Nautilus 2005 Annual Report Download - page 48

Table of Contents
Any impairment charge would be classified as a component of general and administrative expenses. In the fourth quarter of 2005, the
Company determined that goodwill and long-lived assets were not impaired.
Guarantees – From time to time, the Company arranges for commercial leases or other financing sources to enable certain of its
commercial customers to purchase the Company’s equipment. While most of these financings are without recourse, in certain cases the
Company provides a guarantee or other recourse provisions to the independent finance company of all or a portion of the lease payments in
order to facilitate the sale of the commercial equipment. In such situations, the Company ensures that the transaction between the independent
leasing company and the commercial customer represents a sales-type lease. The Company monitors the payment status of the lessee under
these arrangements and provides a reserve under Statement of Financial Accounting Standards (“SFAS”) No. 5, Accounting for Contingencies
,
in situations when collection of the lease payments is not probable. At December 31, 2005 and 2004, the maximum contingent liability under
all such recourse and guarantee provisions, was approximately $4,095 and $4,433, respectively. As of December 31, 2005, lease terms on
outstanding commercial customer financing arrangements were between 3 and 7 years. A reserve for estimated losses under recourse
provisions of $70 and $79 has been recorded based on historical loss experience and is included in accrued expenses at December 31, 2005 and
2004, respectively. In accordance with Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 45, Guarantor’s
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others
, the Company has also
recorded a liability and corresponding reduction of revenue of $78 and $146 for the years ended December 31, 2005 and 2004, respectively, for
the estimated fair value of the Company’s guarantees issued. The fair value of the guarantees was determined based on the estimated risk
premium a bank or similar institution would require in order to extend financing to a customer in the absence of a third-party guarantee. This
liability is being reduced over the life of each respective guarantee. In most cases if the Company is required to fulfill its obligations under the
guarantee, it has the right to repossess the equipment from the commercial customer. It is not practical to estimate the approximate amount of
proceeds that would be generated from the sale of these assets in such situations.
The Company has an agreement with a financing company to provide second tier financing for consumers. Under normal circumstances,
funding for this reserve comes from a percentage of each sale held back by the financing company. In the event that the financing company
experiences higher consumer default rates than specified under our contract, we are required to pay an additional amount to the financing
company. As of December 31, 2005, we have accrued $400 for this liability.
Revenue Recognition – Revenue is recorded when products are shipped and the Company has no significant remaining obligations,
persuasive evidence of an arrangement exists, the price to the buyer is fixed or determinable, and collectibility is reasonably assured or
probable. For all of the Company’s products, except Nautilus commercial equipment, revenue from product sales is recognized when title and
risk of loss have passed. According to the Company’s terms of sale, title and risk of loss pass to the customer upon delivery to the carrier.
Revenue is recognized upon final installation for the Nautilus commercial equipment if the Company is responsible for installation.
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