10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2014

or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  to

Commission file number: 001-31321

NAUTILUS, INC.

(Exact name of Registrant as specified in its charter)

Washington	94-3002667
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

17750 S.E. 6th Way

Vancouver, Washington 98683

(Address of principal executive offices, including zip code)

(360) 859-2900

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  [x]    No  [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  [x]    No  [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer  [ ]            Accelerated filer  [x]        Non-accelerated filer  [ ]            Smaller reporting company  [ ]

(do not check if a smaller

         reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  [ ]    No  [x]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

The number of shares outstanding of the registrant's common stock as of April 30, 2014 was 31,188,133 shares.

NAUTILUS, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2014

	PART I
Item 1.	Financial Statements	2
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Controls and Procedures	19
	PART II
Item 1.	Legal Proceedings	19
Item 1A.	Risk Factors	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 6.	Exhibits	20
Signature		21

1

PART I.    FINANCIAL INFORMATION

Item 1.     Financial Statements

NAUTILUS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited and in thousands)

	As of
	March 31, 2014		December 31, 2013
Assets
Cash and cash equivalents	$	42,035	$	40,979
Marketable securities, current	12,512		—
Trade receivables, net of allowances of $38 and $53	13,394		25,336
Inventories	13,462		15,824
Prepaids and other current assets	4,389		6,927
Income taxes receivable	31		80
Deferred income tax assets	5,237		4,441
Total current assets	91,060		93,587
Marketable securities, long-term	1,006		—
Property, plant and equipment, net	8,670		8,499
Goodwill	2,649		2,740
Other intangible assets, net	12,105		12,615
Long-term deferred income tax assets	22,333		25,725
Other assets	307		401
Total assets	$	138,130	$	143,567
Liabilities and Shareholders' Equity
Trade payables	$	27,320	$	37,192
Accrued liabilities	7,836		9,123
Warranty obligations, current portion	1,983		1,610
Total current liabilities	37,139		47,925
Warranty obligations, non-current	—		28
Income taxes payable, non-current	2,664		2,577
Other long-term liabilities	1,359		1,472
Total liabilities	41,162		52,002
Commitments and contingencies (Note 12)
Shareholders' equity:
Common stock - no par value, 75,000 shares authorized, 31,188 and 31,162 shares issued and outstanding	6,975		6,769
Retained earnings	89,926		84,552
Accumulated other comprehensive income	67		244
Total shareholders' equity	96,968		91,565
Total liabilities and shareholders' equity	$	138,130	$	143,567

See accompanying Notes to Condensed Consolidated Financial Statements.

2

NAUTILUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited and in thousands, except per share amounts)

	Three months ended March 31,
	2014			2013
Net sales	$	71,903		$	59,214
Cost of sales	33,422			28,520
Gross profit	38,481			30,694
Operating expenses:
Selling and marketing	21,774			18,626
General and administrative	5,803			4,947
Research and development	1,903			1,127
Total operating expenses	29,480			24,700
Operating income	9,001			5,994
Other income (expense):
Interest income	8			1
Interest expense	(7		)	(9		)
Other	(61		)	(109		)
Total other income (expense)	(60		)	(117		)
Income from continuing operations before income taxes	8,941			5,877
Income tax provision	3,193			353
Income from continuing operations	5,748			5,524
Discontinued operations:
Loss from discontinued operations before income taxes	(512		)	(374		)
Income tax benefit from discontinued operations	(138		)	(9		)
Loss from discontinued operations	(374		)	(365		)
Net income	$	5,374		$	5,159
Basic income per share from continuing operations	$	0.18		$	0.18
Basic loss per share from discontinued operations	(0.01		)	(0.01		)
Basic net income per share	$	0.17		$	0.17
Diluted income per share from continuing operations	$	0.18		$	0.18
Diluted loss per share from discontinued operations	(0.01		)	(0.01		)
Diluted net income per share	$	0.17		$	0.17
Shares used in per share calculations:
Basic	31,172			30,947
Diluted	31,550			31,264

See accompanying Notes to Condensed Consolidated Financial Statements.

3

NAUTILUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited and in thousands)

	Three months ended March 31,
	2014			2013
Net income	$	5,374		$	5,159
Other comprehensive income (loss):
Unrealized loss on marketable securities, net of income tax expense of $0 and $0	(13		)	—
Foreign currency translation, net of income tax expense of $5 and $8	(164		)	(147		)
Comprehensive income	$	5,197		$	5,012

See accompanying Notes to Condensed Consolidated Financial Statements.

4

NAUTILUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)

	Three months ended March 31,
	2014			2013
Cash flows from operating activities:
Income from continuing operations	$	5,748		$	5,524
Loss from discontinued operations	(374		)	(365		)
Net income	5,374			5,159
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	865			818
Bad debt expense	30			169
Inventory lower-of-cost-or-market adjustments	589			—
Stock-based compensation expense	265			214
Loss on asset dispositions	1			14
Deferred income taxes, net of valuation allowance	2,321			257
Excess tax deficiency related to stock-based awards	102			—
Changes in operating assets and liabilities:
Trade receivables, net	11,752			9,280
Inventories	1,765			5,130
Prepaids and other current assets	2,617			1,498
Income taxes payable	356			(105		)
Trade payables	(9,830		)	(14,968		)
Accrued liabilities, including warranty obligations	(1,085		)	(1,431		)
Net cash provided by operating activities	15,122			6,035
Cash flows from investing activities:
Purchase of marketable securities	(13,518		)	—
Proceeds from sale of assets of discontinued operations	—			96
Purchases of property, plant and equipment	(521		)	(762		)
Net cash used in investing activities	(14,039		)	(666		)
Cash flows from financing activities:
Proceeds from exercise of stock options	42			147
Excess tax deficiency related to stock-based awards	(102		)	—
Net cash provided by (used in) financing activities	(60		)	147
Effect of exchange rate changes on cash and cash equivalents	33			(43		)
Increase in cash and cash equivalents	1,056			5,473
Cash and cash equivalents:
Beginning of period	40,979			23,207
End of period	$	42,035		$	28,680
Supplemental disclosure of cash flow information:
Cash paid for interest	$	7		$	10
Cash paid for income taxes, net	95			109

See accompanying Notes to Condensed Consolidated Financial Statements.

5

NAUTILUS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) GENERAL INFORMATION

Basis of Consolidation and Presentation

The accompanying condensed consolidated financial statements present the financial position, results of operations and cash flows of Nautilus, Inc. and its subsidiaries, all of which are wholly owned. Intercompany transactions and balances have been eliminated in consolidation.

The accompanying condensed consolidated financial statements have not been audited. We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Management believes the disclosures contained herein are adequate to make the information presented not misleading. However, these condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013 (the “2013 Form 10-K”).

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Further information regarding significant estimates can be found in our 2013 Form 10-K.

In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments necessary to present fairly our financial position as of March 31, 2014 and December 31, 2013 and our results of operations, comprehensive income and cash flows for the three months ended March 31, 2014 and 2013. Interim results are not necessarily indicative of results for a full year. Our revenues typically vary seasonally and this seasonality can have a significant effect on operating results, inventory levels and working capital needs.

Unless indicated otherwise, all information regarding our operating results pertain to our continuing operations.

New Accounting Pronouncements

ASU 2014-08

In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) and Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." ASU 2014-08 amends the definition for what types of asset disposals are to be considered discontinued operations, and amends the required disclosures for discontinued operations and assets held for sale. ASU 2014-08 also enhances the convergence of the FASB’s and the International Accounting Standard Board’s reporting requirements for discontinued operations. ASU 2014-08 is effective for annual periods beginning on or after December

15, 2014, and interim periods within annual periods beginning on or after December 15, 2015. We do not expect the adoption of ASU 2014-08 to have a material effect on our financial position, results of operations or cash flows.

ASU 2013-11

In July 2013, the FASB issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” ASU 2013-11 amends the guidance related to the presentation of unrecognized tax benefits and allows for the reduction of a deferred tax asset for a net operating loss (“NOL”) carryforward whenever the NOL or tax credit carryforward would be available to reduce the additional taxable income or tax due if the tax position is disallowed. ASU 2013-11 is effective for annual and interim periods for fiscal years beginning after December 15, 2013. Since ASU 2013-11 relates only to the presentation of unrecognized tax benefits, our adoption of ASU 2013-11 in January 2014 did not have a material effect on our financial position, results of operations or cash flows.

