Nutrisystem 2011 Annual Report Download - page 60

base rate or one-half of one percent above the Federal Funds Rate. The Credit Facility is also subject to an
unused fee payable quarterly. The unused fee is subject to adjustment based on the Company’s consolidated
leverage ratio and ranges from 0.25-0.45% per year. During 2011, 2010 and 2009, the Company incurred $417,
$87 and $0 in interest, respectively, and $279, $294 and $304 in an unused line fee, respectively. Interest
payments and unused line fees are classified within interest (expense) income, net in the accompanying
consolidated statements of operations.
The Credit Facility contains financial and other covenants, including a maximum leverage ratio, a minimum
fixed charge ratio and a minimum consolidated earnings before interest, taxes, depreciation and amortization, and
includes limitations on, among other things, liens, capital expenditures, certain acquisitions, consolidations and
sales of assets. As of December 31, 2011, the Company was in compliance with all covenants contained in the
Credit Facility.
At December 31, 2011, the Company had $1,097 of unamortized debt issuance costs associated with the Credit
Facility, of which $991 were incurred in December 2011 for amending the Credit Facility. These costs are being
amortized over the remaining term of the Credit Facility. The amount of unused Credit Facility at December 31,
2011 was $70,000. The Credit Facility can be drawn upon through December 5, 2016, 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 a liability of
$22 and $44 as of December 31, 2011 and 2010, respectively. The corresponding change in fair value is included
in accumulated other comprehensive loss in the accompanying consolidated balance sheets. There were no
amounts of cash flow hedge ineffectiveness recorded during 2011 or 2010. The Company expects a liability of
$22 to be reclassified into earnings within the next 12 months as both Swaps mature in 2012. In January 2012,
we entered into a third $10,000 notional value interest rate swap for the amended and restated credit agreement.
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, 2011:
2012 ..................................................................... $ 3,226
2013 ..................................................................... 3,233
2014 ..................................................................... 3,234
2015 ..................................................................... 3,302
2016 ..................................................................... 3,372
Thereafter ................................................................. 17,295
$33,662
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