Nautilus 2008 Annual Report Download - page 53

Table of Contents
(o) Advertising and Promotion –
With the exception of commercial advertising, the Company expenses its advertising costs as they are incurred.
Commercial advertising production costs are recorded as prepaid expenses until the first commercial is shown on television, at which time such
costs are expensed. Advertising costs are included in selling and marketing expenses.
Total advertising and promotion expenses were $67.6 million, $85.1 million, and $83.2 million for the years ended December 31, 2008, 2007
and 2006, respectively. Prepaid advertising and promotion costs totaled $0.9 million and $2.7 million at December 31, 2008 and 2007,
respectively.
(p) Research and Development – Internal research and development costs, which primarily consist of salaries and wages, employee benefits,
expenditures for materials, and fees to use licensed technologies, are expensed as incurred. Third party research and development costs for
products under development or being researched, if any, are expensed when the contracted work has been performed.
(q) Income Taxes – The Company accounts for income taxes based on the asset and liability method, whereby deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates expected to be in effect when
the temporary differences are expected to be included, as income or expense, in the applicable tax return. The effect of a change in tax rates on
deferred tax assets and liabilities is recognized in the period of the enactment.
We adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109 (“FIN 48”) on January 1, 2007. FIN 48 changed the measurement of tax contingencies,
such that in order to recognize an uncertain tax benefit, we must be more likely than not of sustaining the tax position upon examination by tax
authorities. Under FIN 48, the measurement of the benefit is calculated as the largest amount that is more than fifty percent likely to be realized
upon resolution of the tax position. As a result of our adoption of FIN 48 in 2007, the Company adjusted the estimated value of its uncertain tax
positions by recognizing an additional liability totaling $1.3 million through a charge to retained earnings.
(r) Foreign Currency Translations and Transactions –
We translate the accounts of our foreign subsidiaries, into U.S. dollars, using the current
rate method, whereby: revenues, expenses, gains and losses are translated at weighted-average exchange rates during the year; and assets and
liabilities are translated at the exchange rate on the balance sheet date. Translation gains and losses are reported in our consolidated balance
sheets as a component of accumulated other comprehensive income (loss) in shareholders’ equity.
Gains and losses arising from foreign currency transactions, including transactions between the Company and its foreign subsidiaries, are
recorded as a component of other income (expense) in our consolidated statements of operations.
(s) Fair Value of Financial Instruments – Our financial instruments include cash, cash equivalents, trade and notes receivable, accounts
payable, short term borrowings under our credit facility, letters of credit and guarantees entered into in the ordinary course of our business. The
carrying amounts reflected in our consolidated balance sheets approximate fair value due to their market rates of interest and/or short-term
maturities.
(t) Stock-Based Compensation – The Company recognizes stock-based compensation, on a straight-line basis, over the applicable vesting
period, based on the grant-date fair value of the award. To the extent a stock-based award is subject to performance conditions, the amount of
expense recorded in a given period, if any, reflects our assessment of the probability of achieving the performance targets.
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