Nautilus 2008 Annual Report Download - page 29

Table of Contents
Estimating the fair value of our stock-based awards involves inherent uncertainties and the application of management judgment. The valuation
of our stock options requires us to make assumptions regarding the expected term of our options, expected future volatility in the market price of
our common stock, future risk-free interest rates and future dividends, if any, expected to be approved by our Board of Directors.
We estimate future forfeitures, at the time of grant and in subsequent periods, based on historical experience, and recognize compensation
expense for only those awards that are expected to vest. We reevaluate our estimate of forfeitures each quarter and, if applicable, recognize a
cumulative effect adjustment in the period of the change if the revised estimate of forfeitures differs significantly from the previous estimate.
To the extent a stock-based award is subject to performance conditions, the amount of expense we record in a given period, if any, may fluctuate
depending upon our assessment of the probability of achieving the performance targets.
Our stock-based compensation expense may also change, over time, as we review and adjust our compensation practices.
If factors, such as those discussed above, were to change, and we used different assumptions, our stock-based compensation expense in the
future could be materially different from that reported in previous periods.
Litigation and Loss Contingencies
From time to time, we may be involved in claims, lawsuits and other proceedings. Such matters involve uncertainty as to the eventual outcomes
and any losses we may ultimately realize when one or more future events occur or fail to occur. We record expenses for litigation and loss
contingencies when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company
estimates the probability of such losses based on the advice of internal and external counsel, the outcomes from similar litigation, the status of
the lawsuits (including settlement initiatives), legislative developments and other factors. Due to the numerous variables associated with these
judgments and assumptions, both the precision and reliability of the resulting estimates of the related loss contingencies are subject to substantial
uncertainties. We regularly monitor our estimated exposure to these contingencies and, as additional information becomes known, may change
our estimates accordingly. A significant change in our estimates, or an outcome that differs from the assumptions incorporated in our estimates,
may have a material impact on our financial position, results of operations and cash flows.
Income Tax Provisions
We account for income taxes based on the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities.
Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to be in effect when the temporary differences are
expected to be included, as income or expense, in the applicable tax return. The effect of a change in tax rates on our deferred tax assets and
liabilities is recognized, in the period of the enactment.
We adopted the provisions of FIN 48 – Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 , on
January 1, 2007. FIN 48 provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the
position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits of
the position.
Significant judgments are required in determining tax provisions, evaluating tax positions and, when necessary, establishing or making
adjustments to our valuation allowance. Such judgments require us to interpret existing tax law and other published guidance as applied to our
circumstances. To the extent that it is more likely than not
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