Nutrisystem 2009 Annual Report Download - page 62

The Company recognized an (increase)/decrease in taxes payable of ($450), $2,581 and $7,317 in 2009, 2008 and
2007, respectively, from the exercise of certain stock options and restricted stock and payment of certain
dividends and recorded these amounts as decreases and increases to additional paid-in capital in the
accompanying consolidated statements of stockholders’ equity.
The significant items comprising the Company’s deferred income tax assets and liabilities are as follows:
December 31,
2009 2008
Deferred tax asset:
Reserves and accruals ........................................... $1,710 $ 1,673
Zero Water capital loss carryforward ............................... — 3,749
Goodwill/Intangible assets ........................................ 2,456 890
Net operating loss carryforward ................................... 661 784
Property and equipment .......................................... 240 1,131
Other ........................................................ 2,270 1,462
7,337 9,689
Valuation allowance ................................................. — (3,749)
Net deferred tax asset ................................................ 7,337 5,940
Deferred tax liability ................................................ — —
$7,337 $ 5,940
At December 31, 2009, the net deferred tax asset of $7,337 is comprised of $2,756 included in current assets and
$4,581 included in other assets in the accompanying consolidated balance sheet. At December 31, 2008, 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, 2009 and 2008, the Company had net
operating loss carryforwards of approximately $10,163 and $12,065, 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.
In 2008, the Company recorded a valuation allowance of $3,749 related to its impairment of its investment in
Zero Water since the character of the deduction could be a capital item and there was no history of generating
capital gains. In 2009, the Company abandoned its investment in Zero Water (see Note 6) which will provide the
Company with a current year income tax deduction for its entire original $14,258 tax basis investment in Zero
Water. This reduced 2009 federal income tax payments by approximately $4,990. This reduction in ordinary
income tax payments resulted in a similar decrease in income tax expense for the year ended December 31, 2009
including a reversal of a $3,749 valuation allowance established in 2008 for deferred tax assets related to prior
Zero Water losses and impairment charges. These Zero Water losses and impairment charges were considered
realizable during the year ended December 31, 2009 due to the terms of the abandonment which changed the tax
loss from capital to ordinary which the Company believes is more likely than not to realize.
The total amount of gross unrecognized tax benefits as of December 31, 2009 and 2008 was $1,375 and $1,193,
respectively. The total amount of unrecognized tax benefits that, if recognized, would affect the effective income
tax rate is approximately $893 and $775, respectively. The Company records accrued interest and penalties
related to unrecognized tax benefits as part of interest expense. During 2009 and 2008, the Company recognized
$70 and $61, respectively, in interest and penalties. The Company’s federal income tax returns for 2006 through
2009 are open and are subject to examination by the Internal Revenue Service. State tax jurisdictions that remain
open to examination range from 2000 through 2009. The Company does not believe that that there will be any
material changes to unrecognized tax positions over the next 12 months.
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