Nautilus 2005 Annual Report Download - page 51

Table of Contents
The pro forma amounts may not be indicative of the effects on reported net income for future years due to the effect of options vesting
over a period of years, forfeitures, and the granting of stock compensation awards in future years.
Comprehensive Income is defined as net income as adjusted for changes to equity resulting from events other than net income or
transactions related to an entity’s capital structure. Comprehensive income for the years ended December 31, 2005, 2004 and 2003 equals net
income plus or minus the effect of foreign currency translation adjustments. The foreign currency translation adjustments are due to the
translation of the financial statements of our foreign subsidiaries. Accumulated other comprehensive income consists solely of cumulative
foreign currency translation adjustments as of December 31, 2005, 2004 and 2003.
Fair Value of Financial Instruments – The carrying amounts of the Company’s cash and cash equivalents, short-
term investments, trade
receivables, notes receivable, trade payables, accrued liabilities, and short-term borrowings approximate their estimated fair values due to the
short-term maturities of those financial instruments. Given the relative size of the Company’s long-term obligations, management does not
expect the fair value to materially differ from the carrying value.
Recent Accounting Pronouncements – In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123
(revised 2004), “Share-Based Payment” (“SFAS No. 123R”), which will be effective for the Company’s first quarter beginning January 1,
2006. The new standard will require us to expense stock options and other share based payments. The statement requires companies to assess
the most appropriate model to calculate the value of the options. We currently use the Black-Scholes option-pricing model to value options and
are currently assessing which model we will use in the future. We have not determined the financial impact of implementing SFAS No. 123R
on the Company’s financial statements. However, the impact under SFAS No. 123 is disclosed in Note 2 to these consolidated financial
statements.
In November 2004, the FASB issued SFAS No. 151, “Inventory Costs.” This statement clarifies the accounting for abnormal amounts of
idle facility expense and freight and handling costs when those costs may be so abnormal as to require treatment as period charges. This
statement is effective for the Company’s first quarter beginning January 1, 2006. We do not anticipate this pronouncement will have a material
impact on the consolidated financial statements.
Reclassifications – Certain amounts from 2004 and 2003 have been reclassified to conform to the 2005 presentation with no effect on
previously reported consolidated net income or stockholders’ equity.
2. STOCK-BASED COMPENSATION
On June 6, 2005 the shareholders of the Company approved the Nautilus, Inc. 2005 Long Term Incentive Plan (the “Plan”). The Plan
permits flexibility in types of awards, and specific terms of awards, which will allow future awards to be based on then-current objectives for
aligning compensation with increasing long-term shareholder value.
The aggregate number of shares of common stock authorized for issuance as awards under the Plan is 4,000,000, plus any shares of
common stock that were previously reserved for issuance under the Company’s Stock Option Plan and were not subject to grant on June 6,
2005 or as to which the option award is forfeited on or after June 6, 2005. The maximum aggregate number of shares of common stock subject
to stock options, stock appreciation rights, restricted stock or stock unit awards which may be granted to any one participant in any one year
under the Plan is 1,000,000.
The aggregate number of shares available for issuance under the Plan shall be reduced by two (2) shares for each share delivered in
settlement of any stock appreciation rights, restricted stock, stock unit or performance unit award, and one (1) share for each share delivered in
settlement of a stock option award.
At December 31, 2005, 3,978,284 shares are available for future issuance under the Plan. Stock options granted generally have an
exercise price equal to the closing market price of the Company’s stock on the day before the date of grant, and vesting periods vary by option
granted, generally no longer than five years.
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