Nautilus 2010 Annual Report Download - page 35

Table of Contents
generally unsecured and therefore collection is affected by the economic conditions in each of the Company's principal markets.
Nautilus relies on third
-party contract manufacturers in Asia for substantially all of its products and for certain product engineering support.
Business operations could be disrupted by natural disasters, difficulties in transporting products from non-U.S. suppliers, as well as political,
social or economic instability in the countries where contract manufacturers or their vendors or customers conduct business. While any such
contract manufacturing arrangement could be replaced over time, the temporary loss of the services of any primary contract manufacturer could
delay product shipments and cause a significant disruption in the Company's operations.
Cash, cash equivalents and restricted cash - All highly liquid investments with remaining maturities of three months or less at purchase are
considered to be cash equivalents. Restricted cash consists of bank balances pledged as collateral for outstanding letters of credit.
Inventories
- Inventories are stated at the lower of cost or market, with cost determined based on the first-in, first-out method. The Company
establishes inventory allowances for excess, slow-
moving and obsolete inventory based on inventory levels, expected product life and forecasted
sales. Inventories are written down to market value based on historical demand, competitive factors, changes in technology and product
lifecycles.
Property, plant and equipment
- Property, plant and equipment is stated at cost, net of accumulated depreciation. Improvements or betterments
which add new functionality or significantly extend the life of an asset are capitalized. Expenditures for maintenance and repairs are expensed as
incurred. The cost of assets retired, or otherwise disposed of, and the related accumulated depreciation, are removed from the accounts at the
time of disposal. Gains and losses resulting from asset sales and dispositions are recognized in the period in which assets are disposed.
Depreciation is recognized, using the straight-line method, over the lesser of the estimated useful lives of the assets or, in the case of leasehold
improvements, the lease term, including renewal periods if the Company expects to exercise its renewal options. Depreciation on furniture,
equipment and information systems is determined based on estimated useful lives, which generally range from three-to-five years.
Goodwill and intangible assets - Goodwill consists of the excess of acquisition costs over the fair values of net assets acquired in business
combinations. Indefinite-life intangible assets consist of acquired trademarks. Goodwill and other indefinite-life intangible assets are stated at
cost and are not amortized; instead, they are tested for impairment at least annually. Nautilus reviews goodwill and other indefinite-life
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, the Company compares the carrying value of the related reporting unit to an estimate of the
reporting unit's fair value. If the carrying value of the reporting unit exceeds its estimated fair value, the estimated fair values of all of the
reporting unit's assets and liabilities are determined to establish the amount of the impairment, if any. In 2009, in connection with its annual
impairment review, Nautilus determined that indefinite-life trademarks were impaired and recognized an impairment charge of $2.3 million.
Finite-lived intangible assets, primarily acquired patents and patent rights, 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 lives, which generally
range from one to 16 years.
For further information regarding goodwill, see Note 7, Goodwill. For further information regarding other intangible assets, see Note 8, Other
Intangible Assets.
Impairment of long
-lived assets - Long-lived assets, including property, plant and equipment, and finite-lived intangible assets, including
patents and patent rights, are evaluated for impairment when events or circumstances indicate the carrying value may be impaired. When such an
event or condition occurs, Nautilus estimates 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 estimated future undiscounted cash flows, the Company
records impairment expense to reduce the carrying value of the asset to its estimated fair value.
In connection with changes in long-term product development plans resulting from strategic decisions made by management, Nautilus
recognized an impairment charge of $3.6 million in 2009 related to certain patent rights which the Company previously expected to be utilized in
its retail products.
Revenue recognition
- Product sales and shipping revenues 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.
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