6

(2) DISCONTINUED OPERATIONS

On September 25, 2009, in light of continuing operating losses in our Commercial business and in order to focus exclusively on managing our Direct and Retail businesses, we committed to a plan for the complete divestiture of our Commercial business, which qualified for held-for-sale accounting treatment. The Commercial business is presented as Discontinued Operations in our Condensed Consolidated Statements of Operations for all periods.

The disposal of the Commercial business assets was completed in April 2011. We reached substantial completion of asset liquidation at December 2012. However, we continue to have legal and accounting expenses as we work with authorities on final deregistration of certain European entities and product liability expenses associated with product previously sold into the Commercial channel. There was no revenue related to the Commercial business for the year ended December 31, 2013 or the three-month period ended March 31, 2014.

The following table summarizes liabilities for exit costs related to discontinued operations, included in Accrued Liabilities and Other Long-Term Liabilities in our Condensed Consolidated Balance Sheets (in thousands):

	Facilities Leases
Balance, December 31, 2013	$	831
Adjustments	—
Payments	(63		)
Balance, March 31, 2014	$	768

We expect the lease obligations to be paid out through 2016.

(3) MARKETABLE SECURITIES

We classify our marketable securities as available-for-sale and, accordingly, record them at fair value. Unrealized holding gains and losses are excluded from earnings and are reported net of tax in other comprehensive income until realized. Dividend and interest income is recognized when earned. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of securities sold.

We periodically evaluate whether declines in fair values of our investments below their cost are "other-than-temporary." This evaluation consists of qualitative and quantitative factors regarding the severity and duration of the unrealized loss, as well as our ability and intent to hold the investment until a forecasted recovery occurs.

(4) INVENTORIES

Inventories consisted of the following (in thousands):

	As of
	March 31, 2014		December 31, 2013
Finished goods	$	12,246	$	14,259
Parts and components	1,216		1,565
Total inventories	$	13,462	$	15,824

7

(5) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following (in thousands):

	Estimated Useful Life (in years)			As of
				March 31, 2014			December 31, 2013
Leasehold improvements	5	to	20	$	2,850		$	2,869
Computer equipment	3	to	5	35,519			35,554
Machinery and equipment	3	to	5	5,755			5,648
Furniture and fixtures	5			700			688
Work in progress 1	N/A			4,630			4,281
Total cost				49,454			49,040
Accumulated depreciation				(40,784		)	(40,541		)
Total property, plant and equipment, net				$	8,670		$	8,499

¹ Work in progress includes internal use software development and production tooling construction in progress.

(6) GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

All goodwill is assigned to our Direct reporting segment. The rollforward of goodwill was as follows (in thousands):

Balance, January 1, 2013	$	2,940
Currency exchange rate adjustment	(200		)
Balance, December 31, 2013	2,740
Currency exchange rate adjustment	(91		)
Balance, March 31, 2014	$	2,649

Other Intangible Assets

Other intangible assets consisted of the following (in thousands):

	Estimated Useful Life (in years)			As of
				March 31, 2014			December 31, 2013
Other intangible assets:
Indefinite-lived trademarks	N/A			$	9,052		$	9,052
Patents	8	to	16	18,154			18,154
				27,206			27,206
Accumulated amortization - patents				(15,101		)	(14,591		)
				$	12,105		$	12,615

Amortization expense was as follows (in thousands):

	Three months ended March 31,
	2014		2013
Patent amortization	$	510	$	513

Future amortization of patents is as follows (in thousands):

Remainder of 2014	$	1,530
2015	828
2016	430
2017	143
2018	65
Thereafter	57
	$	3,053

8

(7) ACCRUED LIABILITIES

Accrued liabilities consisted of the following (in thousands):

	As of
	March 31, 2014		December 31, 2013
Payroll and related liabilities	$	3,257	$	4,244
Other	4,579		4,879
Total accrued liabilities	$	7,836	$	9,123

(8) FAIR VALUE MEASUREMENTS

Factors used in determining the fair value of financial assets and liabilities are summarized into three broad categories:

• Level 1 - observable inputs such as quoted prices (unadjusted) in active markets for identical securities as of the reporting date;

• Level 2 - other significant directly or indirectly observable inputs, including quoted prices for similar securities, interest rates, prepayment speeds and credit risk; or observable market prices in markets with insufficient volume and/or infrequent transactions; and

• Level 3 - significant inputs that are generally unobservable inputs for which there is little or no market data available, including our own assumptions in determining fair value.

Assets measured at fair value on a recurring basis were as follows (in thousands):

	March 31, 2014
	Level 1		Level 2		Level 3		Total
Cash Equivalents
Money market funds	$	27,975	$	—	$	—	$	27,975
Available for Sale Securities
Corporate bonds	—		5,352		—		5,352
Commercial paper	—		4,495		—		4,495
Certificates of deposit	—		3,671		—		3,671
	—		13,518		—		13,518
	$	27,975	$	13,518	$	—	$	41,493

The company recognizes transfers between levels at the actual date of the event or change in circumstance that caused the transfer.  There were no transfers between levels during the first quarter of 2014.

We classify our marketable securities as available-for-sale and, accordingly, record them at fair value based on quoted market prices. The factors or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Unrealized holding gains and losses are excluded from earnings and are reported net of tax in other comprehensive income until realized. During the first quarter of 2014 and 2013, we did not record any other-than-temporary impairments on our financial assets required to be measured at fair value on a nonrecurring basis.

We recognize or disclose the fair value of certain assets, such as non-financial assets, primarily long-lived assets, goodwill, intangible assets and certain other assets in connection with impairment evaluations. All of our nonrecurring valuations use significant unobservable inputs and therefore fall under Level 3 of the fair value hierarchy. We did not perform any valuations on  assets or liabilities that are valued at fair value on a nonrecurring basis during the first quarter of 2014 or the last quarter of 2013 except for the Goodwill impairment evaluation that was prepared effective October 1, 2013.

The carrying value of Cash and Cash Equivalents, Trade Receivables, Prepaids and Other Current Assets, Trade Payables and Accrued Liabilities approximates their fair values due to the short-term nature of their maturities.

9

(9) PRODUCT WARRANTIES

Our products carry limited, defined warranties for defects in materials or workmanship which, according to their terms, generally obligate us to pay the costs of supplying and shipping replacement parts to customers and, in certain instances, pay for labor and other costs to service products. Outstanding product warranty periods range from sixty days to, in limited circumstances, the lifetime of certain product components. We record a liability at the time of sale for the estimated costs of fulfilling future warranty claims. If necessary, we adjust the liability for specific warranty-related matters when they become known and are reasonably estimable. Estimated warranty expense is included in Cost of Sales, based on historical warranty claim experience and available product quality data. Warranty expense is affected by the performance of new products, significant manufacturing or design defects not discovered until after the product is delivered to the customer, product failure rates, and higher or lower than expected repair costs. If warranty expense differs from previous estimates, or if circumstances change such that the assumptions inherent in previous estimates are no longer valid, the amount of product warranty obligations is adjusted accordingly.

Changes in our product warranty obligations were as follows (in thousands):

	Three months ended March 31,
	2014			2013
Balance, beginning of period	$	1,638		$	2,492
Accruals	921			653
Adjustments	—			—
Payments	(576		)	(535		)
Balance, end of period	$	1,983		$	2,610

(10) INCOME PER SHARE

Basic per share amounts were computed using the weighted average number of common shares outstanding. Diluted per share amounts were calculated using the number of basic weighted average shares outstanding increased by dilutive potential common shares related to stock-based awards, as determined by the treasury stock method. The weighted average numbers of shares outstanding used to compute income per share were as follows (in thousands):

	Three months ended March 31,
	2014	2013
Shares used to calculate basic income per share	31,172	30,947
Dilutive effect of outstanding options, performance stock units and restricted stock units	378	317
Shares used to calculate diluted income per share	31,550	31,264

The weighted average numbers of shares outstanding listed in the table below were anti-dilutive and excluded from the computation of diluted income per share, primarily because the average market price did not exceed the exercise price. These shares may be dilutive potential common shares in the future (in thousands):

	Three months ended March 31,
	2014	2013
Stock options	320	340
Performance stock units	84	125

(11) SEGMENT AND ENTERPRISE-WIDE INFORMATION

We have two reportable segments - Direct and Retail. Contribution is the measure of profit or loss, defined as net sales less product costs and directly attributable expenses. Directly attributable expenses include Selling and Marketing expenses, General and Administrative expenses, and Research and Development expenses that are directly related to segment operations. Segment assets are those directly assigned to an operating segment's operations, primarily Accounts Receivable, Inventories and Intangible Assets. Unallocated assets primarily include shared information technology infrastructure, distribution centers, corporate headquarters, Prepaids and Other Current Assets, Deferred Income Tax Assets and Other Assets. Capital expenditures directly attributable to the Direct and Retail segments were not significant in any period.

