Nautilus 2003 Annual Report Download - page 39

Table of Contents
Our future integration efforts may be jeopardized, and our actual return on investment from such acquisitions may be lower than anticipated, as
a result of various factors, including the following:
•
Challenges in the successful integration of the products, services or personnel of the acquired business into our operations;
•
Loss of employees or customers that are key to the acquired business;
•
Time and money spent by our management team focusing on the integration, which could distract it from our core operations;
•
Our potential lack of experience in markets of the acquired businesses;
• Possible inconsistencies in standards, controls, procedures and policies among the combined companies and the need to implement
our financial, accounting, information and other systems; and
A significant decline in consumer interest in Bowflex products would sharply diminish our sales and profitability.
•
The need to coordinate geographically diverse operations.
Our financial performance depends significantly on sales of our Bowflex line of home fitness equipment. During 2003, approximately 52% of
our net sales were attributable to our Bowflex products. Accordingly, any significant decline in consumer interest in our Bowflex products
could significantly reduce our sales and profitability. Sales of our Bowflex line could significantly decline if, for example, existing competing
products experienced increased consumer demand, new competing products were effectively marketed and resulted in significant consumer
purchases, or if the market for our Bowflex line becomes saturated. Although we have significantly diversified our revenue base over the past
several years, we anticipate that sales of our Bowflex product line will continue to account for a substantial portion of our net sales for the
foreseeable future.
A deterioration in product quality or increase in product liability could adversely affect our business.
We rely on third party manufacturers for a significant portion of our product components, and we may not be able to consistently control the
quality of such components. Any material increase in the quantity of products returned by our customers for purchase-price refunds could
adversely affect revenues. In addition, we are subject to potential product liability claims if our products injure, or allegedly injure, our
customers or other users. Our financial performance could be affected if our warranty reserves are inadequate to cover warranty claims on our
products. We could become liable for significant monetary damages if our product liability insurance coverage and reserves fail to cover future
product liability claims.
Unfavorable economic conditions or geopolitical upheaval could cause a decline in consumer spending and hinder our product sales.
The success of each of our products depends substantially on the amount of discretionary funds available to consumers and their purchasing
preferences. Economic and political uncertainties could adversely impact the U.S. and international economic environment. A decline in
economic conditions could further depress consumer spending, especially discretionary spending for premium priced products like ours. These
poor economic conditions could in turn lead to substantial decreases in our net sales.
We depend on one tier-one and one tier-two consumer finance company to provide financing packages to our customers; a
deterioration of the consumer finance market or failure by the finance company to provide financing to our customers could negatively
impact sales of our direct-marketed products.
In purchasing our products, approximately 43% of our direct-marketed customers utilize financing packages provided by one of two
independent finance companies. Tier-two financing is distinguished from tier-one in that the tier-two finance company is willing to approve
customers who are a higher risk of default. The financing agreements with both companies involve non-recourse customer financing, but tier-
two financing requires a higher discount in order for the finance company to accept the increased risk. We believe that
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