Nautilus 2013 Annual Report Download - page 41

NAUTILUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Nautilus was founded in 1986 and incorporated in the State of Washington in 1993. Our headquarters are located in Vancouver, Washington.
We are committed to providing innovative, quality solutions to help people achieve a fit and healthy lifestyle. Our principal business activities
include designing, developing, sourcing and marketing high-quality cardio and strength fitness products and
related accessories for consumer
use, primarily in the United States and Canada. Our products are sold under some of the most-
recognized brand names in the fitness industry:
Nautilus
®
, Bowflex
®
, Schwinn
®
, Schwinn Fitness™ and Universal
®
.
We market our products through two distinct distribution channels, Direct and Retail, which we consider to be separate business segments. Our
Direct
business offers products directly to consumers through television advertising, catalogs and the Internet. Our Retail
business offers our
products through a network of independent retail companies with stores and websites located in the United States and internationally. We also
derive a portion of our revenue from the licensing of our brands and intellectual property.
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.
Discontinued Operations
Results from discontinued operations relate to the disposal of our former Commercial business, which began in 2009 and was completed in April
2011. We reached substantial completion of asset liquidation at December 31, 2012. However, we continue to have legal and accounting
expenses as we work with authorities on final deregistration of each entity and product liability expenses associated with product previously sold
into the Commercial channel.
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.
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.
Our most significant estimates relate to the following:
Actual results could differ from our estimates.
Concentrations
Financial instruments that potentially subject us 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 our principal markets.
We rely on third-
party contract manufacturers in Asia for substantially all of our 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 our operations.
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•
Revenue recognition;
•
Sales discounts and allowances;
• Goodwill and other long-
term asset valuation;
•
Product warranty obligations;
•
Valuation of excess and obsolete inventory;
•
Litigation and loss contingencies;
•
Deferred tax assets and the related valuation allowance; and
•
Unrecognized tax benefits.