Nautilus 2003 Annual Report Download - page 37

Table of Contents
In November 2002, the FASB issued Interpretation (“FIN”) No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others
. FIN No. 45 is an interpretation of FASB Statements No. 5, 57 and 107 and rescinds
FIN No. 35. This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. The disclosure requirements in FIN No. 45 were effective for the year ended December
31, 2002. The adoption of the recognition requirement of FIN No. 45 has not had a material impact on the Company’s financial position or
results of operations.
In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest Entities (revised December 2003). FIN No. 46 addresses
when a company should include in its financial statements the assets, liabilities and activities of a variable interest entity. FIN No. 46 defines
variable interest entities as those entities with a business purpose that either do not have any equity investors with voting rights or have equity
investors that do not provide sufficient financial resources for the entity to support its activities. FIN No. 46 also requires disclosures about
variable interest entities that a company is not required to consolidate, but in which it has a significant variable interest. FIN No. 46
consolidation requirements are effective for all variable interest entities created after January 31, 2003, and to pre-existing entities in the first
fiscal year or interim period ending after December 15, 2003. Certain disclosure requirements are effective for financial statements issued after
January 31, 2003. The adoption of FIN No. 46 has no effect on the Company’s financial position, results of operations or cash flows.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and
Equity
, effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. The adoption of SFAS No. 150 has not had a material impact on the Company’s financial
position, results of operations, or cash flows.
RISKS AND UNCERTAINTIES
While management is optimistic about the Company’s long-term prospects, the following issues and uncertainties, among others, should be
considered in evaluating our long-term outlook.
Competition could increase significantly upon the expiration of the principal U.S. patent on our Bowflex Power Rod resistance
technology on April 27, 2004.
Our Bowflex trademark is protected as long as we continuously use the trademark. However, the main U.S. patent on our Bowflex Power Rod
resistance technology, a key component of our Bowflex products, expires on April 27, 2004. This impending patent expiration is expected to
trigger the introduction of similar products by competitors and could result in a significant decline in our net sales.
Our failure or inability to protect our intellectual property could significantly harm our competitive position.
Protecting our intellectual property is an essential factor in maintaining our competitive position in the health and fitness industry. If we do not
or are unable to adequately protect our intellectual property, our sales and profitability could be adversely affected. We currently hold a number
of patents and trademarks and have several patent and trademark applications pending. However, our efforts to protect our proprietary rights
may be inadequate and applicable laws provide only limited protection.
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