Nautilus 2011 Annual Report Download - page 13

Table of Contents
Most of our imported products are subject to duties or tariffs that affect the cost and quantity of various types of goods imported into the U.S. or
our other markets. The countries in which our products are produced or sold may adjust or impose new quotas, duties, tariffs or other restrictions.
Further, our business depends on our ability to source and distribute products in a timely manner. As a result, we rely on the free flow of goods
through open and operational ports worldwide. Labor disputes at various ports create significant risks for our business, particularly if these
disputes result in work slowdowns, lockouts, strikes or other disruptions during our peak importing seasons. Any of these factors could result in
reduced sales, canceled sales orders and unanticipated inventory accumulation and have a material adverse effect on our operating results,
financial position and cash flows.
Unpredictable events and circumstances relating to our international operations, including our use of non-U.S. manufacturers, could
have a material adverse effect on our business.
Substantially all of our products are manufactured outside of the U.S. and a portion of our revenue is derived from sales outside the U.S.,
primarily in Canada. Accordingly, our future results could be materially adversely affected by a variety of factors pertaining to international
trade, including: changes in a specific country's or region's political or economic conditions; trade restrictions; import and export licensing
requirements; changes in regulatory requirements; additional efforts to comply with a variety of foreign laws and regulations; and longer
payment cycles in certain countries, thus requiring us to finance customer purchases over a longer period than those made in the U.S. In addition,
we rely on the performance of our employees located in foreign countries. Our ability to control the actions of these employees 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 operating
results, financial position and cash flows.
Currency exchange rate fluctuations could result in higher costs and reduced margins.
Substantially all of our products are manufactured outside of the U.S. and, therefore, currency exchange rate fluctuations could result in higher
costs for our products, or could disrupt the business of independent manufacturers that produce our products, by making their purchases of raw
materials more expensive and more difficult to finance. Our future financial results could be significantly affected by the value of the U.S. dollar
in relation to the foreign currencies in which we, our customers or our suppliers conduct business. Fluctuations in the Chinese Renminbi
exchange rate caused our costs for certain products to increase in 2011, reducing our margins and cash flows. Such fluctuations and cost
increases may continue to occur in the future. If we are unable to increase our selling prices to offset such cost increases, or if such increases
have a negative impact on sales of our products, our revenues and margins would be reduced and our operating results and cash flows would be
negatively impacted. In addition, a portion of our revenue is derived from sales outside the U.S., primarily in Canada. Currency rate fluctuations
could make our products more expensive for foreign consumers and reduce our sales, which would negatively affect our operating results 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 own numerous patents
and trademarks worldwide. 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.
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 or settlements requiring us to pay substantial damages, royalties or
other charges.
Future impairments of intangible assets could negatively impact our operating results.
9