10

Following is summary information by reportable segment (in thousands):

	Three months ended March 31,
	2014			2013
Net sales:
Direct	$	50,735		$	42,635
Retail	20,103			15,134
Unallocated royalty income	1,065			1,445
Consolidated net sales	$	71,903		$	59,214
Contribution:
Direct	$	10,352		$	6,708
Retail	2,509			1,960
Unallocated royalty income	1,065			1,445
Consolidated contribution	$	13,926		$	10,113
Reconciliation of consolidated contribution to income   from continuing operations:
Consolidated contribution	$	13,926		$	10,113
Amounts not directly related to segments:
Operating expenses	(4,925		)	(4,120		)
Other expense, net	(60		)	(116		)
Income tax expense	(3,193		)	(353		)
Income from continuing operations	$	5,748		$	5,524

There was no material change in the allocation of assets by segment during the first three months of 2014 and, accordingly, assets by segment are not presented.

No customer represented 10.0% or more of our total Net Sales in the three months ended March 31, 2014 or 2013.

(12) COMMITMENTS AND CONTINGENCIES

Guarantees, Commitments and Off-Balance Sheet Arrangements

As of March 31, 2014, we had approximately $0.4 million in standby letters of credit with certain vendors with expiration dates through August 2014.

We have long lead times for inventory purchases and, therefore, must secure factory capacity from our vendors in advance. As of March 31, 2014, we had approximately $5.7 million in non-cancelable market-based purchase obligations, primarily for inventory purchases expected to be received within the next twelve months. Purchase obligations can vary from quarter-to-quarter and versus the same period in prior years due to a number of factors, including the amount of products that are shipped directly to Retail customer warehouses versus through Nautilus warehouses.

In the ordinary course of business, we enter into agreements that require us to indemnify counterparties against third-party claims. These may include: agreements with vendors and suppliers, under which we may indemnify them against claims arising from use of their products or services; agreements with customers, under which we may indemnify them against claims arising from their use or sale of our products; real estate and equipment leases, under which we may indemnify lessors against third-party claims relating to the use of their property; agreements with licensees or licensors, under which we may indemnify the licensee or licensor against claims arising from their use of our intellectual property or our use of their intellectual property; and agreements with parties to debt arrangements, under which we may indemnify them against claims relating to their participation in the transactions.

The nature and terms of these indemnification obligations vary from contract to contract, and generally a maximum obligation is not stated within the agreements. We hold insurance policies that mitigate potential losses arising from certain types of indemnification obligations. Management does not deem these obligations to be significant to our financial position, results of operations or cash flows and, therefore, no related liabilities were recorded as of March 31, 2014.

11

Legal Matters

In 2004, we were sued in the Southern District of New York by BioSig Instruments, Inc. for alleged patent infringement in connection with our incorporation of heart rate monitors into certain cardio products. No significant activity in the litigation occurred until 2008. In 2012, the United States District Court granted summary judgment to us on grounds that BioSig’s patents were invalid as a matter of law. BioSig appealed the grant of summary judgment and, in April 2013, the United States Court of Appeals for the Federal Circuit reversed the District Court’s decision on summary judgment and remanded the case to the District Court for further proceedings. On January 10, 2014, the U.S. Supreme Court granted our petition for a writ of certiorari to address the legal standard applied by the Federal Circuit in determining whether the patents may be valid under applicable law. The case was argued before the Supreme Court on April 28, 2014 and a decision is expected in June 2014. We do not believe that our use of heart rate monitors utilized or purchased from third parties, and otherwise, infringe the BioSig patents.

In addition to the matter described above, from time to time we are subject to litigation, claims and assessments that arise in the ordinary course of business, including disputes that may arise from intellectual property related matters. Management believes that any liability resulting from such additional matters will not have a material adverse effect on our financial position, results of operations or cash flows.

We record expenses for litigation and loss contingencies when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. When a loss contingency is not both probable and estimable, we do not establish an accrued liability. However, if the loss (or an additional loss in excess of the accrual) is at least a reasonable possibility and material, then we disclose an estimate of the possible loss or range of loss, if such estimate can be made, or disclose that an estimate cannot be made.

Litigation and jury verdicts are, to some degree, inherently unpredictable, and although we have determined that a loss is not probable in connection with any current legal proceeding at this time, it is reasonably possible that a loss may be incurred in connection with proceedings to which we are a party. Assessment of whether incurrence of a loss is probable, or a reasonable possibility, in connection with a particular proceeding, and estimation of the loss, or a range of loss, involves complex judgments and numerous uncertainties. Management is unable to estimate a range of reasonably possible losses related to litigation in its early stages, especially when the damages sought are indeterminate, or the legal and factual basis for the relevant claims have not been developed with specificity.

We regularly monitor our estimated exposure to these contingencies and, as additional information becomes known, may change our estimates accordingly. We evaluate, on a quarterly basis, developments in legal proceedings, investigations or claims that could affect the amount of any accrual, as well as any developments that would make a loss probable or reasonably possible, and whether the amount of a probable or reasonably possible loss is estimable. Among other factors, we evaluate the advice of internal and external counsel, the outcomes from similar litigation, current status of the lawsuits (including settlement initiatives), legislative developments and other factors. Due to the numerous variables associated with these judgments and assumptions, both the precision and reliability of the resulting estimates of the related loss contingencies are subject to substantial uncertainties.

Item 2.     Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is based upon our financial statements as of the dates and for the periods presented in this section. You should read this discussion and analysis in conjunction with the financial statements and notes thereto found in Part I, Item 1 of this Form 10-Q and our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013 (the “2013 Form 10-K”). All references to the first quarter and first three months of 2014 and 2013 mean the three-month periods ended March 31, 2014 and 2013, respectively. Unless the context otherwise requires, “Nautilus,” “we,” “us” and “our” refer to Nautilus, Inc. and its subsidiaries. Unless indicated otherwise, all information regarding our operating results pertains to our continuing operations.

Our results of operations may vary significantly from period-to-period. Our revenues typically fluctuate due to the seasonality of our industry, customer buying patterns, product innovation, the nature and level of competition for health and fitness products, our ability to procure products to meet customer demand, the level of spending on, and effectiveness of, our media and advertising programs and our ability to attract new customers and maintain existing sales relationships. In addition, our revenues are highly susceptible to economic factors, including, among other things, the overall condition of the economy and the availability of consumer credit in both the United States and Canada. Our profit margins may vary in response to the aforementioned factors and our ability to manage product costs. Profit margins may also be affected by fluctuations in the costs or availability of materials used to manufacture our products, product warranty costs, the cost of fuel, and changes in costs of other distribution or manufacturing-related services. Our operating profits or losses may also be affected by the efficiency and effectiveness of our organization. Historically, our operating expenses have been influenced by media costs to produce and distribute advertisements of our products on television, the Internet and other media, facility costs, operating costs of our information and communications

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systems, product supply chain management, customer support and new product development activities. In addition, our operating expenses have been affected from time-to-time by asset impairment charges, restructuring charges and other significant unusual or infrequent expenses.

