Nutrisystem 2014 Annual Report Download

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DELIVERING
RESULTS
Annual report 2014

Table of contents

  • Page 1
    Annual report 2014 DELIVERING RESULTS

  • Page 2

  • Page 3
    ... meaningful value for our investors. In 2014, the Nutrisystem team executed against our strategic four-point plan by: Å Growing our direct-to-consumer channel by focusing on key levers with meaningful impact; Å Launching new products and programs at an accelerated pace to existing customers as...

  • Page 4

  • Page 5
    ... Executive Center 600 Office Center Drive Fort Washington, Pennsylvania (Address of principal executive offices) 19034 (Zip Code) Registrant's telephone number, including area code: (215) 706-5300 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange...

  • Page 6
    ... Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain Relationships and Related Transactions, and Director Independence ...Principal Accounting Fees and Services ...PART IV Item...

  • Page 7
    ...of our fulfillment provider; disruptions in the shipping of our food products; claims that our personnel are unqualified to provide proper weight loss advice and other health or advertising related claims by consumers; failure to attract or negative publicity with respect to any of our spokespersons...

  • Page 8
    ... and services, including nutritionally balanced weight loss programs, multi-day kits available at retail locations and digital tools to support weight loss. Typically, our program customers purchase monthly food packages containing a 28-day supply of breakfasts, lunches, dinners, snacks and desserts...

  • Page 9
    ...with a package of food, including daily breakfast, lunch, dinner and dessert, which removes the confusion of reading nutrition labels, measuring portions or counting calories, carbohydrates or points. We believe our weight management program offers our customers significant value and is priced below...

  • Page 10
    ... loss programs, digital tools and wearable trackers, as well as a wide variety of diet foods and meal replacement bars and shakes, appetite suppressants and nutritional supplements. The weight loss market is served by a diverse array of competitors. Potential customers seeking to manage their weight...

  • Page 11
    ... weight loss success is quick, early results, which Fast 5+ is designed to deliver. Fast 5+ includes seven days of breakfasts, lunches, and dinners, plus all-new shakes with formulations for men and women to meet their unique nutritional needs. As part of our program, customers are given a meal plan...

  • Page 12
    ..., Expert Guides, a Quick-Start guide, a Grocery Guide, a Dining Out booklet and a Daily Food Tracker) and a robust set of personalized online tools and trackers. Customers are encouraged to join our large online community of customers past and present and we are active in social media to engage...

  • Page 13
    ... online news, bloggers and social media, particularly around the key dieting seasons. In addition, the public relations team supports an executive communication program to broadly support the Nutrisystem brand. Fulfillment An integrated order receipt, billing, picking, shipping and delivery tracking...

  • Page 14
    ... to others and that our customers value the following Nutrisystem program attributes effective weight loss; convenient direct delivery to their door; simple to follow and stay on program; food can be easily prepared in minutes; wide variety of food choices; and they do not feel hungry while on the...

  • Page 15
    ... services and trademark, copyright, patent, trade dress and trade secret laws, and through the domain name dispute resolution system. Employees As of December 31, 2014, we had 417 employees and consider our relations with these employees to be good. Seasonality Typically in the weight loss industry...

  • Page 16
    ... Krausz has served as our Executive Vice President and Chief Marketing Officer since February 2013. Prior to joining us, Ms. Krausz served as head of new business development for Animated Storyboards, a global independent provider of television test spots to the advertising industry, from April 2012...

  • Page 17
    ...of brand name and program awareness. We may not be able to manage our marketing expenditures on a cost-effective basis whereby our customer acquisition costs may exceed the contribution profit generated from each additional customer. Our sales may be adversely impacted by the health and stability of...

  • Page 18
    ... to provide proper weight loss advice. Some of our counselors for our weight management program do not have extensive training or certification in nutrition, diet or health fields and have only undergone the training they receive from us. We may be subject to claims from our customers alleging that...

  • Page 19
    ..., price, taste, customer service and brand recognition. Our competitors include companies selling pharmaceutical products and weight loss programs, digital tools and wearable trackers, as well as a wide variety of diet foods and meal replacement bars and shakes, appetite suppressants and nutritional...

  • Page 20
    ...and existing customers regarding our use of such information or data collected on our website or through our services and products, such as weight management information, financial data, email addresses and home addresses, could keep them from using our website or purchasing our services or products...

  • Page 21
    ..., to promote our weight management program. Any of these spokespersons may become the subject of adverse news reports, negative publicity or otherwise be alienated from a segment of our customer base, whether weight loss related or not. If so, such events may reduce the effectiveness of his...

