Nutrisystem 2007 Annual Report Download - page 61

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 2007, the Company recognized $44 in interest and penalties. The total amount of
unrecognized tax benefits as of December 31, 2007 was $929. The total amount of unrecognized tax benefits
that, if recognized, would affect the effective income tax rate is approximately $604. The Company’s federal
income tax returns for 2003 through 2007 are open tax years and are subject to examination by the Internal
Revenue Service. State tax jurisdictions that remain open to examination range from 2000 through 2007. The
Company does not believe 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:
Balance at January 1, 2007 ....................... $624
Increase related to current year tax positions ......... 305
Balance at December 31, 2007 .................... $929
The Company believes that it is reasonably possible that approximately $23 of its currently remaining
unrecognized tax positions, each of which is individually insignificant, may be recognized by the end of 2008 as
a result of a lapse of the statue of limitations.
10. DISCONTINUED OPERATION
In the fourth quarter of 2007, the Company committed to a plan to sell its subsidiary, Slim and Tone. In
accordance with SFAS No. 144, this subsidiary has been treated as a discontinued operation. Accordingly, the
operating results of this discontinued operation have been presented separately from continuing operations for all
periods presented. The Company expects to sell Slim and Tone within the next 12 months. In accordance with
SFAS No. 144, the Company compared the estimated fair value of the asset group and determined the net
carrying value was impaired by $1,156 pre-tax, which is included in the loss from discontinued operations. Slim
and Tone had revenues of $723, $2,259 and $2,345 and pre-tax losses of $100, $874 and $1,123 for the years
ended December 31, 2007, 2006 and 2005, respectively.
11. EQUITY INSTRUMENTS
Equity Incentive Plans
The Company has two equity incentive plans, the 1999 Equity Incentive Plan and 2000 Equity Incentive Plan
(collectively, the “Equity Incentive Plans”). Under these plans, a variety of equity instruments can be granted to
key employees including incentive and nonqualified stock options to purchase shares of the Company’s common
stock, restricted stock or shares of common stock. The 1999 Equity Incentive Plan and the 2000 Equity Incentive
Plan authorize up to 1,000,000 and 5,600,000 shares of common stock, respectively, for issuance. At
December 31, 2007, options to purchase 278,682 shares were available for grant under these plans.
In June 2000, the Company also adopted the 2000 Equity Incentive Plan for Outside Directors and Consultants
(the “Director Plan”) under which a variety of equity instruments can be granted to non-employee directors and
consultants to the Company including nonqualified stock options to purchase shares of the Company’s common
stock, restricted stock or shares of common stock. The Director Plan authorizes up to 1,500,000 shares of
common stock for issuance. At December 31, 2006, 695,306 shares were available for grant under this plan.
Under each of the plans, the Board of Directors determines the term of each award, but no award can be
exercisable more than 10 years from the date the award is granted. To date, all of the awards issued under the
Equity Incentive Plans expire 10 years from the grant date and all of the awards issued under the Director Plan
expire between three months and 10 years from the grant date. The Board also determines the vesting provisions
and the exercise price per share, which is the fair market value at date of grant. Awards issued to employees
generally vest over terms ranging from three to five years.
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