Nautilus 2003 Annual Report Download - page 60

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Table of Contents
8.
ACCRUED LIABILITIES
Accrued liabilities consisted of the following at December 31:
2003
2002
Accrued payroll
$
9,438
$
5,436
Accrued warranty expense
7,348
5,358
Product safety reinforcement (recall) reserve
3,000
—
Sales return reserve
1,702
2,550
Accrued other
7,160
2,483
Accrued liabilities
$
28,648
$
15,827
9.
COMMITMENTS AND CONTINGENCIES
Product Warranty Matters – Our product warranty accrual reflects management’s best estimate of probable liability under its product
warranties. We determine the warranty accrual based on known product failures (if any), historical experience, and other currently
available evidence.
Product Safety Matters – On December 8, 2003, the Company disclosed the implementation of a safety reinforcement program
specifically for Bowflex Power Pro exercise machines that are equipped with a lat tower attachment. In cooperation with the U.S.
Consumer Product Safety Commission (the “CPSC”), the Company began working with its retailers to upgrade existing retail inventory
with the necessary safety reinforcement hardware. Consumers that purchased the affected Bowflex Power Pro machines through one of
our direct sales channels were notified of the availability of the safety reinforcement kit. During 2003, a product safety reinforcement
reserve was established for the cost of the reinforcement kits, the third-party call center costs to process customer requests for the kit, and
costs to mail the kit to our customers. The reserve reflects management’
s best estimate of probable liability, but is subject to change based
upon actual customer requests for the kit.
In February 2004, the Company was notified that the CPSC is investigating whether the Company violated the reporting obligations of
the Consumer Product Safety Act (the “Act”) in connection with bench and lat tower incidents reported by users of the Bowflex Power
Pro with lat tower attachment. Under the Act, the CPSC may assess penalties if it is determined that a product defect was not reported in
accordance with the Act. The Company is fully cooperating with this investigation and believes the outcome will not have a material
impact on its financial statements.
Lines of Credit – The Company has a line of credit for $10,000 with a financial institution. The line of credit is secured by certain assets
and contains several financial covenants. Interest is payable on outstanding borrowings under the line at the bank’s prime rate (4.0% at
December 31, 2003). The Company believes it is in compliance with the financial covenants applicable to the line of credit. There were
no outstanding borrowings on the line of credit at December 31, 2003 or 2002.
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