Nautilus 2005 Annual Report Download - page 60

Table of Contents
13. STOCK REPURCHASE PROGRAM
In March 2005, the Company’s Board of Directors authorized the repurchase of up to $100,000 of the Company’s common stock in open-
market transactions, at times and in such amounts as management deems appropriate, depending on market conditions and other factors. The
authorization expires on March 31, 2008, unless extended by the Board of Directors. The repurchase program does not obligate the Company
to acquire any specific number of shares or acquire shares over any specified period of time. During 2005, the Company acquired 830,700
shares of common stock at an average price of $18.82 per share for a total cost of $15,636. In March 2006, the Company signed an amended
revolving credit agreement stating that for the period commencing on January 1, 2006 until such time as the fixed charge coverage ratio shall
be equal to or greater than 1.20 to 1.00, the Company may only make capital distributions for the repurchase of shares in an aggregate amount
not to exceed $30,000.
14. RELATED-PARTY TRANSACTIONS
Pearl Izumi GmbH purchased the assets of SHORE Sportworks GmbH, a company owned by Juergen Eckmann and Juergen Sprich in
January 2004. Pearl Izumi GmbH later became a wholly-owned subsidiary of the Company through the 2005 acquisition of Pearl Izumi.
Juergen Sprich is now the managing director for Pearl Izumi GmbH. Juergen Eckmann is now the Acting President of the Fitness Apparel
Segment.
The purchase price for SHORE Sportsworks GmbH included a contingent consideration clause, along with stock in Pearl Izumi that was
later purchased by the Company in the Pearl Izumi acquisition. The contingent consideration is a payment equal to 3% of the total year-over-
year increase in net revenues from Pearl Izumi Europe, which also became a wholly
-owned subsidiary through the Pearl Izumi acquisition, for
each calendar year ending December 31, 2004, 2005 and 2006. When Nautilus purchased Pearl Izumi, the estimated contingent payments due
in 2005 and 2006 were set up as a liability and deducted from the purchase price.
The Company incurred royalty expense under an agreement with a stockholder of the Company of $1,843 in 2004 and $6,556 in 2003, of
which $18 was payable at December 31, 2004. In addition to the royalty agreement, the stockholder had separately negotiated an agreement
dated June 18, 1992, when the Company was privately held, between the stockholder, the Company’s former Chairman and Chief Executive
Officer (the “former Chairman”), and a former director of the Company. That separate agreement stipulated that annual royalties above $90
would be paid 60% to the stockholder, 20% to the former Chairman, and 20% to the former director. Both of these agreements expired in April
2004.
15. LITIGATION
We are involved in various claims, lawsuits and other proceedings from time to time. Such litigation involves uncertainty as to possible
losses we may ultimately realize when one or more future events occur or fail to occur. We accrue and charge to income estimated losses from
contingencies when it is probable (at the balance sheet date) that an asset has been impaired or liability incurred and the amount of loss can be
reasonably estimated. Differences between estimates recorded and actual amounts determined in subsequent periods are treated as changes in
accounting estimates (i.e., they are reflected in the financial statements in the period in which they are determined to be losses, with no
retroactive restatement). The Company estimates the probability of losses on legal contingencies based on the advice of internal and external
counsel, the outcomes from similar litigation, the status of the lawsuits (including settlement initiatives), legislative developments, and other
factors. Due to the numerous variables associated with these judgments and assumptions, both the precision and reliability of the resulting
estimates of the related loss contingencies are subject to substantial uncertainties. We regularly monitor our estimated exposure to these
contingencies and, as additional information becomes known, may change our estimates significantly. A significant change in our estimates, or
a result that materially differs from our estimates, could have a significant impact on our financial position, results of operations and cash
flows.
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