As a result of the above and other factors, our period-to-period operating results may not be indicative of future performance. You should not place undue reliance on our operating results and should consider our prospects in light of the risks, expenses and difficulties typically encountered by us and other companies, both within and outside our industry. We may not be able to successfully address these risks and difficulties and, consequently, we cannot assure you any future growth or profitability. For more information, see our discussion of Risk Factors located at Part I, Item 1A of our 2013 Form 10-K.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "plan," "expect," "aim," "believe," "project," "intend," "estimate," "will," "should," "could," and other terms of similar meaning typically identify forward-looking statements. The forward-looking statements in this report include, without limitation: our prospects, resources or capabilities; current or future financial trends; future operating results; future plans for introduction of new products; anticipated demand for our new and existing products; maintenance of appropriate inventory levels; growth in revenues and profits; leverage of operating expenses; future revenues from our licensing initiative; results of increased media investment in the Direct segment; continued improvement in operating margins; expectations for increased Research and Development expenses; the amount expected to be spent on capital projects in 2014; fluctuations in Net Sales due to seasonality; and our ability to continue to fund our operating and capital needs for the following twelve-month period. Forward-looking statements also include any statements related to our expectations regarding future business and financial performance or conditions, anticipated sales growth across markets, distribution channels and product categories, expenses and gross margins, profits or losses, losses from discontinued operation, settlements of warranty obligations, the anticipated outcome of litigation to which we are a party, new product introductions, financing and working capital requirements and resources. These forward-looking statements, and others we make from time-to-time, are subject to a number of risks and uncertainties. Many factors could cause actual results to differ materially from those projected in forward-looking statements, including the risks described in Part I, Item 1A, “Risk Factors,” in our 2013 Form 10-K as supplemented or modified in our quarterly reports on Form 10-Q. We do not undertake any duty to update forward-looking statements after the date they are made or to conform them to actual results or to changes in circumstances or expectations.

Overview

We are committed to providing innovative, quality solutions to help people achieve a fit and healthy lifestyle. Our principal business activities include designing, developing, sourcing and marketing high-quality cardio and strength fitness products and related accessories for consumer use, primarily in the United States and Canada. Our products are sold under some of the most-recognized brand names in the fitness industry: Nautilus^®, Bowflex^®, Schwinn^®, Schwinn Fitness™ and Universal^®.

We market our products through two distinct distribution channels, Direct and Retail, which we consider to be separate business segments. Our Direct business offers products directly to consumers through television advertising, catalogs and the Internet. Our Retail business offers our products through a network of independent retail companies with stores and websites located in the United States and internationally. We also derive a portion of our revenue from the licensing of our brands and intellectual property.

Net Sales for the first three months of 2014 were $71.9 million, an increase of $12.7 million, or 21.4%, as compared to Net Sales of $59.2 million for the first three months of 2013. Net sales of our Direct segment increased $8.1 million, or 19.0%, in the first three months of 2014, compared to the first three months of 2013, primarily due to increased consumer demand for our cardio products, especially the Bowflex^® Treadclimber^®. Net sales of our Retail segment increased by $5.0 million, or 32.8% in the first three months of 2014, compared to the first three months of 2013, primarily due to strong retailer sell-through of our new line up of cardio products.

Gross Profit for the first three months of 2014 was $38.5 million, an increase of $7.8 million, or 25.4%, as compared to Gross Profit of $30.7 million for the first three months of 2013. The increase in Gross Profit dollars and percent was primarily due to the increase in Net Sales and improved product costs. Operating Expenses for the first three months of 2014 were $29.5 million, an increase of $4.8 million, or 19.4%, as compared to Operating Expenses of $24.7 million for the first three months of 2013. The growth in Operating Expenses was primarily related to increases in Sales and Marketing expenses. Operating Income for the first three months of 2014 was $9.0 million, an increase of $3.0 million, or 50.2%, as compared to Operating Income of $6.0 million for the first three months of 2013. The increase was primarily due to higher sales and gross margins. Income from

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Continuing Operations was $5.7 million for the first three months of 2014, or $0.18 per diluted share, compared to Income From Continuing Operations of $5.5 million, or $0.18 per diluted share, for the first three months of 2013.

Net income for the first three months of 2014 was $5.4 million, compared to net income of $5.2 million for the first three months of 2013. Net income per diluted share was $0.17 for the first three months of 2014, compared to $0.17 per diluted share for the first three months of 2013.

The improvement in our results of continuing operations for the first three months of 2014 compared to the first three months of 2013 was driven primarily by higher Net Sales and Gross Profit in both the Retail and Direct channels.

Discontinued Operations

Results from discontinued operations relate to the disposal of our former Commercial business, which was completed in April 2011. We reached substantial completion of asset liquidation at December 31, 2012. Although there was no revenue related to the Commercial business in either the 2014 or the 2013 periods, we continue to have legal and accounting expenses as we work with authorities on final deregistration of each entity and product liability expenses associated with product previously sold into the Commercial channel.

Results of Operations

Results of operations information was as follows (in thousands):

	Three months ended March 31,						Change
	2014			2013			$			%
Net sales	$	71,903		$	59,214		$	12,689		21.4	%
Cost of sales	33,422			28,520			4,902			17.2	%
Gross profit	38,481			30,694			7,787			25.4	%
Operating expenses:
Selling and marketing	21,774			18,626			3,148			16.9	%
General and administrative	5,803			4,947			856			17.3	%
Research and development	1,903			1,127			776			68.9	%
Total operating expenses	29,480			24,700			4,780			19.4	%
Operating income	9,001			5,994			3,007			50.2	%
Other income (expense):
Interest income	8			1			7
Interest expense	(7		)	(9		)	2
Other	(61		)	(109		)	48
Total other income (expense), net	(60		)	(117		)	57
Income from continuing operations before income taxes	8,941			5,877			3,064
Income tax expense	3,193			353			2,840
Income from continuing operations	5,748			5,524			224
Loss from discontinued operations, net of income taxes	(374		)	(365		)	(9		)
Net income	$	5,374		$	5,159		$	215

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Results of operations information by segment was as follows (in thousands):

	Three months ended March 31,						Change
	2014			2013			$				%
Net sales:
Direct	$	50,735		$	42,635		$	8,100			19.0	%
Retail	20,103			15,134			4,969				32.8	%
Royalty income	1,065			1,445			(380		)		(26.3	)%
	$	71,903		$	59,214		$	12,689			21.4	%
Cost of sales:
Direct	$	18,417		$	17,158		$	1,259			7.3	%
Retail	15,005			11,362			3,643				32.1	%
Royalty income	—			—			—
	$	33,422		$	28,520		$	4,902			17.2	%
Gross profit:
Direct	$	32,318		$	25,477		$	6,841			26.9	%
Retail	5,098			3,772			1,326				35.2	%
Royalty income	1,065			1,445			(380		)		(26.3	)%
	$	38,481		$	30,694		$	7,787			25.4	%
Gross margin:
Direct	63.7		%	59.8		%	390			basis points
Retail	25.4		%	24.9		%	50			basis points

The following table compares the Net Sales of our major product lines within each business segment (in thousands):

	Three months ended March 31,				Change
	2014		2013		$			%
Direct net sales:
Cardio products(1)	$	45,863	$	35,643	$	10,220		28.7	%
Strength products(2)	4,872		6,992		(2,120		)	(30.3	)%
	50,735		42,635		8,100			19.0	%
Retail net sales:
Cardio products(1)	12,376		6,898		5,478			79.4	%
Strength products(2)	7,727		8,236		(509		)	(6.2	)%
	20,103		15,134		4,969			32.8	%
Royalty income	1,065		1,445		(380		)	(26.3	)%
	$	71,903	$	59,214	$	12,689		21.4	%
(1)  Cardio products include: TreadClimber®, MAX Trainer™, treadmills, exercise bikes, ellipticals, CoreBody Reformer®, Bowflex Boost™ and DVDs.
(2)  Strength products include: home gyms, selectorized dumbbells, kettlebell weights, UpperCut™ and accessories.

Direct

The 19.0% increase in Direct Net Sales in the three-month period of 2014 compared to the same period of 2013 was primarily related to the increase in sales of our cardio products, especially the Bowflex^® Treadclimber^®. We believe the sales increase was driven by increased advertising effectiveness, improved call center effectiveness and higher U.S. consumer credit approval rates.

Combined consumer credit approvals by our primary and secondary U.S. third-party financing providers for the three-month period ended March 31, 2014 increased to 41.3% compared to 35.1% in the same period last year, which we attribute to our media strategy focused on driving quality consumer leads and an expanded lender base.