  • Page 22
    ... pre-packaged food selections, which we believe offer convenience and value to our customers. Our continued success depends, to a large degree, upon the continued popularity of our program versus various other weight loss, weight management and fitness regimens, such as low carbohydrate diets...

  • Page 23
    ... could harm us, even if the adverse publicity is not directly related to us. In the early 1990s, our predecessor businesses were subject to extremely damaging adverse publicity relating to a large number of lawsuits alleging that the Nutrisystem® weight loss program in use at that time led to...

  • Page 24
    ...sales and, as a result, lower revenue and profits. ITEM 1B. UNRESOLVED STAFF COMMENTS None. ITEM 2. PROPERTIES We currently lease one location in Fort Washington, Pennsylvania. This location totals 119,767 square feet of office space and our lease expires in 2022. We also had a lease in Hoboken, New...

  • Page 25
    ITEM 3. LEGAL PROCEEDINGS Litigation The Company is involved in various claims and routine litigation matters. In the opinion of management, after consultation with legal counsel, the outcomes of such matters are not anticipated to have a material adverse effect on the Company's consolidated ...

  • Page 26
    ... the high and low sale prices for the Company's common stock as reported on the NASDAQ Stock Market. High Low 2015 First Quarter (through February 27, 2015) ...2014 First Quarter ...2014 Second Quarter ...2014 Third Quarter ...2014 Fourth Quarter ...2013 First Quarter ...2013 Second Quarter ...2013...

  • Page 27
    STOCK PRICE PERFORMANCE GRAPH The following graph shows a comparison of cumulative total return since December 31, 2009, for our common stock, the Russell 2000 Index and the Dow Jones US Specialized Consumer Services Index (a published industry index), each of which assumes an initial value of $100 ...

  • Page 28
    ... as Items 7 and 8, respectively, in this Annual Report. Selected Consolidated Financial Data (In thousands, except per share data) 2014 Year Ended December 31, 2013 2012(c) 2011 2010 Statement of Operations Data: Revenue ...$403,083 $358,086 $396,878 $401,336 $509,515 Costs and expenses: Cost of...

  • Page 29
    ... costs. (d) In 2010, we committed to a plan to sell the business operations conducted by our subsidiary, Nutrisystem Fresh, Inc., as it was no longer aligned with the business direction of the Company. During the third quarter of 2010, this business was shut down as we were unsuccessful in locating...

  • Page 30
    ... multi-day kits available at retail locations and digital tools to support weight loss. The weight loss programs are designed for women, men, and seniors. Additionally, our Nutrisystem® D® program is designed specifically to help people with Type 2 diabetes who want to lose weight and manage their...

  • Page 31
    ... expanded product offerings. On-program revenue increased in 2014 as compared to 2013 as it benefited from the increase of new customers, partially offset by a decline in the number of paid days a customer stayed on the program. Additionally, we had a higher average selling price in 2014 as compared...

  • Page 32
    ... shipping costs, charge card fees and packing material. Cost of products sold includes products provided at no charge as part of promotions and the non-food materials provided with customer orders. Marketing Expense. Marketing expense includes media, advertising production, marketing and promotional...

  • Page 33
    ... revenue is primarily attributable to an increase in new customers, retail and on-program revenue that was slightly offset by decreased reactivation and QVC revenue. Additionally, we had a higher average selling price in 2014 as compared to 2013. In 2014, direct revenue accounted for 91% of revenue...

  • Page 34
    ... to declines in new customer starts and decreased on-program revenue partially offset by increased retail and reactivation revenue and higher average selling prices. In 2013, direct revenue accounted for 92% of total revenue compared to 5% for retail and 3% for QVC. In 2012, direct revenue accounted...

  • Page 35
    ... in 2012 related to advances paid to a frozen food supplier. Additionally, recruiting fees decreased $697,000, professional, outside and computer services decreased $383,000 and miscellaneous taxes decreased $392,000. These decreases were offset by increased compensation, benefits and temporary help...

  • Page 36
    ... and benefits, largely offset by an increase in net income. In 2014, net cash used in investing activities was $8.4 million primarily from capital additions of $8.3 million. We are continuing to invest in our ecommerce and web platform to incorporate new product initiatives and on our digital tools...

  • Page 37
    ... securities and are reported at fair value in the accompanying consolidated balance sheets. As such, a change in interest rates of 1 percentage point would not have a material impact on our operating results and cash flows. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required...

  • Page 38
    ... (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based upon that evaluation, management concluded that the Company's internal control over financial reporting was effective as of December 31, 2014. The Company's independent registered public accounting...

