Nautilus 2009 Annual Report Download - page 26

Table of Contents
Our stock-based compensation expense may also change over time, as we review and adjust our compensation practices.
If factors, such as those discussed above, were to change and we used different assumptions, our stock-
based compensation expense in the future
could be materially different from that reported in previous periods.
Litigation and Loss Contingencies
From time to time, we may be involved in claims, lawsuits and other proceedings. Such matters involve uncertainty as to the eventual outcomes
and any losses we may ultimately realize when one or more future events occur or fail to occur. We record expenses for litigation and loss
contingencies when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We estimate the
probability of such losses based on the advice of internal and external counsel, outcomes from similar litigation, status of the lawsuits (including
settlement initiatives), legislative developments and other factors. Due to the numerous variables associated with these judgments and
assumptions, both the precision and reliability of the resulting estimates of the related loss contingencies are subject to substantial uncertainties.
We regularly monitor our estimated exposure to these contingencies and, as additional information becomes known, may change our estimates
accordingly. A significant change in our estimates, or an outcome that differs from the assumptions incorporated in our estimates, may have a
material impact on our financial position, results of operations and cash flows.
Income Tax Provisions
We account for income taxes based on the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities.
Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to be in effect when the temporary differences are
expected to be included, as income or expense, in the applicable tax return. The effect of a change in tax rates on our deferred tax assets and
liabilities is recognized in the period of the enactment. A tax benefit from an uncertain tax position may be recognized when it is more likely
than not that the position will be sustained based on the technical merits of the position upon examination, including resolutions of any related
appeals or litigation.
Significant judgments are required in determining tax provisions, evaluating tax positions and, when necessary, establishing or making
adjustments to our valuation allowance. Such judgments require us to interpret existing tax law and other published guidance as applied to our
circumstances. To the extent that it is more likely than not that all or some portion of deferred tax assets will not be realized, a valuation
allowance must be established for that amount. If our financial results or other relevant facts change, thereby impacting the likelihood of
realizing the tax benefit of an uncertain tax position, significant judgment would be applied in determining the effect of the change on our
valuation allowance.
Risks and Uncertainties
Our results of operations may vary significantly from period-to-period. Our revenues will fluctuate due to the seasonality of our industry;
customer buying patterns; product innovation; the nature and level of competition for health and fitness products; our ability to manufacture or
procure products to meet customer demand; the level of spending on, and effectiveness of, our media and advertising programs; and our ability
to attract new customers and renew existing sales relationships. In addition, our revenues are highly susceptible to economic factors, including,
among other things, the overall condition of the U.S. economy and economies of other countries where we market our products and the
availability of consumer credit, both in the U.S. and abroad. Our profit margins may vary in response to the aforementioned factors and our
ability to manage product costs. Profit margins may also be affected by fluctuations in the costs or availability of materials used to manufacture
our products, product warranty costs, higher or lower fuel prices, and changes in costs of other distribution or manufacturing-related
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