Nautilus 2009 Annual Report Download - page 24

Table of Contents
Revenue Recognition
Product sales and shipping revenues, net of promotional discounts, rebates and return allowances, are recorded when products are shipped and
title passes to customers. Retail sales to customers are made pursuant to a sales contract that provides for transfer of both title and risk of loss
upon our delivery to the carrier.
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, meaning they are included in both revenue and cost of sales. Many of our direct business
customers finance their purchases through a third-party credit provider, for which we pay a commission or customer financing fee to the credit
provider. 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
can be reasonably estimated, 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.
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 amount of the liability and corresponding revenue are adjusted.
Goodwill and Intangible Asset Valuation
We evaluate our indefinite-lived intangible assets and goodwill for potential impairment annually or when events or circumstances indicate their
carrying value may be impaired. Our judgments regarding potential impairment are based on a number of factors including: the timing and
amount of anticipated cash flows; market conditions; relative levels of risk; the cost of capital; terminal values; royalty rates; and the allocation
of revenues, expenses and assets and liabilities to business segments. Each of these factors can significantly affect the value of our goodwill and
indefinite-lived intangible assets and, thereby, could have a material adverse affect on our financial position and results of operations. Events
could cause us to conclude that goodwill or other intangible assets are impaired, resulting in the recognition of an impairment charge.
In 2009, we recognized $5.9 million in impairment charges related to intangible assets used in our continuing operations. In 2008 we recognized
a $29.8 million impairment charge on goodwill of our retail business. Impairment charges of $1.7 million and $1.1 million related to intangible
assets of discontinued operations were recognized in 2009 and 2008, respectively.
Accounts Receivable Valuation
We evaluate the collectability of our accounts receivable based on a combination of factors including: an aging of receivable balances, historical
collection experience, our understanding of the current financial status of key customers and overall economic conditions. We periodically
review the credit worthiness of our customers to help gauge collectability and increase our allowance for doubtful accounts when collection is at
risk. We believe that by analyzing historical trends and monitoring potential collection problems, we have sufficient information to establish a
reasonable estimate of the portion of our receivable balances that will not be collected. However, since we cannot predict, with certainty, future
changes in the financial stability of our customers or in the general economy, our actual future losses from uncollectible accounts may differ
from our estimates. Our ability to collect the amounts due from our customers could be impacted by various factors including: a deterioration in
the financial condition of a key customer, inability of customers to obtain bank credit lines, a significant slow-down in the economy, our efforts
to pursue collections, product quality matters or other customer disputes. Even
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