  • Page 39
    ... the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Nutrisystem, Inc. and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash...

  • Page 40
    ... be filed within 120 days after the end of the fiscal year covered by this annual report on Form 10-K, and is incorporated herein by reference. The required information as to executive officers is set forth in Part I hereof. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 of Form...

  • Page 41
    NUTRISYSTEM, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets at December 31, 2014 and 2013 ...Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and 2012 ......

  • Page 42
    Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders Nutrisystem, Inc.: We have audited the accompanying consolidated balance sheets of Nutrisystem, Inc. and subsidiaries (the Company) as of December 31, 2014 and 2013, and the related consolidated ...

  • Page 43
    ..., no shares issued and outstanding) ...Common stock, $.001 par value (100,000 shares authorized; shares issued - 28,990 at December 31, 2014 and 28,866 at December 31, 2013) ...Additional paid-in capital ...Treasury stock, at cost, 249 shares at December 31, 2014 and 158 shares at December 31...

  • Page 44
    ... costs and expenses ...Operating income (loss) ...OTHER EXPENSE ...INTEREST EXPENSE, net ...Income (loss) before income tax expense (benefit) ...INCOME TAX EXPENSE (BENEFIT) ...Net income (loss) ...BASIC INCOME (LOSS) PER COMMON SHARE ...DILUTED INCOME (LOSS) PER COMMON SHARE ...WEIGHTED AVERAGE...

  • Page 45
    NUTRISYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands) Year Ended December 31, 2014 2013 2012 Net income (loss) ...OTHER COMPREHENSIVE INCOME (LOSS): Foreign currency translation adjustment ...Short term investments: Unrealized (loss) gain on short ...

  • Page 46
    ... Stock Capital Stock Earnings Income (Loss) Total BALANCE, January 1, 2012 ...28,181 Net loss ...0 Share-based compensation expense, net ...444 Exercise of stock options ...7 Equity compensation awards, net ...0 Cash dividends ...0 Employee tax withholdings related to the vesting of equity awards...

  • Page 47
    NUTRISYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2014 2013 2012 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ...$ 19,311 $ 7,370 $ (2,805) Adjustments to reconcile net income (loss) to net cash provided by operating ...

  • Page 48
    ... multi-day kits available at retail locations and digital tools to support weight loss. The weight loss programs are designed for women, men, and seniors. Additionally, the Nutrisystem® D® program is specifically designed to help people with Type 2 diabetes who want to lose weight and manage their...

  • Page 49
    ...online at the Company's website or via telephone by the customer and the product is shipped to the customer. Revenue from the retail programs is recognized when the product is received at the seller's location. Deferred revenue consists primarily of unredeemed prepaid gift cards and unshipped frozen...

  • Page 50
    ... returns and billed sales tax. Revenue from the retail programs is also net of any trade allowances, reclamation reserves or broker commissions. Revenue from shipping and handling charges was $2,013, $2,000 and $2,394 in 2014, 2013 and 2012, respectively. Shipping-related costs are included in cost...

  • Page 51
    ... penalties related to unrecognized tax benefits as part of interest expense, net. Segment Information The Company is managed and operated as one business. The entire business is managed by a single management team that reports to the chief executive officer. Revenue consists primarily of food sales...

  • Page 52
    ... the losses. The following table sets forth the computation of basic and diluted EPS: Year Ended December 31, 2014 2013 2012 Net income (loss) ...Net income allocated to unvested restricted stock ...Net income (loss) allocated to common shares ...Weighted average shares outstanding: Basic ...Effect...

  • Page 53
    ... annual reporting periods, and interim periods within those years, beginning after December 15, 2013. ASU 2013-11 should be applied prospectively to all unrecognized tax benefits that exist at the effective date; however, retrospective application is permitted. Effective January 1, 2014, the Company...

  • Page 54
    ... are based on quoted prices in active exchange markets for identical assets. The Company had no Level 2 or 3 instruments at December 31, 2014 and 2013. The following table summarizes the Company's financial assets measured at fair value at December 31, 2014: Quoted Prices in Active Markets for...

  • Page 55
    ... Company will also pay an unused line fee. The unused line fee is subject to adjustment based on the Company's consolidated fixed charge coverage ratio and ranges from 0.250.375% per year. The Company incurred no interest expense during 2014 and 2013 and $764 during 2012. During 2014, 2013 and 2012...

  • Page 56
    ... adverse effect on the Company's consolidated financial position, results of operations or cash flows in future years. Contractual Commitments The Company has entered into supply agreements with various food vendors. Several of these agreements provide for annual pricing, annual purchase obligations...

