Nautilus 2004 Annual Report Download - page 41

Table of Contents
NAUTILUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 2004
(In Thousands, Except Share and Per Share Data)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization – Nautilus, Inc. and subsidiaries (the “Company”), a Washington corporation, is a leading marketer, developer, and
manufacturer of branded health and fitness products sold under such well-known brands as Nautilus, Bowflex, Schwinn, and StairMaster.
These brands are distributed through well established direct to consumer, commercial, and retail channels. The Company’s consumer and
commercial fitness equipment products include a full line of cardiovascular and weight resistance products such as home gyms, free weight
equipment, treadmills, indoor cycling equipment, steppers, ellipticals, treadclimbers and fitness accessories.
Consolidation – The consolidated financial statements of the Company include Nautilus, Inc. and its wholly owned subsidiaries. All
intercompany transactions have been eliminated in the preparation of the consolidated financial statements.
Use of Accounting Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in
the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates. The most significant estimates included in the preparation of the
financial statements are related to revenue recognition, stock-based compensation, warranty reserves, legal reserves, sales return reserves, the
allowance for doubtful accounts, inventory valuation, intangible asset valuation, and income tax provision.
Cash and Cash Equivalents
include cash on hand, cash deposited with banks and financial institutions and highly liquid debt instruments
purchased with original maturity dates of three months or less at the date of acquisition. The Company maintains its cash in bank deposit
accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts.
Short term investments – Substantially all short-term investments are comprised of investment grade variable rate debt obligations,
which are asset-backed and categorized as available-for-sale. Accordingly investments in these securities are recorded at cost, which
approximates fair value due to their variable interest rates, which typically reset every 35 days. Despite the long-term nature of the investments
stated contractual maturities, we have the ability to quickly liquidate these securities. As a result of the resetting variable rates, we had no
cumulative gross unrealized or realized holding gains or losses from these investments. All income generated from these investments was
recorded as interest income. Variable rate debt obligations, historically classified as cash and cash equivalents, have been reclassified within the
Consolidated Balance Sheets as short-term investments for the year ending December 31, 2003. Cash and cash equivalents for 2003 decreased
by $51.3 million while short-term investments increased by the same amount.
Trade Receivables –
The Company maintains an allowance for doubtful accounts receivable based upon our historical experience and the
expected collectibility of all outstanding accounts receivable. Allowance for doubtful accounts receivable activity for the years ended
December 31, 2004, 2003 and 2002 is as follows:
39
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Deductions*
Balance at
End of
Period
Allowance for doubtful accounts:
2004
$
2,686
$
985
$
419
$
3,252
2003
3,147
388
849
2,686
2002
2,064
1,369
286
3,147
*
Deductions represent amounts written off against the allowance, net of recoveries.