Nutrisystem 2011 Annual Report Download - page 38

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Marketing expense decreased to $110.9 million in 2011 from $145.9 million in 2010. Marketing expense as
a percent of revenue decreased to 27.6% in 2011 from 28.6% in 2010. During the beginning of the first quarter of
2011, we experienced significant pressures on response and conversion rates across all sales channels causing a
decrease in new customers and directly impacting our marketing efficiency. As a result, we reduced the spending
for advertising media but increased our promotional incentives to increase demand and leverage marketing
efficiency. Substantially all of the marketing spending in 2011 promoted the direct business. The decrease in
marketing is attributable to decreased spending in media ($38.8 million) partially offset by increased spending
for the production of television advertising ($3.7 million). In total, media spending was $88.8 million in 2011
and $127.6 million in 2010.
General and administrative expense decreased to $60.8 million in 2011 from $73.9 million in 2010 and as a
percent of revenue increased to 15.2% in 2011 from 14.5% in 2010. The decrease was is primarily attributable to
lower compensation, benefits and temporary help ($7.8 million), decreased professional and outside computer
services ($2.1 million), lower facilities expense ($1.3 million) and decreased non-cash expense for share-based
payment arrangements ($1.9 million). We implemented a series of measures, including reductions in headcount
and outside professional services during the first quarter of 2011 that resulted in reductions in our general and
administrative expenses.
Depreciation and amortization expense increased to $12.1 million in 2011 from $11.8 million in 2010.
Interest (Expense) Income, Net. Interest expense, net, was $468,000 in 2011 compared to interest income,
net, of $5,000 in the comparable period of 2010 due to increased average borrowings outstanding during 2011
under our credit facility.
Income Taxes. In 2011, we recorded income tax expense of $6.4 million, which reflects an effective tax rate
of 34.3% as compared to $19.3 million of income tax expense in 2010 with an effective tax rate of 36.3%. The
change in the effective tax rate was due to the impact of limitations on executive compensation deductions and
food donations in comparison to pre-tax income, as well as reductions in tax reserves due to the lapse of the
statute of limitations during the fourth quarter of 2011 and tax credits and other miscellaneous adjustments
occurring throughout the year.
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