Nutrisystem 2009 Annual Report Download - page 54

Level 3—Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with
reasonably available assumptions made by other market participants. These valuations require significant
judgment.
The fair values of the Company’s cash, cash equivalents and marketable securities are based on quoted prices in
active markets for identical assets or a Level 1 methodology.
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
Effective January 1, 2009, the Company adopted an accounting pronouncement which required the Company to
use the two-class method to calculate earnings per share (“EPS”) as the unvested shares issued under the
Company’s equity incentive plans were 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. This resulted in lower income allocations to the Company’s common stock and
impacted its reported diluted income per common share by $0.05 in 2009 and $0.03 in 2008. There was no
impact in 2007. Prior period income per share data was adjusted to conform to the provisions of this
pronouncement. The adoption of the pronouncement did not have any impact on the Company’s consolidated
financial position and results of operations.
The following table sets forth the computation of basic and diluted EPS:
Year Ended December 31,
2009 2008 2007
(in thousands, except per share
amounts)
Income from continuing operations .................................... $29,036 $46,427 $104,947
Income allocated to unvested restricted stock ............................ (1,277) (1,063) —
Income from continuing operations allocated to common shares ............. 27,759 45,364 104,947
Loss on discontinued operation ....................................... (246) (174) (795)
Net income allocated to common shares ................................ $27,513 $45,190 $104,152
Weighted average shares outstanding:
Basic ........................................................ 29,458 30,684 34,397
Effect of dilutive stock options and unvested restricted stock ............ 311 488 774
Diluted ...................................................... 29,769 31,172 35,171
Basic income per common share:
Income from continuing operations ................................ $ 0.94 $ 1.48 $ 3.05
Net loss from discontinued operation .............................. (0.01) (0.01) (0.02)
Net income ................................................... $ 0.93 $ 1.47 $ 3.03
Diluted income per common share:
Income from continuing operations ................................ $ 0.93 $ 1.46 $ 2.98
Net loss from discontinued operation .............................. (0.01) (0.01) (0.02)
Net income ................................................... $ 0.92 $ 1.45 $ 2.96
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