Nutrisystem 2010 Annual Report Download - page 37

General and administrative expense decreased to $76.4 million in 2009 from $86.7 million in 2008 and as a
percent of revenue increased to 14.6% in 2009 from 12.6% in 2008. The decrease in spending is primarily
attributable to lower compensation and benefits and temporary help ($8.5 million) and decreased professional,
outside and computer services ($1.5 million) due to our focus on cost containment. Telephone and internet costs
also decreased ($1.1 million) due to lower rates. These decreases were partially offset by charges ($1.9 million)
in order to streamline work processes and right size our organization.
Depreciation and amortization expense increased to $11.2 million in 2009 from $8.1 million in 2008 due to
increased capital expenditures related to our website.
Other Income (Expense). Other income (expense) primarily represents the favorable impact of changes in
the Canadian dollar during 2009 as compared to 2008.
Equity and Impairment Loss. In 2009, we abandoned our interest in Zero Water, as management determined
that the business was no longer aligned with our current strategic direction. An equity and impairment loss of
$4.0 million was recorded including the write-off of the remaining investment.
An equity loss of $3.0 million was recorded during 2008 for our share of Zero Water’s loss and for the
amortization expense for the difference between the cost and the underlying equity in the net assets of Zero
Water at the investment date. Additionally, we recorded an impairment charge of $6.5 million to reduce the
carrying value of the equity investment to its estimated fair value during the fourth quarter of 2008. The
impairment charge primarily resulted from lower-than-expected operating results and projections of future
performance, coupled with the current non-strategic business direction of Zero Water and the overall general
economic decline, which indicated that the full carrying value of the equity investment was not recoverable.
Interest Income, Net. Interest income, net decreased to $104,000 in 2009 from $454,000 in 2008 primarily
due to lower interest rates.
Income Taxes. In 2009, we recorded income tax expense of $13.1 million, which reflects an effective tax
rate of 28.5%. In 2008, we recorded $34.0 million of income tax expense for the reporting period. The effective
tax rate in 2008 was 41.9%. The decrease is primarily related to our abandonment of our investment in Zero
Water. The abandonment provided an income tax deduction for the entire original $14.3 million tax basis
investment in Zero Water and reduced income tax payments by approximately $5.0 million. The reduction in
income tax payments resulted in a similar decrease in income tax expense in 2009, including a reversal of a $3.7
million valuation allowance established in 2008 for deferred tax assets related to prior Zero Water losses and
impairment charges not previously considered realizable.
Contractual Obligations and Commercial Commitments
As of December 31, 2010, our principal commitments consisted of obligations under supply agreements
with food vendors, an agreement with our outside fulfillment provider, operating leases and employment
contracts. Although we have no material commitments for capital expenditures, we anticipate continuing
requirements for capital expenditures but at reduced levels from 2010.
Following is a summary of our contractual obligations. We have no other commercial commitments.
Payments Due by Period (in millions)
Contractual obligations Total
Less Than
1 Year
1-3
Years
4-5
Years
More Than
5 Years
Long-term debt ...................................... $ 30.0 $ — $ 30.0 $— $ —
Fulfillment and food purchase obligations ................. 143.5 56.2 85.4 1.9 —
Operating leases ...................................... 34.9 2.4 6.1 6.2 20.2
$208.4 $58.6 $121.5 $ 8.1 $20.2
33