Nautilus 2006 Annual Report Download - page 18

Table of Contents
types of fitness equipment and apparel. In addition, our customers may cancel orders, change delivery schedules or change the mix of products
ordered with minimal notice. As a result, we may not be able to accurately predict our quarterly sales. Accordingly, our results of operations
are likely to fluctuate significantly from period to period.
We may be adversely affected by the financial health of our customers
We extend credit to our customers, generally without requiring collateral, based on the assessment of a customer’s financial
circumstances. To assist in the scheduling of production and the shipping of seasonal products, we offer customers the ability to place orders
four to six months ahead of delivery. These advance orders may be cancelled and the risk of cancellation may increase when dealing with
financially challenged customers struggling with economic uncertainty. In the past, some customers have experienced financial difficulties
which in turn have had an adverse effect on our business. From time to time, customers will be more cautious than usual with orders as a result
of weakness in the retail economy. A slowing economy in our key markets could have an adverse effect on the financial health of our
customers which could in turn have an adverse effect on our results of operations and financial condition.
Government regulatory actions could disrupt our marketing efforts and product sales
Various international and U.S. federal, state and local government authorities, including the Federal Trade Commission, Environmental
Protection Agency, and the Consumer Product Safety Commission, regulate our marketing efforts and 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, warranty claims 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 requiring us to pay substantial damages.
Many of our products carry limited warranties for defects in quality and workmanship. We may experience significant expense as the
result of 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 but the actual costs of servicing future warranty claims may exceed the reserve and have a material adverse effect on
our results of operations and financial condition.
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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