Nautilus 2003 Annual Report Download - page 27

Table of Contents
Intangible Asset Valuation
Currently, intangible assets consist predominantly of the Nautilus, Schwinn, and StairMaster trademarks and goodwill associated with the
acquisition of Schwinn Fitness. Management estimates affecting these trademark and goodwill valuations include determination of useful lives
and estimates of future cash flows and fair values to perform an impairment analysis on an annual basis. The useful lives assigned by
management to the Nautilus, Schwinn, and StairMaster trademarks and Schwinn Fitness goodwill are indefinite, 20 years, indefinite, and
indefinite, respectively. Any major change in the useful lives and/or the determination of an impairment associated with the valuation of the
aforementioned intangible assets may result in asset value write-downs, which could have a significant impact on our current and future
financial position and results of operations.
Income Tax Provision
The Company follows SFAS No. 109, Accounting for Income Taxes, which requires the use of the liability method in accounting for income
taxes. The Company’s annual provision for income taxes and the determination of the resulting deferred tax assets and liabilities involve a
significant amount of management judgment and are based on the best information available at the time. The Company maintains reserves for
estimated tax exposures in jurisdictions of operation. These tax jurisdictions include federal, state and various international tax jurisdictions.
Exposures are settled primarily through the settlement of audits within these tax jurisdictions, but can also be affected by changes in applicable
tax law or other factors, which could cause management of the Company to believe a revision of past estimates is appropriate. Management
believes that an appropriate liability has been established for estimated exposures; however, actual results may differ materially from these
estimates. The liabilities are frequently reviewed for their adequacy and appropriateness. To the extent the audits or other events result in a
material adjustment to the accrued estimates, the effect would be recognized in income tax expense (benefit) in the Consolidated Statement of
Income in the period of the event.
Deferred tax assets and liabilities are recognized based on the difference between the consolidated financial statement carrying value of
existing assets and liabilities and their respective tax bases. Inherent in the measurement of these deferred balances are certain judgments and
interpretations of existing tax law and other published guidance as applied to our operations. When it is more likely than not that all or some
portion of specific deferred tax assets will not be realized, a valuation allowance must be established for the amount of the deferred tax assets
that are determined not to be realizable. No valuation allowance has been provided for deferred tax assets, since we anticipate the full amount
of these assets should be realized in the future. Accordingly, if the Company’s facts or financial results were to change thereby impacting the
likelihood of realizing the deferred tax assets, judgment would have to be applied to determine changes to the amount of the valuation
allowance required to be in place on the financial statements in any given period.
RESULTS OF OPERATIONS
This discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in
this report. We believe that period-to-period comparisons of our operating results are not necessarily indicative of future performance. You
should consider our prospects in light of the risks, expenses and difficulties frequently encountered by companies that operate in evolving
markets. We may not be able to successfully address these risks and difficulties and, consequently, we cannot assure you of any future growth
or profitability. For more information, see our discussion of Risks and Uncertainties beginning on page 36.
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