Nutrisystem 2007 Annual Report Download - page 39

In the year ended December 31, 2007, we generated a cash flow of $108.2 million from operations, an
increase of $41.4 million from 2006. The increase in cash flow from operations is primarily attributable to higher
net income and less of an inventory build during 2007 than 2006. Net changes in operating assets and liabilities
decreased cash flow from operations by $6.6 million in 2007, with changes in components generally due to the
larger scale of the business. Increases in inventories ($10.1 million) and receivables ($1.9 million) were partially
offset by increases in income taxes ($6.0 million) and other accrued expenses and liabilities ($1.4 million). We
generally have increased inventory in the fourth quarter in order to meet anticipated demand in the first quarter of
the following year.
In the year ended December 31, 2007, net cash provided by investing activities was $33.1 million, primarily
due to the cash received from the net sales of marketable securities of $64.5 million which offset the spending on
capital expenditures of $18.7 million and the $14.3 million investment in Zero Water. In 2007, we invested
heavily in our ecommerce platform which allows us to be more efficient in testing and in offering new
promotional programs and in our member section of our website which allows our customers access to
community-based tools such as online counseling, bulletin boards, chat rooms, weight loss trackers and recipe
clubs. Additionally, staff additions and a call center relocation required additional capital spending.
In the year ended December 31, 2007, net cash used in financing activities consisted of the repurchase of
2,799,031 shares of common stock for an aggregate purchase price of $121.8 million partially offset by the tax
benefit from stock option exercises of $7.3 million and cash receipts of $1.9 million from the exercise of
common stock options.
In August 2006, we announced that our Board of Directors authorized the repurchase of up to $50 million of
our outstanding shares of common stock. Additionally, in February 2007, a repurchase program of up to $200
million of outstanding shares of common stock was authorized and, in October 2007, an additional $100 million
of outstanding shares of common stock was authorized. The stock repurchase programs from 2007 have an
expiration date of March 31, 2009 and also may be limited or terminated at any time without prior notice. The
repurchased shares have been retired.
There are no current plans or discussions in process relating to any material acquisition that is probable in
the foreseeable future.
We have not declared or paid any dividends since inception. Our Board of Directors has considered the
declaration of a dividend and expects to give it further consideration in the future. The declaration and payment
of dividends in the future will be determined by our Board of Directors in light of conditions then existing,
including our earnings, financial condition, capital requirements and other factors.
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
2007, however, in 2005, our revenue increased sequentially every quarter due to our increased level of
advertising spending and, in 2006, 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
In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value
Measurements,” which defines fair value, establishes a framework for measuring fair value under generally
accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies to
other accounting pronouncements that require or permit fair value measurements. The new guidance is effective
for fiscal years beginning after November 15, 2007. The adoption of SFAS No. 157 is not expected to have a
material impact on the Company’s consolidated financial position and results of operations.
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