quarter of 2013 from 45.1% for the first quarter of 2012. The increase in gross margin was primarily attributable to pricing discipline, the removal of certain promotional items and free food promotions and process re-engineering.

Marketing expense decreased to $36.3 million in the first quarter of 2013 from $45.7 million in the first quarter of 2012. Marketing expense as a percent of revenue decreased to 34.5% in the first quarter of 2013 from 35.5% for the first quarter of 2012. Substantially all marketing spending promoted the direct business. The decrease in marketing expense was primarily attributable to decreased spending for advertising media ($8.9 million) and public relations ($1.3 million). These decreases were offset by an increase in marketing consulting ($354,000) and television production ($125,000). In total, media spending was $31.4 million in the first quarter of 2013 and $40.3 million in the first quarter of 2012.

General and administrative expense decreased to $15.3 million in the first quarter of 2013 compared to $16.3 million in the first quarter of 2012. General and administrative expense as a percent of revenue increased to 14.5% in the first quarter of 2013 from 12.7% for the first quarter of 2012. The decrease in spending was primarily attributable to lower compensation, benefits and temporary help ($1.4 million), decreased non-cash expense for share-based payment arrangements ($489,000) and lower facilities expense ($237,000). In the first quarter of 2013, we recorded approximately $1.4 million in severance, including $326,000 of non-cash expense related to the acceleration of previously awarded equity-based awards.

 

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Depreciation and amortization expense decreased to $2.5 million in the first quarter of 2013 compared to $2.8 million in the first quarter of 2012.

Interest Expense, Net. Interest expense, net was $53,000 in the first quarter of 2013 compared to $274,000 in the first quarter of 2012 as no amounts were outstanding under the debt facility during the three months ended March 31, 2013. During the three months ended March 31, 2012, we had $30.0 million in borrowings outstanding.

Income Tax Benefit. In the first quarter of 2013, we recorded an income tax benefit of $498,000, which reflects an effective income tax rate of 43.8%. In the first quarter of 2012, we recorded an income tax benefit of $2.6 million, which reflects an effective income tax rate of 36.9%. The increase in the effective income tax rate was due to changes in executive compensation, for which the deduction is limited, and a research and development tax credit recorded in the first quarter of 2013.

Contractual Obligations and Commercial Commitments

As of March 31, 2013, our principal commitments consisted of obligations under supply agreements with food vendors, an agreement with our outside fulfillment provider, operating leases and employment contracts. Although we have no material commitments for capital expenditures, we anticipate continuing requirements for capital expenditures.

During the three months ended March 31, 2013, there were no items that significantly impacted our commitments and contingencies as disclosed in the notes to the consolidated financial statements for the year ended December 31, 2012, as included in our Annual Report on Form 10-K. In addition, we have no off-balance sheet financing arrangements.

Liquidity, Capital Resources and Other Financial Data

At March 31, 2013, we had working capital of $26.4 million, compared to working capital of $31.4 million at December 31, 2012. Cash and cash equivalents at March 31, 2013 were $20.7 million, an increase of $4.5 million from the balance of $16.2 million at December 31, 2012. In addition, we had $14.4 million invested in short term investments at March 31, 2013 as compared to $3.2 million at December 31, 2012. Our principal sources of liquidity during this period were cash flow from operations.

On November 8, 2012, we entered into a $40.0 million secured revolving credit facility, as amended, with a lender. The $40.0 million credit facility provides for interest on borrowings at either a base rate or a London Inter-Bank Offered Rate, in each case plus an applicable margin, and is also subject to an unused fee payable quarterly. The $40.0 million credit facility contains financial and other covenants including a minimum consolidated fixed charge ratio, a minimum consolidated tangible net worth and a minimum consolidated liquidity ratio, and includes limitations on, among other things, capital expenditures, additional indebtedness, acquisitions, stock repurchases and restrictions on paying dividends in certain circumstances. The $40.0 million credit facility can be drawn upon through November 8, 2015, at which time all amounts must be repaid. As of March 31, 2013, no amounts were outstanding under the $40.0 million credit facility.

In the three months ended March 31, 2013, we generated cash flow of $22.4 million from operating activities, an increase of $7.3 million from 2012. The increase in cash flow from operations was primarily attributable to a greater net loss recorded during the three months ended March 31, 2012 and net changes in operating assets and liabilities.

In the three months ended March 31, 2013, net cash used in investing activities was $12.7 million primarily for purchases of short term investments.

In the three months ended March 31, 2013, net cash used in financing activities was $5.2 million primarily for the payment of dividends.

 

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On July 28, 2011, we announced that our Board of Directors had authorized the repurchase of up to $150.0 million of our outstanding shares of common stock in open-market transactions on the NASDAQ Stock Market or through privately negotiated transactions, including block transactions. The timing and actual number of shares repurchased depend on a variety of factors including price, corporate and regulatory requirements, limitations under the credit facility, alternative investment opportunities and other market conditions. The stock repurchase program has an expiration date of June 30, 2013 but may be limited or terminated at any time without prior notice.

Subsequent to March 31, 2013, our Board of Directors declared a quarterly dividend of $0.175 per share payable on May 23, 2013 to stockholders of record as of May 13, 2013. Although we intend to continue to pay regular quarterly dividends, the declaration and payment of future dividends are discretionary and will be subject to quarterly determination by our Board of Directors following its review of our financial performance.

We believe that our available capital resources are sufficient to fund our working capital requirements, capital expenditures, income tax obligations, dividends and share repurchases for the foreseeable future.

Seasonality

Typically in the weight loss industry, revenue is strongest in the first calendar quarter and lowest in the fourth calendar quarter. We believe our business experiences seasonality, driven by the predisposition of dieters to initiate a diet and the price and availability of certain media.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We believe that we are not subject to any material risks arising from changes in foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk instruments. Our cash and cash equivalents at March 31, 2013 of $20.7 million were maintained in bank and money market accounts. Additionally, we have $14.4 million invested in short term investments, which are classified as available-for-sale securities and are reported at fair value in the accompanying consolidated balance sheets. As such, a change in interest rates of 1 percentage point would not have a material impact on our operating results and cash flows.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures. The SEC defines the term “disclosure controls and procedures” to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Based on the evaluation of the effectiveness of our disclosure controls and procedures by our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, as of the end of the period covered by this report, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures at the end of the period covered by this report are designed at a reasonable assurance level and are effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.

(b) Changes in Internal Control Over Financial Reporting. No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended March 31, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

Litigation

On August 5, 2011, a lawsuit was filed by a stockholder in the United States District Court for the Eastern District of Pennsylvania naming Nutrisystem, Inc., certain of its current directors and certain of its former officers and directors as defendants and alleging breaches by defendants of their fiduciary duties of candor, good faith and loyalty, unjust enrichment, and aiding and abetting from 2010 to the present in connection with the award of allegedly excessive and unwarranted 2010 executive compensation. Plaintiff specifically claims the action to be a failed “say-on-pay” shareholder derivative action stemming from the advisory, non-binding vote of the Company’s stockholders at its May 12, 2011 annual meeting in which the Company’s stockholders did not approve the Company’s 2010 executive compensation. On September 5, 2012 plaintiff, defendants and the plaintiff in the related state court lawsuit discussed in the following paragraph entered into a Stipulation and Agreement of Settlement with respect to all of the claims at issue under the respective lawsuits. On December 12, 2012, the court issued a final order and judgment approving the settlement. The Company’s entire exposure for these matters was expensed in 2012.

On September 1, 2011, a lawsuit was filed by another stockholder in the Court of Common Pleas of Montgomery County, Pennsylvania naming Nutrisystem, Inc., certain of its current directors and certain of its former officers and directors as defendants and alleging breaches by defendants of their fiduciary duties of care, candor, good faith and loyalty, unjust enrichment, and aiding and abetting from 2010 to the present in connection with the award of excessive and unwarranted 2010 executive compensation. This action stems from the same failed “say-on-pay” advisory, non-binding vote of the Company’s stockholders at its May 12, 2011 annual meeting in which the Company’s stockholders did not approve the Company’s 2010 executive compensation. On September 5, 2012 plaintiff, defendants and the plaintiff in the related federal court lawsuit discussed in the preceding paragraph entered into a Stipulation and Agreement of Settlement with respect to all of the claims at issue under the respective lawsuits. On December 12, 2012, the federal court issued a final order and judgment approving the settlement. On December 20, 2012, the state court judge issued an order to settle, discontinue, and end, and dismissed the state action with prejudice.

On March 6, 2012, in response to the filing by a competitor of numerous trademark applications containing the term “NUTRILITE” in various weight-loss and weight-management classes, the Company sent a cease and desist letter to the competitor claiming that its use of such mark is very similar to the Company’s “NUTRISYSTEM” mark for very similar Company goods and services in the weight-loss and weight-management industries. The Company alleged that such use would result in confusion amongst consumers with respect to the source of such goods and services and would constitute an infringement of the Company’s mark in violation of the Trademark Act of 1946 (the Lanham Act), as well as various other federal and state laws governing trademarks, unfair competition and deceptive trade practices, and would likely cause dilution of the Company’s famous and distinctive mark. On March 16, 2012, the competitor responded to such letter by filing a complaint for declaratory relief against the Company in the United States District Court for the Western District of Michigan (listed under docket number 1:12-cv-00256-RHB) asking the court to declare that plaintiff’s use and registration of its mark does not (i) constitute trademark infringement, federal unfair competition, federal dilution, (ii) violate certain Michigan statutes; and (iii) constitute common law trademark infringement or common law unfair competition. On April 27, 2012, the Company filed a motion to dismiss the complaint pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure for lack of subject matter jurisdiction. On May 29, 2012 plaintiff filed its brief in opposition to the Company’s motion to dismiss the complaint, and on June 15, 2012, the Company filed its reply brief in support of its motion to dismiss the complaint. On October 9, 2012, the court denied the Company’s motion to dismiss for lack of subject matter jurisdiction. On October 23, 2012, the Company filed its answer and affirmative defenses to plaintiff’s complaint for declaratory relief and counterclaims for trademark infringement in which it (i) denied each of plaintiff’s counts in the complaint, (ii) set forth various affirmative defenses to plaintiff’s claims, and (iii) asserted by way of counterclaim claims for trademark infringement and dilution arising from plaintiff’s intentional use of a confusingly similar mark for the purpose of unlawfully trading upon the Company’s goodwill, good name, and valuable business identity. On December 20, 2012, the court held a Rule 16 scheduling conference. On December 21, 2012, plaintiff filed its first request for production of documents and things to the Company and plaintiff’s first set of interrogatories to the Company. On February 1, 2013, the Company filed its first request for production of documents directed to plaintiff. On March 8, 2013, (i) plaintiff filed a motion for leave to file its first amended complaint and its memorandum in support thereof, and (ii) the Company moved for leave to file amended counterclaims and included its memorandum in support thereof. The Company opposed plaintiff’s request for leave to amend as futile, and after argument held April 3, 2013 on plaintiff’s motion, the Court granted both plaintiff and the Company leave to file their

 

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Table of Contents

amended pleadings and declared the pleadings to be filed that same day. As a consequence, plaintiff’s amended complaint now asserts, in the alternative, affirmative claims for trademark infringement and unfair competition under federal law and for violation of the Michigan Consumer Protection Act, and the Company’s amended counterclaims now assert federal trademark infringement, false designation of origin and federal unfair competition, federal trademark dilution, federal cyberpiracy, and state law trademark infringement, unfair competition and other claims. The parties are about to embark on discovery. The Company believes that plaintiff’s claims against the Company are without merit and intends to defend the litigation vigorously.

