Nautilus 2006 Annual Report Download - page 52

Table of Contents
shares outstanding plus the effect of outstanding stock options calculated using the treasury stock method. Net income for the calculation of
both basic and diluted earnings per share is the same as reported net income for all periods.
Calculation of the basic and diluted weighted-average number of outstanding shares and the corresponding amounts of earnings per share
for the three years ended December 31 is as follows:
11. EMPLOYEE BENEFIT PLAN
The Company adopted a 401(k) plan in 1999 covering substantially all employees over the age of 18. Each participant may contribute up
to 50% of eligible compensation during any calendar year, subject to certain limitations. The 401(k) plan provides for Company matching
contributions of up to 50% of the first 6% of eligible contributions made by all participants. All participants must have completed one year of
service before becoming eligible for the Company matching contributions. Employees vest at a rate of 25% per year in the matching
contributions for the first four years of service. For the years ended December 31, 2006, 2005 and 2004, the Company’s contributions to the
401(k) plan were $0.7 million, $0.5 million, and $0.6 million, respectively.
12. RELATED-PARTY TRANSACTIONS
Prior to the Company’s acquisition of Pearl Izumi in July 2005, Pearl Izumi GmbH purchased the assets of SHORE Sportworks GmbH, a
company owned by Juergen Eckmann and Juergen Sprich, in January 2004. Pearl Izumi GmbH later became a wholly-owned subsidiary of the
Company as the result of the 2005 acquisition of Pearl Izumi. Juergen Sprich is now the managing director for Pearl Izumi GmbH. Juergen
Eckmann is now the President of the Company’s Fitness Apparel Business.
The purchase price for SHORE Sportsworks GmbH included a contingent consideration clause. The contingent consideration is a
payment equal to 3% of the total year-over-year increase in net revenues from Pearl Izumi Europe, which also became a wholly-owned
subsidiary of the Company through the Pearl Izumi acquisition, for each calendar year ending December 31, 2006, 2005, and 2004. The
estimated contingent payments were accounted for as a reduction of the purchase price.
The Company incurred royalty expense under an agreement with one of its shareholders in the amount of $1.8 million in 2004; none in
either 2005 or 2006. In addition to the royalty agreement, the shareholder had separately negotiated an agreement dated June 18, 1992, when
the Company was privately held, between the shareholder, the Company’
s former Chairman and Chief Executive Officer, and a former director
of the Company. That separate agreement stipulated that annual royalties above $0.1 would be paid 60% to the shareholder, 20% to the former
Chairman, and 20% to the former director. Both of these agreements expired in April 2004.
50
(In thousands, except per share amounts)
2006 2005 2004
Basic shares outstanding
32,300
33,303
32,757
Dilutive effect of stock options
157
554
637
Diluted shares outstanding
32,457
33,857
33,394
Antidilutive stock options
*
1,802
704
861
Net income
$
29,100
$
23,000
$
29,985
Earnings per share:
Basic
$
0.90
$
0.69
$
0.92
Diluted
$
0.90
$
0.68
$
0.90
*
Stock options not included in the calculation of diluted earnings per share because they would be antidilutive.