Nautilus 2006 Annual Report Download - page 55

Table of Contents
June 2015. Rent expense under all leases was $7.0 million, $5.1 million, and $2.9 million in fiscal 2006, 2005, and 2004, respectively. Future
minimum lease payments under the noncancellable operating leases are as follows:
Guarantees and Commitments
As further discussed in Note 1, at times the Company arranges for commercial leases or other financing sources with third parties to
enable certain of its commercial customers to purchase the Company’
s commercial products. As the result, at December 31, 2006 and 2005, the
maximum contingent liability under all recourse and guarantee provisions was approximately $1.6 million and $4.1 million, respectively. At
December 31, 2006, lease terms on outstanding commercial customer financing arrangements were between 3 and 5 years. A reserve for
estimated losses under recourse provisions of approximately $0.1 million was recorded based on historical loss experience and was included in
accrued expenses at both December 31, 2006 and 2005. 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.
The Company has an agreement with a financing company to provide second tier financing for its consumers. Generally, funding for this
reserve comes from a percentage of each sale held back by the financing company. In the event that the financing company experiences higher
consumer default rates than specified under our contract, the Company will be required to pay an additional amount to the financing company.
At December 31, 2006 and 2005, the Company accrued approximately $0.3 million and $0.4 million, respectively, for this liability which is
recorded as part of accrued liabilities.
As further discussed in Note 7, at December 31, 2006, the Company also had approximately $4.0 million in outstanding commercial
letters of credit expiring between December 31, 2006 and 2007.
Given that the majority of the inventory is sourced from Asia, the Company has long lead times for inventory purchases and therefore
needs to secure factory capacity from its vendors in advance. As the result, at December 31, 2006, the Company had approximately $69.6
million in purchase obligations of which $66.9 million was for inventory purchases.
Legal Matters
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 that a liability had been 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. The Company
estimates the probability of losses on legal contingencies based on the advice of internal and external counsels, outcomes from similar
litigation, the status of the lawsuits (including settlement initiatives), legislative developments, and other factors. Due to 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
53
(In Thousands)
2007
$
6,023
2008
5,341
2009
4,149
2010
3,963
2011
3,908
Thereafter
7,228
Minimum lease payments
$
30,612