Nautilus 2010 Annual Report Download - page 54

Table of Contents
Guarantees, Commitments and Off-Balance Sheet Arrangements
As of December 31, 2010 and 2009 , the Company had approximately $3.2 million and $4.3 million, respectively, in standby letters of credit
with vendors. The standby letters of credit have expiration dates through November 2011.
The Company has long lead times for inventory purchases and, therefore, must secure factory capacity from its vendors in advance. As of
December 31, 2010 , the Company had approximately $12.9 million in non-cancelable market-based purchase obligations, all of which were for
inventory purchases expected to be received in 2011.
In the ordinary course of business, the Company enters into agreements that require it to indemnify counterparties against third-party claims.
These may include: agreements with vendors and suppliers, under which the Company may indemnify them against claims arising from use of
their products or services; agreements with customers, under which the Company may indemnify them against claims arising from their use or
sale of the Company's products; real estate and equipment leases, under which the Company may indemnify lessors against third-party claims
relating to the use of their property; agreements with licensees or licensors, under which the Company may indemnify the licensee or licensor
against claims arising from their use of the Company's intellectual property or the Company's use of their intellectual property; and agreements
with parties to debt arrangements, under which the Company may indemnify them against claims relating to their participation in the
transactions.
The nature and terms of these indemnifications vary from contract to contract, and generally a maximum obligation is not stated. The Company
holds insurance policies that mitigate potential losses arising from certain types of indemnifications. Management does not deem these
obligations to be significant to the Company's financial position, results of operations or cash flows, and no related liabilities are recorded as of
December 31, 2010 .
Guarantees, Commitments and Contingencies of Discontinued Operations
Prior to its divestiture, the Company's discontinued commercial business would, from time-to-time, involve a third-party with lease and
financing arrangements to assist customers in purchasing products. While these financings generally were without recourse to Nautilus, in
certain cases the Company offered a guarantee or other recourse provisions. The maximum contingent liability under all such recourse
provisions was approximately $1.4 million as of December 31, 2010 .
The Company currently is negotiating settlements with respect to certain remaining outstanding contractual commitments of its commercial
business discontinued operation. While the ultimate outcome of such negotiations cannot be accurately predicted, it is reasonably possible that
the Company may incur additional charges of up to $0.2 million, which if realized would decrease operating results of discontinued operations in
future periods.
Uncertainties exist with respect to outstanding warranty obligations of the Company's former commercial business, now a discontinued
operation, as units sold to customers approach end-of-
life and settlements are reached with certain customers in connection with the exit from the
commercial business. As of December 31, 2010, the Company's warranty liability included $2.9 million for future warranty costs of our former
commercial business, which represents management's estimate of the probable amount. However, in light of the aforementioned uncertainties,
management believes it is reasonably possible that actual warranty costs of the former commercial business could exceed this amount by as
much as $0.2 million, which if realized would decrease operating results of discontinued operations in future periods. In addition, the Company
remains contingently liable for product warranty obligations which were transferred to buyers of its commercial business product lines, if the
buyer is unable to fulfill such obligations.
Legal Matters
The Company is party to various legal proceedings arising from normal business activities. In addition, the Company's tax
52
2011
$
3,641
2012
2,528
2013
2,296
2014
1,255
2015
365
Thereafter
300
Minimum non-cancelable lease payments, net
$
10,385