Nautilus 2008 Annual Report Download - page 50

Table of Contents
If we are unable to generate sufficient cash flow from operations and to remain in compliance with the loan limits and covenants under our loan
agreement, we may need to obtain funds through additional financing, which may or may not be available to us on acceptable terms, if at all.
(d) Use of Accounting 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.
(e) Cash and Cash Equivalents – All highly liquid investments with maturities of three months or less at purchase are considered to be cash
equivalents.
(f) Concentrations of Risk – Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of
cash held in bank accounts that exceed federally insured limits, amounts held in financial institution escrow accounts to be refunded to us in the
future and trade receivables.
Our trade receivables are generally unsecured and therefore collection is affected by the economic conditions in each of our principal markets.
Collection of receivables due from customers outside the U.S. may also be negatively impacted by the nature and extent of our business presence
in a particular country and any rights or protections afforded to our customers under a country’s legal system.
The Company relies on third-party contract manufacturers in Asia for substantially all of its direct and retail business fitness products and for
certain product engineering support. The Company’s business operations could be disrupted by natural disasters, difficulties in transporting our
products from foreign suppliers, as well as political, social or economic instability in the countries where our contract manufacturers or their
vendors and customers conduct business. While any of our manufacturing arrangements could be replaced over time, the temporary or
permanent loss of the services of any of our primary contract manufacturers could cause a significant disruption in our operations and delay our
product shipments.
(g) Inventories – Inventories are stated at the lower of cost or market, with cost determined based on the first-in, first-
out method. Any abnormal
amounts of idle facility expense, freight, handling costs and spoilage are recognized as current period charges. Further, any unallocated overhead
remaining after the allocation of fixed production overhead to inventory based on the normal capacity of the production facilities are expensed in
the period in which they are incurred. We establish inventory allowances for excess, slow moving and obsolete inventory based on inventory
levels, expected product life cycles and forecasted sales demand. Inventory valuation allowances are adjusted based on historical demand,
competitive factors, changes in technology and product life cycles.
(h) Property, Plant and Equipment, net – Property, plant and equipment is stated at cost, net of accumulated depreciation. Improvements or
betterments which add new functionality or significantly extend the life of an asset are capitalized. Expenditures for maintenance and repairs are
expensed as incurred. The cost of assets retired, or otherwise disposed of, and the related accumulated depreciation, are removed from the
accounts in the year of disposal. Gains and losses resulting from asset sales and dispositions are recognized in our consolidated statement of
operations in the period in which assets are disposed.
Depreciation is recognized, using the straight-line method, over the lesser of the estimated useful lives of the assets or, in the case of leasehold
improvements, the lease term including renewal periods if we expect to exercise our renewal options. Buildings are depreciated over their
estimated useful lives of 31.5 years. Building improvements are depreciated over the shorter of their estimated lives or the remaining economic
life of the building. Depreciation on furniture, equipment and information systems is determined based on estimated useful lives of three to five
years.
46