The Company is also involved in other various claims and routine litigation matters. In the opinion of management, after consultation with legal counsel, the outcomes of such matters are not anticipated to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows in future years.

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2012.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities

There were no reportable purchases during the quarter ended March 31, 2013, provided however that 39,805 shares, at an average purchase price of $8.53, were surrendered by employees to the Company during such quarter for the payment of the minimum tax liability withholding obligations upon the vesting of shares of restricted stock.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

 

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Item 6. Exhibits

 

10.1    Letter Agreement dated April 19, 2013, between Nutrisystem, Inc. and Michael Monahan.
31.1    Certifying Statement of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2    Certifying Statement of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1    Certifying Statement of the Chief Executive Officer pursuant to Section 1350 of Title 18 of the United States Code.
32.2    Certifying Statement of the Chief Financial Officer pursuant to Section 1350 of Title 18 of the United States Code.
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Nutrisystem, Inc.

 

BY:   /S/ Dawn M. Zier       May 8, 2013
  Dawn M. Zier      
  President and Chief Executive Officer      
  (principal executive officer)      
BY:   /S/ Kathleen Simone       May 8, 2013
  Kathleen Simone      
  Senior Vice President and Interim Chief Financial Officer      
  (principal financial and accounting officer)      

 

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Table of Contents

Exhibit Index

 

No.

  

Description

10.1    Letter Agreement dated April 19, 2013, between Nutrisystem, Inc. and Michael Monahan.
31.1    Certifying Statement of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2    Certifying Statement of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1    Certifying Statement of the Chief Executive Officer pursuant to Section 1350 of Title 18 of the United States Code.
32.2    Certifying Statement of the Chief Financial Officer pursuant to Section 1350 of Title 18 of the United States Code.
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document

 

26

EX-10.1 2 d529358dex101.htm EX10.1 EX10.1

Exhibit 10.1

Execution Copy

 

LOGO

April 19, 2013

Mr. Michael T. Monahan

[Address Redacted]

Dear Mike:

We are pleased to extend to you (“Executive”) an offer to join NutriSystem, Inc. (the “the Company”) on the terms set forth in this letter agreement (this “Agreement”).

 

Commencement Date:    On or before May 27, 2013
Title/Reporting:    Executive Vice President-Administration and Chief Financial Officer (the “Executive”), reporting to the Company’s Chief Executive Officer. Executive will devote his full business time and best efforts to the performance of his duties for the Company; provided, however, that Executive shall be able to manage his personal investments or to engage in or serve such civic, community, charitable, educational, or religious organizations as he may select, so long as such service does not create a conflict of interest with, or interfere with the performance of, Executive’s duties hereunder or conflict with Executive’s covenants under the restrictive covenants agreement (attached hereto as Exhibit A), which Executive is required to execute as a condition of his employment.
At-Will Employment:    Executive will be an at-will employee, which means that his employment may be terminated by either the Company or by him at any time, for any reason. Upon any cessation of his employment, except as otherwise provided herein, Executive’s entitlement will be limited to the payment of Base Salary accrued but unpaid through the effective date of that cessation.
Annual Base Salary:    $300,000, subject to annual review.
Initial Equity Grant:    On the Commencement Date Executive will receive an equity grant (the “Initial Equity Grant”) with a grant date fair value of $300,000, with such grant date fair value allocated as follows: 25% Performance RSUs (the “Inducement PRSUs”), 25% Non-Qualified Stock Options and 50% Restricted Shares. The terms of the Performance RSUs will be established by the Compensation Committee (“Compensation Committee”) of the Company’s Board of Directors (“Board”) and will be substantially similar to the terms of the Performance RSUs applicable to the Company’s other executive officers. Restricted Shares and Options are time-based vesting 25% per year.

 

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Annual Cash Bonus Opportunity:    Target annual bonus will be 70% of the then current Base Salary. Actual range of payout will be 0 to 150% of the target, based on actual performance against objectives established by the Compensation Committee for the Company’s other executive officers. Bonuses are paid within 2 1/2 months following the end of the relevant fiscal year. Except as otherwise provided herein, Executive will be required to remain employed through the applicable bonus payment date in order to receive any bonus.
Annual Equity Incentives:    Equity awards will be determined annually by the Compensation Committee in its discretion; provided, however, that for 2013, the awarded annual grant date fair value will be $340,000, which is the approved amount sufficient to achieve the 50th percentile of executive pay benchmarking for total direct compensation (TDC), excluding the Initial Equity Grant. The components and terms of the 2013 grant will be substantially consistent with the components and terms of 2013 annual grants made to the Company’s other executive officers.
Benefits; Expenses:    Executive will participate in the same vacation policies, benefit programs, and health, life and disability coverages (as in effect from time to time and on terms and conditions consistent with those) provided to the Company’s other senior executives. The Company will reimburse Executive, in accordance with the Company’s policy, for reasonable out of pocket travel and other expenses that he incurs in connection with his employment.
Definitions:    Cause” means: (a) Executive is convicted of a felony, or (b) in the reasonable determination of the Board, Executive has done any one of the following: (1) committed an act of fraud, embezzlement, or theft in the course of his employment, (2) caused intentional, wrongful damage to the property of the Company, (3) Executive’s material breach of any agreement with the Company or its affiliates, any duty owed to the Company or its stockholders or any published policy of the Company, which breach (if curable) is not cured within 30 days after receiving written notice from the Board specifying the details of the breach, or (4) engaged in gross misconduct or gross negligence in the course of employment. For avoidance of doubt, a termination due to Executive suffering a “Disability” will not constitute a termination “without Cause.” For this purpose, “Disability” means a condition entitling Executive to benefits under any Company sponsored or funded long term disability plan or policy.
   Good Reason” means: (a) a material diminution of Executive’s title, authority, duties or responsibilities; (b) a material reduction in Executive’s then current Base Salary or annual bonus target opportunity; (c) a material change in the geographic location at which Executive performs services for the Company, which for this purpose shall mean the relocation of the Company’s headquarters by more than

 

2


   50 miles; and (d) a material breach of this Agreement by the Company; provided that any such event will constitute Good Reason only if Executive notifies the Company in writing of such event within 90 days following the initial occurrence thereof, the Company fails to cure such event within 30 days after receipt from Executive of such written notice thereof, and Executive resigns his employment within 30 days following the expiration of that cure period.
Severance; Post-Termination Restrictive Covenants:   

In the event of a termination by the Company without Cause or a resignation by Executive for Good Reason, Executive will be entitled to:

 

(a) One year continuation of Base Salary at customary payroll intervals.

 

(b) One year continuation of group health benefits at active employee rates.

 

(c) Continued eligibility for a pro-rata portion of the annual cash bonus for the year of termination, based on actual performance in that year.

 

(d) If such termination occurs after the second anniversary of the Commencement Date: (i) any time-vested equity awards under the Initial Equity Grant that remain unvested shall vest, and (ii) if such termination occurs prior to the end of the performance period for the Inducement PRSUs, Executive will remain eligible to earn a pro-rata portion of those PRSUs based on actual performance through the end of that performance period and pro-rated based on the number of days of service completed during that performance period.

 

All severance benefits are conditioned on: (1) Executive’s execution and delivery to the Company of a general release of claims against the Company and its affiliates, substantially in a form approved by the Board (the “Release”); (2) such Release becoming irrevocable within 30 days following the Company’s delivery of such Release to Executive; and (3) Executive’s continued compliance with his restrictive covenant obligations to the Company. Except for items (c) and (d)(ii) above, these payments and benefits will be paid or provided (or begin to be paid or provided, as applicable) on the first regularly scheduled payroll date that occurs after the Release becomes irrevocable; provided, however, that if the 30-day period described above begins in one taxable year and ends in a second taxable year, such payments or benefits shall not commence until the second taxable year. The payments, if any, required by item (c) and (d)(ii) above will be paid within 2 1/2 months following the end of the applicable performance period.

 

3


Section 409A:    Notwithstanding anything herein to the contrary, to the extent compliance with the requirements of Treas. Reg. § 1.409A-3(i)(2) (or any successor provision) is necessary to avoid the application of an additional tax under Section 409A of the Internal Revenue Code (“Section 409A”) to any payments due to Executive upon or following his Separation from Service (within the meaning of Treas. Reg. § 1.409A-1(h)(1) or any successor provision)), then notwithstanding any other provision of this Agreement (or any otherwise applicable plan, policy, agreement or arrangement), any such payments that are otherwise due within 6 months following Executive’s Separation from Service will be deferred without interest and paid to Executive in a lump sum immediately following the end of such 6-month period. This paragraph should not be construed to prevent the application of Treas. Reg. §§ 1.409A-1(b)(4) or -1(b)(9)(iii) (or any successor provisions) to amounts payable to Executive. For purposes of the application of Treas. Reg. § 1.409A-1(b)(4) (or any successor provision) to amounts payable hereunder, each payment in a series of payments will be deemed a separate payment.
   While the parties have endeavored to structure Executive’s compensation rights so that payments to him are exempt from or compliant with Section 409A, the Company makes no representation to Executive in this regard and will have no obligation to indemnify Executive for taxes or interest imposed under Section 409A.
Indemnification:    Executive will be entitled to indemnification for acts performed or omissions made in his capacity as an officer of the Company to the extent provided in the Company’s governing documents.
Other:   

(a) Executive will be subject to all corporate policies applicable to executive officers, including the Company’s securities trading policy, anti-hedging policy, clawback policy and stock ownership guidelines.

 

(b) All payments (or transfers of property) to Executive will be subject to tax withholding to the extent required by applicable law.

 

(c) Both during and following his service with the Company, Executive agrees to cooperate with the Company in connection with any action or proceeding (or any appeal from any action or proceeding) that relates to events occurring during Executive’s employment by the Company. After Executive’s employment ceases, the Company will provide reasonable advance notice of its need for Executive’s cooperation and will attempt to schedule and limit the need for Executive’s cooperation so as to minimize any disruption of Executive’s personal and other professional obligations. The Company will reimburse Executive, in accordance with the Company’s policy, for reasonable out-of-pocket travel and other expenses that she incurs as a result of his cooperation.

