Nautilus 2012 Annual Report Download - page 41

Table of Contents
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 - Goodwill consists of the excess of acquisition costs over the fair values of net assets acquired in business combinations. Nautilus
reviews goodwill for impairment in the fourth quarter of each year and when events or changes in circumstances indicate that the carrying
amount may be impaired. For this purpose, goodwill is evaluated at the reporting unit level. The Company's goodwill is an asset of its Direct
reporting unit. The Company performed a qualitative assessment of goodwill in the fourth quarters of 2012 and 2011 and concluded that
circumstances did not more likely than not indicate an impairment had occurred. For further information regarding goodwill, see Note 6,
Goodwill.
Other intangible assets - 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.
Indefinite-lived intangible assets consist of acquired trademarks. Indefinite-lived intangible assets are stated at cost and are not amortized;
instead, they are tested for impairment at least annually. Nautilus reviews its acquired trademarks for impairment in the fourth quarter of each
year and when events or changes in circumstances indicate that the assets may be impaired. The fair value of trademarks is estimated using the
relief from royalty approach, a standard form of discounted cash flow analysis used in the valuation of trademarks. If the carrying amount of
trademarks exceeds the estimated fair value, the Company calculates impairment as the excess of carrying amount over the estimate of fair value.
Nautilus tested its acquired trademarks for impairment in the fourth quarters of 2012 and 2011 and determined that no impairment was indicated.
For further information regarding other intangible assets, see Note 7, 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.
Revenue recognition
- Direct and Retail product sales and shipping revenues are recorded when products are shipped and title passes to
customers. In most instances, Retail sales to customers are made pursuant to a sales contract that provides for transfer of both title and risk of
loss to the customer upon our delivery to the carrier. Revenue is recognized net of applicable sales incentives, such as promotional discounts,
rebates and return allowances. The Company estimates the revenue impact of incentive programs based on the planned duration of the program
and historical experience. If the amount of sales incentives is reasonably estimable, the impact of such incentives is recorded at the later of the
time the customer is notified of the sales incentive or the time of the sale. The Company estimates its liability for product returns based on
historical experience and records the expected obligation as a reduction of revenue. If actual return costs differ from previous estimates, the
amount of the liability and corresponding revenue are adjusted in the period in which such costs occur.
Taxes collected from customers and remitted to governmental authorities are recorded on a net basis and excluded from revenue. Shipping and
handling fees billed to customers are recorded gross and included in both revenue and cost of sales. Many direct business customers finance their
purchases through a third-party credit provider, for which Nautilus pays a commission or financing fee to the credit provider. Revenue for such
transactions is recognized based on the sales price charged to the customer and the related commission or financing fee is included in selling and
marketing expense.
Cost of sales - Cost of sales primarily consists of: inventory costs; royalties paid to third parties; employment and occupancy costs of warehouse
and distribution facilities, including depreciation of improvements and equipment; transportation expenses; product warranty expenses;
distribution information systems expenses; and allocated expenses for shared administrative functions.
Product warranty obligations
- The Company's products carry limited, defined warranties for defects in materials or workmanship which,
according to their terms, generally obligate Nautilus to pay the costs of supplying and shipping
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