Nutrisystem 2008 Annual Report Download - page 52

Earnings Per Share
Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects the potential dilution from the exercise or
conversion of securities into common stock, such as stock options and unvested restricted stock, using the
treasury stock method. The following table sets forth the computation of basic and diluted EPS:
Year Ended December 31,
2008 2007 2006
(in thousands, except per share
amounts)
Income from continuing operations .................................... $46,427 $104,947 $85,678
Loss on discontinued operation ....................................... (174) (795) (548)
Net income ....................................................... $46,253 $104,152 $85,130
Weighted average shares outstanding:
Basic ........................................................ 30,684 34,397 35,800
Effect of dilutive stock options and unvested restricted stock ............ 488 774 1,322
Diluted ...................................................... 31,172 35,171 37,122
Basic income per common share:
Income from continuing operations ................................ $ 1.51 $ 3.05 $ 2.39
Net loss from discontinued operation .............................. — (0.02) (0.01)
Net income ................................................... $ 1.51 $ 3.03 $ 2.38
Diluted income per common share:
Income from continuing operations ................................ $ 1.49 $ 2.98 $ 2.30
Net loss from discontinued operation .............................. (0.01) (0.02) (0.01)
Net income ................................................... $ 1.48 $ 2.96 $ 2.29
In 2008, 2007 and 2006, common stock equivalents from stock options and unvested restricted stock representing
604,545, 89,794 and 63,829 shares of common stock, respectively, were excluded from weighted average shares
outstanding for diluted income per common share purposes because the effect would be anti-dilutive.
Share-Based Payment Awards
The cost of all share-based awards to employees, including grants of employee stock options and restricted stock,
is recognized in the financial statements based on the fair value of the awards at grant date. The fair value of
stock option awards is determined using the Black-Scholes valuation model on the date of grant. 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 on a straight-line basis 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 granting of restricted stock.
Cash Flow Information
The Company made payments for income taxes of $36,784, $48,742 and $32,000 in 2008, 2007, and 2006,
respectively. Interest payments in 2008, 2007 and 2006 were not material. During 2008, the Company identified
and corrected immaterial adjustments in its consolidated statements of cash flows for the years ended
December 31, 2007 and 2006 which reduced operating cash flows from discontinued operations by $316 and
$1,200 respectively.
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