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The increase in Direct Net Sales of cardio products in the three-month period of 2014 compared to the same period of 2013 was partially offset by a decline in Direct Net Sales of strength products, primarily due to lower sales of rod-based home gyms. The decline was attributable, in part, to the reduction of advertising for these products over time, as management determined that television advertising spending on this mature product category was generating suboptimal returns. We continue to market and sell rod-based home gyms through more cost-efficient online media, and sales of these products have cascaded to the Retail segment.

The increase in Cost of Sales of our Direct business in the three-month period of 2014 compared to the same period of 2013 was almost entirely related to growth in Direct Net Sales.

The 390 basis point increase in the gross margin of our Direct business for the three-month period of 2014 compared to the same period of 2013 was primarily due to improved product cost with the higher sales volume.

Retail

The 32.8% increase in Retail Net Sales in the three-month period of 2014 compared to the same period of 2013 was driven by increased sales of the new line up of cardio products launched in September 2013.

The increase in Retail Cost of Sales for the three-month period of 2014 compared to the same period of 2013 was due to the increase in Retail Net Sales.

The 50 basis point improvement in Retail gross margin in the three-month period of 2014 compared to the same period of 2013 was primarily due to greater absorption of fixed supply chain costs with the higher sales volume.

Selling and Marketing

Dollars in thousands	Three months ended March 31,		Change
	2014	2013	$	%
Selling and Marketing	$21,774	$18,626	$3,148	16.9%
As % of Net Sales	30.3%	31.5%

The increase in Selling and Marketing expense in the three-month period of 2014 compared to the same period of 2013 was primarily due to higher creative production of $1.0 million, media advertising of $0.7 million and incremental variable selling expenses of $0.8 million.

Selling and Marketing as a percentage of Net Sales is affected by the mix of Direct sales compared to Retail sales. Increasing Retail sales as a percentage of total Net Sales reduces the percentage of Selling and Marketing as a percentage of Net Sales and vice versa.

Media advertising expense of our Direct business is the largest component of Selling and Marketing and was as follows:

Dollars in thousands	Three months ended March 31,		Change
	2014	2013	$	%
Media advertising	$10,667	$9,963	$704	7.1%

The increase in media advertising in the three-month period of 2014 compared to the same period of 2013 was primarily to drive incremental sales in the Direct business.

General and Administrative

Dollars in thousands	Three months ended March 31,		Change
	2014	2013	$	%
General and Administrative	$5,803	$4,947	$856	17.3%
As % of Net Sales	8.1%	8.4%

The increase in General and Administrative in the three-month period of 2014 compared to the same period of 2013 was primarily due to higher intellectual property and patent fees in 2014 of $0.2 million. Additionally, incentive compensation and software license fees both increased by $0.2 million in the first quarter of 2014 as compared to the same period of 2013.

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The decrease as a percentage of Net Sales in the three-month period of 2014 compared to the same period of 2013 was primarily due to the increase in Net Sales.

Research and Development

Dollars in thousands	Three months ended March 31,		Change
	2014	2013	$	%
Research and Development	$1,903	$1,127	$776	68.9%
As % of Net Sales	2.6%	1.9%

The increase in Research and Development in the three-month period of 2014 compared to the same period of 2013 was primarily due to our continued investment in resources required to innovate and broaden our product portfolio.

Other Income (Expense)

Other Income (Expense) primarily relates to the effect of exchange rate fluctuations between the U.S. and Canada.

Income Tax Provision

Dollars in thousands	Three months ended March 31,		Change
	2014	2013	$	%
Income Tax Provision	$3,193	$353	$2,840	n/m

n/m - Not meaningful

Income Tax Provision for the first three months of 2014 was based on a 35.7% effective tax rate and primarily related to our profitable U.S. and Canadian operations. Income Tax Provision for the first three months of 2013 was primarily related to our profitable Canadian operations, as well as an increase in deferred tax liabilities for indefinite lived tradename intangibles that could not be used to reduce our valuation allowance in the United States.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2014, we had $42.0 million of Cash and Cash Equivalents and $13.5 million of Marketable Securities, compared to $41.0 million of Cash and Cash Equivalents and zero Marketable Securities as of December 31, 2013. Cash provided by operating activities was $15.1 million for the three months endedMarch 31, 2014, compared to cash provided by operating activities of $6.0 million for the three months endedMarch 31, 2013. We expect our Cash, Cash Equivalents and Marketable Securities at March 31, 2014, along with cash expected to be generated from operations, to be sufficient to fund our operating and capital requirements for at least twelve months from March 31, 2014.

The increase in cash flows from operating activities was primarily due to the changes in our operating assets and liabilities as discussed below, as well as the decrease in Deferred Income Tax Assets due to the utilization of net operating losses.

Trade Receivables decreased $11.9 million to $13.4 million as of March 31, 2014, compared to $25.3 million as of December 31, 2013, due to a seasonal sequential quarterly decline in Net Sales. Days sales outstanding ("DSO") at March 31, 2014 were 17.9 days compared to 19.9 days as of December 31, 2013 and 22.5 days as of March 31, 2013. The decrease in DSO at March 31, 2014 compared to December 31, 2013 was due to a higher percentage of our Net Sales being derived from our Direct Net Sales, which generally has a lower DSO than Retail Net Sales. The decrease in DSO at March 31, 2014 compared to March 31, 2013 was also due to improved collections from Retail customers.

Inventories decreased $2.3 million to $13.5 million as of March 31, 2014, compared to $15.8 million as of December 31, 2013, due to a seasonal sequential quarterly decline in Net Sales and, accordingly, lower inventory purchases. Inventories as of March 31, 2014 compared to March 31, 2013 decreased by $0.2 million, while sales increased, due to improvements in inventory management.

Trade Payables decreased $9.9 million to $27.3 million as of March 31, 2014, compared to $37.2 million as of December 31, 2013, due to a seasonal sequential quarterly decline in Net Sales and, accordingly, lower inventory purchases.

Accrued Liabilities decreased $1.3 million to $7.8 million as of March 31, 2014 compared to $9.1 million as of December 31, 2013, primarily due to incentive compensation payments made in the first quarter of 2014 that related to 2013 performance.

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Cash used in investing activities of $14.0 million for the first three months of 2014 was primarily related to the purchase of $13.5 million of marketable securities during the quarter. Additionally, $0.5 million in capital expenditures was incurred during the quarter for implementation of new software and hardware information system upgrades and new product tooling equipment. We anticipate spending between $3.0 to $3.5 million in 2014 for capital projects.

Financing Arrangements

We have a Credit Agreement (the "Loan Agreement") with Bank of the West that provides for a $15,750,000 maximum revolving secured credit line. The line of credit is available through March 31, 2015 for working capital, standby letters of credit and general corporate purposes. Borrowing availability under the Loan Agreement is subject to our compliance with certain financial and operating covenants at the time borrowings are requested. Standby letters of credit under the Loan Agreement are treated as a reduction of the available borrowing amount and are subject to covenant testing.

The interest rate applicable to borrowings under the Loan Agreement is based on either, at our discretion, Bank of the West's base rate, a floating rate or LIBOR, plus an applicable margin based on certain financial performance metrics. Our borrowing rate was 1.65% as of March 31, 2014. The Loan Agreement contains customary covenants, including minimum fixed charge coverage ratio and leverage ratio, and limitations on capital expenditures, mergers and acquisitions, indebtedness, liens, dispositions, dividends and investments. The Loan Agreement also contains customary events of default. Upon an event of default, the lender has the option of terminating its credit commitment and accelerating all obligations under the Loan Agreement. Borrowings under the Loan Agreement are collateralized by substantially all of our assets, including intellectual property assets.

As of March 31, 2014, we had no outstanding borrowings and $0.4 million in standby letters of credit issued under the Loan Agreement. As of March 31, 2014, we were in compliance with the financial covenants of the Loan Agreement and approximately $15.4 million was available for borrowing.

Commitments and Contingencies

For a description of our commitments and contingencies, refer to Note 12 to our Condensed Consolidated Financial Statements in Item 1 of this Form 10-Q.

