Nautilus 2007 Annual Report Download - page 30

Table of Contents
in the first quarter of 2008. Accordingly, the results of operations for the Fitness Apparel Business have been reclassified as discontinued
operations. Net cash provided by operating activities of discontinued operations during 2007 was $6.7 million compared to net cash used by
discontinued operations of $4.7 million in 2006. The significant increase is a result of recording an impairment charge of $13.2 million to adjust
the net book value of the Fitness Apparel Business down to fair market value as determined by an accepted sale agreement. Cash flows used in
investing activities for discontinued operations were $1.0 million in 2007 compared to $0.7 million in 2006. Cash flows used in financing
activities for discontinued operations were $0.2 million in 2007 compared to $0.6 million in 2006 as the Company made debt payments related
to the original acquisition.
The Company expects the sale to be completed in the first quarter of 2008 and the net cash proceeds of approximately $63 million will be used
to reduce the Company’s borrowings under its short-term borrowings.
The following table presents our estimated contractual obligations:
Due to the uncertainty with respect to the timing of future cash flows associated with our unrecognized tax benefits at December 31, 2007, we
are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authority. Therefore, $3.0 million of
unrecognized tax benefits have been excluded from the contractual obligations table above. See Note 9 to the Consolidated Financial Statements
for a discussion on income taxes.
OFF-BALANCE SHEET ARRANGEMENTS
As described in Note 1 to the consolidated financial statements located at Item 8 of this Form 10-K, from time to time, we arrange for leases or
other financing sources with third parties to enable certain of our commercial customers to purchase our commercial products. While most of
these financings are without recourse, in certain cases we may offer a guarantee or other recourse provisions. At December 31, 2007 and
December 31, 2006, the maximum contingent liability under all recourse provisions was approximately $1.3 million and $1.6 million,
respectively.
The Company has an agreement with a financing company to provide second tier financing for its consumers under which the Company
previously shared financial responsibility if consumer default rates exceeded contractual expectations. During the third quarter 2007, the
Company renegotiated its second tier financing agreements and transferred risk of loss to the financing company for a settlement payment of
$0.7 million. As a result, a reserve is no longer established for consumer default on second tier financing arrangements. Our financing partners
review consumer credit information and determine which consumers will receive financing and approve the amount of financing provided. Refer
to Note 1 to the consolidated financial statements for further discussion of these arrangements.
27
(In Thousands) Payments due by period
Total
Less than 1
year
1-
3 years
3-
5 years
More than 5
years
Operating lease obligations (1)
$
31,898
$
6,808
$
9,945
$
7,623
$
7,522
Purchase obligations (2)
43,927
43,895
32
—
—
Short
-
term borrowings
79,000
79,000
—
—
—
Total
$
154,825
$
129,703
$
9,977
$
7,623
$
7,522
(1)
Included in the operating lease total is $0.8 million of lease obligations related to facilities that will be closed during 2008.
(2) Given that the majority of our inventory is sourced from Asia, we have long lead times for inventory purchases and therefore need to
secure factory capacity from our vendors in advance. As the result, all of the $43.9 million in purchase obligations is for inventory
purchases. This inventory is predominately related to sales anticipated in the first half of 2008.