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Exercise of share-based instruments held by consultants, net of liability classification upon adoption of SFAS R. Purchases of marketable securities. General and administrative expenses consist of compensation for administrative, information technology, counselors excluding commissions and customer service personnel, share-based payment arrangements, facility expenses, website development costs, professional service fees and other general corporate expenses. State or other jurisdiction of incorporation or organization. We seek to hire counselors with backgrounds in psychology, sociology, nutrition, dietetics or other health-related fields and with suitable temperaments to talk with our customers. Commission File Number
Most Recent Annual Report
During , we enhanced our ecommerce platform and redesigned our website, entered into the retail channel with our national launch in Costco and extended our business across borders into Canada. We initiated a concerted effort to improve lifetime customer economics, length of stay and overall customer satisfaction.
In the face of weakening new customer demand, it was crucial to improve each and every customer interaction with an eye toward customer success and business profitability, and in we have seen marked improvement in the key metrics of customer satisfaction, length of stay and revenue per customer. We enhanced the customer experience with newly designed packaging, on-boarding efforts and customer service.
We initiated new standards for order fulfillment and new operating procedures that delivered significant improvements in our overall order accuracy, which, we believe is a key driver of future customer satisfaction and re-order rates. In the face of increased food costs and margin pressure, we undertook a complete review of our entire supply chain management function. That comprehensive review entailed detailed studies on product cost improvements, vendor productivity, warehouse efficiencies and key cost center opportunities.
The results contributed to a reduction in overall product costs, delivery costs and packaging costs. This effort also resulted in improvement in our inventory management as we proceeded to reduce the number of outside distribution centers during Table of Contents We are continuing to see a challenging economic environment in Our key focus in is to continue to leverage our direct-to-consumer model and improve our efficiency.
We have already taken steps to reduce our overall operating costs, improve gross margins and limit capital spending to optimize cash generation in Our consolidated financial statements are prepared in accordance with U. 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. Management considers the following accounting estimates to be the most critical in preparing our consolidated financial statements. These critical accounting estimates are discussed with our audit committee quarterly.
One of our suppliers provides for rebates based on purchasing levels. We accrue this rebate 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 reduction in the carrying value of purchased inventory and is reflected in the consolidated statement of operations when the associated inventory is sold.
A receivable is recorded for the estimate of the rebate earned. The actual rebate received from the vendors has closely matched the estimated rebate recorded and an adjustment is made to the estimate upon determination of the final rebate. Excess and Obsolete Inventory. We continually assess the quantities of inventory on hand to identify excess or obsolete inventory and record a provision for the potential loss.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and the respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets are evaluated for future realization and reduced by a valuation allowance to the extent we believe a portion will not be realized. We consider many factors when assessing the likelihood of future realization of our deferred tax assets, including our recent earnings and expectations of future taxable income and other relevant factors. Table of Contents We estimate the annual effective income tax rate at the beginning of each year and revise the estimate at each reporting period based on a number of factors including operating results, level of tax exempt interest income and sales by state, among other items.
Revenue and expenses consist of the following components: 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. Cost of revenue also includes the fees paid to independent distributors and sales commissions.
Marketing expense includes media, advertising production, marketing and promotional expenses and payroll-related expenses for personnel engaged in these activities. 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. General and Administrative Expenses.
General and administrative expenses consist of compensation for administrative, information technology, counselors excluding commissions and customer service personnel, share-based payment arrangements, facility expenses, website development costs, professional service fees and other general corporate expenses. Equity and Impairment Loss. Equity and impairment loss consists of our share of the earnings or losses and estimated impairment losses of our equity interests. The investment in Zero Water is accounted for using the equity method of accounting.
Interest income, net consists of interest income earned on cash balances and marketable securities, net of interest expense. We are subject to corporate level income taxes and record a provision for income taxes based on an estimated effective income tax rate for the year. Overview of the Direct Channel. The decrease in is primarily attributable to the decline in customer starts due to the weakening economy. Revenue is primarily generated through customer starts and the customer ordering behavior, including length of time on our program and the diet program selection.
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. Total costs and expenses. Income from continuing operations before income taxes. Income from continuing operations. The revenue decrease resulted primarily from a decrease in customer starts due to the weakening economy.
Gross margin as a percent of revenue decreased to The decrease in gross margin was primarily attributable to increased food and freight costs. We are continuing to experience pressure on gross margins but are focusing on these costs and are working on a full supply chain optimization effort. Marketing expense as a percent of revenue increased to During , we tested a number of different promotional offers to see what drove the best response rate in the current economy.
These tests, while impacting the marketing expense, will provide valuable insight into We successfully launched our new ecommerce platform during which increased the computer services expense after the development work on this website was completed.
