Nutrisystem 2010 Annual Report Download - page 38

The Company has entered into supply agreements with various food vendors. The majority of these
agreements provide for annual pricing, annual purchase obligations, as well as exclusivity in the production of
certain products, with terms of five years or less. One agreement also provides for certain rebates to us if certain
volume thresholds are exceeded. 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 obligations.
In October 2007, the Company executed a credit agreement with a group of lenders that provides for a
$200.0 million unsecured revolving credit facility. We borrowed $30.0 million against this facility during 2010.
The credit agreement 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. We are subject
to 0.15% per annum unused fee payable quarterly. In 2010, we entered into two separate $10.0 million notional
value floating to fixed interest rate swap agreements (“Swaps”) that mature on August 3, 2012 and September 28,
2012, respectively. Under the Swaps, we receive interest equivalent to the three-month LIBOR and pay a fixed
rate of interest of 0.75%, with settlements occurring quarterly.
In addition, we have no off-balance sheet financing arrangements.
Liquidity, Capital Resources and Other Financial Data
The capital and credit markets have become more volatile as a result of the recent global economic
conditions, which 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.
At December 31, 2010, we had net working capital of $74.0 million, a decrease of $29.3 million from the
$103.3 million net working capital balance at December 31, 2009. The decrease was primarily due to a decrease
in cash, cash equivalents and marketable securities to fund the stock repurchase program. Cash and cash
equivalents at December 31, 2010 were $20.4 million, a decrease of $11.8 million from the balance of $32.2
million at December 31, 2009. In addition, we had $20.8 million invested in marketable securities at
December 31, 2010 as compared to $30.3 million at December 31, 2009. Our principal sources of liquidity
during this period were cash flow from operations and borrowings under our credit facility.
We have a $200.0 million unsecured revolving credit facility with a group of lenders which is committed
until October 2, 2012 with an expansion feature, subject to certain conditions, to increase the facility to $300.0
million. We borrowed $30.0 million against this facility during 2010 to utilize our low cost debt capital to retire
equity capital. No amounts were borrowed during 2009.
In the year ended December 31, 2010, we generated cash flows of $66.9 million from continuing operations,
an increase of $10.3 million from 2009. The increase in cash flow from operations is primarily attributable to
higher net income and non-cash working capital changes primarily from reductions in inventory.
In the year ended December 31, 2010, net cash used in investing activities from continuing operations was
$10.1 million, primarily due to capital expenditures of $19.6 million for the relocation of our corporate
headquarters and web initiatives, partially offset by sales of marketable securities of $10.0 million.
In the year ended December 31, 2010, net cash used in financing activities was $68.6 million, primarily for
the repurchase of 3,270,429 shares of our common stock for an aggregate cost of $75.0 million and the payment
of dividends of $20.7 million, partially offset by the borrowings under our credit facility of $30.0 million.
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