 

(d) Executive represents and warrants to the Company that there are no orders, judgments, decrees, restrictions, agreements or understandings by which she is bound that would prevent or make

 

4


  

unlawful his execution of this Agreement, that would be inconsistent or in conflict with this Agreement or his obligations hereunder, or that would otherwise prevent, limit or impair the performance of his duties to the Company.

 

(e) Notices permitted or required under this Agreement shall be in writing and shall be deemed to have been duly given when delivered by hand or overnight courier addressed, in the case of the Company, c/o its General Counsel at its principal executive office and, in the case of Executive, to his most recent address set forth in the personnel records of the Company.

 

(f) This Agreement shall inure to the benefit of, and shall be binding upon, the parties, their heirs, executors, administrators, agents, successors, permitted assigns, and estates, provided that Executive’s rights and obligations under this Agreement are personal to him and may not be assigned.

 

(g) This Agreement is governed by Pennsylvania law, without regard to the principles of conflicts of laws. Any disputes, actions, claims or causes of action arising out of or in connection with this Agreement or the employment relationship between the Company and Executive shall be subject to the exclusive jurisdiction of the United States District Court for the Eastern District of Pennsylvania or the Pennsylvania state courts located in Montgomery County.

 

(h) This Agreement sets forth the parties’ entire agreement regarding Executive’s employment and compensation by the Company and supersedes all prior agreements discussions and understandings on those topics. This Agreement may not be modified in any way except by a written amendment executed by Executive and a duly authorized representative of the Company.

#        #        #         #        #

[Remainder of page intentionally left blank; signature page follows]

 

5


Your signature below confirms that all information provided to us during the interview and hiring process is true and accurate in all material respects. To indicate your acceptance of our offer and its terms, please sign and date this Agreement in the space provided below and return it to me. Please retain a copy for your records.

 

Sincerely,

/s/ Dawn M. Zier

Dawn M. Zier
President and CEO

 

Agreed and accepted on April 19, 2013:
By:  

/s/ Michael T. Monahan

  Michael T. Monahan

 

6

EX-31.1 3 d529358dex311.htm EX-31.1 EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer of Nutrisystem, Inc.

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Dawn M. Zier, certify that:

 

  1. I have reviewed this quarterly report on Form 10-Q of Nutrisystem, Inc.;

 

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

  4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 8, 2013

/S/ Dawn M. Zier
Dawn M. Zier
President and Chief Executive Officer
(Principal Executive Officer)
EX-31.2 4 d529358dex312.htm EX-31.2 EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer of Nutrisystem, Inc.

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Kathleen Simone, certify that:

 

  1. I have reviewed this quarterly report on Form 10-Q of Nutrisystem, Inc.;

 

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

  4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 8, 2013

 

/S/ Kathleen Simone
Kathleen Simone

Senior Vice President and Interim Chief

Financial Officer

(Principal Financial Officer)
EX-32.1 5 d529358dex321.htm EX-32.1 EX-32.1

Exhibit 32.1

Statement of Chief Executive Officer

Pursuant to Section 1350 of Title 18 of the United States Code

Pursuant to Section 1350 of Title 18 of the United States Code as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Dawn M. Zier, the Chief Executive Officer of Nutrisystem, Inc. (the “Company”), hereby certifies that based on the undersigned’s knowledge:

 

  1. The Company’s Form 10-Q Quarterly Report for the period ended March 31, 2013 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: May 8, 2013       /S/ Dawn M. Zier
      President and Chief Executive Officer
      (Principal Executive Officer)
EX-32.2 6 d529358dex322.htm EX-32.2 EX-32.2

Exhibit 32.2

Statement of Chief Financial Officer

Pursuant to Section 1350 of Title 18 of the United States Code

Pursuant to Section 1350 of Title 18 of the United States Code as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Kathleen Simone, the Interim Chief Financial Officer of Nutrisystem, Inc. (the “Company”), hereby certifies that based on the undersigned’s knowledge:

 

  1) The Company’s Form 10-Q Quarterly Report for the period ended March 31, 2013 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: May 8, 2013       /S/ Kathleen Simone
      Senior Vice President and Interim Chief Financial Officer
      (Principal Financial Officer)
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On September 5, 2012 plaintiff, defendants and the plaintiff in the related federal court lawsuit discussed in the preceding paragraph entered into a Stipulation and Agreement of Settlement with respect to all of the claims at issue under the respective lawsuits. On December 12, 2012, the federal court issued a final order and judgment approving the settlement. 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On February 1, 2013, the Company filed its first request for production of documents directed to plaintiff. On March 8, 2013, (i) plaintiff filed a motion for leave to file its first amended complaint and its memorandum in support thereof, and (ii) the Company moved for leave to file amended counterclaims and included its memorandum in support thereof. The Company opposed plaintiff&#8217;s request for leave to amend as futile, and after argument held April 3, 2013 on plaintiff&#8217;s motion, the Court granted both plaintiff and the Company leave to file their amended pleadings and declared the pleadings to be filed that same day. 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CAPITAL STOCK (Narrative) (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended 12 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Dec. 31, 2011
Dec. 31, 2012
Capital Stock [Abstract]        
Common stock issued on exercise of stock options (in Shares) 600 4,668    
Common stock surrendered by employees in satisfaction of minimum tax withholding associated with equity award vesting (in Shares) 39,805 39,274    
Common stock surrendered by employees in satisfaction of minimum tax withholding associated with equity award vesting $ 339 $ 446    
Common stock issued as compensation to board members and third-party marketing vendors (in Shares) 0 0    
Common stock issued for services, costs recognized 195 224    
Dividend paid per share to all stockholders of record (in Dollars per Share) $ 0.175 $ 0.175    
Stock repurchase program     $ 150,000  
Number of shares repurchased (in Shares) 0 0    
Preferred stock authorized (in Shares) 5,000,000     5,000,000
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BACKGROUND
3 Months Ended
Mar. 31, 2013
Background [Abstract]  
Background

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 over 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, through QVC, a television shopping network and a new retail program.

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SHARE-BASED COMPENSATION EXPENSE (Restricted Stock Unit Activity) (Details) (Restricted Stock Units [Member], USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Restricted Stock Units [Member]
 
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]  
Nonvested, beginning of period (in Shares) 133,190
Granted (in Shares) 129,108
Vested (in Shares) (33,541)
Forfeited (in Shares) (15,648)
Nonvested, end of period (in Shares) 213,109
Weighted-Average Grant Date-Fair Value, Nonvested (in Dollars per share) $ 11.76
Weighted-Average Grant-Date Fair Value, Granted (in Dollars per share) $ 8.52
Weighted-Average Grant-Date Fair Value, Vested (in Dollars per share) $ 17.53
Weighted-Average Grant-Date Fair Value, Forfeited (in Dollars per share) $ 11.72
Weighted-Average Grant Date-Fair Value, Nonvested (in Dollars per share) $ 8.89
Aggregate Intrinsic Value, Nonvested $ 1,807
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SHARE-BASED COMPENSATION EXPENSE (Restricted Stock Activity) (Details) (Restricted Stock [Member], USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Restricted Stock [Member]
 
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]  
Nonvested, beginning of period (in Shares) 830,128
Granted (in Shares) 200,017
Vested (in Shares) (131,664)
Forfeited (in Shares) (125,904)
Nonvested, end of period (in Shares) 772,577
Weighted-Average Grant Date-Fair Value, Nonvested (in Dollars per share) $ 13.71
Weighted-Average Grant-Date Fair Value, Granted (in Dollars per share) $ 8.47
Weighted-Average Grant-Date Fair Value, Vested (in Dollars per share) $ 13.36
Weighted-Average Grant-Date Fair Value, Forfeited (in Dollars per share) $ 12.75
Weighted-Average Grant Date-Fair Value, Nonvested (in Dollars per share) $ 12.57
Aggregate Intrinsic Value, Nonvested $ 6,551
XML 20 R30.htm IDEA: XBRL DOCUMENT v2.4.0.6
INCOME TAXES (Narrative) (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Dec. 31, 2012
Income Taxes [Abstract]      
Effective income tax rate (in Percent) 43.80% 36.90%  
Net operating loss carryforwards for state tax purposes     $ 14,526
Date at which operating loss carryforwards begin to expire (Date) 2024    
Gross unrecognized tax benefits, total 1,474   1,474
Unrecognized tax benefits effecting income tax rate, if recognized $ 958   $ 958
XML 21 R8.htm IDEA: XBRL DOCUMENT v2.4.0.6
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net loss $ (640) $ (4,481)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation and amortization 2,549 2,836
Loss on disposal of fixed assets 42 6
Share-based compensation 1,502 1,845
Deferred income tax benefit (609) (904)
Other non-cash charges 29 0
Changes in operating assets and liabilities:    
Receivables (3,988) (2,670)
Inventories 926 5,644
Other assets 2,915 1,693
Accounts payable 13,995 9,854
Accrued payroll and related benefits 1,943 2,477
Deferred revenue 2,568 571
Income taxes 71 (1,916)
Other accrued expenses and liabilities 1,094 117
Net cash provided by operating activities 22,397 15,072
CASH FLOWS FROM INVESTING ACTIVITIES:    
Purchases of short term investments (14,524) (28)
Proceeds from sales of short term investments 3,371 0
Capital additions (1,555) (1,345)
Net cash used in investing activities (12,708) (1,373)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Exercise of stock options 0 9
Taxes related to equity compensation awards, net (297) (250)
Payment of dividends (4,871) (4,937)
Net cash used in financing activities (5,168) (5,178)
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,521 8,521
CASH AND CASH EQUIVALENTS, beginning of period 16,186 47,594
CASH AND CASH EQUIVALENTS, end of period $ 20,707 $ 56,115
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CONSOLIDATED BALANCE SHEETS (Unaudited) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
CURRENT ASSETS:    
Cash and cash equivalents $ 20,707 $ 16,186
Short term investments 14,350 3,205
Receivables 12,475 8,487
Inventories 22,711 23,637
Prepaid income taxes 4,415 4,531
Deferred income taxes 2,087 2,969
Other current assets 4,212 7,160
Total current assets 80,957 66,175
FIXED ASSETS, net 26,992 28,003
OTHER ASSETS 5,394 4,228
Total assets 113,343 98,406
CURRENT LIABILITIES:    
Accounts payable 37,091 23,192
Accrued payroll and related benefits 3,269 1,326
Deferred revenue 5,911 3,343
Other accrued expenses and current liabilities 8,295 6,911
Total current liabilities 54,566 34,772
NON-CURRENT LIABILITIES 3,345 3,525
Total liabilities 57,911 38,297
COMMITMENTS AND CONTINGENCIES (Note 6)      
STOCKHOLDERS' EQUITY:    
Preferred stock, $.001 par value (5,000,000 shares authorized, no shares issued and outstanding) 0 0
Common stock, $.001 par value (100,000,000 shares authorized; shares issued - 28,739,718 at March 31, 2013 and 28,631,464 at December 31, 2012) 29 29
Additional paid-in capital 19,615 18,466
Treasury stock, at cost, 112,366 shares at March 31, 2013 and 72,561 shares at December 31, 2012 (975) (636)
Retained earnings 36,743 42,254
Accumulated other comprehensive income (loss) 20 (4)
Total stockholders' equity 55,432 60,109
Total liabilities and stockholders' equity $ 113,343 $ 98,406
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) (Parenthetical) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Short term investments, income tax expense (benefit):    
Unrealized gain on short term investments, income tax expense $ 8 $ 8
Short term investments, reclassification adjustments, income tax benefit 2  
Interest rate swaps, income tax expense (benefit):    
Unrealized loss on interest rate swaps, income tax benefit   $ 10
XML 24 R22.htm IDEA: XBRL DOCUMENT v2.4.0.6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Fair Value of Financial Assets) (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Total Fair Value [Member]
   
