Nautilus 2008 Annual Report Download - page 27

Table of Contents
Management and our independent auditors regularly discuss with the Audit Committee of our Board of Directors, each of our critical accounting
policies and estimates, including the underlying assumptions and related disclosure in the notes to our consolidated financial statements, located
at Item 8 of this Form 10-K.
Revenue Recognition
We recognize revenue when persuasive evidence of an arrangement exists, the price to the buyer is fixed or determinable, collectibility is
reasonably assured, title and risk of loss have passed and there are no significant remaining performance obligations. Title generally passes upon
shipment or upon receipt by the customer, depending on the country of the sale and the specific terms of the sales arrangement. Revenues for
products sold to our direct and retail customers are recognized at the time of shipment. Revenue is recognized for commercial product sales
based on the specific terms of the arrangement. If the arrangement requires us to deliver and install the commercial products, we record revenue
upon delivery and installation, which generally occur in tandem. If the arrangement calls for a third-party to deliver and install the products,
revenue is recognized upon delivery of the product to a common carrier, as title and risk of loss has passed to the buyer. Installation revenue and
expenses are not material to our results of operations. We record taxes collected from customers and remitted to governmental authorities on a
net basis, excluded from revenue. Shipping and handling fees billed to customers are recorded gross, meaning they are included in both revenue
and cost of sales. Many of our direct segment customers finance their purchases through a third party entity, and we pay a commission, or
customer financing fee, to the financing entity pursuant to our merchant contract with the entity. We record sales for these transactions based on
the sales prices charged to our customers and record the commission or financing fee as a component of selling and marketing expense.
Revenue is recognized net of applicable sales incentives, such as promotional discounts, rebates and return allowances. We estimate the revenue
impact of our incentive programs based on the planned duration of the program and historical experience. If the amount of our sales incentives
can be reasonably estimated, we record the impact of such incentives at the later of, the time we notify our customer of the sales incentive, or the
time of the sale. If the amount of our sales incentives can not be reasonably estimated, due to lack of historical data or other factors, we defer
revenue recognition until the earlier of (i) receipt of payment under the contract or (ii) such time as we are able to arrive at a reasonable estimate
of the amount of the incentive.
We estimate our liability for product returns based on historical experience and record the expected obligation as a reduction in revenue. If actual
return costs differ from our estimates, the recorded amount of the liability and corresponding revenue are adjusted.
Goodwill and Intangible Asset Valuation
We evaluate our indefinite-lived intangible assets and goodwill for potential impairment annually or when events or circumstances indicate their
carrying value may be impaired. Our judgments regarding potential impairment are based on a number of factors including: the timing and
amount of anticipated cash flows; market conditions; relative levels of risk; the cost of capital; terminal values; royalty rates; and the allocation
of revenues, expenses and assets and liabilities to business segments. Each of these factors can significantly affect the value of our goodwill and
indefinite-lived intangible assets and, thereby, could have a material adverse affect on our financial position and results of operations.
Events could cause us to conclude that goodwill or other intangible assets are impaired. Due to a challenging economy and reductions in 2007
and 2008 revenues, in the fourth quarter of 2008 we recognized a $29.8 million impairment loss on goodwill associated with our retail business
and a $1.1 million impairment in other intangibles charges related to our StairMaster trade name. Additionally, in the fourth quarter of 2007, we
recognized an impairment loss of $3.0 million related to the rights to certain intangible assets acquired in a legal settlement with ICON Health
and Fitness. The goodwill impairment is reported in a separate line in our consolidated statement of operations, and the other intangibles
impairments are recorded as components of general and administrative and restructuring expenses.
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