Nautilus 2013 Annual Report Download - page 22

DISCONTINUED OPERATIONS
Results from discontinued operations relate to the disposal of our former Commercial business, which was completed in April 2011. We reached
substantial completion of asset liquidation at December 31, 2012. Income From Discontinued Operations of $6.2 million
in 2012 primarily
represents a currency translation adjustment gain related to the liquidation of European subsidiaries. Although there was no revenue related to
the Commercial business in 2013, we continue to have legal and accounting expenses as we work with authorities on final deregistration of each
entity and product liability expenses associated with product previously sold into the Commercial channel.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires estimates and assumptions that
affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in the
consolidated financial statements. An accounting estimate is considered to be critical if it meets both of the following criteria: (i) the estimate
requires assumptions about matters that are highly uncertain at the time the accounting estimate is made, and (ii) different estimates reasonably
could have been used, or changes in the estimate that are reasonably likely to occur from period to period may have a material impact on the
presentation of our financial condition, changes in financial condition or results of operations.
Our critical accounting policies and estimates are discussed below. We have not made any material changes in the methodologies we use in our
critical accounting estimates during the past three fiscal years. If our assumptions or estimates change in future periods, the impact on our
financial position and operating results could be material.
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. For Direct sales, revenue is generally recognized when product is shipped. Revenue is recognized net of applicable sales
incentives, such as promotional discounts, rebates and return allowances. We estimate the revenue impact of incentive programs based on the
planned duration of the program and historical experience.
Sales Discounts and Allowances
Product sales and shipping revenues are reported net of promotional discounts and return allowances. We estimate the revenue impact of retail
sales 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.
We estimate our liability for product returns based on historical experience and record 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.
Our calculations of amounts owed for sales discounts and allowances contain uncertainties because they require management to make
assumptions in interim periods and to apply judgment regarding a number of factors, including estimated future customer inventory purchases
and returns.
Goodwill and Other Long-Term 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. Finite-
lived Intangible Assets, including patents and patent rights, and Property, Plant and Equipment are
evaluated for impairment when events or circumstances indicate the carrying value may be impaired. No Goodwill or other long-
term asset
impairment charges were recognized in 2013 , 2012 or 2011 .
Our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment in order to
estimate future cash flows and asset fair values. 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 or other long-term assets and, thereby, could have a material adverse affect on our financial position and results of operations.
Product Warranty Obligations
Our products carry limited defined warranties for defects in materials or workmanship. Our product warranties generally obligate us to pay for
the cost of replacement parts, cost of shipping the parts to our customers and, in certain instances, service labor costs. At the time of sale, we
record a liability for the estimated costs of fulfilling future warranty claims. The estimated warranty
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