Off-Balance Sheet Arrangements

In the ordinary course of business, we enter into agreements that require us to indemnify counterparties against third-party claims. These may include: agreements with vendors and suppliers, under which we may indemnify them against claims arising from our use of their products or services; agreements with customers, under which we may indemnify them against claims arising from their use or sale of our products; real estate and equipment leases, under which we may indemnify lessors against third party claims relating to the use of their property; agreements with licensees or licensors, under which we may indemnify the licensee or licensor against claims arising from their use of our intellectual property or our use of their intellectual property; and agreements with parties to debt arrangements, under which we may indemnify them against claims relating to their participation in the transactions.

The nature and terms of these indemnifications vary from contract to contract, and generally a maximum obligation is not stated. We hold insurance policies that mitigate potential losses arising from certain types of indemnifications. Because we are unable to estimate our potential obligation, and because management does not expect these obligations to have a material adverse effect on our consolidated financial position, results of operations or cash flows, no liabilities are recorded at March 31, 2014.

SEASONALITY

We expect our sales from fitness equipment products to vary seasonally. Sales are typically strongest in the first and fourth quarters, followed by the third quarter, and are generally weakest in the second quarter. We believe that, during the spring and summer months, consumers tend to be involved in outdoor activities, including outdoor exercise, which impacts sales of indoor fitness equipment. This seasonality can have a significant effect on our inventory levels, working capital needs and resource utilization.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our critical accounting policies have not changed from those discussed in our 2013 Form 10-K.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our reported market risks or risk management policies since the filing of our 2013 Form 10-K.

Item 4.     Controls and Procedures

Evaluation of Disclosure Controls and Procedures

In accordance with Rule 13a-15 of the Securities Exchange Act of 1934 (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q, our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a- 15(e) and Rule 15d-15(e) under the Exchange Act). Based upon their evaluation of these disclosure controls and procedures, our management, including the Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the three months ended March 31, 2014, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.    OTHER INFORMATION

Item 1. Legal Proceedings

In 2004, we were sued in the Southern District of New York by BioSig Instruments, Inc. for alleged patent infringement in connection with our incorporation of heart rate monitors into certain cardio products. No significant activity in the litigation occurred until 2008. In 2012, the United States District Court granted summary judgment to us on grounds that BioSig’s patents were invalid as a matter of law. BioSig appealed the grant of summary judgment and, in April 2013, the United States Court of Appeals for the Federal Circuit reversed the District Court’s decision on summary judgment and remanded the case to the District Court for further proceedings. On January 10, 2014, the U.S. Supreme Court granted our petition for a writ of certiorari to address the legal standard applied by the Federal Circuit in determining whether the patents may be valid under applicable law. The case was argued before the Supreme Court on April 28, 2014 and a decision is expected in June 2014. We do not believe that our use of heart rate monitors utilized or purchased from third parties, and otherwise, infringe the BioSig patents.

In addition to the matter described above, from time to time we are subject to litigation, claims and assessments that arise in the ordinary course of business, including disputes that may arise from intellectual property related matters. Management believes that any liability resulting from such additional matters will not have a material adverse effect on our financial position, results of operations or cash flows.

Item 1A.    Risk Factors

We operate in an environment that involves a number of risks and uncertainties. The risks and uncertainties described in our 2013 Form 10-K are not the only risks and uncertainties that we face. Additional risks and uncertainties that presently are not considered material or are not known to us, and therefore are not mentioned herein, may impair our business operations. If any of the risks described in our 2013 Form 10-K actually occur, our business, operating results and financial position could be adversely affected. There has not been a material change to the risk factors as set forth in our 2013 Form 10-K.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The following table provides information about our repurchases of our equity securities during the first quarter ended March 31, 2014:

Period	(a) Total Number of Shares (or Units) Purchased (1)	(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
January 1, to January 31, 2014	2,017	$	8.52	—	—
February 1 to February 28, 2014	1,689	8.39		—	—
March 1 to March 31, 2014	1,688	9.63		—	—
Total	5,394	8.83		—	—
(1)  Consists of shares withheld from the vesting portion of a restricted stock unit award granted to Bruce M. Cazenave, our Chief Executive Officer. We will withhold from each monthly vesting portion of the award the number of shares sufficient to satisfy Mr. Cazenave's tax withholding obligation incident to such vesting, unless Mr. Cazenave should first elect to satisfy the tax obligation by cash payment to us. We do not have any publicly announced equity securities repurchase plans or programs.

Item 6.    Exhibits

Exhibit No.		Description
10.1		Employment Agreement, dated as of February 10, 2014, by and between Nautilus, Inc. and Sidharth Nayar.*
10.2		Stock Unit Award Agreement, dated as of February 28, 2014, by and between Nautilus, Inc. and Sidharth Nayar.*
10.3		Employment Offer Letter, dated July 26, 2013, between Nautilus, Inc. and Jeffery Collins.*
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities and Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101		The following financial statements from Nautilus, Inc.'s quarterly report on Form 10-Q for the three months ended March 31, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets (unaudited), (ii) Condensed Consolidated Statements of Operations (unaudited), (iii) Condensed Consolidated Statements of Comprehensive Income (unaudited), (iv) Condensed Consolidated Statements of Cash Flows (unaudited) and (v) Notes to Condensed Consolidated Financial Statements (unaudited).
	*	Indicates management contract, compensatory agreement or arrangement in which our directors or executive officers may participate.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	NAUTILUS, INC.
May 8, 2014	By:	/S/    Bruce M. Cazenave
		Bruce M. Cazenave
		Chief Executive Officer (Principal Executive Officer)

	NAUTILUS, INC.
May 8, 2014	By:	/S/    Sidharth Nayar
		Sidharth Nayar
		Chief Financial Officer (Principal Financial and Accounting Officer)

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EX-10.1

EXHIBIT 10.1

EMPLOYMENT AGREEMENT

This Employment Agreement (this “Agreement”) is entered into as of February 10, 2014, by and between Nautilus Inc., a Washington corporation (the “Company” or “Employer”), and Sid Nayar (“Employee”). In consideration of the premises and the mutual covenants and agreements hereinafter set forth, the Company and Employee hereby agree as follows:

1.    Employment. Employee is being hired as Senior Vice President Finance effective February 10, 2014. On the day following the filing of the Company’s Form 10-K, Employee will assume the position of Chief Financial Officer. Employee shall (a) devote his professional entire time, attention, and energies to his position, (b) use his best efforts to promote the interests of Employer; (c) perform faithfully and efficiently his responsibilities and duties, and (d) refrain from any endeavor outside of employment which interferes with his ability to perform his obligations hereunder. Employee shall report to the President and Chief Executive Officer, and perform his job duties subject to his general supervision, orders, advice and direction. Employee shall perform the duties normally associated with the position and/or such duties as delegated and assigned by the Company.

Employee additionally agrees to abide by any pre-employment hiring procedures, general employment guidelines or policies adopted by Employer such as those detailed in an employer's handbook, as such guidelines or policies may be implemented and/or amended from time to time.

2.    Salary. As compensation for services to be rendered hereunder, the Company shall pay Employee an initial annual salary in the gross amount of Two hundred sixty thousand dollars ($260,000). Said salary will be paid in accordance with the Company's existing payroll policies, and shall be subject to normal and/or authorized deductions and withholdings. Employee will be eligible to receive an annual bonus targeted at fifty-percent (50%) of Employee’s base salary paid in the applicable year. Employee may also earn an additional 50% of your target range if the Company exceeds its performance objectives which could result in a potential maximum, in total, of 75% of base salary paid. The amount of such bonus (if any) is determined at the discretion of the Company and based on the accomplishment of corporate and individual performance goals.

3.    Performance Based Restricted Stock Grant and Restricted Stock Grant. Pursuant to the Company’s current 2005 Long Term Incentive Plan (the “Plan”), Employee will receive an initial grant of 15,000 performance based restricted stock (“Performance Based Shares”) which will have a three year cliff vest; the actual number of Performance Based Shares can vary from 60% to 150% from the initial grant number depending on company performance over the three year term. You will also be granted a Restricted Stock Grant (“Restricted Stock”) in an amount equivalent to $100,000. The Restricted Stock will vest in equal amounts over three years and the exact amount of shares vesting each year will be determined by dividing $33,333 by the average share price over the calendar year in which vesting occurs. In the event Employee is terminated by the Company without cause within 24 months of employment, any unvested portion of the Restricted Stock grant will immediately vest. Employee will be eligible for additional annual grants on the same basis as other members of the executive team.

