Nutrisystem 2005 Annual Report Download - page 56

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In 2005, the Company completed a secondary public offering of 2,476,625 shares of common stock and
received net proceeds of $25,399. In addition, the Company issued 2,786,070 shares of common stock in 2005
upon the exercise of stock options and received proceeds of $4,135. Also in 2005, the Company issued 36,500
shares of common stock as compensation to board members, certain consultants and spokespersons per their
contract. Costs recognized for these stock grants were $107. In December 2005, the Company granted 28,010
shares of restricted common stock with a three year vesting period. The Company recorded compensation
expense of $30 in the accompanying consolidated statement of operations for the year ended December 31, 2005
in connection with the issuance of restricted common stock.
Treasury stock is accounted for using the cost method. In 2003, the Company purchased and subsequently
retired 220,100 shares of common stock for an aggregate cost of $123 (an average price of $0.56 per share). No
shares were purchased in 2004 or 2005, and in 2005, the Company terminated its stock repurchase program.
Preferred Stock
The Company has authorized 5,000,000 shares of preferred stock issuable in series upon resolution of the
Board of Directors. Unless otherwise required by law, the Board of Directors can, without stockholder approval,
issue preferred stock in the future with voting and conversion rights that could adversely affect the voting power
of the common stock. The issuance of preferred stock may have the effect of delaying, averting or preventing a
change in control of the Company.
10. INCOME TAXES
Income taxes consist of the following:
Year Ended December 31
2005 2004 2003
Current .............................................................. $ — $— $ —
Deferred ............................................................. 13,339 680 (1,173)
Change in deferred valuation allowance .................................... (204) — (2,224)
$13,135 $680 $(3,397)
A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:
Year Ended December 31
2005 2004 2003
Statutory federal income tax rate .......................................... 35.0% 34.0% (34.0)%
State income taxes, net of federal benefit .................................... 4.9 6.0 (6.0)
Tax exempt income ..................................................... (0.7) — —
Other ................................................................ (0.1) — —
Change in deferred tax valuation allowance .................................. (0.6) — (91.4)
38.5% 40.0% (131.4)%
The Company recognized a deferred tax asset of $16,105 in 2005 from the exercise of certain stock options
and recorded this amount as an increase to additional paid-in capital in the accompanying consolidated statement
of stockholders’ equity.
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