Nutrisystem 2010 Annual Report Download - page 52

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. In assessing the ability to
realize deferred tax assets, the Company considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
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. 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.
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.
Earnings Per Share
The Company uses the two-class method to calculate earnings per share (“EPS”) as the unvested shares issued
under the Company’s equity incentive plans are participating shares with nonforfeitable rights to dividends. Under
the two-class method, earnings per common share are computed by dividing the sum of distributed earnings to
common shareholders and undistributed earnings allocated to common shareholders by the weighted average
number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are
allocated to both common shares and participating securities based on the number of weighted average shares
outstanding during the period. The following table sets forth the computation of basic and diluted EPS:
Year Ended December 31,
2010 2009 2008
Income from continuing operations ..................................... $33,879 $32,873 $47,186
Income allocated to unvested restricted stock ............................. (1,620) (1,436) (1,084)
Income from continuing operations allocated to common shares .............. 32,259 31,437 46,102
Loss on discontinued operations allocated to common shares ................. (231) (3,924) (912)
Net income allocated to common shares ................................. $32,028 $27,513 $45,190
Weighted average shares outstanding:
Basic ......................................................... 28,312 29,458 30,684
Effect of dilutive securities ....................................... 374 311 488
Diluted ....................................................... 28,686 29,769 31,172
Basic income per common share:
Income from continuing operations ................................. $ 1.14 $ 1.07 $ 1.50
Loss on discontinued operations ................................... (0.01) (0.14) (0.03)
Net income .................................................... $ 1.13 $ 0.93 $ 1.47
Diluted income per common share:
Income from continuing operations ................................. $ 1.13 $ 1.06 $ 1.48
Loss on discontinued operations ................................... (0.01) (0.14) (0.03)
Net income .................................................... $ 1.12 $ 0.92 $ 1.45
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