4.    Sign On Bonus. Employee will be entitled to an initial bonus in the gross amount of $90,000 payable when Employee begins employment. Applicable taxes will be deducted from this amount. The bonus will vest monthly in 1/12 increments beginning in your first month of employment and over the next 12 months. Should you resign from the Company before 12 months of employment you agree to re-

pay a pro rata amount of that bonus for any remaining of the initial twelve months that you are no longer employed.

5.    Expenses. The Company will reimburse Employee for all necessary and reasonable travel, entertainment and other business expenses incurred by him in the performance of his duties hereunder, upon receipt of signed itemized lists of such expenditures with appropriate back-up documentation, and/or in accordance with such other reasonable procedures as the Company may adopt generally from time to time. The Company will also pay the rent and utilities for any apartment or other living space for a maximum of six months after you begin employment. You will also be entitled to be reimbursed for airfare and related expenses for one trip per month to your residence in Pennsylvania, and similarly one trip per month for your spouse to come to Vancouver.

6.    Relocation Benefits. Company will provide normal relocation benefits applicable to executives including the movement of your household goods and two cars from Pennsylvania to Washington.

7.    Health and Welfare Benefits. Upon satisfaction of eligibility criteria, the Employee shall be eligible to receive employee benefits, if any, generally provided to its employees by Employer, including, if provided, medical, dental, and life insurance and Paid-Time Off. Such benefits may be amended or discontinued by Employer at any time. Employee shall also be entitled to four (4) weeks of Paid Time Off in accordance with the Company’s policies.

8.    Termination. The parties acknowledge that Employee’s employment with the Company is “at-will” and may be terminated by either party with or without cause. No one other than the President and Chief Executive Officer of the Company or the Board of Directors has the power to change the at-will character of the employment relationship. As discussed below, however, the various possible ways in which Employee’s employment with the Company may be terminated will determine the payments that may be due to Employee under this Agreement. As used in this Agreement, the following terms have the following meanings:

(a)Cause. As used in this Agreement, Cause means (i) Employee’s indictment or conviction in a court of law for any crime or offense that in Employer’s reasonable judgment makes Employee unfit for continued employment, prevents Employee from performing Employee’s duties or other obligations or adversely affects the reputation of Employer; (ii) dishonesty by Employee related to his employment; (iii) violation of a key Employer policy or this Agreement by Employee (including, but not limited to, acts of harassment or discrimination, use of unlawful drugs or drunkenness on Employer’s premises during normal work hours); (iv) insubordination (i.e. conduct such as refusal to follow direct orders of the President or other individuals(s) to whom Employee reports); (v) dereliction of duty by Employee (e.g., failure to perform minimum duties after warning and reasonable opportunity to correct); (vi) Employee’s competition with Employer, diversion of any corporate opportunity or other similarly serious conflict of interest or self-dealing incurring to Employee’s direct or indirect benefit and Employer’s detriment; (vii) intentional or grossly negligent conduct by Employee that is significantly injurious to Employer or its affiliates; (viii) Employee’s failure to meet the minimum goals of his position if such are provided in writing to Employee, and as such goals may be amended from time to time; and (ix) Employee’s death or disability (i.e., Employee’s inability to perform the essential job functions of the position with or without a reasonable accommodation).

(b)Good Reason. Good Reason shall mean a greater than 50 mile change in Employee's primary place of employment (without the Employee's consent), whether by Employer or any successor in interest to Employer. For purposes of this Agreement the primary place of employment is Vancouver, Washington. No event other than a greater than 50 mile change in the primary place of employment shall

constitute "Good Reason" under this Agreement. Employee shall notify Company in writing of the existence of Good Reason within thirty (30) days after being informed of a change in the Employee's primary place of employment; failure to do so shall constitute a waiver of the right to claim that such conduct constitutes "Good Reason" under this Agreement.

(c)    At-Will. At-will termination shall mean a termination by the Company where it does not seek to establish Cause or by Employee for any reason other than Good Reason. If Employee exercises his right to terminate his employment, the Employee agrees to provide the Company with 21 days’ prior written notice of the termination of his employment (Notice of Termination). After receiving such Notice from the Employee, the Company retains the right to accept Employee’s resignation, and hence, terminate the employment relationship without the need for further payments, at an earlier date than provided in the Employee’s Notice of Termination.

9.     Severance Upon Termination.

(a)    Upon termination of Employee’s employment under this Agreement by the Company without Cause or by Employee for Good Reason, then, in lieu of any further salary, bonus, or other payments for periods subsequent to the Date of Termination, the Company shall pay to the Employee severance equal to six months average monthly annual base salary. Such severance payment shall be made according to the Company’s normal payroll process spread out equally over the severance period. Company will also continue, at its cost, the Company portion of the current medical and dental coverage elected by Employee as of the date of termination for the duration of the severance period. Employee will be required to timely sign up and elect COBRA benefits in order to be eligible for continued coverage under this Agreement and to pay any employee portion of the coverage. Violation of this Agreement or the Business Protection Agreement and/or failure to sign the Release and Waiver Agreementshall immediately relieve the Company from its payment obligation under this paragraph and entitle it to recover any amounts paid under this paragraph. This Section 9 shall be read in conjunction with Section 8, and entitles the Employee to a maximum of six month salary and benefits under this Agreement.

(b)    If the Company terminates the Employee’s employment during the term of this Agreement for Cause or if the Employee terminates his employment for any reason other than Good Reason, then the Company shall have no further payment obligations to Employee.

(c)    Except as it relates to the receipt of severance (which shall be solely granted under the terms of this Agreement), this Agreement shall not affect any payments due to Employee under applicable law as a result of the termination of his employment (such as payment of earned wages).

(d)    The severance amounts in Section 9(a) will immediately cease in the event that Employee becomes employed at any time during the severance period at a monthly base salary rate equal to or greater than the monthly base salary rate paid by the Company as of the date of termination. In the event the Employee is employed during that severance period at a monthly base salary rate less than the monthly base salary rate previously paid by the Company, Employee will be provided a maximum severance benefit in the amount of the difference between the 6 months average monthly annual base salary paid by the Company and the 6 months average monthly annual base salary paid, or to be paid, by the subsequent Employer over the severance period. In either event continued health care benefits will cease if Employee accepts employment during the severance period following termination with Company. Following termination by the Company and during the severance period, Employee will exercise reasonable efforts to seek, obtain, and accept comparable employment.

10.    Return of Documents. Employee understands and agrees that all equipment, records, files, manuals, forms, materials, supplies, computer programs, and other materials furnished to the Employee by

Employer or used on Employer's behalf, or generated or obtained during the course of his/her employment shall remain the property of Employer. Upon termination of this employment or at any other time upon the Company’s request, Employee agrees to return all documents and property belonging to the Company in his possession including, but not limited to, customer lists, contracts, agreements, licenses, business plans, equipment, software, software programs, products, work-in-progress, source code, object code, computer disks, Confidential Information, books, notes and all copies thereof, whether in written, electronic or other form. In addition, Employee shall certify to the Company in writing as of the effective date of termination that none of the assets or business records belonging to the Company is in his/her possession, remain under his control, or have been transferred to any third person.

11.    Confidential Information/Non-Competition. By virtue of his employment, Employee will have access to confidential, proprietary and trade secret information, the ownership and protection of which is very important to the Company. Employee hereby agrees to enter into a Business Protection Agreement with the Company concurrent with his entry into this Agreement.

12.    Release of Claims. As a precondition to receipt of the severance provided in Section 9 of this Agreement, Employee acknowledges and understands that he must sign a Waiver and Release of Claims Agreement. Such Agreement shall be substantially similar to the Agreement attached as Exhibit A. Employee understands that he will not be entitled to receive any payments under this Agreement until he executes and delivers the Waiver and Release of Claims Agreement, and the revocation period set forth in the Waiver and Release of Claims Agreement has run.

13.    Assignment. This Agreement is personal, and is being entered into based upon the singular skill, qualifications and experience of Employee. Employee shall not assign this Agreement or any rights hereunder without the express written consent of Employer which may be withheld with or without reason. This Agreement will bind and benefit any successor of the Employer, whether by merger, sale of assets, reorganization or other form of business acquisition, disposition or business reorganization.