Fair Value Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Assets, fair value $ 20,012 $ 10,068
Total Fair Value [Member] | Money market account [Member]
   
Fair Value Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Assets, fair value 5,662 6,863
Total Fair Value [Member] | Corporate debt securities [Member]
   
Fair Value Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Assets, fair value 4,544 1,682
Total Fair Value [Member] | Time deposits [Member]
   
Fair Value Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Assets, fair value   1,523
Total Fair Value [Member] | Government and agency securities [Member]
   
Fair Value Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Assets, fair value 9,806  
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
   
Fair Value Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Assets, fair value 20,012 10,068
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Money market account [Member]
   
Fair Value Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Assets, fair value 5,662 6,863
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Corporate debt securities [Member]
   
Fair Value Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Assets, fair value 4,544 1,682
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Time deposits [Member]
   
Fair Value Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Assets, fair value   1,523
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Government and agency securities [Member]
   
Fair Value Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Assets, fair value $ 9,806  
XML 25 R24.htm IDEA: XBRL DOCUMENT v2.4.0.6
CREDIT FACILITY (Narrative) (Details) (Revolving Credit Facility [Member], USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Line Of Credit Facility [Line Items]    
Revolving credit facility, initiation date (Date) Nov. 08, 2012  
Revolving credit facility, amount outstanding $ 0  
Revolving credit facility, expiration date (Date) Nov. 08, 2015  
Revolving credit facility interest rate (Description) 1 month LIBOR  
Amount above Federal Funds rate, used as base rate, if higher than prime and LIBOR plus 1.50% (in Percent) 0.50%  
Revolving credit facility, basis spread on variable rate (in Percent) 1.50%  
Revolving credit facility, base rate, minimum (in Percent) 0.25%  
Revolving credit facility, base rate, maximum (in Percent) 1.25%  
Revolving credit facility, LIBOR rate, minimum (in Percent) 1.75%  
Revolving credit facility, LIBOR rate, maximum (in Percent) 2.75%  
Revolving credit facility, interest on borrowed funds 0 194
Revolving credit facility, commitment fee, classified within interest (expense) income, net 40 53
Revolving credit facility, unamortized debt issuance costs $ 183  
Minimum [Member]
   
Line Of Credit Facility [Line Items]    
Revolving credit facility, unused commitment fee annual percentage (in Percent) 0.25%  
Maximum [Member]
   
Line Of Credit Facility [Line Items]    
Revolving credit facility, unused commitment fee annual percentage (in Percent) 0.375%  
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XML 27 R7.htm IDEA: XBRL DOCUMENT v2.4.0.6
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) (USD $)
In Thousands, except Share data
Total
Common Stock [Member]
Additional Paid-In Capital [Member]
Treasury Stock [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive (Loss) [Member]
BALANCE at Dec. 31, 2012 $ 60,109 $ 29 $ 18,466 $ (636) $ 42,254 $ (4)
BALANCE (in Shares) at Dec. 31, 2012 28,631,464 28,631,464        
Net loss (640) 0 0 0 (640) 0
Share-based compensation expense 1,502 0 1,502 0 0 0
Share-based compensation expense (in Shares) 107,654 107,654        
Exercise of stock options 0 0 0 0 0 0
Exercise of stock options (in Shares) 600 600        
Equity compensation awards, net (353) 0 (353) 0 0 0
Cash dividends (4,871) 0 0 0 (4,871) 0
Employee tax withholdings related to the vesting of equity awards (339) 0 0 (339) 0 0
Other comprehensive income, net of tax 24 0 0 0 0 24
BALANCE at Mar. 31, 2013 $ 55,432 $ 29 $ 19,615 $ (975) $ 36,743 $ 20
BALANCE (in Shares) at Mar. 31, 2013 28,739,718 28,739,718        
XML 28 R3.htm IDEA: XBRL DOCUMENT v2.4.0.6
CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) (USD $)
Mar. 31, 2013
Dec. 31, 2012
Consolidated Balance Sheets    
Preferred stock, par value (in Dollars per Share) $ 0.001 $ 0.001
Preferred stock, shares authorized (in Shares) 5,000,000 5,000,000
Preferred stock, shares issued (in Shares) 0 0
Preferred stock, shares outstanding (in Shares) 0 0
Common stock, par value (in Dollars per Share) $ 0.001 $ 0.001
Common stock, shares authorized (in Shares) 100,000,000 100,000,000
Common stock, shares issued (in Shares) 28,739,718 28,631,464
Treasury stock, shares (in Shares) 112,366 72,561
XML 29 R17.htm IDEA: XBRL DOCUMENT v2.4.0.6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)
3 Months Ended
Mar. 31, 2013
Summary Of Significant Accounting Policies [Abstract]  
Schedule of Cash, Cash Equivalents and Short Term Investments

At March 31, 2013, cash, cash equivalents and short term investments consisted of the following:

 

                                 
    Cost     Gross
Unrealized
Gains
    Gross
Unrealized
Losses
    Estimated
Fair Value
 

Cash

  $ 15,045     $ 0     $ 0     $ 15,045  

Money market account

    5,662       0       0       5,662  

Government and agency securities

    9,794       12       0       9,806  

Corporate debt securities

    4,529       15       0       4,544  
   

 

 

   

 

 

   

 

 

   

 

 

 
    $ 35,030     $ 27     $ 0     $ 35,057  
   

 

 

   

 

 

   

 

 

   

 

 

 

At December 31, 2012, cash, cash equivalents and short term investments consisted of the following:

 

                                 
    Cost     Gross
Unrealized
Gains
    Gross
Unrealized
Losses
    Estimated
Fair Value
 

Cash

  $ 9,323     $ 0     $ 0     $ 9,323  

Money market account

    6,863       0       0       6,863  

Corporate debt securities

    1,692       14       (24 )     1,682  

Time deposits

    1,519       4       0       1,523  
   

 

 

   

 

 

   

 

 

   

 

 

 
    $ 19,397     $ 18     $ (24 )   $ 19,391  
   

 

 

   

 

 

   

 

 

   

 

 

 

 

Schedule of Financial Assets Measured at Fair Value

The following table summarizes the Company’s financial assets measured at fair value at March 31, 2013:

 

                 
    Total Fair Value     Quoted Prices in Active
Markets for Identical
Assets (Level 1)
 

Money market account

  $ 5,662     $ 5,662  

Government and agency securities

    9,806       9,806  

Corporate debt securities

    4,544       4,544  
   

 

 

   

 

 

 

Total assets

  $ 20,012     $ 20,012  
   

 

 

   

 

 

 

The following table summarizes the Company’s financial assets measured at fair value at December 31, 2012:

 

                 
    Total Fair Value     Quoted Prices in Active
Markets for Identical
Assets (Level 1)
 

Money market account

  $ 6,863     $ 6,863  

Corporate debt securities

    1,682       1,682  

Time deposits

    1,523       1,523  
   

 

 

   

 

 

 

Total assets

  $ 10,068     $ 10,068  
   

 

 

   

 

 

 

 

Schedule of Earnings Per Share

 

 

                 
    Three Months Ended
March 31,
 
    2013     2012  

Net loss

  $ (640 )   $ (4,481 )

Net loss allocated to unvested restricted stock

    0       0  
   

 

 

   

 

 

 

Net loss allocated to common shares

  $ (640 )   $ (4,481 )
   

 

 

   

 

 

 

Weighted average shares outstanding:

               

Basic

    27,759       27,321  

Effect of dilutive securities

    0       0  
   

 

 

   

 

 

 

Diluted

    27,759       27,321  
   

 

 

   

 

 

 

Basic loss per common share

  $ (0.02 )   $ (0.16 )
   

 

 

   

 

 

 

Diluted loss per common share

  $ (0.02 )   $ (0.16 )
   

 

 

   

 

 

 

 

XML 30 R1.htm IDEA: XBRL DOCUMENT v2.4.0.6
Document And Entity Information
3 Months Ended
Mar. 31, 2013
Apr. 25, 2013
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 31, 2013  
Document Fiscal Year Focus 2013  
Document Fiscal Period Focus Q1  
Entity Registrant Name NUTRI SYSTEM INC /DE/  
Entity Central Index Key 0001096376  
Current Fiscal Year End Date --12-31  
Entity Filer Category Accelerated Filer  
Entity Common Stock, Shares Outstanding   28,628,910
Entity Current Reporting Status Yes  
Entity Voluntary Filers No  
Entity Well-known Seasoned Issuer No  
XML 31 R18.htm IDEA: XBRL DOCUMENT v2.4.0.6
SHARE-BASED COMPENSATION EXPENSE (Tables)
3 Months Ended
Mar. 31, 2013
Share-Based Compensation Expense [Abstract]  
Schedule of Share-Based Compensation Stock Options Activity

 

 

                                 
    Number of
Shares
    Weighted-
Average
Exercise Price
Per Share
    Weighted-
Average
Remaining
Contractual
Life (years)
    Aggregate
Intrinsic Value
 

Outstanding, January 1, 2013

    674,082     $ 11.65                  

Granted

    384,895       8.49                  

Exercised

    (600 )     0.58                  

Forfeited/expired

    (276,074 )     14.19                  
   

 

 

                         

Outstanding, March 31, 2013

    782,303     $ 9.21       6.56     $ 267  
   

 

 

   

 

 

   

 

 

   

 

 

 

Exercisable, March 31, 2013

    82,102     $ 13.84       5.46     $ 2  
   

 

 

   

 

 

   

 

 

   

 

 

 

Expected to vest at March 31, 2013

    765,128     $ 9.20       6.56     $ 267  
   

 

 

   

 

 

   

 

 

   

 

 

 

 

Schedule of Share-Based Compensation Restricted Stock Activity

 

 

                         
    Number of
Shares
    Weighted-
Average
Grant-Date
Fair Value
    Aggregate
Intrinsic Value
 

Nonvested, January 1, 2013

    830,128     $ 13.71          

Granted

    200,017       8.47          

Vested

    (131,664 )     13.36          

Forfeited

    (125,904 )     12.75          
   

 

 

                 

Nonvested, March 31, 2013

    772,577     $ 12.57     $ 6,551  
   

 

 

   

 

 

   

 

 

