Nutrisystem 2006 Annual Report Download - page 60

f
rom equity to a current liability as of January 1, 2006. The fair value of the award is remeasured at eac
h
f
inancial statement date until the award is settled or expires. During 2006,
$
2,042 was recorded as expense based
o
n the remeasurement of these options. An increase in the Compan
y
’s stock price results in an additional expens
e
pertaining to these unexercised options. Stock options to acquire 8
5
,400 shares of common stock were exercise
d
d
uring 2006 resulting in the reclassification of
$
4,761 to equity. As of December 31, 2006,
$
504 was included in
o
ther current liabilities for stock o
p
tions to ac
q
uire 8,000 shares of common stock which remained unexercised.
Th
e
f
a
i
rva
l
ue o
fli
a
bili
ty awar
d
s was est
i
mate
d
us
i
ng t
h
eB
l
ac
k
-Sc
h
o
l
es opt
i
on pr
i
c
i
ng mo
d
e
l
an
d
t
he
f
o
ll
ow
i
n
g
we
igh
te
d
avera
g
e assumpt
i
ons:
Di
v
id
en
d
y
i
e
ld
...............................................................
N
one
Expecte
d
vo
l
at
ili
t
y
............................................................
100
.
0%
R
i
s
k-fr
ee
in
te
r
est
r
ate
..........................................................
4
.7%
Contractua
l lif
e(
i
n years) ....................................................... 6.
4
Expected volatilit
y
is based on the historical volatilit
y
of the price of the Compan
y
’s common stock over the
p
eriod commensurate with the contractual life of the o
p
tions. The contractual term of awards re
p
resents th
e
contractua
l
per
i
o
d
o
f
t
i
me t
h
at opt
i
ons grante
d
may
b
e outstan
di
ng. T
h
er
i
s
k
-
f
ree
i
nterest rate
f
or per
i
o
d
sw
i
t
hi
n
the contractual life of the option is based on the U.S. Treasur
yy
ield curve in effect at the time of
g
rant
.
Common
S
tock Warrants
I
n return for services
p
rovided in connection with a
p
rivate
p
lacement com
p
leted in 1999, the
p
lacemen
t
a
gent received warrants to purchase 743,740 common shares at
$
1.00 per share. The fair value of the warrants o
f
$
344, computed using the Black-Scholes option pricing model, was recorded as a reduction of the proceeds fro
m
the offerin
g
. In 2003, 43,
5
18 common shares were issued upon the cashless exercise of 100,000 warrants. In
2004, 531,180 common shares were issued upon the cashless exercise of 208,790 warrants and
$
385 proceed
s
were rece
i
ve
df
or t
h
e rema
i
n
i
ng warrants exerc
i
se
d
.A
ll
rema
i
n
i
ng warrants exp
i
re
d
on Septem
b
er 30, 2004
.
1
2. EMPL
O
YEE BENEFIT PLA
N
Th
e Compan
y
ma
i
nta
i
ns a qua
lifi
e
d
tax
d
e
f
erre
dd
e
fi
ne
d
contr
ib
ut
i
on ret
i
rement p
l
an (t
h
e“P
l
an”). Un
d
er
the provisions of the Plan, substantiall
y
all emplo
y
ees meetin
g
minimum a
g
e and service requirements ar
e
ent
i
t
l
e
d
to contr
ib
ute on a
b
e
f
ore an
d
a
f
ter-tax
b
as
i
s a certa
i
n percentage o
f
t
h
e
i
r compensat
i
on. T
h
e Company
matches 100% of an emplo
y
ee’s contribution, up to a maximum Compan
y
match of 4% for 2006, 2005 and 200
4
o
f the emplo
y
ee’s annual salar
y
. Emplo
y
ees vest immediatel
y
in their contributions and the Compan
y
contribution. The Company’s contributions in 2006, 2005 and 2004 were
$
683,
$
281 and
$
137, respectively.
1
3. RET
U
RN
S
RE
S
ERV
E
Fo
ll
ow
i
ng
i
s an ana
l
ys
i
s
f
or t
h
e returns reserve:
Y
ear Ended December 31
,
2006
2005
2004
B
alance at be
g
innin
g
of
y
ea
r
.
.............................
$
1,537 $ 139 $ 7
1
P
rovision for estimated return
s
............................
3
9,
5
7
5
1
5
,676 2,16
4
A
ctua
l
return
s
.
.........................................
(
38,562
)(
14,278
)(
2,096
)
B
alance at end of year
.
..................................
$
2,550
$
1,537
$
139
Th
e prov
i
s
i
on
f
or est
i
mate
d
returns an
d
actua
l
returns
i
ncrease
dd
ue to t
h
e
hi
g
h
er
l
eve
l
o
f
new customers.
54