Nautilus 2014 Annual Report Download - page 43

flows method to estimate the value of future income. The sum of these two values for each trademark is the fair value of the trademark. 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 2014, 2013 and 2012 and determined that no impairment
was indicated. 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, are evaluated for impairment when events or
circumstances indicate the carrying value may be impaired. When such an event or condition occurs, we estimate 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, we record impairment expense to reduce the carrying value of the asset to its estimated fair
value. No impairment charges were recorded in 2014, 2013 or 2012.
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 products are 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.
Many Direct business customers finance their purchases through a third-
party credit provider, for which we pay 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.
Sales Discounts and Returns Allowance
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. Activity in our sales discounts and returns allowance was as follows (in thousands):
Taxes Collected from Customers and Remitted to Governmental Authorities
Taxes collected from customers and remitted to governmental authorities are recorded on a net basis and excluded from revenue.
Shipping and Handling Fees
Shipping and handling fees billed to customers are recorded gross and included in both revenue and cost of sales.
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
Our products carry limited, defined warranties for defects in materials or workmanship which, according to their terms, generally obligate us to
pay the costs of supplying and shipping replacement parts to customers and, in certain instances, pay for labor and other costs to service
products. Outstanding product warranty periods range from thirty
days to, in limited circumstances, the lifetime of certain product components.
We record a liability at the time of sale for the estimated costs of fulfilling future warranty claims. If necessary, we adjust the liability for
specific warranty-
related matters when they become known and are reasonably estimable. Estimated warranty expense is included in Cost of
Sales, based on historical warranty claim experience and available product quality data. Warranty expense is affected by the performance of new
products, significant manufacturing or design defects
36
2014
2013 2012
Balance, January 1
$
4,106
$
4,990
$
5,113
Charges to reserve
15,285
13,345
11,730
Reductions for sales discounts and returns
(15,095
)
(14,229
)
(11,853
)
Balance, December 31
$
4,296
$
4,106
$
4,990