Nautilus 2009 Annual Report Download - page 45

Table of Contents
Foreign currency translation – Nautilus translates the accounts of its foreign subsidiaries into U.S. dollars, using the current rate method,
whereby: revenues, expenses, gains and losses are translated at weighted-average exchange rates during the year; and assets and liabilities are
translated at the exchange rate on the balance sheet date. Translation gains and losses are reported in the Company’s consolidated balance sheets
as a component of accumulated other comprehensive income (loss) in stockholders’ equity.
Gains and losses arising from foreign currency transactions, including transactions between the Company and its foreign subsidiaries, are
recorded as a component of other income (expense) in our consolidated statements of operations.
Fair value of financial instruments – Financial instruments include cash, cash equivalents, restricted cash, trade receivables, short-term
borrowings, accounts payable, letters of credit and guarantees entered into in the ordinary course of our business. The carrying amounts reflected
in our consolidated balance sheets approximate fair value due to their market rates of interest and/or short-term maturities.
Stock
-based compensation – Nautilus recognizes stock-based compensation, on a straight-line basis, over the applicable vesting period, based
on the grant-date fair value of the award. To the extent a stock-based award is subject to performance conditions, the amount of expense
recorded in a given period, if any, reflects our assessment of the probability of achieving the performance targets.
Fair value of stock options is estimated using the Black-Scholes-Merton option valuation model; fair value of restricted stock awards is based on
the closing market price on the day preceding the grant. Assumptions used in calculating the fair value of stock-option grants are as follows:
Expected dividend yield
is based on our current expectation that no dividend payments will be made in future periods.
Risk
-free interest rate is based on the implied yield available on U.S. Treasury zero coupon issues with a remaining term approximating the
expected life of the options.
Expected life
is calculated using the “simplified” method, equal to the sum of the vesting term and the original contractual term, divided by two.
Expected volatility
is determined based on the daily historical volatility of the Company’s common stock over a period commensurate with the
expected life of the stock option.
The Company estimates future forfeitures, at the time of grant and in subsequent periods, based on historical turnover rates, previous forfeiture
experience and changes in the business or key personnel that would suggest future forfeitures may differ from historical data. The Company
recognizes compensation expense for only those stock options and stock-based awards that are expected to vest. The Company reevaluates
estimated forfeitures each quarter and, if applicable, recognizes a cumulative effect adjustment in the period of the change if the revised estimate
of the impact of forfeitures differs significantly from the previous estimate.
Related party transactions
– The Company’s largest shareholder, Sherborne Investors LP (“Sherborne”)
undertook a successful action to replace
four of the Company’s directors with Sherborne nominees in a December 2007 special meeting of shareholders. In May 2008, shareholders
approved the reimbursement of up to $0.6 million of expenses incurred by Sherborne in connection with the shareholder action. Payment
requires the
41
2009
2008
Dividend yield
0.0
%
0.0
%
Risk
-
free interest rate
2.5
%
3.2
%
Expected life (years)
4.75
4.59
Expected volatility
88
%
52
%