Nautilus 2008 Annual Report Download - page 18

Table of Contents
a longer period than those made in the U.S. In addition, we rely on the performance of employees and dealers located in foreign countries. Our
ability to control the actions of these employees and dealers may be limited by the laws and regulations in effect in each country. Changes in any
of the above factors could have a material adverse effect on our business, operating results, financial condition and cash flows.
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 may be adversely affected. We currently hold
approximately 115 patents and trademarks and have approximately 65 patent and trademark applications pending in the United States. However,
our efforts to protect our proprietary rights may be inadequate, and applicable laws provide only limited protection.
Trademark infringement or other intellectual property claims relating to our products could increase our costs.
Our industry is susceptible to litigation regarding trademark and patent infringement and other intellectual property rights. We could become a
plaintiff or defendant in trademark and patent infringement claims or claims of breach of license. The prosecution or defense of intellectual
property litigation is both costly and disruptive of the time and resources of our management, even if the claim or defense against us is without
merit. We could also be required to pay substantial damages or settlement costs to resolve intellectual property litigation or related matters.
Future impairments on intangible assets could negatively impact our operating results.
We have intangible assets of $34.4 million and goodwill of $2.4 million at December 31, 2008. A decline in revenue, a change in market
conditions, a change in competitive products or technologies or a change in management’s intentions to utilize our intangible assets may lead to
further impairment charges. We recorded impairment charges of $30.9 million in 2008 related to our goodwill and intangible assets. Any future
impairment charges, if significant, could materially and adversely affect our reported operating results.
Intense competition may have a negative impact on our net sales and operating results.
Our products are sold in highly competitive markets with limited barriers to entry. As a result, introduction of lower priced or more innovative
products could result in a significant decline in our net sales, operating results, financial condition and cash flows.
Inability to effectively manage our distribution facilities may harm our business and financial results.
Our ability to meet customer expectations, manage inventory, complete sales and achieve objectives for operating efficiencies depends on the
proper operation of our existing distribution facilities and the timely performance of services by third parties, including those involved in
shipping product to and from our distribution facilities. Our distribution facilities are located in Oregon and Virginia in the United States, and
Manitoba, Canada. We also have third-party warehousing and distribution arrangements to assist us in managing product movement in the
United States, the Netherlands, United Kingdom, Switzerland and Germany.
Operations at our distribution facilities could be interrupted by disasters such as earthquakes or fires. We maintain business interruption
insurance, but it may not adequately protect us from the adverse effect that could be caused by significant disruptions in our distribution
network.
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