Nautilus 2012 Annual Report Download - page 43

Table of Contents
amounts reflected in the Company's 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 expense 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 performance share unit awards is
estimated using the binomial valuation model; fair value of restricted stock unit 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 in the years ended December 31, 2012 and 2011 were as follows:
Expected dividend yield
is based on the Company's current expectation that no dividend payments will be made in future periods.
Risk
-free interest rate is the U.S. Treasury zero-coupon rate, as of the grant date, for issues having a term approximately equal to the expected
life of the stock option.
Expected life
is the period of time over which stock options are expected to remain outstanding. The Company calculates expected term based on
the average of the sum of the vesting periods and the full contractual term.
Expected volatility
is the percentage amount by which the price of Nautilus common stock is expected to fluctuate annually during the estimated
expected life for stock options. Expected price volatility is calculated using historical daily closing prices over a period matching the weighted-
average expected life, as management believes such changes are the best indicator of future volatility.
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
- In September 2010 , the Company entered into an agreement to borrow $5.0 million from certain entities under
common control of Sherborne Investors GP, LLC and its affiliates (collectively “Sherborne”). At the time, Sherborne was the Company's largest
shareholder and was controlled by Edward J. Bramson, the Company's former Chairman and Chief Executive Officer, and Craig L. McKibben, a
former member of the Company's Board of Directors. The Company incurred interest expense of $0.4 million and $0.1 million with respect to
such debt in 2011 and 2010 , respectively. The Company repaid all amounts outstanding with respect to such debt in March 2012 and,
accordingly, both the outstanding principal balance and amount of accrued interest expense as of December 31, 2012 were zero . As of
December 31, 2011 , the outstanding principal balance of $5.0 million and accrued interest expense of $0.5 million is included in long-term
notes payable in the Company's consolidated balance sheets. For further information, see Note 10, Borrowings.
New Accounting Pronouncements
- In the first quarter of 2012, the Company adopted Accounting Standards Update No. 2011-5, Presentation
of Comprehensive Income ("ASU 2011-05"), which revises the manner in which entities present comprehensive income in their financial
statements. ASU 2011-05 amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.
The adoption of ASU 2011-05 did not have any effect on the Company's financial position, results of operations or cash flows.
In July 2012, the Financial Accounting Standards Board ("FASB") issued ASU 2012-02, Testing Indefinite-Lived Intangible Assets for
Impairment
("ASU 2012-02"), which amends the guidance in Accounting Standards Topic 350-30, Intangibles -
37
2012
2011 2010
Dividend yield
—
%
—
%
—
%
Risk-free interest rate
0.9
%
1.5
%
2.2
%
Expected life (years)
4.75
4.75
4.75
Expected volatility
92
%
92
%
90
%