Nutrisystem 2007 Annual Report Download - page 57

5. EQUITY INVESTMENT
On October 11, 2007, the Company purchased 1,320,650 Series A Units from Zero Water, at a purchase price of
$10.60 per Series A unit for an aggregate purchase price of $14,258, which includes acquisition costs of $259.
This represents approximately a 27% equity interest in Zero Water. This investment is accounted for under the
equity method of accounting and an estimated loss of $800 was recorded for the Company’s share of Zero
Water’s loss subsequent to the initial investment.
6. CREDIT FACILITY
On October 2, 2007, the Company executed a credit agreement with a group of lenders that provides for a
$200,000 unsecured revolving credit facility with an expansion feature, subject to certain conditions, to increase
the facility to $300,000 (the “Credit Facility”). No amounts were outstanding during 2007.
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
be the higher of the lender’s base rate or one-half of one percent above the Federal Funds Rate. The Credit
Facility is also subject to 0.15% per annum unused fee payable quarterly.
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. As of December 31, 2007, the Company was in
compliance with all covenants contained in the Credit Facility.
The Company incurred $814 of debt issuance costs ($773 remained unamortized as December 31, 2007) in
connection with the Credit Facility that are being amortized over the remaining term of the Credit Facility. The
amount of unused Credit Facility at December 31, 2007 was $200,000. The Credit Facility can be drawn upon
through October 2, 2012, at which time all amounts must be repaid.
7. COMMITMENTS AND CONTINGENCIES
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. Lease obligations, with initial or
remaining terms of one or more years, consist of the following at December 31, 2007:
2008 ............................................................. $ 3,000
2009 ............................................................. 3,383
2010 ............................................................. 2,038
2011 ............................................................. 900
2012 ............................................................. 525
Thereafter ......................................................... 3,147
$12,993
Total rent expense for 2007, 2006 and 2005 was $2,334, $1,301 and $888, respectively.
Commencing on October 9, 2007, several putative class actions have been filed in the United States District
Court for the Eastern District of Pennsylvania naming NutriSystem, Inc. and certain of its officers and directors
as defendants and alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The
complaints purport to bring claims on behalf of a class of persons who purchased the Company’s common stock
between February 14, 2007 and October 3, 2007 or October 4, 2007. The complaints allege that the defendants
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