Nautilus 2014 Annual Report Download - page 42

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 our operations.
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 2014 , 2013 and 2012 ,
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,
2014 , cash equivalents consisted of money market funds, certificates of deposit, commercial paper, and variable-
rate demand notes and totaled
$24.1 million . As of December 31, 2013 , we did not have any cash equivalents.
Available
-For-Sale Securities
We classify our marketable securities as available-for-
sale and, accordingly, record them at fair value. Marketable securities with original
maturities of greater than three months and remaining maturities of less than one year are classified as short-
term investments. Investments with
maturities beyond one year may be classified as short-
term based on their highly liquid nature and because such marketable securities represent
the investment of cash that is available for current operations. Unrealized holding gains and losses, which are immaterial, are excluded from
earnings and are reported net of tax in other comprehensive income until realized. Dividend and interest income is recognized when earned.
Realized gains and losses, which were immaterial in 2014, are included in earnings and are derived using the specific identification method for
determining the cost of securities sold.
We periodically evaluate whether declines in fair values of our investments below their cost are "other-than-
temporary." This evaluation consists
of qualitative and quantitative factors regarding the severity and duration of the unrealized loss, as well as our ability and intent to hold the
investment until a forecasted recovery occurs.
For additional information, refer to Note 3, Fair Value Measurements .
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- seven 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 an
assessment of goodwill in the fourth quarters of 2014, 2013 and 2012 and concluded that circumstances did not more likely than not indicate an
impairment had occurred. For further information regarding goodwill, see Note 7, Goodwill .
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 method to estimate the value of the cost savings and a discounted cash
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