Nutrisystem 2008 Annual Report Download - page 51

Accounting for Lease Related Expenses
Certain of the Company’s lease contracts contain rent holidays, various escalation clauses, or landlord/tenant
incentives. The Company records rental costs, including costs related to fixed rent escalation clauses and rent
holidays, on a straight-line basis over the lease term. Lease allowances utilized for space improvement are
recorded as leasehold improvement assets and amortized over the shorter of the economic useful life of the asset
or the lease term. Tenant lease incentive allowances received are recorded as deferred rent and amortized as
reductions to rent expense over the lease term.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and the respective tax bases
and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the
consolidated statements of operations in the period that includes the enactment date.
The Company adopted Financial Accounting Standards Board (“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. The Company records accrued interest and penalties related to unrecognized tax benefits as part
of interest expense.
Fair Value of Financial Instruments
Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards (“SFAS”)
No. 157, “Fair Value Measurements” only for its financial assets and liabilities required or permitted to be stated
or disclosed at fair value. This statement defines fair value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value
measurements.
As of December 31, 2008, the Company did not carry any of its assets and liabilities at fair value on a recurring
basis and did not recognize any unrealized amounts in earnings or accumulated other comprehensive income
related to changes in fair value for year ended December 31, 2008. When invested, the Company carries its
marketable securities at fair value. The Company’s fair value measurement disclosure requirements are currently
limited to annual fair value disclosure of its financial instruments.
Also effective January 1, 2008, the Company adopted SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities,” which permits entities to choose to measure many financial instruments and
certain other items at fair value. Currently, the Company has not elected to treat any of its financial assets or
liabilities under the fair value option.
Segment Information
The Company is managed and operated as one business. The entire business is managed by a single management
team that reports to the chief executive officer. Revenue consists primarily of food sales.
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