Nutrisystem 2014 Annual Report Download - page 35

for media ($9.5 million) and for the production of television advertising ($1.4 million). There was also a decrease
in public relations ($4.9 million) primarily due to the restructuring of certain third-party marketing vendor
contracts in 2012. In total, media spending was $77.4 million in 2013 and $86.9 million in 2012.
General and administrative expense decreased to $58.2 million in 2013 from $66.3 million in 2012 and as a
percent of revenue decreased to 16.3% in 2013 from 16.7% in 2012. The decrease was primarily attributable to
lower non-cash expense for share-based payment arrangements of $3.6 million due to the acceleration of
previously awarded equity-based awards in 2012 as certain employees terminated, a decrease in facilities
expense of $2.5 million due to a charge incurred in 2012 to vacate a facility and an impairment charge of $2.1
million recorded 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 of $1.8
million and new product development expenses of $371,000 due to business initiatives.
Depreciation and amortization expense decreased to $8.9 million in 2013 from $10.7 million in 2012 as certain
fixed assets for both our website and assets purchased when we relocated our corporate headquarters reached the
end of their useful lives.
Interest Expense, Net. Interest expense, net, was $89,000 in 2013 compared to $2.0 million in 2012. No amounts
were outstanding under the credit facility during 2013. During 2012, we had outstanding borrowings and
additionally, in November 2012, we terminated and replaced our then existing credit facility. In connection with
the termination, we wrote off the remaining unamortized debt issuance costs and also terminated the outstanding
interest rate swap agreements resulting in a combined charge of $1.2 million.
Income Tax Expense (Benefit). In 2013, we recorded an income tax expense of $3.5 million, which reflects an
effective tax rate of 32.3%, as compared to $3.7 million of income tax benefit in 2012 with an effective tax rate
of 56.7%. The change in the effective income tax rate was due to changes in executive compensation, reductions
in tax reserves due to the lapse of the statute of limitations in 2013 and decreased levels of food donations which
offset a charge to record a valuation allowance for charitable contributions that might not be realized due to the
short carryforward period for this temporary difference.
Contractual Obligations and Commercial Commitments
As of December 31, 2014, our principal commitments consisted of obligations under supply agreements with
food vendors, an agreement with our outside fulfillment provider, agreements with our internet and networking
providers, 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.
Payments Due by Period (in millions)
Contractual obligations Total
Less Than
1 Year 1-3 Years 4-5 Years
More Than
5 Years
Purchase obligations ................................ $54.4 $15.9 $27.3 $11.2 $0.0
Operating leases ................................... 21.4 2.7 5.4 5.7 7.6
$75.8 $18.6 $32.7 $16.9 $7.6
We have entered into supply agreements with various food vendors. Several 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. Purchase obligations may vary depending on product mix. One agreement also
provides for certain rebates to us if certain volume thresholds are exceeded. Several agreements require us to
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