Nautilus 2005 Annual Report Download - page 50

Table of Contents
differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. A valuation allowance is
recorded to reduce deferred tax assets to an amount for which realization is more likely than not. Any income tax contingencies are accounted
for in accordance with SFAS No. 5 “ Accounting for Contingencies.” Further, the Company realized income tax benefits as a result of the
exercise of non-qualified stock options and the exercise and subsequent sale of certain incentive stock options (disqualifying dispositions). For
financial statement purposes, any reduction in income tax obligations as a result of these tax benefits has been credited to common stock.
Foreign Currency Translations –
Excluding Switzerland, the accounts of our foreign operations are measured using the local currency as
the functional currency. These accounts are then translated into U.S. dollars using exchange rates in effect at year-end for assets and liabilities
and the weighted average exchange rates during the period for the results of operations. Translation gains and losses are accumulated as a
separate component of stockholders’ equity and comprehensive income. For our Swiss operations, the local currency, the Swiss Franc, is
remeasured to the functional currency, the U.S. dollar, with the related gains or losses recognized in current period net income.
Foreign Currency Transactions – Foreign currency transaction gains and losses are a result of the effect of exchange rate changes on
transactions denominated in currencies other than the functional currency, including U.S. dollars. Gains and losses on those foreign currency
transactions are included in determining net income for the period in which exchange rates change. Net foreign currency transaction gains and
(losses) were $999, ($175) and ($31) for the years ended December 31, 2005, 2004 and 2003, respectively.
Stock-Based Compensation – The Company measures compensation expense for its stock-based employee compensation plans using the
method prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and furnishes the
pro forma disclosures required under SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.”
The Company has not typically recognized compensation expense relating to employee stock options because it has typically granted
options with an exercise price equal to the fair value of the stock on the effective date of grant. In July 2003, certain stock options were granted
to the Company’s President and Chief Executive Officer at an exercise price $2.00 (two dollars) per share below the market price on the day of
the grant, for which the Company recognized compensation expense of $363, $340, and $156 in 2005, 2004, and 2003, respectively. This
arrangement was amended December 31, 2005 to eliminate the original discount per share.
The following table 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:
49
2005 2004 2003
Net income, as reported
$
23,000
$
29,985
$
34,402
Add: Stock-based employee compensation expense included in reported net income,
net of tax
237
223
100
Deduct: Stock-based employee compensation expense determined under fair value
based method, net of tax
(1,854
)
(2,967
)
(3,215
)
Net income, pro forma
$
21,383
$
27,241
$
31,287
Basic earnings per share, as reported
$
0.69
$
0.92
$
1.06
Basic earnings per share, pro forma
$
0.64
$
0.83
$
0.96
Diluted earnings per share, as reported
$
0.68
$
0.90
$
1.04
Diluted earnings per share, pro forma
$
0.63
$
0.82
$
0.95