Nutrisystem 2008 Annual Report Download - page 60

The significant items comprising the Company’s deferred income tax assets and liabilities are as follows:
December 31,
2008 2007
Deferred tax asset:
Reserves and accruals ........................................... $1,255 $1,660
Zero Water capital loss carryforward ............................... 3,749 —
Goodwill ..................................................... 890 902
Net operating loss carryforward ................................... 784 936
Property and equipment .......................................... 1,131 484
Other ........................................................ 1,880 2,057
9,689 6,039
Valuation allowance ................................................. (3,749) —
Net deferred tax asset ................................................ 5,940 6,039
Deferred tax liability ................................................ — —
$ 5,940 $6,039
The net deferred tax asset of $5,940 is comprised of $1,651 included in current assets and $4,289 included in
other assets in the accompanying consolidated balance sheet at December 31, 2008. At December 31, 2008 and
2007, the Company had net operating loss carryforwards of approximately $12,065 and $14,400, respectively, for
state tax purposes. For state tax purposes, there is a limitation on the amount of net operating loss carryforwards
that can be utilized in a given year to offset state taxable income. Net operating losses will begin to expire in
2020.
Based on the projected level of future taxable income over the periods in which the deferred tax assets are
deductible, management believes it is more likely than not that the Company will realize its deferred tax assets,
net of valuation allowance. In 2008, the Company recorded a valuation allowance of $3,749 related to the capital
loss carryforward of Zero Water as the Company does not have sufficient history in generating capital gains.
As a result of the adoption of FIN 48, the Company did not recognize any change in the liability for unrecognized
tax benefits. The Company records accrued interest and penalties related to unrecognized tax benefits as part of
interest expense. During 2008 and 2007, the Company recognized $61 and $44, respectively, in interest and
penalties. The total amount of gross unrecognized tax benefits as of December 31, 2008 and 2007 was $1,193
and $929, respectively. The total amount of unrecognized tax benefits that, if recognized, would affect the
effective income tax rate is approximately $775 and $604, respectively. The Company’s federal income tax
returns for 2005 through 2008 are open and are subject to examination by the Internal Revenue Service. State tax
jurisdictions that remain open to examination range from 2000 through 2008. The Company does not believe that
that there will be any material changes to unrecognized tax positions over the next 12 months.
A reconciliation of the beginning and ending amounts of the total unrecognized tax benefit is as follows:
Year Ended December 31,
2008 2007
(in thousands, except per share amounts)
Balance at beginning of year .................. $ 929 $624
Increase related to current year tax positions ..... 287 313
Decrease due to lapse of statute of limitations .... (23) (8)
Balance at end of year ....................... $1,193 $929
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