Nutrisystem 2014 Annual Report Download - page 50

Direct to consumer customers may return unopened shelf-stable products within 30 days of purchase in order to
receive a refund or credit. Frozen products are non-returnable and non-refundable unless the order is canceled
within 14 days of delivery. Estimated returns are accrued at the time the sale is recognized and actual returns are
tracked monthly. The Company reviews its history of actual versus estimated returns to ensure reserves are
appropriate.
Revenue from product sales includes amounts billed for shipping and handling and is presented net of estimated
returns and billed sales tax. Revenue from the retail programs is also net of any trade allowances, reclamation
reserves or broker commissions. Revenue from shipping and handling charges was $2,013, $2,000 and $2,394 in
2014, 2013 and 2012, respectively. Shipping-related costs are included in cost of revenue in the accompanying
consolidated statements of operations.
Dependence on Suppliers
In 2014, approximately 17% and 14%, respectively, of inventory purchases were from two suppliers. The
Company has supply arrangements with these suppliers that require the Company to make minimum purchases.
In 2013, these suppliers provided approximately 14% and 12%, respectively, of inventory purchases and in 2012,
approximately 17% and 13%, respectively, of inventory purchases (see Note 7). In 2013, a charge of $5,000 was
recorded to settle certain disputes that had arisen with a supplier over a legacy contract. This charge is included
in cost of revenue in the accompanying consolidated statements of operations.
The Company outsources 100% of its fulfillment operations to a third-party provider and more than 94% of its
orders are shipped by one third-party provider.
Vendor Rebates
One of the Company’s suppliers provides for rebates based on purchasing levels. The Company accounts for this
rebate on an accrual basis as purchases are made at a rebate percentage determined based upon the estimated total
purchases from the vendor. The estimated rebate is recorded as a receivable from the vendor with a
corresponding reduction in the carrying value of purchased inventory, and is reflected in the consolidated
statements of operations when the associated inventory is sold. The rebate period is June 1 through May 31 of
each year. For the years ended December 31, 2014, 2013 and 2012, the Company reduced cost of revenue by
$883, $1,068 and $1,496, respectively, for these rebates. A receivable of $360 and $182 at December 31, 2014
and 2013, respectively, has been recorded in receivables in the accompanying consolidated balance sheets.
Historically, the actual rebate received from the supplier has closely matched the estimated rebate recorded. An
adjustment is made to the estimate upon determination of the final rebate.
Marketing Expense
Marketing expense includes media, advertising production, marketing and promotional expenses and payroll-
related expenses, including share-based payment arrangements, for personnel engaged in these activities. Media
expense was $89,304, $77,396 and $86,948 in 2014, 2013 and 2012, respectively. Direct-mail advertising costs
are capitalized if the primary purpose was to elicit sales to customers who could be shown to have responded
specifically to the direct mailing and results in probable future economic benefits. The capitalized costs are
amortized to expense over the period during which the future benefits are expected to be received. Typically, this
period falls within 40 days of the initial direct mailing. All other advertising costs are charged to expense as
incurred or the first time the advertising takes place. At December 31, 2014 and 2013, $1,958 and $1,010,
respectively, of costs have been prepaid for future advertisements and promotions.
Lease Related Expenses
Certain of the Company’s lease contracts contain rent holidays, various escalation clauses, or landlord/tenant
incentives. The Company records rental costs, including costs related to fixed rent escalation clauses and rent
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