While we will continue to incur maintenance and support for our website, we believe the additional support needed for the initial launch will decline in Other expense primarily represents the realized gains and losses from currency. The impairment charge primarily resulted from lower-than-expected operating results and projections of future performance coupled with the current non-strategic business direction of Zero Water and the overall general economic decline which indicated that the full carrying value of the equity investment was not recoverable.
Any excess cash in was invested in treasury and money market accounts as compared to marketable securities in Revenue growth in the first half of was strong yet the second half of was impacted by competitive and economic pressures. Table of Contents Other Expense.
Other expense represents the realized gains and losses from currency. Contractual Obligations and Commercial Commitments. Following is a summary of our contractual obligations. We have no other commercial commitments. Fulfillment and food purchase commitments. The Company has entered into supply agreements with various food vendors. Additionally, the Company has entered into an agreement with our outside fulfillment provider which contains minimum space requirements.
The Company anticipates it will meet all annual purchase commitments. In addition, we have no off-balance sheet financing arrangements. The capital and credit markets have become more volatile as a result of the recent global economic conditions. This has caused a general tightening in the credit markets, lower levels of liquidity and increased financing costs.
Despite these factors, we believe that available capital resources are sufficient to fund our working capital requirements, capital expenditures, income tax obligations, dividends and share repurchases for the foreseeable future. Our principal sources of liquidity during this period were cash flow from operations. We currently have no off-balance sheet financing arrangements. The decrease in cash flow from operations is primarily attributable to lower net income offset by less of an inventory build during as compared to The repurchased shares have been retired.
We commenced our operational transition of NuKitchen during the fourth quarter of Table of Contents 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.
This seasonality can be seen in our results for and , however, in , third quarter revenue was higher than the first quarter due in part to favorable conditions in the market for certain media. Recently Issued Accounting Pronouncements. We believe that we are not subject to any material risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk instruments.
As such, a change in interest rates of 1 percentage point would not have a material impact on our operating results and cash flows. We have recently expanded internationally into Canada but believe we have low exposure to changes in foreign exchange rates at this point and have not yet hedged our operating exposure to foreign currency fluctuations.
The information required by this Item is set forth on pages 38 through 60 hereto and is incorporated by reference herein. Disclosure Controls and Procedures. Internal control over financial reporting includes policies and procedures that: Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion. In our opinion, NutriSystem, Inc. None, as all information required in these schedules is included in the Notes to the Consolidated Financial Statements. Notes to Consolidated Financial Statements. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NutriSystem, Inc.
Cash and cash equivalents. Current assets of discontinued operation. Accrued payroll and related benefits. Other accrued expenses and current liabilities. Current liabilities of discontinued operation.
Accumulated other comprehensive income. The accompanying notes are an integral part of these consolidated financial statements. Net loss from discontinued operation. Exercise of stock options. Purchase and retirement of common shares.
Exercise of share-based instruments held by consultants, net of liability classification upon adoption of SFAS R. Tax benefit from stock option exercises. Foreign currency translation adjustment. Tax benefit from equity compensation awards. Adjustments to reconcile net income to net cash provided by operating activities-. Loss on discontinued operation. Gain loss on disposal of fixed assets. Deferred income tax expense benefit. Changes in operating assets and liabilities.
Other accrued expenses and liabilities. Net cash provided by operating activities of continuing operations. Net cash used in provided by operating activities of discontinued operation. Net cash provided by operating activities. Purchases of marketable securities. Sales of marketable securities.
Cash paid for acquisition of business. Proceeds from the sale of fixed assets. Purchase of equity investment. Net cash used in provided by investing activities of continuing operations. Net cash provided by used in investing activities of discontinued operation. Net cash used in provided by investing activities. Borrowings under credit facility. Repayments of borrowings under credit facility. Tax benefit from equity compensation awards, net. Repurchase and retirement of common stock.
Net cash used in financing activities of continuing operations. Net cash used in financing activities of discontinued operation. Net cash used in financing activities. Effect of exchange rate changes on cash and cash equivalents. Nature of the Business. This subsidiary has been treated as a discontinued operation.
Accordingly, the operating results of this discontinued operation have been presented separately from continuing operations and are included in loss on discontinued operation, net of income tax in the accompanying consolidated statements of operations for all periods presented.
The assets and liabilities have also been presented separately in the accompanying consolidated balance sheets see Note Presentation of Financial Statements. All significant intercompany accounts and transactions have been eliminated. Cash, Cash Equivalents and Marketable Securities. Cash and cash equivalents include only securities having a maturity of three months or less at the time of purchase. These securities were redeemed at cost during The reset date is the date on which the underlying interest rate is revised based on a Dutch auction.
