Nutrisystem 2015 Annual Report Download - page 35

Additionally, 2013 was negatively impacted by a $5.0 million charge recorded to settle certain disputes that had
arisen with a supplier over a legacy contract.
Marketing expense increased to $107.7 million in 2014 from $95.8 million in 2013. Marketing expense as a
percent of revenue was 26.7% in both 2014 and 2013. Substantially all of the marketing spending in 2014
promoted the direct business. The increase in marketing expense was attributable to increased spending for media
($11.9 million) and public relations ($368,000). Slightly offsetting these increases was a decrease in marketing
consulting ($352,000). In total, media spending was $89.3 million in 2014 and $77.4 million in 2013.
General and administrative expense increased to $59.2 million in 2014 from $58.2 million in 2013 and as a
percent of revenue decreased to 14.7% in 2014 from 16.3% in 2013. The increased spending was due to higher
compensation and benefits ($1.3 million) reflecting increased call center commissions and labor costs for key
initiatives and increased spending in miscellaneous taxes ($262,000). These increases were partially offset by
decreased professional, outside and computer services expenses ($390,000), decreased new packaging expense
($274,000).
Depreciation and amortization expense decreased to $7.8 million in 2014 from $8.9 million in 2013 as certain
fixed assets for 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 $142,000 in 2014 compared to $89,000 in 2013.
Income Tax Expense. In 2014, we recorded income tax expense of $9.8 million, which reflects an effective tax
rate of 33.6%, as compared to $3.5 million in 2013 with an effective tax rate of 32.3%. The change in the
effective income tax rate was due to changes in executive compensation, decreased levels of food donations and
the reduction in tax reserves during 2013 due to the lapse of the statute of limitations which offset a charge to
record a valuation allowance for charitable contributions recorded in 2013.
Contractual Obligations and Commercial Commitments
As of December 31, 2015, 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 ................................ $43.6 $15.5 $27.7 $0.4 $ 0
Operating leases ................................... 18.7 2.7 5.5 5.8 4.7
$62.3 $18.2 $33.2 $6.2 $4.7
We have entered into supply agreements with several food vendors, some of which may provide for annual
pricing, annual purchase obligations, exclusivity in the production of certain products, as well as certain rebates
to us if certain volume thresholds are exceeded, with terms of five years or less. Purchase obligations may vary
depending on product mix. We anticipate that we will meet all annual purchase obligations.
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