Nautilus 2008 Annual Report Download - page 20

Table of Contents
Government regulatory actions could disrupt our marketing efforts and product sales.
Various international and U.S. federal, state and local governmental authorities, including the Federal Trade Commission, Environmental
Protection Agency, and the Consumer Product Safety Commission, regulate our marketing efforts and the manufacturing of products. Our sales
and profitability could be significantly harmed if any of these authorities commence a regulatory enforcement action that interrupts our
marketing or manufacturing efforts, results in a product recall or negative publicity, or requires changes in product design.
We are subject to periodic litigation, product liability risk and other regulatory proceedings which could result in unexpected expense of
time and resources.
From time to time, we may be a defendant in lawsuits and regulatory actions relating to our business. Due to the inherent uncertainties of
litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome
could have a material adverse impact on our business, financial condition and results of operations. In addition, any significant litigation in the
future, regardless of its merits, could divert management’s attention from our operations and may result in substantial legal costs.
We also may not be able to successfully acquire intellectual property rights, protect existing 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 or settlements requiring us to pay substantial damages, royalties and/or
other sums.
We are subject to warranty claims for our products which could result in unexpected expense.
Many of our products carry limited warranties for defects in quality and workmanship. We may experience significant expense as the result of
product quality issues, product recalls or product liability claims which may have a material adverse effect on our business. We maintain a
warranty reserve for future warranty claims. However, the actual costs of servicing future warranty claims may exceed the reserve and have a
material adverse effect on our results of operations, financial condition and cash flows. For example, during 2007, the Company sharply
curtailed sales of two commercial products due to quality issues and incurred $16.9 million in associated discontinued inventory and warranty
costs.
In order to be successful, we must attract, retain and motivate key employees, and failure to do so may have an adverse impact on our
business.
Our future success depends on our ability to attract and retain key executives, managers, product development engineers, sales personnel and
others. We face intense competition for such individuals worldwide. Not being able to attract or retain these employees may have a material
adverse effect on our results of operations and financial condition.
Item 1B. Unresolved Staff Comments
None.
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