Nutrisystem 2011 Annual Report Download - page 40

Depreciation and amortization expense increased to $11.8 million in 2010 from $11.2 million in 2009 due to
the relocation of our corporate headquarters and capital expenditures on our website.
Other (Expense) Income. Other (expense) income represents the impact of changes in the Canadian dollar.
Equity and Impairment Loss. In 2009, we abandoned our interest in Zero Water because the business was no
longer aligned with our strategic direction. An equity and impairment loss of $4.0 million was recorded including
the write-off of the remaining investment.
Interest Income, Net. Interest income, net decreased to $5,000 in 2010 from $104,000 in 2009 primarily due
to borrowings under our credit facility during 2010.
Income Taxes. In 2010, we recorded income tax expense of $19.3 million, which reflects an effective tax
rate of 36.3% as compared to $13.1 million of income tax expense in 2009 at an effective tax rate of 28.5%. The
increase in the effective tax rate was primarily the result of the abandonment of our investment in Zero Water in
2009 which provided an income tax deduction for the entire original $14.3 million tax basis investment in Zero
Water and reduced 2009 income tax payments by approximately $5.0 million.
Contractual Obligations and Commercial Commitments
As of December 31, 2011, 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.
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
Borrowings under credit facility ...................... $ 30.0 $ 0 $ 0 $30.0 $ 0
Fulfillment and food purchase obligations .............. 98.4 51.8 46.1 0.5 0
Operating leases .................................. 33.7 3.2 6.5 6.7 17.3
$162.1 $55.0 $52.6 $37.2 $17.3
We have entered into supply agreements with various food vendors. The majority of these agreements
provide for annual pricing, annual purchase obligations, as well as exclusivity in the production of certain
products, with terms of five years or less. One agreement also provides for certain rebates to us if certain volume
thresholds are exceeded. Additionally, we have entered into an agreement with our outside fulfillment provider
which contains minimum space requirements. We anticipate that we will meet all annual purchase obligations.
In December 2011, the Company executed an amended and restated credit agreement with a group of
lenders that provides for a $100.0 million unsecured revolving credit facility through December 5, 2016. Our
previous $200.0 million facility was set to expire in October 2012. We borrowed $30.0 million against this
facility during 2011 which was used to repay amounts outstanding under the old facility. The credit agreement
provides for interest at either a floating rate, which will be a base rate, or a Eurocurrency rate equal to the
London Inter-Bank Offered Rate for the relevant term, plus an applicable margin. We are subject to an unused
fee payable quarterly. In 2010, we entered into two separate $10.0 million notional value floating to fixed interest
rate swap agreements (“Swaps”) that mature on August 3, 2012 and September 28, 2012, respectively. Under the
Swaps, we receive interest equivalent to the three-month LIBOR and pay a fixed rate of interest of 0.75%, with
settlements occurring quarterly. In January 2012, we entered into a third $10.0 million notional value interest rate
swap for the amended and restated credit agreement.
In addition, we have no off-balance sheet financing arrangements.
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