Nutrisystem 2009 Annual Report Download - page 55

In 2009, 2008 and 2007, common stock equivalents from stock options and unvested restricted stock representing
527,891, 604,545 and 89,794 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 $11,449, $36,784 and $48,742 in 2009, 2008, and 2007,
respectively. Interest payments in 2009, 2008 and 2007 were $304, $352 and $0, respectively.
Recently Issued Accounting Pronouncements
In November 2008, the FASB ratified an accounting pronouncement which clarifies how to account for certain
transactions involving equity method investments. The initial measurement, decreases in value and changes in
the level of ownership of the equity method investment are addressed. The pronouncement was effective for the
Company beginning on January 1, 2009 and was applied prospectively. The adoption of the pronouncement did
not have a material impact on the Company’s consolidated financial position and results of operations.
In June 2009, the FASB issued the Accounting Standards Codification as the source of authoritative accounting
principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial
statements in conformity with GAAP. The pronouncement is effective for interim and annual periods ending
after September 15, 2009. The adoption of the pronouncement did not have any impact on the Company’s
consolidated financial position and results of operations.
Use of Estimates
The preparation of financial statements in accordance with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of revenue and operating expenses during the
reporting period. Actual results could differ from these estimates.
Reclassifications
Effective January 1, 2009, the Company revised the classification of sales commissions in the accompanying
consolidated statements of operations. Such amounts are now classified as general and administrative expenses
versus cost of revenues as classified historically. Prior period sales commissions have been revised to conform to
the current classification. Total commissions for both 2008 and 2007 were approximately 2% of net revenues.
Certain additional items have also been reclassified for consistency purposes.
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