Nautilus 2009 Annual Report Download - page 14

Table of Contents
in the economy, our efforts to pursue collections, product quality matters or other customer disputes. If our estimates of uncollectible amounts
are inaccurate or change significantly or we are unable to collect amounts due from our customers, it could have a material adverse affect on our
operating results, financial condition and cash flows.
If our contract manufacturers experience any delay, disruption or quality control problems in their operations, we could lose market
share and revenues, and our reputation may be harmed.
We have outsourced the production of all of our products to third-party manufacturers. We rely on our contract manufacturers to procure
components and provide spare parts in support of our warranty and customer service obligations. We generally commit the manufacturing of
each product platform to a single contract manufacturer.
Our reliance on contract manufacturers exposes us to the following risks over which we may have limited control:
Our contract manufacturers primarily are located in Asia and may be subject to disruption by natural disasters, as well as political, social or
economic instability. The temporary or permanent loss of the services of any of our primary contract manufacturers could cause a significant
disruption in our product supply chain and operations and delays in product shipments. In addition, other than our contract with Land America,
which expires in December 2010, our third-party manufacturing contracts are terminable by either party on relatively short notice.
There is no assurance that we will be able to maintain our current relationships with these parties or, if necessary, establish future arrangements
with other third-party manufacturers on commercially reasonable terms. Further, we cannot assure that their manufacturing and quality control
processes will be maintained at a level sufficient to meet our inventory needs or prevent the inadvertent sale of substandard products.
Our revenues and profitability can fluctuate from period to period and are often difficult to predict due to factors beyond our control.
Our results of continuing operations in any particular period may not be indicative of results to be expected in future periods, and have
historically been, and are expected to continue to be, subject to periodic fluctuations arising from a number of factors, including:
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Unexpected increases in manufacturing and repair costs;
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Interruptions in shipments if our contract manufacturer is unable to complete production;
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Inability to completely control the quality of finished products;
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Inability to completely control delivery schedules;
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Changes in our contract manufacturer
’
s business models or operations;
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Potential increases in our negotiated product costs as a result of fluctuations in currency exchange rates;
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The impact of the global market and economic conditions on the financial stability of our contract manufacturers and their ability to
operate without requesting earlier payment terms or letters of credit;
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Potential lack of adequate capacity to manufacture all or a part of the products we require; and
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Potential unauthorized reproduction of our products.
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The introduction and market acceptance of new products;
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Variations in product selling prices and costs and the mix of products sold;
• The size and timing of customer orders, which, in turn, often depend upon the success of our customers’ businesses or specific
products;