Nautilus 2004 Annual Report Download - page 42

Table of Contents
Inventories are stated at the lower of average cost (first-in, first-out) or market or at the lower of standard cost (first-in, first-out) or
market. The Company evaluates the need for inventory valuation adjustments associated with obsolete, slow-moving and nonsalable inventory
by reviewing current transactions and forecasted product demand on a quarterly basis.
Property, Plant and Equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives
of the assets.
Management reviews the investment in long-lived assets for possible impairment whenever events or circumstances indicate the carrying
amount of an asset may not be recoverable. There have been no such events or circumstances in each of the three years in the period ended
December 31, 2004. If there were an indication of impairment, management would prepare an estimate of future cash flows (undiscounted and
without interest charges) expected to result from the use of the assets and their eventual disposition. If these cash flows were less than the
carrying amount of the assets, an impairment loss would be recognized to write down the assets to their estimated fair value.
Goodwill and Other Assets consist of license agreements, patents, trademarks and goodwill. Long lived and intangible assets that are
determined to have finite lives are amortized using the straight-line method over their estimated useful lives of two to twenty years and are
measured for impairment only when events or circumstances indicate the carrying value may be impaired. In these cases, the Company
estimates the future undiscounted cash flows to be derived from the asset to determine whether a potential impairment exists. If the carrying
value exceeds the estimate of future undiscounted cash flows, the Company then calculates the impairment as the excess of the carrying value
of the asset over the estimate of its fair value.
Certain intangible assets with indefinite useful lives are evaluated for impairment annually. The Company reviews and tests its goodwill
and intangible assets for impairment in the fourth quarter of each year and when events or changes in circumstances indicate that the carrying
amount of such assets may be impaired. Determination of fair value is based on estimated discounted future cash flows resulting from the use
of the asset. The Company compares the estimated fair value of goodwill and intangibles assets to the carrying value. If the carrying value
exceeds the estimate of fair value, the Company calculates impairment as the excess of the carrying value over the estimated fair value. The
estimates of fair value in goodwill and indefinite-lived intangible assets are based on a number of factors, including assumptions and estimates
for projected sales, income, cash flows, and other operating performance measures. These assumptions and estimates may change in the future
due to changes in economic conditions, in the Company’s ability to meet sales and profitability objectives, or changes in the Company’s
business operations or strategic direction.
Any impairment charge would be classified as a component of general and administrative expenses. In the fourth quarter of 2004, the
Company determined that goodwill and long lived assets are not impaired.
Guarantees – From time to time, the Company arranges for commercial leases or other financing sources to enable certain of its
commercial customers to purchase the Company’s equipment. While most of these financings are without recourse, in certain cases the
Company provides a guarantee or other recourse provisions to the independent finance company of all or a portion of the lease payments in
order to facilitate the sale of the commercial equipment. In such situations, the Company ensures that the transaction between the independent
leasing company and the commercial customer represents a sales-type lease. The Company monitors the payment status of the lessee under
these arrangements and provides a reserve under Statement of Financial Accounting Standards (“SFAS”) No. 5, Accounting for Contingencies
,
in situations when collection of the lease payments is not probable. At December 31, 2004 and 2003, the maximum contingent liability under
all recourse and guarantee provisions, was approximately $4,433 and $3,036, respectively. As of December 31, 2004, lease terms on
outstanding commercial customer financing arrangements were between 3 and 7 years. A reserve for estimated losses under recourse
provisions of $79 and $32 has been recorded based on historical loss experience and is included in accrued expenses at December 31, 2004 and
2003, respectively. In accordance with Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 45, Guarantor’s
Accounting and Disclosure
40