Nautilus 2003 Annual Report Download - page 38

Table of Contents
A significant decline in availability of media time or a marked increase in advertising rates may hinder our ability to effectively market
our products and may reduce profitability.
We depend primarily on 60-second “spot” television commercials and 30-minute television “infomercials” to market and sell our direct-
marketed products. Consequently, a marked increase in the price we must pay for our preferred media time or a reduction in its availability may
adversely impact our financial performance.
Government regulatory actions could disrupt our marketing efforts and product sales.
Various federal, state and local government authorities, including the Federal Trade Commission and the CPSC, regulate our marketing efforts
and products. Our sales and profitability could be significantly harmed if any of these authorities commence a regulatory enforcement action
that interrupts our marketing efforts, results in a product recall or negative publicity, or requires changes in product design.
As further discussed in Item 3, “Legal Proceedings,” the Company, in cooperation with the CPSC, has implemented a safety reinforcement
program for Bowflex Power Pro exercise machines equipped with a lat tower attachment. Although we have reserved for estimated costs
associated with the reinforcement program, actual consumer response could exceed our expectations, which could significantly impact our
financial position, results of operations and cash flows.
Also, the CPSC is investigating whether the Company violated the reporting obligations of the Consumer Product Safety Act. As detailed in
Item 3, “Legal Proceedings,” penalties are possible in connection with this investigation.
New product development is an essential component of our strategy; an inability to successfully develop new products could negatively
impact our future profitability.
Our future success depends on our ability to develop or acquire the rights to, and then effectively market and sell, new products that create and
respond to new and evolving consumer demands. Accordingly, our net sales and profitability may be harmed if we are unable to develop, or
acquire the rights to, new and different products that satisfy our marketing criteria. In addition, any new products that we market may not
generate sufficient net sales or profits to recoup their development or acquisition costs.
We also may not be able to successfully acquire intellectual property rights or potentially prevent others from claiming that we have violated
their proprietary rights when we launch new products. We could incur substantial costs in defending against such claims, even if they are
without basis, and we could become subject to judgments requiring us to pay substantial damages.
If we are unable to effectively integrate future acquired businesses into our operations, we may not achieve anticipated revenue,
earnings and business synergies.
As we have done in the past, we may seek to acquire other businesses in the future. Integrating acquired businesses into our operations poses
significant challenges, particularly with respect to corporate cultures and management teams. Failure to successfully effect the integration could
adversely impact the revenue, earnings and business synergies we expect from the acquisitions. In addition, the process of integrating acquired
businesses may be disruptive to our operations and may cause an interruption of, or a loss of momentum in, our core business.
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