Nutrisystem 2007 Annual Report Download - page 54

2007 and 2006, the Company recorded pre-tax compensation charges of $1,472 and $4,429, respectively for
stock options. Additionally, the Company recorded pre-tax compensation charges of $2,515 and $541 for
restricted stock grants in 2007 and 2006, respectively. The related income tax benefit for all share-based
compensation was $1,083 and $1,359 in 2007 and 2006, respectively.
The fair-value of share-based awards is determined using the Black-Scholes valuation model on the date of grant,
which is the same model the Company used previously for valuing share-based awards for footnote disclosures
purposes. The fair value of restricted stock awards is equal to the market price of the Company’s common stock
on the date of grant.
The fair-value of share-based awards is recognized over the requisite service period, net of estimated forfeitures.
The Company relies primarily upon historical experience to estimate expected forfeitures and recognizes
compensation expense on a straight-line basis from the date of grant. The Company issues new shares upon
exercise of stock options or vesting of restricted stock.
Certain of the Company’s share-based payment arrangements are outside the scope of SFAS No. 123R and are
subject to Emerging Issues Task Force (“EITF”) Issue No. 00-19, “Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock,” as these stock options are held by
certain non-employee consultants. The fair value of these vested and unexercised awards was estimated using the
Black-Scholes option pricing model and was reclassified from equity to a current liability as of January 1, 2006.
The fair values of these awards are remeasured at each financial statement date until the awards are settled or
expire.
Prior to the adoption of SFAS No. 123R, had compensation cost for the Company’s common stock options been
determined based upon the fair value of the options at the date of grant, as prescribed under SFAS No. 123, as
amended by SFAS No. 148, the Company’s net income and net income per share would have been changed to
the following pro forma amounts for the year ended December 31, 2005:
Net income:
As reported ..................................................................... $21,015
Add: stock-based employee compensation expense included in reported net income, net of tax ....... —
Impact of total stock-based compensation expense determined under fair-value based method for all
rewards, net of tax ................................................................. (1,404)
Pro forma ...................................................................... $19,611
Basic net income per share:
As reported ..................................................................... $ 0.64
Pro forma ...................................................................... $ 0.60
Diluted net income per share:
As reported ..................................................................... $ 0.59
Pro forma ...................................................................... $ 0.58
In calculating pro forma compensation, the fair value of each stock option was estimated on the date of grant
using the Black-Scholes option pricing model and the following weighted average assumptions:
Dividend yield ....................................................... None
Expected volatility .................................................... 117.1%
Risk-free interest rate .................................................. 4.04%
Expected life (in years) ................................................ 5.6
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