Nautilus 2004 Annual Report Download - page 45

Table of Contents
effective date of grant. In July 2003, certain stock options were granted at an exercise price below current market price on the day of the grant,
for which the Company recognized compensation expense of $340 and $156 in 2004 and 2003, respectively. The unearned portion of this stock
option grant resides in Stockholders’ Equity in the Consolidated Balance Sheets and will be recognized evenly over the five-
year vesting period
as compensation expense. The estimated compensation expense for the next three years is $340 per year and $184 in year four.
The following tables illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition
provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” using the Black-Scholes option pricing model:
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, 2004, 2003 and 2002 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, 2004, 2003 and 2002.
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, royalty payable to stockholders, and accrued liabilities approximate their estimated fair values due
to the short-term maturities of those financial instruments.
Recent Accounting Pronouncements – In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB
No. 43, Chapter 4.
” SFAS No. 151 clarifies that abnormal inventory costs such as costs of idle facilities, excess freight and handling costs, and
wasted materials (spoilage) are required to be recognized as current period charges. The provisions of SFAS No. 151 are effective for the fiscal
year beginning after June 15, 2005. The Company is currently evaluating the provisions of SFAS No. 151 and does not expect that the adoption
will have a material impact on the Company’s Consolidated Financial Statements.
In December 2004, the FASB issued SFAS No. 123R “Share-Based Payment,” which requires companies to recognize in their statement
of operations the grant-date fair value of stock options and other equity-based compensation issued to employees. SFAS No. 123R is effective
for interim or annual periods beginning after June 15, 2005. Accordingly, we will adopt SFAS No. 123R in our third quarter of 2005. The
Company is evaluating the impact that SFAS No. 123R will have on the Company’s Consolidated Financial Statements.
43
2004 2003 2002
Net income, as reported
$
29,985
$
34,402
$
97,887
Add: Stock-based employee compensation expense included in reported net income,
net of tax
223
100
—
Deduct: Stock-based employee compensation expense determined under fair value
based method, net of tax
(2,967
)
(3,215
)
(3,141
)
Net income, pro forma
$
27,241
$
31,287
$
94,746
Basic earnings per share, as reported
$
0.92
$
1.06
$
2.84
Basic earnings per share, pro forma
$
0.83
$
0.96
$
2.75
Diluted earnings per share, as reported
$
0.90
$
1.04
$
2.79
Diluted earnings per share, pro forma
$
0.82
$
0.95
$
2.70