Nutrisystem 2007 Annual Report Download - page 60

A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:
Year Ended December 31,
2007 2006 2005
Statutory federal income tax rate ....................................... 35.0% 35.0% 35.0%
State and foreign income taxes, net of federal benefit ....................... 2.2 3.0 4.9
Tax exempt income .................................................. (0.6) (0.7) (0.7)
Other ............................................................. 0.1 0.1 (0.1)
Change in deferred tax valuation allowance ............................... — (0.1) (0.6)
36.7% 37.3% 38.5%
As of December 31, 2007, the Company had an income tax payable of $2,482. As of December 31, 2006, the
Company had an income tax receivable of $3,522, included in other current assets in the accompanying
consolidated balance sheet. The Company recognized a tax benefit of $7,317, $17,939 and $16,105 in 2007, 2006
and 2005, respectively, from the exercise of certain stock options and recorded these amounts as 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,
2007 2006
Deferred tax asset-
Reserves and accruals ............................................ $1,660 $1,283
Tax goodwill ................................................... 902 369
Net operating loss carryforward .................................... 936 1,133
Property and equipment .......................................... 484 —
Other ......................................................... 2,057 1,141
6,039 3,926
Valuation allowance ................................................. — —
6,039 3,926
Deferred tax liability-
Property and equipment .......................................... — (50)
$6,039 $3,876
At December 31, 2007 and 2006, the Company had net operating loss carryforwards of approximately $14,400
and $17,500, 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 the deferred tax assets.
The Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an
interpretation of FASB Statement No. 109” (“FIN 48”) effective January 1, 2007. FIN 48 prescribes a
comprehensive model for how a company should recognize, measure, present and disclose in its financial
statements uncertain tax positions that the company has taken or expects to take on a tax return. FIN 48 states
that a tax benefit from an uncertain tax position may be recognized only if it is “more likely than not” that the
position is sustainable, based on its technical merits. The tax benefit of a qualifying position is the largest amount
of tax benefit that is greater than 50% likely of being realized upon settlement with a taxing authority having full
knowledge of all relevant information. A tax benefit from an uncertain position was previously recognized if it
was probable of being sustained. Under FIN 48, the liability for unrecognized tax benefits is classified as
noncurrent unless the liability is expected to be settled in cash within 12 months of the reporting date.
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