 

 

Schedule of Share-Based Compensation Restricted Stock Unit Activity

 

 

                         
    Number of
Restricted
Stock Units
    Weighted-
Average
Grant-Date
Fair Value
    Aggregate
Intrinsic Value
 

Nonvested, January 1, 2013

    133,190     $ 11.76          

Granted

    129,108       8.52          

Vested

    (33,541 )     17.53          

Forfeited

    (15,648 )     11.72          
   

 

 

                 

Nonvested, March 31, 2013

    213,109     $ 8.89     $ 1,807  
   

 

 

   

 

 

   

 

 

 

 

XML 32 R4.htm IDEA: XBRL DOCUMENT v2.4.0.6
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Consolidated Statements Of Operations    
REVENUE $ 105,384 $ 128,517
COSTS AND EXPENSES:    
Cost of revenue 52,353 70,529
Marketing 36,316 45,667
General and administrative 15,251 16,315
Depreciation and amortization 2,549 2,836
Total costs and expenses 106,469 135,347
Operating loss (1,085) (6,830)
INTEREST EXPENSE, net (53) (274)
Loss before income taxes (1,138) (7,104)
INCOME TAX BENEFIT (498) (2,623)
Net loss $ (640) $ (4,481)
BASIC LOSS PER COMMON SHARE (in Dollars per Share) $ (0.02) $ (0.16)
DILUTED LOSS PER COMMON SHARE (in Dollars per Share) $ (0.02) $ (0.16)
WEIGHTED AVERAGE SHARES OUTSTANDING:    
Basic (in Shares) 27,759 27,321
Diluted (in Shares) 27,759 27,321
DIVIDENDS DECLARED PER COMMON SHARE (in Dollars per Share) $ 0.175 $ 0.175
XML 33 R12.htm IDEA: XBRL DOCUMENT v2.4.0.6
CAPITAL STOCK
3 Months Ended
Mar. 31, 2013
Capital Stock [Abstract]  
Capital Stock

4. CAPITAL STOCK

Common Stock

The Company issued 600 and 4,668 shares of common stock upon the exercise of stock options in the three months ended March 31, 2013 and 2012, respectively. During the three months ended March 31, 2013 and 2012, employees surrendered to the Company 39,805 and 39,274 shares of common stock, respectively, valued at $339 and $446, respectively, in satisfaction of minimum tax withholding obligations associated with the vesting of equity awards. Subsequent to the approval of the Amended and Restated 2008 Long-Term Incentive Plan in September 2012, any of such shares are now included in treasury stock. Previously, these shares were retired. Costs recognized for common stock previously issued to board members and third-party marketing vendors as compensation were $195 and $224 for the three months ended March 31, 2013 and 2012, respectively. No new shares of common stock were issued to board members or third-party marketing vendors during either the three months ended March 31, 2013 or 2012. During both the three months ended March 31, 2013 and 2012, the Company paid a dividend of $0.175 per share to all stockholders of record.

In 2011, the Board of Directors of the Company authorized a stock repurchase program of up to $150,000 of the Company’s outstanding shares of common stock in open-market transactions on the NASDAQ Stock Market or through privately negotiated transactions, including block transactions. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, limitations under the credit facility, alternative investment opportunities and other market conditions. This stock repurchase program has an expiration date of June 30, 2013, but may be limited or terminated at any time by the Board of Directors without prior notice. No shares of common stock were repurchased during the three months ended March 31, 2013 or 2012.

Preferred Stock

The Company has authorized 5,000,000 shares of preferred stock issuable in series upon resolution of the Board of Directors. Unless otherwise required by law, the Board of Directors can, without stockholder approval, issue preferred stock in the future with voting and conversion rights that could adversely affect the voting power of the common stock. The issuance of preferred stock may have the effect of delaying, averting or preventing a change in control of the Company.

XML 34 R11.htm IDEA: XBRL DOCUMENT v2.4.0.6
CREDIT FACILITY
3 Months Ended
Mar. 31, 2013
Credit Facility [Abstract]  
Credit Facility

3. CREDIT FACILITY

On November 8, 2012, the Company entered into a $40,000 secured revolving credit facility, as amended, (the “Credit Facility”) with a lender. The Credit Facility can be drawn upon through November 8, 2015, at which time all amounts must be repaid. There were no borrowings outstanding at March 31, 2013.

The Credit Facility provides for interest at either a base rate or a LIBOR rate, in each case plus an applicable margin. The base rate will be the highest of (i) the Administrative Agent’s prime rate, (ii) 0.50% percent above the Federal Funds Rate and (iii) the LIBOR rate for deposits in dollars for a one-month interest period as determined three business days prior to such date, plus 1.50%. The LIBOR rate is equal to the London Inter-Bank Offered Rate for the relevant term. The applicable margin is subject to adjustment based on the Company’s consolidated fixed charge coverage ratio and ranges from 0.25-1.25% per year for base rate loans and from 1.75-2.75% per year for LIBOR rate loans. The Company will also pay an unused line fee. The unused line fee is subject to adjustment based on the Company’s consolidated fixed charge coverage ratio and ranges from 0.25-0.375% per year. During the three months ended March 31, 2013 and 2012, the Company incurred $0 and $194 in interest, respectively, and $40 and $53 in an unused line fee, respectively. Interest payments and unused line fees are classified within interest expense, net in the accompanying consolidated statements of operations.

The Credit Facility contains financial and other covenants including a minimum consolidated fixed charge ratio, a minimum consolidated tangible net worth and a minimum consolidated liquidity ratio, and includes limitations on, among other things, capital expenditures, additional indebtedness, acquisitions, stock repurchases and restrictions on paying dividends in certain circumstances. As of March 31, 2013, the Company was in compliance with all covenants contained in the Credit Facility. Any obligations under the Credit Facility by the Company, as well as certain banking services and hedging obligations, are secured by substantially all of the assets of the Company and certain subsidiaries.

At March 31, 2013, the Company had $183 of unamortized debt issuance costs associated with the Credit Facility that are being amortized over the remaining term of the Credit Facility.

XML 35 R23.htm IDEA: XBRL DOCUMENT v2.4.0.6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Earnings Per Share) (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Summary Of Significant Accounting Policies [Abstract]    
Net loss $ (640) $ (4,481)
Income allocated to unvested restricted stock 0 0
Net loss allocated to common shares $ (640) $ (4,481)
Weighed average shares outstanding:    
Basic (in Shares) 27,759 27,321
Effect of dilutive securities (in Shares) 0 0
Diluted (in Shares) 27,759 27,321
BASIC LOSS PER COMMON SHARE (in Dollars per Share) $ (0.02) $ (0.16)
DILUTED LOSS PER COMMON SHARE (in Dollars per Share) $ (0.02) $ (0.16)
XML 36 R19.htm IDEA: XBRL DOCUMENT v2.4.0.6
BACKGROUND (Narrative) (Details)
3 Months Ended
Mar. 31, 2013
Background [Abstract]  
Years in business the company has exceeded (in Duration) 40 years
XML 37 R15.htm IDEA: XBRL DOCUMENT v2.4.0.6
INCOME TAXES
3 Months Ended
Mar. 31, 2013
Income Taxes [Abstract]  
Income Taxes

7. INCOME TAXES

The Company recorded income taxes at an estimated effective income tax rate applied to loss before income taxes of 43.8% and 36.9% in the three months ended March 31, 2013 and 2012, respectively. The Company offsets taxable income for state tax purposes with net operating loss carryforwards. At December 31, 2012, the Company had net operating loss carryforwards of approximately $14,526 for state tax purposes. For state tax purposes, there is a limitation on the amount of net operating loss carryforwards that can be utilized in a given year to offset state taxable income and management believes that some of the net operating loss carryforwards will be subject to this annual limit in 2013. State net operating loss carryforwards will begin to expire in 2024. The total amount of gross unrecognized tax benefits as of both March 31, 2013 and December 31, 2012 was $1,474. The total amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate is approximately $958.

Based on the projected level of future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the net deferred tax assets.

XML 38 R13.htm IDEA: XBRL DOCUMENT v2.4.0.6
SHARE-BASED COMPENSATION EXPENSE
3 Months Ended
Mar. 31, 2013
Share-Based Compensation Expense [Abstract]  
Share-Based Compensation Expense

5. SHARE-BASED COMPENSATION EXPENSE

The following table summarizes the Company’s stock option activity during the three months ended March 31, 2013:

 

                                 
    Number of
Shares
    Weighted-
Average
Exercise Price
Per Share
    Weighted-
Average
Remaining
Contractual
Life (years)
    Aggregate
Intrinsic Value
 

Outstanding, January 1, 2013

    674,082     $ 11.65                  

Granted

    384,895       8.49                  

Exercised

    (600 )     0.58                  

Forfeited/expired

    (276,074 )     14.19                  
   

 

 

                         

Outstanding, March 31, 2013

    782,303     $ 9.21       6.56     $ 267  
   

 

 

   

 

 

   

 

 

   

 

 

 

Exercisable, March 31, 2013

    82,102     $ 13.84       5.46     $ 2  
   

 

 

   

 

 

   

 

 

   

 

 

 

Expected to vest at March 31, 2013

    765,128     $ 9.20       6.56     $ 267  
   

 

 

   

 

 

   

 

 

   

 

 

 

The Company recorded compensation expense of $146 and $89 in the accompanying consolidated statements of operations during the three months ended March 31, 2013 and 2012, respectively, for stock option awards. The total intrinsic value of stock options exercised during the three months ended March 31, 2013 and 2012 was $4 and $43, respectively.

 

The Company has issued restricted stock to employees generally with vesting terms ranging from two to five years. The fair value is equal to the market price of the Company’s common stock on the date of grant. Expense for restricted stock is amortized ratably over the vesting period. The following table summarizes the restricted stock activity for the three months ended March 31, 2013:

 

                         
    Number of
Shares
    Weighted-
Average
Grant-Date
Fair Value
    Aggregate
Intrinsic Value
 

Nonvested, January 1, 2013

    830,128     $ 13.71          

Granted

    200,017       8.47          

Vested

    (131,664 )     13.36          

Forfeited

    (125,904 )     12.75          
   

 

 

                 

Nonvested, March 31, 2013

    772,577     $ 12.57     $ 6,551  
   

 

 

   

 

 

   

 

 

 

Additionally, the Company grants restricted stock units. Prior to 2012 and in 2013, the restricted stock units were performance-based units. The performance-based units have performance conditions and service-based vesting conditions. Each vesting tranche is treated as an individual award and the compensation expense is recognized on a straight-line basis over the requisite service period for each tranche. The requisite service period is a combination of the performance period and the subsequent vesting period based on continued service. The level of achievement of such goals may cause the actual amount of units that ultimately vest to range from 0% to 200% of the original units granted. The Company recognizes expense ratably over the vesting period for performance-based restricted stock units when it is probable that the performance criteria specified will be achieved. The fair value is equal to the market price of the Company’s common stock on the date of grant.

