Nautilus 2005 Annual Report Download - page 30

Table of Contents
Inherent in the measurement of these deferred balances are certain judgments and interpretations of existing tax law and other published
guidance as applied to our operations. When it is more likely than not that all or some portion of specific deferred tax assets will not be
realized, a valuation allowance must be established for the amount of the deferred tax assets that are determined not to be realizable. No
valuation allowance has been provided for deferred tax assets, since we anticipate the full amount of these assets should be realized in the
future. Accordingly, if the Company’s facts or financial results were to change thereby impacting the likelihood of realizing the deferred tax
assets, judgment would have to be applied to determine changes to the amount of the valuation allowance required to be in place on the
financial statements in any given period.
As a matter of course, the Company may be audited by federal, state and foreign tax authorities. We provide reserves for potential
exposures when we consider it probable that a taxing authority may take a sustainable position on a matter contrary to our position. We
evaluate these reserves, including interest thereon, on a quarterly basis to ensure that they have been appropriately adjusted for events that may
impact our ultimate payment for such exposures. Management believes that an appropriate liability has been established for estimated
exposures; however, actual results may differ materially from these estimates. To the extent the audits or other events result in a material
adjustment to the accrued estimates, the effect would be recognized in income tax expense (benefit) in the Consolidated Statement of
Operations in the period of the event.
RESULTS OF OPERATIONS
This MD&A should be read in conjunction with our Consolidated Financial Statements and related notes included elsewhere in this
report. We believe that period-to-period comparisons of our operating results are not necessarily indicative of future performance. You should
consider our prospects in light of the risks, expenses and difficulties frequently encountered by companies that operate in evolving markets. We
may not be able to successfully address these risks and difficulties and, consequently, we cannot assure you of any future growth or
profitability. For more information, see our discussion of Risks and Uncertainties beginning on page 17.
The Company acquired DashAmerica, Inc. d/b/a Pearl Izumi USA on July 7, 2005 for approximately $70.0 million including acquisition
costs, net of cash acquired plus $5.3 million in assumed debt. Pearl Izumi is a provider of fitness apparel and footwear for cyclists, runners and
fitness enthusiasts. Our Pearl Izumi apparel products are sold through sporting good dealers, retailers, independent bike dealers and Company
owned retail outlets.
Prior to the acquisition of Pearl Izumi, the Company had predominantly operated in one industry segment: the design, production,
marketing and selling of branded health and fitness products sold under the Nautilus, Bowflex, Schwinn Fitness, StairMaster and Trimline
brand names. Following the acquisition, the Company began operating as two segments, the fitness equipment segment and the fitness apparel
segment. This is how Company management now reviews the financial results, thus making it the basis under which financial information is
presented and results are explained in this Form 10-K.
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