Nautilus 2004 Annual Report Download - page 30

Table of Contents
OFF-BALANCE SHEET ARRANGEMENTS
From time to time, we arrange for leases or other financing sources with third parties to enable certain of our commercial customers to
purchase our equipment. While most of these financings are without recourse, in certain cases we may offer a guaranty or other recourse
provisions. The purpose of these guaranties is to increase our selling opportunities to commercial customers that would not otherwise be able to
obtain financing to purchase our equipment. At December 31, 2004 and 2003, the maximum contingent liability under all recourse provisions
was approximately $4.4 million and $3.0 million, respectively. Refer to Note 1 of the Notes to Consolidated Financial Statements for further
discussion of the accounting treatment for these arrangements. We expect an increase in these types of arrangements going forward.
INFLATION AND PRICE CHANGES
Although we cannot accurately anticipate the effect of inflation on our operations, with the exception of steel and fuel prices discussed
below, we do not believe that inflation has had, or is likely in the foreseeable future to have, a material adverse effect on our financial position,
results of operations or cash flows. However, increases in inflation over historical levels or uncertainty in the general economy could decrease
discretionary consumer spending for products like ours. Very little of our revenue variation from prior periods is attributable to price changes.
During 2004, we experienced increases in the price of steel, a major component of our products, and in distributions costs as the result of
an increase in the price of fuel. We expect that to the extent costs continue to increase our gross margins in 2005 will continue to be negatively
impacted by increased steel and fuel prices.
RECENT ACCOUNTING PRONOUNCEMENTS
In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4.” SFAS No. 151
clarifies that abnormal inventory costs such as costs of idle facilities, excess freight and handling costs, and wasted materials (spoilage) are
required to be recognized as current period charges. The provisions of SFAS No. 151 are effective for fiscal years beginning after June 15,
2005. The Company is currently evaluating the provisions of SFAS No. 151 and does not expect that the adoption will have a material impact
on the Company’s Consolidated Financial Statements.
In December 2004, the FASB issued SFAS No. 123R “Share-Based Payment,” which requires companies to recognize in their statement
of operations the grant-date fair value of stock options and other equity-based compensation issued to employees. SFAS No. 123R is effective
for interim or annual periods beginning after June 15, 2005. Accordingly, we will adopt SFAS No. 123R in our third quarter of 2005. The
Company is evaluating the impact that SFAS No. 123R will have on the Company’s Consolidated Financial Statements.
In December 2004, the FASB issued SFAS No.153, “Exchanges of Nonmonetary Assets—an Amendment of APB No. 29. ” The
amendments made by SFAS No. 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair
value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets
and replace it with a broader exception for exchanges of nonmonetary assets that do not have “commercial substance.” This standard is
effective for nonmonetary asset exchanges occurring after July 1, 2005. The adoption of this standard is not expected to impact the Company’s
Consolidated Financial Statements.
The AJCA was enacted on October 22, 2004. The AJCA repeals an export incentive, creates a new deduction for qualified domestic
manufacturing activities and includes a special one-time deduction of 85% of certain foreign earnings repatriated to the U.S.
The FASB issued FSP FAS 109-1, “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs Creation Act of
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