In 2012, grants of restricted stock units contained market-based conditions. Market-based awards entitle employees to vest in a number of units determined by the Company’s stock price return as compared to a set of comparator companies over a period, and will range from 0% to 200% of the original units granted. The fair value is calculated using a Monte Carlo simulation model on the date of grant. Compensation expense is recognized over the derived service periods using the straight-line method regardless of the outcome of the market conditions, so long as the award holder remains an employee through the requisite service period.

The following table summarizes the restricted stock unit activity for the three months ended March 31, 2013:

 

                         
    Number of
Restricted
Stock Units
    Weighted-
Average
Grant-Date
Fair Value
    Aggregate
Intrinsic Value
 

Nonvested, January 1, 2013

    133,190     $ 11.76          

Granted

    129,108       8.52          

Vested

    (33,541 )     17.53          

Forfeited

    (15,648 )     11.72          
   

 

 

                 

Nonvested, March 31, 2013

    213,109     $ 8.89     $ 1,807  
   

 

 

   

 

 

   

 

 

 

The Company recorded compensation of $1,161 and $1,532 in the accompanying consolidated statements of operations for the three months ended March 31, 2013 and 2012, respectively, in connection with the issuance of the restricted stock and restricted stock units. As of March 31, 2013, 740,671 shares of restricted stock and 206,977 restricted stock units were expected to vest.

As of March 31, 2013, there was $10,091 of total unrecognized compensation expense related to unvested share-based compensation arrangements, including market-based units, which is expected to be recognized over a weighted-average period of 1.5 years. The total unrecognized compensation expense will be fully expensed through the first quarter of 2017.

XML 39 R14.htm IDEA: XBRL DOCUMENT v2.4.0.6
COMMITMENTS AND CONTINGENCIES
3 Months Ended
Mar. 31, 2013
Commitments and Contingencies [Abstract]  
Commitments and Contingencies

6. COMMITMENTS AND CONTINGENCIES

Litigation

On August 5, 2011, a lawsuit was filed by a stockholder in the United States District Court for the Eastern District of Pennsylvania naming Nutrisystem, Inc., certain of its current directors and certain of its former officers and directors as defendants and alleging breaches by defendants of their fiduciary duties of candor, good faith and loyalty, unjust enrichment, and aiding and abetting from 2010 to the present in connection with the award of allegedly excessive and unwarranted 2010 executive compensation. Plaintiff specifically claims the action to be a failed “say-on-pay” shareholder derivative action stemming from the advisory, non-binding vote of the Company’s stockholders at its May 12, 2011 annual meeting in which the Company’s stockholders did not approve the Company’s 2010 executive compensation. On September 5, 2012 plaintiff, defendants and the plaintiff in the related state court lawsuit discussed in the following paragraph entered into a Stipulation and Agreement of Settlement with respect to all of the claims at issue under the respective lawsuits. On December 12, 2012, the court issued a final order and judgment approving the settlement. The Company’s entire exposure for these matters was expensed in 2012.

On September 1, 2011, a lawsuit was filed by another stockholder in the Court of Common Pleas of Montgomery County, Pennsylvania naming Nutrisystem, Inc., certain of its current directors and certain of its former officers and directors as defendants and alleging breaches by defendants of their fiduciary duties of care, candor, good faith and loyalty, unjust enrichment, and aiding and abetting from 2010 to the present in connection with the award of excessive and unwarranted 2010 executive compensation. This action stems from the same failed “say-on-pay” advisory, non-binding vote of the Company’s stockholders at its May 12, 2011 annual meeting in which the Company’s stockholders did not approve the Company’s 2010 executive compensation. On September 5, 2012 plaintiff, defendants and the plaintiff in the related federal court lawsuit discussed in the preceding paragraph entered into a Stipulation and Agreement of Settlement with respect to all of the claims at issue under the respective lawsuits. On December 12, 2012, the federal court issued a final order and judgment approving the settlement. On December 20, 2012, the state court judge issued an order to settle, discontinue, and end, and dismissed the state action with prejudice.

On March 6, 2012, in response to the filing by a competitor of numerous trademark applications containing the term “NUTRILITE” in various weight-loss and weight-management classes, the Company sent a cease and desist letter to the competitor claiming that its use of such mark is very similar to the Company’s “NUTRISYSTEM” mark for very similar Company goods and services in the weight-loss and weight-management industries. The Company alleged that such use would result in confusion amongst consumers with respect to the source of such goods and services and would constitute an infringement of the Company’s mark in violation of the Trademark Act of 1946 (the Lanham Act), as well as various other federal and state laws governing trademarks, unfair competition and deceptive trade practices, and would likely cause dilution of the Company’s famous and distinctive mark. On March 16, 2012, the competitor responded to such letter by filing a complaint for declaratory relief against the Company in the United States District Court for the Western District of Michigan (listed under docket number 1:12-cv-00256-RHB) asking the court to declare that plaintiff’s use and registration of its mark does not (i) constitute trademark infringement, federal unfair competition, federal dilution, (ii) violate certain Michigan statutes; and (iii) constitute common law trademark infringement or common law unfair competition. On April 27, 2012, the Company filed a motion to dismiss the complaint pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure for lack of subject matter jurisdiction. On May 29, 2012 plaintiff filed its brief in opposition to the Company’s motion to dismiss the complaint, and on June 15, 2012, the Company filed its reply brief in support of its motion to dismiss the complaint. On October 9, 2012, the court denied the Company’s motion to dismiss for lack of subject matter jurisdiction. On October 23, 2012, the Company filed its answer and affirmative defenses to plaintiff’s complaint for declaratory relief and counterclaims for trademark infringement in which it (i) denied each of plaintiff’s counts in the complaint, (ii) set forth various affirmative defenses to plaintiff’s claims, and (iii) asserted by way of counterclaim claims for trademark infringement and dilution arising from plaintiff’s intentional use of a confusingly similar mark for the purpose of unlawfully trading upon the Company’s goodwill, good name, and valuable business identity. On December 20, 2012, the court held a Rule 16 scheduling conference. On December 21, 2012, plaintiff filed its first request for production of documents and things to the Company and plaintiff’s first set of interrogatories to the Company. On February 1, 2013, the Company filed its first request for production of documents directed to plaintiff. On March 8, 2013, (i) plaintiff filed a motion for leave to file its first amended complaint and its memorandum in support thereof, and (ii) the Company moved for leave to file amended counterclaims and included its memorandum in support thereof. The Company opposed plaintiff’s request for leave to amend as futile, and after argument held April 3, 2013 on plaintiff’s motion, the Court granted both plaintiff and the Company leave to file their amended pleadings and declared the pleadings to be filed that same day. As a consequence, plaintiff’s amended complaint now asserts, in the alternative, affirmative claims for trademark infringement and unfair competition under federal law and for violation of the Michigan Consumer Protection Act, and the Company’s amended counterclaims now assert federal trademark infringement, false designation of origin and federal unfair competition, federal trademark dilution, federal cyberpiracy, and state law trademark infringement, unfair competition and other claims. The parties are about to embark on discovery. The Company believes that plaintiff’s claims against the Company are without merit and intends to defend the litigation vigorously.

 

The Company is also involved in other various claims and routine litigation matters. In the opinion of management, after consultation with legal counsel, the outcomes of such matters are not anticipated to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows in future years.

Contractual Commitments

The Company has entered into supply agreements with various food vendors. The majority of these agreements provide for annual pricing and annual purchase obligations, as well as exclusivity in the production of certain products, with terms of five years or less. One agreement also provides rebates if certain volume thresholds are exceeded. The Company anticipates it will meet all annual purchase obligations in 2013.

XML 40 R16.htm IDEA: XBRL DOCUMENT v2.4.0.6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
3 Months Ended
Mar. 31, 2013
Summary Of Significant Accounting Policies [Abstract]  
Presentation of Financial Statements, Policy

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.

Interim Financial Statements, Policy

Interim Financial Statements

The Company’s consolidated financial statements as of and for the three months ended March 31, 2013 and 2012 are unaudited and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the Company’s financial position and results of operations for these interim periods. Accordingly, readers of these consolidated financial statements should refer to the Company’s audited consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), and the related notes thereto, for the year ended December 31, 2012, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 as certain footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report pursuant to the rules of the Securities and Exchange Commission (the “SEC”). The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results to be expected for the year ending December 31, 2013.

Cash Equivalents and Short Term Investments, Policy

Cash Equivalents and Short Term Investments

Cash equivalents include only securities having a maturity of three months or less at the time of purchase. At March 31, 2013 and December 31, 2012, demand accounts and money market accounts comprised all of the Company’s cash and cash equivalents.

Short term investments at March 31, 2013, consist of investments in government and agency securities and corporate debt securities. Short term investments at December 31, 2012, consisted of investments in corporate debt securities and time deposits with original maturities of greater than three months at the time of purchase. The Company classifies these as available-for-sale securities. These investments are reported at fair value with the related unrealized gains and losses included in accumulated other comprehensive income (loss), a component of stockholders’ equity, net of related tax effects.

 

At March 31, 2013, cash, cash equivalents and short term investments consisted of the following:

 

                                 
    Cost     Gross
Unrealized
Gains
    Gross
Unrealized
Losses
    Estimated
Fair Value
 

Cash

  $ 15,045     $ 0     $ 0     $ 15,045  

Money market account

    5,662       0       0       5,662  

Government and agency securities

    9,794       12       0       9,806  

Corporate debt securities

    4,529       15       0       4,544  
   

 

 

   

 

 

   

 

 

   

 

 

 
    $ 35,030     $ 27     $ 0     $ 35,057  
   

 

 

   

 

 

   

 

 

   

 

 

 

At December 31, 2012, cash, cash equivalents and short term investments consisted of the following:

 

                                 
    Cost     Gross
Unrealized
Gains
    Gross
Unrealized
Losses
    Estimated
Fair Value
 

Cash

  $ 9,323     $ 0     $ 0     $ 9,323  

Money market account

    6,863       0       0       6,863  

Corporate debt securities

    1,692       14       (24 )     1,682  

Time deposits

    1,519       4       0       1,523  
   

 

 

   

 

 

   

 

 

   

 

 

 
    $ 19,397     $ 18     $ (24 )   $ 19,391  
   

 

 

   

 

 

   

 

 

   

 

 

 

 

Fixed Assets, Policy

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 $10,534 and $10,511 at March 31, 2013 and December 31, 2012, respectively.

Revenue Recognition, Policy

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 and 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 by the customer and the product is shipped to the customer. Revenue from the retail program is recognized typically when the product is received at the retailer’s location.

Deferred revenue consists primarily of unredeemed prepaid program cards and unshipped frozen foods. When a customer orders the Nutrisystem® Select® 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.

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 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.

