Nautilus 2009 Annual Report Download - page 42

Table of Contents
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.
Nautilus relies on third
-party contract manufacturers in Asia for substantially all of its products and for certain product engineering support.
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
the Company’s manufacturing arrangements could be replaced over time, the temporary loss of the services of any primary contract
manufacturer could cause a significant disruption in operations and delay product shipments.
Cash, cash equivalents and restricted cash – All highly liquid investments with remaining maturities of three months or less at purchase are
considered to be cash equivalents. Restricted cash consists of bank accounts pledged as collateral for outstanding letters of credit, which are
long-term.
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 freight, handling costs and spoilage are recognized as current period charges. The Company establishes inventory allowances for
excess, slow-
moving and obsolete inventory based on inventory levels, expected product life cycles and forecasted sales demand. Inventories are
written down to market value, based on historical demand, competitive factors, changes in technology and product lifecycles.
Property, plant and equipment
– 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 the Company expects to exercise its renewal options. Depreciation on furniture,
equipment and information systems is determined based on estimated useful lives, which generally range from three to five years.
Goodwill and intangible assets – Goodwill consists of the excess of acquisition costs over the fair values of net assets acquired in business
combinations. Indefinite-life intangible assets consist of acquired trademarks. Goodwill and other indefinite-life intangible assets are stated at
cost and are not amortized; instead, they are tested for impairment at least annually.
Nautilus reviews goodwill and other indefinite
-life intangible assets for impairment in the fourth quarter of each year, or more frequently when
events or changes in circumstances indicate that the assets may be impaired. With respect to goodwill, the Company compares the carrying value
of the related reporting unit to an estimate of the reporting unit’s fair value. If the carrying value of the reporting unit exceeds its estimated fair
value, the estimated fair values of all of the reporting unit’
s assets and liabilities are determined to establish the amount of the impairment, if any.
For further information regarding goodwill, refer to Note 7, Goodwill. For further information regarding other intangible assets, refer to Note 8,
Other Intangible Assets.
In 2009, in connection with its annual impairment review, Nautilus determined that an indefinite-life trademark was impaired and recognized an
impairment charge of $2.3 million. In 2008, in connection with its annual impairment review, Nautilus determined that goodwill of its retail
segment was impaired and recognized an impairment charge of $29.8 million.
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