Nautilus 2012 Annual Report Download - page 40

Table of Contents
NAUTILUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
Organization and Business - Nautilus is a leading designer, developer and marketer of consumer fitness products sold under well-known brand
names such as Nautilus
®
, Bowflex
®
, Schwinn
®
and Universal
®
. As used herein, the term “Nautilus” or “Company” refers to Nautilus, Inc. and
subsidiaries, unless the context indicates otherwise. The Company's goal is to develop and market fitness equipment and related products to help
people enjoy healthier lives. Nautilus was founded in 1986 and incorporated in the State of Washington in 1993. The Company's headquarters
are located in Vancouver, Washington.
The Company markets its products through two reportable segments: Direct and Retail, each representing a distinct marketing distribution
channel. The Direct segment offers products directly to consumers through direct advertising, catalogs and the Internet. The Retail segment
offers products through a network of independent retail companies with stores located in the United States and Canada, as well as Internet-based
merchandising.
The Company's Commercial business, formerly a reportable segment and classified as a discontinued operation beginning in 2009, offered
products to health clubs, schools, hospitals and other organizations. On September 25, 2009, the Company committed to a plan for the complete
divestiture of its Commercial business. Accordingly, results of operations and certain assets associated with the commercial business have been
presented in the consolidated financial statements as discontinued operations for all periods presented.
Basis of presentation
- The accompanying consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”) and relate to Nautilus, Inc. and its subsidiaries, all of which are wholly-
owned, directly or indirectly. Intercompany transactions and balances have been eliminated in consolidation.
Year-end - The Company's fiscal year ends on December 31.
Use of estimates - The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities in
the financial statements. Actual results could differ from those estimates.
Concentrations - Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash held in
bank accounts in excess of federally-insured limits and trade receivables. Trade receivables are generally unsecured and therefore collection is
affected by the economic conditions in each of the Company's principal markets.
Nautilus relies on third
-party contract manufacturers in Asia for substantially all of its products and for certain product engineering support.
Business operations could be disrupted by natural disasters, difficulties in transporting products from non-U.S. suppliers, as well as political,
social or economic instability in the countries where contract manufacturers or their vendors or customers conduct business. While any such
contract manufacturing arrangement could be replaced over time, the temporary loss of the services of any primary contract manufacturer could
delay product shipments and cause a significant disruption in the Company's operations.
Nautilus derives a significant portion of its revenues from a small number of its Retail customers. A loss of business from one or more of these
large customers, if not replaced with new business, would negatively affect the Company's operating results and cash flows. In 2012 and 2011,
one customer accounted for more than 10 percent, but less than 15 percent, of the Company's consolidated net sales. No individual customer
accounted for 10 percent or more of the Company's consolidated net sales in 2010.
Cash and cash equivalents - All highly liquid investments with remaining maturities of three months or less at purchase are considered to be
cash equivalents. As of December 31, 2012 and 2011 , cash and cash equivalents consisted entirely of cash.
Inventories
- Inventories are stated at the lower of cost or market, with cost determined based on the first-in, first-out method. The Company
establishes inventory allowances for excess, slow-
moving and obsolete inventory based on inventory levels, expected product life and forecasted
sales. Inventories are written down to market value based on historical demand, competitive factors, changes in technology and product
lifecycles.
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