Nutrisystem 2003 Annual Report Download - page 37

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35
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 123, as amended by SFAS 148, the Companys net income and net
income per share would have been changed to the following pro forma amounts:
Year Ended December 31
2003
2002 2001
Net income:
As reported $ 812 $ 2,411 $ 1,249
Add stock-based employee
compensation expense included in
reported net income, net of tax
20
20
Impact of total stock-based
compensation expense determined
under fair-value based method for
all rewards, net of tax
(493)
(446)
(787)
Pro forma $ 319 $ 1,985 $ 482
Basic net income per share:
As reported $ 0.03 $ 0.09 $ 0.04
Pro forma $ 0.01 $ 0.08 $ 0.02
Diluted net income per share:
As reported $ 0.03 $ 0.09 $ 0.04
Pro forma $ 0.01 $ 0.07 $ 0.02
In calculating pro forma compensation, the fair value of each stock option is estimated on the date of grant using the
Black-Scholes option pricing model and the following weighted average assumptions:
2003 2002 2001
Dividend yield None None None
Expected volatility 103.9% 94.7% 101.9%
Risk-free interest rate 2.29% 4.80% 4.58%
Expected life (in years) 6.2 5.3 4.3
The weighted average fair value of the options issued in 2003, 2002 and 2001 was $0.54, $0.33 and $0.28, respectively.
Cash Flow Information
For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments purchased
with original maturities of three months or less to be cash equivalents. Cash equivalents at December 31, 2003 and 2002
consist of $0 and $200, respectively, in certificates of deposit.
The Company made payments for income taxes of $35 and $6 in 2003 and 2002, respectively; no such payments were
made in 2001. Payments for interest were $1, $37, and $4 in 2003, 2002 and 2001, respectively.
Recently Issued Accounting Pronouncements
In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 148, Accounting for Stock-
Based Compensation  an Amendment to FASB Statement No. 123, which amends SFAS 123, Accounting for Stock-
Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method
of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of
SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method used on reported results. Management