Nautilus 2004 Annual Report Download - page 43

Table of Contents
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others
, the Company has also recorded a liability and
corresponding reduction of revenue of $146 and $81 for the years ended December 31, 2004 and 2003, 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.
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.
Emerging Issues Task Force (“EITF”) issue No. 00-10, Accounting for Shipping and Handling Fees and Costs , requires all amounts
billed to a customer in a sale transaction related to shipping and handling, if any, be classified as revenue. Costs incurred for shipping and
handling should be classified as cost of sales. Amounts billed to customers classified as revenue were $35,338, $28,868, and $42,314 for the
years ended December 31, 2004, 2003 and 2002, respectively. Costs incurred for shipping and handling classified as cost of sales were
$23,760, $21,038, and $24,477 for the years ended December 31, 2004, 2003 and 2002, respectively.
Sales Returns – The sales return reserve is maintained based on our historical experience of direct-marketed product return rates during
the period in which a customer can return a product for refund of the full purchase price, less shipping and handling in certain instances. The
return periods for direct marketed product lines range from 30 days to six weeks depending on the specific product. We track product returns in
order to identify any potential negative customer satisfaction trends. In our commercial/retail segment the Company also provides for estimated
sales returns from customers as reductions to revenues and accounts receivable. The estimates are based on historical rates of product returns.
Sales return reserve activity for the years ended December 31, 2004, 2003 and 2002 is as follows:
The direct segment sales return reserve of $1,785 and $1,702 as of December 31, 2004 and 2003, respectively, are presented on the
Consolidated Balance Sheets as part of accrued liabilities. The commercial/retail sales return reserve of $3,170 as of December 31, 2004 is
presented on the Consolidated Balance Sheets as a reduction to trade receivables.
Warranty Costs – The Company’s warranty policy provides for coverage of defects in material and workmanship. Warranty periods on
the Company’s products range from two years to limited lifetime on the Bowflex lines of fitness products, and one to five years on Bowflex
TreadClimbers, depending on the model and part, on a prorated basis. The commercial and retail line of fitness products include a lifetime
warranty on the frame and structural parts, a four month to three year warranty on parts, labor, electronics, upholstery, grips and
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Balance at
Beginning
of Period
Charged to
Sales and Costs
and Expenses
Deductions*
Balance at
End of
Period
Sales return reserves:
2004
$
1,702
$
15,702
$
12,449
$
4,955
2003
2,550
8,346
9,194
1,702
2002
2,100
14,494
14,044
2,550
*
Deductions represent product returns.