Nutrisystem 2010 Annual Report Download - page 36

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Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
Year Ended December 31,
2009 * 2008 * $ Change % Change
(in thousands)
REVENUE ........................................... $524,618 $686,181 $(161,563) -24%
COSTS AND EXPENSES:
Cost of revenue .................................... 241,163 325,172 (84,009) -26%
Marketing ........................................ 146,426 174,862 (28,436) -16%
General and administrative ........................... 76,418 86,701 (10,283) -12%
Depreciation and amortization ........................ 11,177 8,093 3,084 38%
Total costs and expenses ........................ 475,184 594,828 (119,644) -20%
Operating income from continuing operations ........ 49,434 91,353 (41,919) -46%
OTHER INCOME (EXPENSE) ........................... 407 (1,145) 1,552 136%
EQUITY AND IMPAIRMENT LOSS ..................... (4,000) (9,458) 5,458 58%
INTEREST INCOME, net ............................... 104 454 (350) -77%
Income from continuing operations before income taxes . . . 45,945 81,204 (35,259) -43%
INCOME TAXES ..................................... 13,072 34,018 (20,946) -62%
Income from continuing operations .................... 32,873 47,186 (14,313) -30%
LOSS ON DISCONTINUED OPERATIONS, net ............ (4,083) (933) (3,150) -338%
Net income ....................................... $ 28,790 $ 46,253 $ (17,463) -38%
% of revenue
Gross margin ......................................... 54.0% 52.6%
Marketing ............................................ 27.9% 25.5%
General and administrative ............................... 14.6% 12.6%
Operating income from continuing operations ................ 9.4% 13.3%
* 2009 and 2008 have been reclassified for discontinued operations. See Note 12 of the Notes to the
Consolidated Financial Statements.
Revenue. Revenue decreased to $524.6 million in 2009 from $686.2 million in 2008. The revenue decrease
resulted primarily from a decrease in customer starts due to the weakening economy. Reactivation revenue in
2009 remained relatively flat compared to 2008. In 2009, direct revenue accounted for 94% of total revenue
compared to 6% for QVC and less than 1% for other channels. In 2008, the comparable percentages were 93%,
6% and 1%, respectively.
Costs and Expenses. Cost of revenue decreased to $241.2 million in 2009, from $325.2 million in 2008.
Gross margin as a percent of revenue increased to 54.0% in 2009 from 52.6% in 2008. The increase in gross
margin was primarily attributable to decreased food and freight costs.
Marketing expense decreased to $146.4 million in 2009 from $174.9 million in 2008. Marketing expense as a
percent of revenue increased to 27.9% in 2009 from 25.5% in 2008. Substantially all of the marketing spending
in 2009 promoted the direct business with an increased concentration on the launch of Nutrisystem D. The
decrease in marketing is attributable to decreased spending for advertising media ($27.5 million), the production
of television advertising ($567,000) and professional fees and talent ($542,000). These decreases offset increased
spending in marketing consulting ($587,000). In total, media spending was $126.1 million in 2009 and $153.6
million in 2008.
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