 

The Company reviews the reserves for customer returns at each reporting period and adjusts them to reflect data available at that time. To estimate reserves for returns, the Company considers actual return rates in preceding periods and changes in product offerings or marketing methods that might impact returns going forward. To the extent the estimate of returns changes, the Company will adjust the reserve, which will impact the amount of product sales revenue recognized in the period of the adjustment. The provision for estimated returns for the three months ended March 31, 2013 and 2012 was $3,845 and $3,101, respectively. The reserve for estimated returns incurred but not received and processed was $1,224 and $652 at March 31, 2013 and December 31, 2012, respectively, and has been included in other accrued expenses and current liabilities in the accompanying consolidated balance sheets.

Revenue from product sales includes amounts billed for shipping and handling and is presented net of returns and billed sales tax. Revenue from the new retail program is also net of any trade allowances or broker commissions. Revenue from shipping and handling charges were $641 and $969 for the three months ended March 31, 2013 and 2012, respectively. Shipping-related costs are included in cost of revenue in the accompanying consolidated statements of operations.

Dependence on Suppliers, Policy

Dependence on Suppliers

Approximately 13% and 10% of inventory purchases for the three months ended March 31, 2013 were from two suppliers. The Company has a supply arrangement with one of these suppliers that requires the Company to make minimum purchases. For the three months ended March 31, 2012, these suppliers supplied approximately 16% and 5% of inventory purchases. Additionally, a third supplier during the three months ended March 31, 2012 supplied approximately 14% of inventory purchases.

The Company outsources 100% of its fulfillment operations to a third-party provider and more than 90% of its orders are shipped by one third party provider.

Vendor Rebates, Policy

Vendor Rebates

One of the Company’s suppliers provides for rebates based on purchasing levels. The Company accounts for this rebate on an accrual basis as purchases are made at a rebate percentage determined based upon the estimated total purchases from the vendor. The estimated rebate is recorded as a receivable from the vendor with a corresponding reduction in the carrying value of purchased inventory, and is reflected in the consolidated statements of operations when the associated inventory is sold. The rebate period is June 1 through May 31 of each year. For the three months ended March 31, 2013 and 2012, the Company reduced cost of revenue by $358 and $506, respectively, for these rebates. A receivable of $922 and $637 at March 31, 2013 and December 31, 2012, respectively, has been recorded in receivables in the accompanying consolidated balance sheets. Historically, the actual rebate received from the vendor has closely matched the estimated rebate recorded. An adjustment is made to the estimate upon determination of the final rebate.

Fair Value of Financial Instruments, Policy

Fair Value of Financial Instruments

A three-tier fair value hierarchy has been established by the Financial Accounting Standards Board (“FASB”) to prioritize the inputs used in measuring fair value. These tiers are as follows:

Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3—Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

The fair values of the Company’s Level 1 instruments are based on quoted prices in active exchange markets for identical assets. The Company had no Level 2 or 3 instruments at March 31, 2013 and December 31, 2012.

 

The following table summarizes the Company’s financial assets measured at fair value at March 31, 2013:

 

                 
    Total Fair Value     Quoted Prices in Active
Markets for Identical
Assets (Level 1)
 

Money market account

  $ 5,662     $ 5,662  

Government and agency securities

    9,806       9,806  

Corporate debt securities

    4,544       4,544  
   

 

 

   

 

 

 

Total assets

  $ 20,012     $ 20,012  
   

 

 

   

 

 

 

The following table summarizes the Company’s financial assets measured at fair value at December 31, 2012:

 

                 
    Total Fair Value     Quoted Prices in Active
Markets for Identical
Assets (Level 1)
 

Money market account

  $ 6,863     $ 6,863  

Corporate debt securities

    1,682       1,682  

Time deposits

    1,523       1,523  
   

 

 

   

 

 

 

Total assets

  $ 10,068     $ 10,068  
   

 

 

   

 

 

 

 

Earnings Per Share, Policy

Earnings Per Share

The Company uses the two-class method to calculate earnings per share (“EPS”) as the unvested restricted stock issued under the Company’s equity incentive plans are participating shares with nonforfeitable rights to dividends. Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings to common stockholders and undistributed earnings allocated to common stockholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and participating securities based on the number of weighted average shares outstanding during the period. Undistributed losses are not allocated to unvested restricted stock as the restricted stockholders are not obligated to share in the losses. The following table sets forth the computation of basic and diluted EPS:

 

                 
    Three Months Ended
March 31,
 
    2013     2012  

Net loss

  $ (640 )   $ (4,481 )

Net loss allocated to unvested restricted stock

    0       0  
   

 

 

   

 

 

 

Net loss allocated to common shares

  $ (640 )   $ (4,481 )
   

 

 

   

 

 

 

Weighted average shares outstanding:

               

Basic

    27,759       27,321  

Effect of dilutive securities

    0       0  
   

 

 

   

 

 

 

Diluted

    27,759       27,321  
   

 

 

   

 

 

 

Basic loss per common share

  $ (0.02 )   $ (0.16 )
   

 

 

   

 

 

 

Diluted loss per common share

  $ (0.02 )   $ (0.16 )
   

 

 

   

 

 

 

In both the three months ended March 31, 2013 and 2012, diluted loss per common share is identical to basic loss per common share as the Company is in a net loss position and the impact of including common stock equivalents is anti-dilutive. In the three months ended March 31, 2013 and 2012, common stock equivalents representing 1,767,989 and 1,588,234 shares of common stock, respectively, were excluded from weighted average shares outstanding for diluted income per common share purposes because the effect would be anti-dilutive.

Recently Issued Accounting Pronouncements, Policy

Recently Issued Accounting Pronouncements

In February 2013, the FASB issued ASU No. 2013-02 which requires companies to present information about reclassifications out of accumulated other comprehensive income in a single note or on the face of the financial statements. The updated standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2012, with early adoption permitted. The adoption of this standard update did not impact the Company’s consolidated financial statements.

Use of Estimates, Policy

Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and operating expenses during the reporting period. Actual results could differ from these estimates.

Reclassifications, Policy

Reclassifications

Certain reclassifications have been made to prior year amounts to conform to the current year presentation.

XML 41 R21.htm IDEA: XBRL DOCUMENT v2.4.0.6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cash, Cash Equivalents, and Marketable Securities) (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Cash And Cash Equivalents [Line Items]    
Cost $ 35,030 $ 19,397
Gross unrealized gains 27 18
Gross unrealized losses 0 (24)
Estimated fair value, cash, cash equivalents and short term investments 35,057 19,391
Corporate debt securities [Member]
   
Cash And Cash Equivalents [Line Items]    
Cost 4,529 1,692
Gross unrealized gains 15 14
Gross unrealized losses 0 (24)
Estimated fair value, cash, cash equivalents and short term investments 4,544 1,682
Government and agency securities [Member]
   
Cash And Cash Equivalents [Line Items]    
Cost 9,794  
Gross unrealized gains 12  
Gross unrealized losses 0  
Estimated fair value, cash, cash equivalents and short term investments 9,806  
Time deposits [Member]
   
Cash And Cash Equivalents [Line Items]    
Cost   1,519
Gross unrealized gains   4
Gross unrealized losses   0
Estimated fair value, cash, cash equivalents and short term investments   1,523
Cash [Member]
   
Cash And Cash Equivalents [Line Items]    
Cost 15,045 9,323
Gross unrealized gains 0 0
Gross unrealized losses 0 0
Estimated fair value, cash, cash equivalents and short term investments 15,045 9,323
Money market account [Member]
   
Cash And Cash Equivalents [Line Items]    
Cost 5,662 6,863
Gross unrealized gains 0 0
Gross unrealized losses 0 0
Estimated fair value, cash, cash equivalents and short term investments $ 5,662 $ 6,863
XML 42 R26.htm IDEA: XBRL DOCUMENT v2.4.0.6
SHARE-BASED COMPENSATION EXPENSE (Narrative) (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Share-Based Compensation Expense [Abstract]    
Compensation expense for stock option awards $ 146 $ 89
Stock options exercised during the period, total intrinsic value 4 43
Minimum percentage that restricted stock performance based units may increase over original award caused by achievement of goals (in Percent) 0.00%  
Maximum percentage that restricted stock performance based units may increase over original award caused by achievement of goals (in Percent) 200.00%  
Minimum percentage of awards that employees are entitled to vest based on market price conditions (in Percent) 0.00%  
Maximum percentage of awards that employees are entitled to vest based on market based conditions (in Percent) 200.00%  
Compensation expense, issuance of restricted stock and restricted stock units 1,161 1,532
Total unrecognized compensation expense related to unvested share-based compensation arrangements $ 10,091  
Period over which unvested share-based compensation is expected to be recognized, weighted average (in Duration) 1 year 6 months  
Restricted stock expected to vest (in Shares) 740,671  
Restricted stock units expected to vest (in Shares) 206,977  
XML 43 R5.htm IDEA: XBRL DOCUMENT v2.4.0.6
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Consolidated Statements Of Comprehensive (Loss)    
Net loss $ (640) $ (4,481)
Short term investments:    
Unrealized gain on short term investments, net of income tax expense of $8 and $8, respectively 19 12
Reclassification adjustments, net of income tax expense of $2 5 0
Short term investments, net 24 12
Interest rate swaps:    
Unrealized loss on interest rate swaps, net of income tax benefit of $10 0 (16)
Other comprehensive income (loss), net of tax 24 (4)
Comprehensive loss $ (616) $ (4,485)
XML 44 R10.htm IDEA: XBRL DOCUMENT v2.4.0.6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3 Months Ended
Mar. 31, 2013
Summary Of Significant Accounting Policies [Abstract]  
Summary Of Significant Accounting Policies

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.

Interim Financial Statements

The Company’s consolidated financial statements as of and for the three months ended March 31, 2013 and 2012 are unaudited and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the Company’s financial position and results of operations for these interim periods. Accordingly, readers of these consolidated financial statements should refer to the Company’s audited consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), and the related notes thereto, for the year ended December 31, 2012, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 as certain footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report pursuant to the rules of the Securities and Exchange Commission (the “SEC”). The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results to be expected for the year ending December 31, 2013.

Cash Equivalents and Short Term Investments

Cash equivalents include only securities having a maturity of three months or less at the time of purchase. At March 31, 2013 and December 31, 2012, demand accounts and money market accounts comprised all of the Company’s cash and cash equivalents.

Short term investments at March 31, 2013, consist of investments in government and agency securities and corporate debt securities. Short term investments at December 31, 2012, consisted of investments in corporate debt securities and time deposits with original maturities of greater than three months at the time of purchase. The Company classifies these as available-for-sale securities. These investments are reported at fair value with the related unrealized gains and losses included in accumulated other comprehensive income (loss), a component of stockholders’ equity, net of related tax effects.

