Nautilus 2008 Annual Report Download - page 51

Table of Contents
(i) Goodwill and Other Intangible Assets – Goodwill consists of the excess of acquisition costs over the fair values of net assets acquired in
business combinations. Other intangible assets primarily consist of license agreements, patents and trademarks. Goodwill and other indefinite-
lived intangible assets are stated at cost and are not amortized; instead, they are tested for impairment, at least annually. Finite-lived intangible
assets are stated at cost, net of accumulated amortization. The Company recognizes amortization expense for its finite-lived intangible assets, on
a straight-line basis, over the estimated useful life of the asset, which generally ranges from 1 to 16 years.
We review goodwill and other indefinite-lived 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, we compare the carrying value of the
related reporting unit, to an estimate of the reporting unit’s fair value. If we determine the carrying value of the reporting unit exceeds our
estimate of fair value, we determine the estimated fair values of all of the reporting unit’s assets and liabilities, to establish the amount of the
impairment, if any. Refer to Note 6, Goodwill, for further information regarding our goodwill.
In the fourth quarter of 2008, we recorded impairment charges of $29.8 million associated with goodwill in our retail business and $1.1 million
associated with our StairMaster trade name used mainly in the commercial business.
(j) Impairment of Long-lived and Intangible Assets – Long-lived assets and finite-lived intangible assets are evaluated for impairment when
events or circumstances indicate the carrying value may be impaired. When such an event or condition occurs, we estimate the future
undiscounted cash flows to be derived from the use and eventual disposition of the asset to determine whether a potential impairment exists. If
the carrying value exceeds the estimate of future undiscounted cash flows, we record impairment expense to reduce the carrying value of the
asset to its estimated fair value. In the fourth quarter of 2007, we recognized an impairment loss of $3.0 million related to the rights of certain
intangible assets acquired in a legal settlement with ICON Health and Fitness, Inc.
(k) Revenue Recognition – We recognize revenue when persuasive evidence of an arrangement exists, the price to the buyer is fixed or
determinable, collectibility is reasonably assured, title and risk of loss have passed and there are no significant remaining performance
obligations. Title generally passes upon shipment or upon receipt by the customer, depending on the country of the sale and the specific terms of
the sales arrangement. Revenues for products sold to our direct and retail customers are recognized at the time of shipment. Revenue is
recognized for commercial product sales based on the specific terms of the arrangement. If the arrangement requires us to deliver and install the
commercial products, we record revenue upon delivery and installation, which generally occur in tandem. If the arrangement calls for a third-
party to deliver and install the products, revenue is recognized upon delivery of the product to a common carrier, as title and risk of loss has
passed to the buyer. We record taxes collected from customers and remitted to governmental authorities on a net basis, excluded from revenue.
Shipping and handling fees billed to customers are recorded gross and included in both revenue and cost of sales. Many of our direct segment
customers finance their purchases through a third party entity, and we pay a commission, or financing fee, to the financing entity pursuant to our
merchant agreement with the entity. We record sales for these transactions based on the sales prices charged to our customers and record the
commission or financing fee as a component of selling and marketing expense.
Revenue is recognized net of applicable sales incentives, such as promotional discounts, rebates and return allowances. We estimate the revenue
impact of our incentive programs, based on the planned duration of the program and historical experience. If the amount of our sales incentives
is reasonably estimable, we record the impact of such incentives at the later of the time we notify our customer of the sales incentive or the time
of the sale. If the amount of our sales incentives cannot be reasonably estimated, due to lack of historical data or other factors, we defer revenue
recognition until the earlier of (i) receipt of payment under the contract or (ii) such time as we are able to arrive at a reasonable estimate of the
amount of the incentive.
We estimate our liability for product returns based on historical experience and record the expected obligation as a reduction in revenue. If actual
return costs differ from our estimates, the recorded value of the liability and corresponding revenue are adjusted.
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