Nautilus 2007 Annual Report Download - page 43

Table of Contents
Inventories
– Inventories are stated at the lower of 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, net
– Property, plant and equipment is stated net of accumulated depreciation. Improvements or betterments,
which add new functionality or significantly extend the life of an asset, are capitalized and depreciated 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 or when impairment
indicators exist in accordance with SFAS No. 142, Goodwill and Other Intangible Assets , (“SFAS 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 , 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, 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 a result of performing the tests for impairment, the Company determined Pearl Izumi was impaired based on the current offer price as
described in Note 2 and as a result the Company recorded as impairment charge of $13.2 million in loss from discontinued operations during
2007.
Due to changes in strategic direction resulting in the determination to cease certain products or product development efforts, the Company
determined certain of the intangible assets obtained from the legal settlement during the second quarter of 2007 were impaired during the fourth
quarter of 2007 and recorded an impairment charge of $3.0 million in general and administrative expenses in 2007.
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, collectability 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
40