 

At March 31, 2013, cash, cash equivalents and short term investments consisted of the following:

 

                                 
    Cost     Gross
Unrealized
Gains
    Gross
Unrealized
Losses
    Estimated
Fair Value
 

Cash

  $ 15,045     $ 0     $ 0     $ 15,045  

Money market account

    5,662       0       0       5,662  

Government and agency securities

    9,794       12       0       9,806  

Corporate debt securities

    4,529       15       0       4,544  
   

 

 

   

 

 

   

 

 

   

 

 

 
    $ 35,030     $ 27     $ 0     $ 35,057  
   

 

 

   

 

 

   

 

 

   

 

 

 

At December 31, 2012, cash, cash equivalents and short term investments consisted of the following:

 

                                 
    Cost     Gross
Unrealized
Gains
    Gross
Unrealized
Losses
    Estimated
Fair Value
 

Cash

  $ 9,323     $ 0     $ 0     $ 9,323  

Money market account

    6,863       0       0       6,863  

Corporate debt securities

    1,692       14       (24 )     1,682  

Time deposits

    1,519       4       0       1,523  
   

 

 

   

 

 

   

 

 

   

 

 

 
    $ 19,397     $ 18     $ (24 )   $ 19,391  
   

 

 

   

 

 

   

 

 

   

 

 

 

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 $10,534 and $10,511 at March 31, 2013 and December 31, 2012, respectively

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 and 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 by the customer and the product is shipped to the customer. Revenue from the retail program is recognized typically when the product is received at the retailer’s location.

Deferred revenue consists primarily of unredeemed prepaid program cards and unshipped frozen foods. When a customer orders the Nutrisystem® Select® 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.

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 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.

 

The Company reviews the reserves for customer returns at each reporting period and adjusts them to reflect data available at that time. To estimate reserves for returns, the Company considers actual return rates in preceding periods and changes in product offerings or marketing methods that might impact returns going forward. To the extent the estimate of returns changes, the Company will adjust the reserve, which will impact the amount of product sales revenue recognized in the period of the adjustment. The provision for estimated returns for the three months ended March 31, 2013 and 2012 was $3,845 and $3,101, respectively. The reserve for estimated returns incurred but not received and processed was $1,224 and $652 at March 31, 2013 and December 31, 2012, respectively, and has been included in other accrued expenses and current liabilities in the accompanying consolidated balance sheets.

Revenue from product sales includes amounts billed for shipping and handling and is presented net of returns and billed sales tax. Revenue from the new retail program is also net of any trade allowances or broker commissions. Revenue from shipping and handling charges were $641 and $969 for the three months ended March 31, 2013 and 2012, respectively. Shipping-related costs are included in cost of revenue in the accompanying consolidated statements of operations.

Dependence on Suppliers

Approximately 13% and 10% of inventory purchases for the three months ended March 31, 2013 were from two suppliers. The Company has a supply arrangement with one of these suppliers that requires the Company to make minimum purchases. For the three months ended March 31, 2012, these suppliers supplied approximately 16% and 5% of inventory purchases. Additionally, a third supplier during the three months ended March 31, 2012 supplied approximately 14% of inventory purchases.

The Company outsources 100% of its fulfillment operations to a third-party provider and more than 90% of its orders are shipped by one third party provider.

Vendor Rebates

One of the Company’s suppliers provides for rebates based on purchasing levels. The Company accounts for this rebate on an accrual basis as purchases are made at a rebate percentage determined based upon the estimated total purchases from the vendor. The estimated rebate is recorded as a receivable from the vendor with a corresponding reduction in the carrying value of purchased inventory, and is reflected in the consolidated statements of operations when the associated inventory is sold. The rebate period is June 1 through May 31 of each year. For the three months ended March 31, 2013 and 2012, the Company reduced cost of revenue by $358 and $506, respectively, for these rebates. A receivable of $922 and $637 at March 31, 2013 and December 31, 2012, respectively, has been recorded in receivables in the accompanying consolidated balance sheets. Historically, the actual rebate received from the vendor has closely matched the estimated rebate recorded. An adjustment is made to the estimate upon determination of the final rebate.

Fair Value of Financial Instruments

A three-tier fair value hierarchy has been established by the Financial Accounting Standards Board (“FASB”) to prioritize the inputs used in measuring fair value. These tiers are as follows:

Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3—Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

The fair values of the Company’s Level 1 instruments are based on quoted prices in active exchange markets for identical assets. The Company had no Level 2 or 3 instruments at March 31, 2013 and December 31, 2012.

 

The following table summarizes the Company’s financial assets measured at fair value at March 31, 2013:

 

                 
    Total Fair Value     Quoted Prices in Active
Markets for Identical
Assets (Level 1)
 

Money market account

  $ 5,662     $ 5,662  

Government and agency securities

    9,806       9,806  

Corporate debt securities

    4,544       4,544  
   

 

 

   

 

 

 

Total assets

  $ 20,012     $ 20,012  
   

 

 

   

 

 

 

The following table summarizes the Company’s financial assets measured at fair value at December 31, 2012:

 

                 
    Total Fair Value     Quoted Prices in Active
Markets for Identical
Assets (Level 1)
 

Money market account

  $ 6,863     $ 6,863  

Corporate debt securities

    1,682       1,682  

Time deposits

    1,523       1,523  
   

 

 

   

 

 

 

Total assets

  $ 10,068     $ 10,068  
   

 

 

   

 

 

 

Earnings Per Share

The Company uses the two-class method to calculate earnings per share (“EPS”) as the unvested restricted stock issued under the Company’s equity incentive plans are participating shares with nonforfeitable rights to dividends. Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings to common stockholders and undistributed earnings allocated to common stockholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and participating securities based on the number of weighted average shares outstanding during the period. Undistributed losses are not allocated to unvested restricted stock as the restricted stockholders are not obligated to share in the losses. The following table sets forth the computation of basic and diluted EPS:

 

                 
    Three Months Ended
March 31,
 
    2013     2012  

Net loss

  $ (640 )   $ (4,481 )

Net loss allocated to unvested restricted stock

    0       0  
   

 

 

   

 

 

 

Net loss allocated to common shares

  $ (640 )   $ (4,481 )
   

 

 

   

 

 

 

Weighted average shares outstanding:

               

Basic

    27,759       27,321  

Effect of dilutive securities

    0       0  
   

 

 

   

 

 

 

Diluted

    27,759       27,321  
   

 

 

   

 

 

 

Basic loss per common share

  $ (0.02 )   $ (0.16 )
   

 

 

   

 

 

 

Diluted loss per common share

  $ (0.02 )   $ (0.16 )
   

 

 

   

 

 

 

In both the three months ended March 31, 2013 and 2012, diluted loss per common share is identical to basic loss per common share as the Company is in a net loss position and the impact of including common stock equivalents is anti-dilutive. In the three months ended March 31, 2013 and 2012, common stock equivalents representing 1,767,989 and 1,588,234 shares of common stock, respectively, were excluded from weighted average shares outstanding for diluted income per common share purposes because the effect would be anti-dilutive.

 

Cash Flow Information

The Company made no payments for income taxes in both the three months ended March 31, 2013 and 2012, respectively. Interest payments in the three months ended March 31, 2013 and 2012 were $40 and $238, respectively. For the three months ended March 31, 2013, the Company had non-cash capital additions of $586 of unpaid invoices in accounts payable and accrued expenses. For the three months ended March 31, 2012, the Company had non-cash capital additions of $2,298 of unpaid invoices in accounts payable and accrued expenses.

Recently Issued Accounting Pronouncements

In February 2013, the FASB issued ASU No. 2013-02 which requires companies to present information about reclassifications out of accumulated other comprehensive income in a single note or on the face of the financial statements. The updated standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2012, with early adoption permitted. The adoption of this standard update did not impact the Company’s consolidated financial statements.

Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and operating expenses during the reporting period. Actual results could differ from these estimates.

Reclassifications

Certain reclassifications have been made to prior year amounts to conform to the current year presentation.

XML 45 R27.htm IDEA: XBRL DOCUMENT v2.4.0.6
SHARE-BASED COMPENSATION EXPENSE (Stock Option Activity) (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Share-Based Compensation Expense [Abstract]    
Stock options outstanding, beginning of period (in Shares) 674,082  
Stock options granted (in Shares) 384,895  
Stock options exercised (in Shares) (600) (4,668)
Stock options forfeited (in Shares) (276,074)  
Stock options outstanding, end of period (in Shares) 782,303  
Stock options exercisable (vested) (in Shares) 82,102  
Stock options expected to vest (in Shares) 765,128  
Weighted average price per share, stock options outstanding (in Dollars per Share) $ 11.65  
Weighted average price per share, stock options granted (in Dollars per Share) $ 8.49  
Weighted average price per share, stock options exercised (in Dollars per Share) $ 0.58  
Weighted average price per share, stock options forfeited (in Dollars per Share) $ 14.19  
Weighted average price per share, stock options outstanding (in Dollars per Share) $ 9.21  
Weighted average price per share, stock options exercisable (vested) (in Dollars per Share) $ 13.84  
Weighted average price per share, stock options expected to vest (in Dollars per Share) $ 9.20  
Weighted average remaining contractual life stock options outstanding (in Duration) 6 years 6 months 22 days  
Weighted average remaining contractual life, stock options exercisable (vested) (in Duration) 5 years 5 months 16 days  
Weighted average remaining contractual life, stock options expected to vest (in Duration) 6 years 6 months 22 days  
Aggregate intrinsic value, stock options outstanding $ 267  
Aggregate intrinsic value, stock options exercisable (vested) 2  
Aggregate intrinsic value, stock options expected to vest $ 267  
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Narrative) (Details) (USD $)
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Dec. 31, 2012
Summary Of Significant Accounting Policies [Abstract]      
Net book value of capitalized software $ 10,534,000   $ 10,511,000
Provision for estimated returns 3,845,000 3,101,000  
Reserve for estimated returns 1,224,000   652,000
Revenue from shipping and handling charges 641,000 969,000  
Concentration Risk [Line Items]      
Reduced cost of revenue, rebate earned 358,000 506,000  
Amount of rebate receivable recorded in balance sheet 922,000   637,000
Common stock equivalents excluded from weighted average shares outstanding for diluted income per common share purposes (in Shares) 1,767,989 1,588,234  
Payment for income taxes 0 0  
Payment for interest 40,000 238,000  
Non-cash capital additions $ 586,000 $ 2,298,000  
Major Supplier 1 [Member] | Inventory Purchases [Member]
     
Concentration Risk [Line Items]      
Percent concentration risk (in Percent) 13.00% 16.00%  
Major Supplier 2 [Member] | Inventory Purchases [Member]
     
Concentration Risk [Line Items]      
Percent concentration risk (in Percent) 10.00% 5.00%  
Major Supplier 3 [Member] | Inventory Purchases [Member]
     
Concentration Risk [Line Items]      
Percent concentration risk (in Percent)   14.00%  
Fulfillment Provider [Member] | Fulfillment Cost [Member]
     
Concentration Risk [Line Items]      
Percent concentration risk (in Percent) 100.00%    
Shipping Provider [Member] | Shipping Costs [Member] | Minimum [Member]
     
Concentration Risk [Line Items]      
Percent concentration risk (in Percent) 90.00%