Nautilus 2005 Annual Report Download - page 46

Table of Contents
NAUTILUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 2005
(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, StairMaster, Trimline
and Pearl Izumi. 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. The Company’
s fitness
apparel products include an assortment of high-end performance apparel predominately marketed under the Pearl Izumi brand. The fitness
apparel products are made for both men and women and can be classified into four main categories that include cycling, running, active
outdoor, and accessories. These categories contain varying combinations of product lines that include base layer, footwear, jerseys, outerwear,
shorts, tights, tops, gloves, socks, and other miscellaneous items.
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 the 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 historical losses in such
accounts.
Short-term investments – Substantially all short-term investments were 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
approximated 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.
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