Nutrisystem 2007 Annual Report Download - page 64

SFAS No. 123R addresses financial instruments issued as part of share-based payment arrangements in exchange
for employee services. Certain of the Company’s share-based payment arrangements are outside the scope of
SFAS No. 123R and are subject to EITF Issue No. 00-19, “Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company’s Own Stock,” which requires the stock options held by certain
non-employee consultants to be accounted for as liability awards. The fair value of these vested and unexercised
awards was estimated using the Black-Scholes option pricing model and is remeasured at each financial
statement date until the award is settled or expires. During 2007, the Company reduced expense by $292 based
on the remeasurement of these options and during 2006 recorded additional expense of $2,042 based on the
remeasurement of these options. An increase or decrease in the Company’s stock price results in an additional
expense or a reduction in expense pertaining to these unexercised options. As of December 31, 2007, $212 was
included in other accrued expenses and current liabilities for stock options to acquire 8,000 shares of common
stock which remained unexercised.
The fair value of liability awards at December 31, 2007 was estimated using the Black-Scholes option pricing
model and the following weighted average assumptions:
Dividend yield ............................................................... None
Expected volatility ............................................................ 100.0%
Risk-free interest rate .......................................................... 3.5%
Contractual life (in years) ....................................................... 5.4
Expected volatility is based on the historical volatility of the price of the Company’s common stock over the
period commensurate with the contractual life of the options. The contractual term of awards represents the
contractual period of time that options granted may be outstanding. The risk-free interest rate for periods within
the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
12. EMPLOYEE BENEFIT PLAN
The Company maintains a qualified tax deferred defined contribution retirement plan (the “Plan”). Under the
provisions of the Plan, substantially all employees meeting minimum age and service requirements are entitled to
contribute on a before and after-tax basis a certain percentage of their compensation. The Company matches
100% of an employee’s contribution, up to a maximum Company match of 4% for 2007, 2006 and 2005 of the
employee’s annual salary. Employees vest immediately in their contributions and the Company’s contribution.
The Company’s contributions in 2007, 2006 and 2005 were $986, $683 and $281, respectively.
13. RETURNS RESERVE
Following is an analysis for the returns reserve:
Year Ended December 31,
2007 2006 2005
Balance at beginning of year ............................. $ 2,550 $ 1,537 $ 139
Provision for estimated returns ........................... 57,163 39,575 15,676
Actual returns ......................................... (56,853) (38,562) (14,278)
Balance at end of year .................................. $ 2,860 $ 2,550 $ 1,537
The provision for estimated returns and actual returns increased due to the higher level of new customers.
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