Typically interest reset dates are every 35 days for these types of securities. Inventories are valued at the lower of cost or market, with cost determined using the first-in, first-out FIFO method. Table of Contents 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 investment in Zero Water is accounted for using the equity method of accounting and is classified as equity investment in the accompanying consolidated balance sheets. The Company periodically reviews the carrying value of its investment in Zero Water to determine if circumstances exist indicating impairment to the carrying value of the investment.
This determination requires significant estimates by management, including the expected course of action at the balance sheet date that would lead to such cash flows. Subsequent changes in estimates could impact the determination of whether an impairment exists. To the extent impairment has occurred, the loss will be measured as the excess of the carrying amount of the property over the fair value of the property. Identifiable Intangible Assets and Goodwill. Valuation of Long-Lived and Intangible Assets.
Assets and liabilities are translated into U. Table of Contents Revenue Recognition. Revenue from product sales is recognized when the earnings process is complete, which is upon transfer of title to the product. This transfer occurs upon shipment. 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.
Customers may return unopened product within 30 days of purchase in order to receive a refund or credit. 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.
Revenue from product sales includes amounts billed for shipping and handling and is presented net of returns and billed sales tax. Shipping-related costs are included in cost of revenue in the accompanying consolidated statements of operations.
The Company has supply arrangements with these vendors that require the Company to make minimum purchases. The Company accounts for this rebate on an accrual basis as purchases are made at a rebate percent determined based upon the estimated total purchases from the vendor.
The estimated rebate is recorded as a reduction in the carrying value of purchased inventory and is reflected in the consolidated statements of operations when the associated inventory is sold.
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.
The Company records rental costs, including costs related to fixed rent escalation clauses and rent holidays, on a straight-line basis over the lease term. Lease allowances utilized for space improvement are recorded as leasehold improvement assets and amortized over the shorter of the economic useful life of the asset or the lease term. Tenant lease incentive allowances received are recorded as deferred rent and amortized as reductions to rent expense over the lease term.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of operations in the period that includes the enactment date. FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return.
A tax benefit from an uncertain position was previously recognized if it was probable of being sustained. Under FIN 48, the liability for unrecognized tax benefits is classified as noncurrent unless the liability is expected to be settled in cash within 12 months of the reporting date. The Company records accrued interest and penalties related to unrecognized tax benefits as part of interest expense. This statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.
Currently, the Company has not elected to treat any of its financial assets or liabilities under the fair value option. Table of Contents Earnings Per Share. Diluted EPS reflects the potential dilution from the exercise or conversion of securities into common stock, such as stock options and unvested restricted stock, using the treasury stock method.
The following table sets forth the computation of basic and diluted EPS: Effect of dilutive stock options and unvested restricted stock. In , and , common stock equivalents from stock options and unvested restricted stock representing ,, 89, and 63, 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.
The cost of all share-based awards to employees, including grants of employee stock options and restricted stock, is recognized in the financial statements based on the fair value of the awards at grant date. The fair value of stock option awards is determined using the Black-Scholes valuation model on the date of grant.
The fair value of share-based awards is recognized on a straight-line basis over the requisite service period, net of estimated forfeitures. The Company relies primarily upon historical experience to estimate expected forfeitures and recognizes compensation expense on a straight-line basis from the date of grant.
The Company issues new shares upon exercise of stock options or granting of restricted stock. Interest payments in , and were not material.
The initial measurement, decreases in value and changes in the level of ownership of the equity method investment are addressed. The preparation of financial statements in accordance with U. Actual results could differ from these estimates. Pro forma statement of operations data is not included for NuKitchen as the operations are not material in relation to the consolidated financial statements. The following summarizes cash, cash equivalents and marketable securities: These securities were sold at par value in January Fixed assets consist of the following: Computer hardware and software.
Table of Contents 6. The identifiable intangible assets are amortized over the above noted periods on a straight-line basis. Estimated amortization expense for identifiable intangible assets for the next five years is as follows: This investment is accounted for under the equity method of accounting. The charge was recorded as equity and impairment loss in the accompanying consolidated statements of operations. The Credit Facility provides for interest at either a floating rate, which will be a base rate, or a Eurocurrency rate equal to the London Inter-Bank Offered Rate for the relevant term, plus an applicable margin.
The base rate will. The Credit Facility is also subject to 0. The Credit Facility contains financial and other covenants, including a maximum leverage ratio and minimum interest coverage ratio, and includes limitations on, among other things, liens, certain acquisitions, consolidations and sales of assets.
The Company may declare and pay cash dividends up to specified amounts if certain ratios are maintained and no events of default have occurred. The Company leases its warehouse, corporate headquarters and certain equipment. These leases generally have initial terms of one to 10 years and have renewal options for additional periods.
