Nautilus 2006 Annual Report Download - page 40

Table of Contents
Inventories – Inventories are stated at the lower of standard cost or market. Cost is determined using a first-in, first-out cost method. The
Company evaluates the need for inventory valuation adjustments associated with obsolete, slow-moving and not saleable inventory by
reviewing current transactions and forecasted product demand on a quarterly basis.
Property, Plant and Equipment – Property, plant and equipment are stated at cost. Improvements or betterments, not considered to be
maintenance and repair which add new functionality or significantly extend the life of an asset, are capitalized and amortized over the lesser of
the lease term or the estimated useful life of the improvement. Expenditures for maintenance, repair costs and minor renewals are charged to
expense 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 disposals of property and equipment are recognized in the period in which the
property and equipment is disposed. Depreciation is computed using the straight-line method over the estimated useful lives of the assets or the
lease term, whichever is shorter.
Goodwill and Intangible Assets – Goodwill and intangible assets primarily consist of license agreements, patents, trademarks and
goodwill. Goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests in
accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets , (“SFAS No. 142”).
Intangible assets that are deemed to have finite lives are amortized using the straight-line method over their estimated useful lives.
Impairment of Long-lived and Intangible Assets – Long-lived and intangible assets that are determined to have finite lives are measured
for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets , 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 amount of impairment charge as the excess of the carrying value of the asset over the estimate of
its fair value.
The Company tests goodwill and indefinite-lived intangible assets for impairment annually, typically in the fourth quarter of each year or
when events or changes in circumstances indicate that the carrying amount of such assets may be impaired, using the two-step process
prescribed in SFAS No. 142. The first step is a screen for potential impairment, while the second step measures the amount of the impairment,
if any.
As the result of performing the tests for potential impairment, the Company determined that no impairment existed as of December 31,
2006 or 2005 and therefore, there were no write-downs to any of its goodwill, indefinite-lived intangible or other long-lived assets. Impairment
charge, if any, would be classified, depending on the nature of the underlying assets, as a component of cost of sales or operating expenses.
Revenue Recognition – Revenue is recognized in accordance with Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition ,
when products are shipped, persuasive evidence of an arrangement exists, the price to the buyer is fixed or determinable, collectibility is
reasonably assured or probable, title and risk of loss have passed, and there are no significant remaining obligations. Title generally passes
upon shipment or upon receipt by the customer depending on the country of the sale and the agreement with the customer. Retail store revenues
are recorded at the time of sale. Revenue for commercial products is recognized upon final installation of commercial equipment if the
Company is responsible for installation. Revenue is recognized net of applicable promotional discounts, rebates, and return allowances. Return
allowances are estimated using historical experience. In accordance with Emerging Issues Task Force (“EITF”) Issue 06-3, How Taxes
Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net
Presentation)
, any tax assessed by a governmental authority that is directly imposed on a revenue-
producing transaction between a seller and a
customer is presented in the Statements of Income on a net basis (excluded from revenues).
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