Nautilus 2013 Annual Report Download - page 44

is at least a reasonable possibility and material, then we disclose an estimate of the possible loss or range of loss, if such estimate can be made, or
disclose that an estimate cannot be made.
Advertising and Promotion
We expense our advertising and promotion costs as incurred. Production costs of television advertising commercials are recorded as prepaid
expenses until the initial broadcast, at which time such costs are expensed. Advertising and promotion costs are included in Selling and
Marketing expenses. Total advertising and promotion expenses were $35.8 million , $30.9 million and $28.6 million
for the years ended
December 31, 2013 , 2012 and 2011 , respectively. Prepaid advertising and promotion costs were $2.2 million and $1.3 million
as of
December 31, 2013 and 2012 , respectively.
Research and Development
Internal research and development costs, which primarily consist of salaries and wages, employee benefits, expenditures for materials, and fees
to use licensed technologies, are expensed as incurred. Third party research and development costs for products under development or being
researched, if any, are expensed as the contracted work is performed.
Income Taxes
We account for income taxes based on the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to be in effect when the temporary differences are
expected to be included, as income or expense, in the applicable tax return. The effect of a change in tax rates on deferred tax assets and
liabilities is recognized in the period of the enactment. Valuation allowances are provided against deferred income tax assets if we determine it is
more likely than not that such assets will not be realized.
Unrecognized Tax Benefits
We recognize a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained based on the
technical merits of the position upon examination, including resolutions of any related appeals or litigation.
Foreign Currency Translation
We translate the accounts of our non-
U.S. subsidiaries into U.S. dollars as follows: 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 our Consolidated Balance Sheets as a component of Accumulated Other Comprehensive Income. In
the fourth quarter of 2012, we substantially completed the liquidation of our investment in foreign subsidiaries formerly associated with the
Commercial business. As a result, an accumulated translation adjustment of $6.2 million
was removed from accumulated other comprehensive
income and recognized as a gain of the discontinued operations.
Gains and losses arising from foreign currency transactions, including transactions between us and our non-
U.S. subsidiaries, are recorded as a
component of other income (expense) in our Consolidated Statements of Operations.
Fair Value of Financial Instruments
The carrying values of Cash and Cash Equivalents, Trade Receivables, Prepaid and Other Current Assets, Short-
Term Notes Receivable, Trade
Payables and Accrued Liabilities approximate fair value due to their short maturities.
We did not have any financial instruments that were recorded at fair value on a recurring basis at December 31, 2013 or 2012.
Stock
-Based Compensation
We recognize 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.
Net Income Per Share
Basic per share amounts were computed using the weighted average number of common shares outstanding. Diluted per share amounts were
calculated using the number of basic weighted average shares outstanding increased by dilutive potential common shares related to stock-
based
awards, as determined by the treasury stock method.
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