Nautilus 2013 Annual Report Download - page 42

We derive a significant portion of our Net Sales from a small number of our Retail customers. A loss of business from one or more of these large
customers, if not replaced with new business, would negatively affect our operating results and cash flows. In 2013, 2012 and 2011,
one
customer accounted for more than 10% , but less than 15% , of our Net Sales.
Cash and Cash Equivalents
All highly liquid investments with maturities of three months or less at purchase are considered to be cash equivalents. As of
December 31, 2013
and 2012 , cash and cash equivalents consisted entirely of cash.
Inventories
Inventories are stated at the lower of cost or market, with cost determined based on the first-in, first-
out method. We establish 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 we expect to exercise our renewal options. Depreciation on computer equipment, machinery and equipment and furniture and
fixtures 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. We review 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. Our goodwill is an asset of our Direct reporting unit. We performed a
qualitative assessment of goodwill in the fourth quarters of 2013, 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.
Historically, our policy was to perform the annual impairment test for goodwill at October 31 of each year, or more frequently if impairment
indicators arose. During the fourth quarter of 2013, we changed the date of our annual goodwill impairment test to October 1 to better align with
our annual and long-
term planning and budgeting process. Accordingly, we believe this change in accounting principle is preferable. The change
did not delay, accelerate, or avoid an impairment charge. This change in the annual goodwill impairment testing date was applied prospectively
beginning on October 1, 2013 as we determined that it was impracticable to objectively determine projected cash flows and related valuation
estimates that would have been used as of each October 1 of prior reporting periods without the use of hindsight.
Other Intangible Assets
Finite-
lived intangible assets, primarily acquired patents and patent rights, are stated at cost, net of accumulated amortization. We recognize
amortization expense for our 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. We review our 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, we calculate impairment as the excess of carrying amount over the estimate of fair value. We tested
our acquired trademarks for impairment in the fourth quarters of 2013, 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, are evaluated for impairment when events or
circumstances indicate the carrying value may be impaired. When such an event or condition occurs, we estimates the future undiscounted cash
flows to be derived from the use and eventual disposition of the asset to determine whether a potential
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