  • Page 57
    ... adversely affect the voting power of the common stock. The issuance of preferred stock may have the effect of delaying, averting or preventing a change in control of the Company. 9. INCOME TAXES Income tax expense (benefit) consist of the following: Year Ended December 31, 2014 2013 2012 Current...

  • Page 58
    ... tax rate to the Company's effective tax rate is as follows: Year Ended December 31, 2014 2013 2012 Statutory federal income tax rate ...State income taxes, net of federal benefit ...Executive compensation limitation ...Executive stock-based compensation ...Food donations ...Fixed assets ...Changes...

  • Page 59
    ...interest and penalties related to unrecognized tax benefits as part of interest expense, net. During 2014, 2013 and 2012, the Company recognized interest income of $28, $71 and $13, respectively, from interest and penalties. The Company's federal income tax returns for 2011 through 2013 are open and...

  • Page 60
    ... in 2014, 2013 and 2012 was $219, $7 and $67, respectively. The fair value of each stock option was estimated on the date of grant using the Black-Scholes option pricing model and the following weighted average assumptions: 2014 2013 2012 Expected dividend yield ...Expected volatility ...Risk-free...

  • Page 61
    ...market price of the Company's common stock on the date of grant. Expense for restricted stock is amortized ratably over the vesting period. The following table summarizes the restricted stock activity for 2012, 2013 and 2014: WeightedAverage Grant-Date Fair Value Aggregate Intrinsic Value Number of...

  • Page 62
    ...as the average closing price over the last 20 trading days prior to the performance period start. The following table summarizes the restricted stock unit activity: Number of Restricted Stock Units WeightedAverage Grant-Date Fair Value Aggregate Intrinsic Value Nonvested, January 1, 2012 ...Granted...

  • Page 63
    ... amounts) Quarter Second Third Fourth Year 2014: Revenue ...Gross margin ...Net income ...Basic income per common share ...Diluted income per common share ...2013: Revenue ...Gross margin ...Net (loss) income ...Basic (loss) income per common share ...Diluted (loss) income per common share ... $122...

  • Page 64
    ...Agreement dated November 1, 2012, between Nutrisystem, Inc. and Dawn Zier, the Company's President and Chief Executive Officer, incorporated by reference to the designated exhibit of the Company's Report on Form 8-K filed on November 7, 2012. Letter Agreement, dated May 21, 2013, between Nutrisystem...

  • Page 65
    ... on Form 8-K filed on November 7, 2012. Letter Agreement, dated April 19, 2013, between Nutrisystem, Inc. and Michael Monahan, the Company's Executive Vice President and Chief Financial Officer, incorporated by reference to the designated exhibit of the Company's Report on Form 10-Q filed on May...

  • Page 66
    ... 28, 2013, between Nutrisystem, Inc. and Hormel Food Sales, LLC., incorporated by reference to the designated exhibit on the Company's Report on Form 8-K filed on October 29, 2013. Subsidiaries of Nutrisystem, Inc. Consent of KPMG LLP. Certifying Statement of the Chief Executive Officer pursuant to...

  • Page 67
    ...the undersigned, thereunto duly authorized. Nutrisystem, Inc. By: /S/ DAWN M. ZIER Dawn M. Zier, President and Chief Executive Officer Dated: March 9, 2015 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the...

  • Page 68
    ... report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. b. Date: March 9, 2015 /S/ DAWN M. ZIER Dawn M. Zier President and Chief Executive Officer

  • Page 69
    ...; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. b. Date: March 9, 2015 /S/ MICHAEL P. MONAHAN Michael P. Monahan Executive Vice President and Chief Financial Officer

  • Page 70
    ...2002, the undersigned, Dawn M. Zier, the Chief Executive Officer of Nutrisystem, Inc. (the "Company"), hereby certifies that based on the undersigned's knowledge: 1) The Company's Annual Report on Form 10-K for the period ended December 31, 2014 (the "Report") fully complies with the requirements of...

  • Page 71
    ... Officer of Nutrisystem, Inc. (the "Company"), hereby certifies that based on the undersigned's knowledge: 1) The Company's Annual Report on Form 10-K for the period ended December 31, 2014 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange...

  • Page 72
    ...President and Chief Financial Officer Keira Krausz Executive Vice President and Chief Marketing Officer GENERAL INFORMATION Corporate Headquarters Fort Washington Executive Center 600 Office Center Drive Fort Washington, PA 19034 (215) 706-5300 Independent Registered Public Accounting Firm KPMG LLP...

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    600 Office Center Drive | Fort Washington, PA 19034 | www.nutrisystem.com