Nutrisystem 2007 Annual Report Download - page 36

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($9.0 million) in part for projects to improve our ecommerce website and support for international expansion and
increased depreciation and amortization expense ($3.3 million) due to increased capital expenditures on our
website and a call center relocation.
Other Expense. Other expense represents the realized gains and losses from currency.
Equity Loss. In October 2007, we purchased an approximate 27% equity interest in Zero Water, a
manufacturer of patented water filters. This investment is accounted for under the equity method of accounting
and an estimated loss of $800,000 was recorded for our share of Zero Water’s loss subsequent to the initial
investment.
Interest Income, Net. Interest income, net increased to $3.8 million in 2007 from $3.6 million in 2006
primarily due to higher cash balances maintained for the majority of the year.
Income Taxes. In 2007, we recorded income tax expense of $60.9 million, which reflects an estimated
annual effective tax rate of 36.7%. In 2006, we recorded $51.0 million of income tax expense for the reporting
period. The effective tax rate in 2006 was 37.3%. The decrease in the effective tax rate was primarily due to
lower state income taxes due to the apportionment of income to states with lower tax rates and food donations.
Net Income. For the year ended December 31, 2007, net income increased to $104.2 million from net
income of $85.1 million in 2006. The increase in net income in 2007 is primarily due to higher gross profit in
2007 versus 2006 resulting from increased revenue which offset the higher advertising and marketing spending,
general and administrative expenses and income taxes.
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