Certain of the leases also contain escalation clauses based upon increases in costs related to the properties. These suits, which were nominally brought on behalf of NutriSystem, Inc. The federal complaints allege violations of Sections 10 b and 20 a of the Securities Exchange Act of and claims for. Table of Contents breach of fiduciary duty, waste, and unjust enrichment against all defendants and insider selling against certain defendants.
Like the federal derivative action, the state court action is nominally brought on behalf of the Company and names a majority of the current Board of Directors as defendants. This action has been stayed. One agreement also provides rebates if certain volume thresholds are exceeded. Table of Contents The timing and actual number of shares repurchased depends on a variety of factors including price, corporate and regulatory requirements, alternative investment opportunities and other market conditions.
The Company has authorized 5,, 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. The income tax benefit attributable to discontinued operation consists of the following: Statutory federal income tax rate. State and foreign income taxes, net of federal benefit. Zero Water capital loss carryforward. Net operating loss carryforward. Net deferred tax asset. 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.
Net operating losses will begin to expire in As a result of the adoption of FIN 48, the Company did not recognize any change in the liability for unrecognized tax benefits. State tax jurisdictions that remain open to examination range from through The Company does not believe that that there will be any material changes to unrecognized tax positions over the next 12 months.
A reconciliation of the beginning and ending amounts of the total unrecognized tax benefit is as follows: Balance at beginning of year.
Increase related to current year tax positions. Decrease due to lapse of statute of limitations. Balance at end of year. Accordingly, the operating results of this discontinued operation have been presented separately from continuing operations for all periods presented.
Under each of the plans, the Board of Directors determines the term of each award, but no award can be exercisable more than 10 years from the date the award is granted. To date, all of the awards issued under the Equity Incentive Plans expire 10 years from the grant date.
The Board also determines the vesting provisions and the exercise price per share, which is the fair market value at date of grant. Awards issued to employees generally vest over terms ranging from three to five years. The following table summarizes the options granted, exercised and cancelled in , and The Company elected to use the modified prospective method.
Accordingly, prior periods have not been restated. There were no option grants in , or These shares were charged to expense when authorized. In addition, in , and , the Company issued a total of 17,, 4, and 3, shares of common stock, respectively, to non-employees for services. The stock-based compensation costs were recorded in general and administrative expenses in and and in marketing expenses in in the accompanying consolidated statements of operations. The Company has issued restricted stock to employees generally with terms ranging from three to five years.
Expense for restricted stock is amortized ratably over the vesting period. The following table summarizes the restricted stock activity: The fair value of these awards was estimated using the Black-Scholes option pricing model and is remeasured at each financial statement date until the award is settled or expires.
Under the provisions of the Plan, substantially all employees meeting minimum age and service requirements are entitled to contribute on a before and after-tax basis a certain percentage of their compensation. Following is an analysis for the returns reserve: Provision for estimated returns.
Income loss from continuing operations. Loss income on discontinued operation, net. Loss on discontinued operation, net. Table of Contents No. Pursuant to the requirements of the Securities Exchange Act of , this Report has been signed below by the following persons on behalf of the Registrant and in the capabilities indicated.
Chairman and Chief Executive Officer and Director. State or other jurisdiction of incorporation or organization. Submission of Matters to a Vote of Security Holders. Quantitative and Qualitative Disclosures about Market Risk. Financial Statements and Supplementary Data. Directors, Executive Officers and Corporate Governance. Principal Accounting Fees and Services. Exhibits, Financial Statement Schedules. Chairman, President and Chief Executive Officer. The timing and actual number of shares repurchased depend on a variety of factors including price, corporate and regulatory requirements, alternative investment opportunities and other market conditions.
Payments Due by Period in millions. Year Ended December 31,. Our highly successful creative approach fatigued and we are in the process of revamping the advertising and rebalancing media as a result. We view this as a temporary and fixable setback and anticipate returning to meaningful growth in All other key metrics around the business are sound and continuing to grow.
The following are key financial highlights for the period. Full Year Compared to Full Year Gross margin increased basis points to Please wait while we load the requested K Annual Report. If it does not load, please click the link below:. Companies may provide additional information to their SEC Filings as exhibits. Click a link below to view an exhibit that was filed with this report:. Please wait while we load the requested exhibit. Positive 18 Negative 2 All. We believe this translates into higher customer satisfaction and more profit.
Upsell and a la carte sales, including shakes and additional flexible options have continued to grow as more people are adding them to their orders. We provide weight management products and services, including nutritionally balanced weight loss programs sold primarily online and over the telephone and multi-day kits and single items available at select retail locations.