Nautilus 2015 Annual Report Download - page 21
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Please find page 21 of the 2015 Nautilus annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.by several unusual items including the following: settlement expense related to a licensing arbitration ($2.5 million); write-off of nutrition inventory ($1.4 million);
unrecorded current period royalty revenue and reversal of prior period royalty revenue related to a dispute with the licensee ($1.4 million); an accounts receivable
reserve related to potentially uncollectible balances from a large sporting goods retailer ($0.9 million); and transaction expenses related to the acquisition of Octane
($0.6 million). Without consideration of the reversals of deferred tax asset valuation allowances and the other unusual items noted above, the improvement in our
results from continuing operations in 2015 , compared to 2014 , was driven primarily by higher sales and increased operating income in both our Direct and Retail
segments.
Net income was $26.6 million , or $0.84 per diluted share, in 2015 , compared to $18.8 million , or $0.59 per diluted share, in 2014 .
BUSINESS ACQUISITION
On December 31, 2015, we acquired all of the outstanding capital stock of OF Holdings, Inc., sole parent of Octane for an aggregate base purchase price of $115.0
million, plus adjustments for working capital and cash on the closing date. The Company funded the acquisition through an $80.0 million term loan and cash on
hand. Based in Brooklyn Park, Minnesota, Octane is a leader in zero-impact training with a line of fitness equipment focused on Retail specialty and commercial
channels. The acquisition of Octane is expected to strengthen and diversify our brand portfolio, broaden our distribution and deepen our talent pool. Octane's
business is anticipated to be highly complementary to our existing business from both product and channel perspectives and to create numerous revenue synergies
for us.
DISCONTINUED OPERATIONS
Results from discontinued operations relate to the disposal of our former commercial business, which was completed in April 2011. We reached substantial
completion of asset liquidation at December 31, 2012. Although there was no revenue related to the Commercial business in 2015 , 2014 or 2013 , we continue to
have legal and accounting expenses as we work with authorities on final deregistration of each international entity, and product liability and other legal expenses
associated with product previously sold into the Commercial channel.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires estimates and assumptions that affect the reported
amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in the consolidated financial statements. An
accounting estimate is considered to be critical if it meets both of the following criteria: (i) the estimate requires assumptions about matters that are highly
uncertain at the time the accounting estimate is made, and (ii) different estimates reasonably could have been used, or changes in the estimate that are reasonably
likely to occur from period to period may have a material impact on the presentation of our financial condition, changes in financial condition or results of
operations.
Our critical accounting policies and estimates are discussed below. We have not made any material changes in the methodologies we use in our critical accounting
estimates during the past three fiscal years. If our assumptions or estimates change in future periods, the impact on our financial position and operating results
could be material.
Revenue Recognition
Direct and Retail product sales and shipping revenues are recorded when products are shipped and title passes to customers. In most instances, Retail sales to
customers are made pursuant to a sales contract that provides for transfer of both title and risk of loss to the customer upon our delivery to the carrier. For Direct
sales, revenue is generally recognized when product is shipped. Revenue is recognized net of applicable sales incentives, such as promotional discounts, rebates
and return allowances. We estimate the revenue impact of incentive programs based on the planned duration of the program and historical experience.
Sales Discounts and Allowances
Product sales and shipping revenues are reported net of promotional discounts and return allowances. We estimate the revenue impact of retail sales incentive
programs based on the planned duration of the program and historical experience. If the amount of sales incentives is reasonably estimable, the impact of such
incentives is recorded at the later of the time the customer is notified of the sales incentive or the time of the sale. We estimate our liability for product returns
based on historical experience and record the expected obligation as a reduction of revenue. If actual return costs differ from previous estimates, the amount of the
liability and corresponding revenue are adjusted in the period in which such costs occur.
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