Nutrisystem 2010 Annual Report Download - page 56

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, 2010, the Company was in
compliance with all covenants contained in the Credit Facility.
At December 31, 2010, the Company had $285 of unamortized debt issuance costs associated 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, 2010 was $170,000. The Credit Facility can be drawn upon through October 2, 2012, at
which time all amounts must be repaid.
The Company uses interest rate swaps, a type of derivative financial instrument, to manage interest costs and
minimize the effects of interest rate fluctuations on cash flows associated with its variable-rate debt. The
Company does not use interest rate derivatives for trading or speculative purposes. While interest rate swaps are
subject to fluctuations in value, these fluctuations are generally offset by the value of the underlying exposures
being hedged. The Company minimizes the risk of credit loss by entering into these agreements with financial
institutions that have high credit ratings.
In November 2010, the Company entered into two separate $10,000 notional value floating to fixed interest rate
swap agreements (“Swaps”) that mature on August 3, 2012 and September 28, 2012, respectively. Under the
Swaps, the Company receives interest equivalent to the three-month LIBOR and pays a fixed rate of interest of
0.75%, with settlements occurring quarterly. The objective of the hedges is to eliminate the variability of cash
flows in interest payments for $20,000 of floating rate debt. The Swaps’ estimated fair value was $(44) as of
December 31, 2010. The corresponding change in fair value is included in other comprehensive income. There
was no cash flow hedge ineffectiveness recorded during 2010.
9. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases its corporate headquarters and certain equipment. These leases generally have initial terms
of one to 12 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, 2010:
2011 ..................................................................... $ 2,396
2012 ..................................................................... 3,042
2013 ..................................................................... 3,064
2014 ..................................................................... 3,068
2015 ..................................................................... 3,138
Thereafter ................................................................. 20,201
$34,909
Total rent expense for 2010, 2009 and 2008 was $3,540, $3,269 and $2,732, respectively.
Litigation
Commencing on October 9, 2007, several putative class action suits were 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 purported 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 alleged that the
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