14. Notices. Any Notice of Termination shall be in writing and shall be deemed to have been given or submitted (i) upon actual receipt if delivered in person or by facsimile transmission with confirmation of transmission, (ii) upon the earlier of actual receipt or the expiration of two (2) business days after sending by express courier (such as U.P.S. or Federal Express), and (iii) upon the earlier of actual receipt or the expiration of seven (7) business days after mailing if sent by registered or certified mail, postage prepaid, to the parties at the following addresses:

To the Company:	Nautilus, Inc. 17750 SE 6th Way Vancouver, WA 98683 Attention: Senior Vice President Law and Human Resources
With a Copy to:	Garvey, Schubert & Barer 1191 Second Avenue, 18th Floor Seattle, WA 98101-2939 Attention: Bruce Robertson
To Employee:	Employee: Sid Nayar At the last address and fax number Shown on the records of the Company

Employee shall be responsible for providing the Company with a current address. Either party may change its address (and facsimile number) for purposes of notices under this Agreement by providing notice to the other party in the manner set forth above within ten business days.

15.    Effect of Waiver. The waiver by either party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach hereof. No waiver shall be valid unless in writing.

16.    Entire Agreement. This Agreement, along with the Business Protection Agreement, sets forth the entire agreement of the parties hereto and supersedes any and all prior agreements and understandings concerning Employee’s employment by the Company. This Agreement may be changed only by a written document signed by Employee and the Company.

17.    Employment Guidelines. Employee understands that while not constituting a contract, the Employer sets certain policies and standards that it expects employees to comply with as part of general expectations of employee behavior. Employee agrees to abide by any general employment guidelines or policies adopted by the Company such as those detailed in an employee handbook, as such guidelines may be implemented and amended from time to time.

18.    Governing Law/Jurisdiction/Venue. This Agreement shall be governed by, and construed and enforced in accordance with, the substantive and procedural laws of the State of Washington without regard to rules governing conflicts of law. For all disputes under this Agreement, the parties agree that any suit or action between them shall be instituted and commenced exclusively in the state courts in Clark County or King County Washington (U.S.A) or the United States District Court for the Western District of Washington, sitting in Seattle, Washington. Both parties waive the right to change such venue and hereby consent to the jurisdiction of such courts for all potential claims under this Agreement.

19.    Acknowledgment. The Employee acknowledges that he has read and understands this Agreement, that he has had the opportunity to consult with an attorney regarding the terms and conditions hereof, and that he accepts and signs this Agreement as his own free act and in full and complete understanding of its present and future legal effect.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

Employer:    NAUTILUS, INC.

/s/Bruce Cazenave    February 10, 2014    

By Bruce Cazenave        Date

Its Chief Executive Officer    

/s/Sid Nayar________________________        February 10, 2014    

Employee        Date

EX-10.2

EXHIBIT 10.2

NAUTILUS, INC.

STOCK UNIT AGREEMENT

THIS STOCK UNIT AWARD AGREEMENT (the “Agreement”), dated as of February 28, 2014 (the “Grant Date”), is made by and between Nautilus, Inc., a Washington corporation (the “Company”), through its Board of Directors or a Committee thereof (the “Administrator"), and Sidharth Nayar (the “Grantee”).

WHEREAS, the Company has adopted the Nautilus, Inc. 2005 Long Term Incentive Plan, as amended (the “Plan”), pursuant to which the Company may grant Stock Units; and

WHEREAS, the Company desires to give Grantee an opportunity to acquire or enlarge his equity ownership in the Company for the purpose of augmenting Grantee’s proprietary interest in the success of the Company and thereby focusing Grantees efforts on increasing shareholder value; and

WHEREAS, the Company wishes to award Stock Units to the Grantee as provided for herein;

NOW, THEREFORE, in consideration of the recitals and the mutual agreements herein contained, the parties hereto agree as follows:

1.    Grant of Stock Unit Award.

1.1    In accordance with the Plan, the Company hereby grants the Grantee a Stock Unit Award (the “Award”) representing the right to receive shares of the Company’s common stock (“Shares”) with an aggregate value determined in accordance with this Agreement of One Hundred Thousand Dollars $100,000 (the “Award Amount”).

1.2    The provisions of the Plan are hereby incorporated herein by reference. Except as otherwise expressly set forth herein, this Agreement shall be construed in accordance with the provisions of the Plan and any capitalized terms not otherwise defined in this Agreement shall have the definitions set forth in the Plan.

1.3     The Administrator shall have final authority to interpret and construe the Plan and this Agreement and to make any and all determinations thereunder, and its decision shall be binding and conclusive upon Grantee and his/her legal representative in respect of any questions arising under the Plan or this Agreement.

2.    Vesting.

2.1    The Award shall vest and become payable as to one third (¹/₃) of the total Award Amount on each of the first, second and third anniversaries of the Grant Date (each a “Vesting Date”). On each Vesting Date, subject to Sections 2.2 through 2.4 below, Grantee shall be entitled to receive a number of Shares equal to the quotient obtained by dividing: (i) Thirty-Three Thousand Three Hundred Thirty-Three Dollars ($33,333) (the “VestingAmount”) by (ii) the average daily closing sales price per Share on the New York Stock Exchange (or such other exchange or source of quotation on which the Shares are listed or quoted if the Shares are not then traded on the New York Stock Exchange) (the “Average Price”) for the twelve months preceding the applicable Vesting Date.

2.2    If (a) on or prior to the second anniversary of the Grant Date Grantee’s employment or service with the Company is terminated without Cause (as defined in the that certain Employment Agreement dated February 10, 2014 by and between Company and Grantee (the “Employment Agreement”)), or Grantee resigns for Good Reason (as defined in the Employment Agreement), or (b) Grantee’s employment or service with the Company is terminated as a result of Grantee’s death, then the unvested portion of the Award shall immediately become vested and Grantee shall be entitled to receive a number of Shares equal to the quotient obtained by dividing: (i) the unpaid portion of the Award Amount by (ii) the Average Price for the twelve months preceding the date of such termination.

2.3    Upon the occurrence of any Corporate Event (as defined below) the unvested portion of the Award shall immediately become vested and Grantee shall be entitled to receive a number of Shares equal to the quotient obtained by dividing: (i) the unpaid portion of the Award Amount by (ii) the Average Price for the twelve months preceding the day immediately prior to the effectiveness of the Corporate Event. For purposes hereof, the term “Corporate Event” means the occurrence of any of the following events: (A) the sale, liquidation or other disposition of all or substantially all of the Company’s assets, other than to a related person (as described in Treas. Reg. 1.409A‑3(i)(5)(vii)(B)); (B) a merger or consolidation of the Company with one or more corporations as a result of which, immediately following such merger or consolidation, the shareholders of the Company as a group hold less than a majority of the outstanding capital stock of the surviving corporation; or (C) any person or entity, including any “person” as such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), becomes the “beneficial owner”, as defined in the Exchange Act, of shares of the Company’s common stock representing fifty percent (50%) or more of the combined voting power of the voting securities of the Company.

2.4     Except as expressly provided in Section 2.2 and Section 2.3, if Grantee's employment or service with the Company terminates for any reason prior to a Vesting Date, then Grantee shall forfeit all rights, title, and interest in and to that portion of the Award which has not vested as of the date of such termination. Neither Grantee nor any of Grantee's successors, heirs, assigns or personal representatives shall have any rights or interests in any portion of the Award that is so forfeited.    

3.    Terms and Conditions of Award.

The Award shall be subject to the following terms, conditions and restrictions:

3.1    Prior to the issuance and delivery of Shares in settlement of the Award on a Vesting Date or pursuant to Sections 2.2 or 2.3 the Grantee shall have no rights as a stockholder of the Company, no dividend rights and no voting rights with respect to any Shares issuable pursuant to this Award.

3.2    The rights represented by this Award may not be transferred in any manner except as expressly permitted by the Plan. The terms of the Plan and this Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Grantee.

4.    Delivery of Shares.    

4.1As soon as administratively practicable after the date upon which any portion of the Award vests, and provided Grantee shall have paid the Withholding Liability to the Company pursuant to Section 5 hereof, the Company shall issue to Grantee or, at Grantee’s request, Grantee’s designated broker, the number of Shares determined in accordance with Section 2.1, Section 2.2 or Section 2.3, as applicable, free and clear of any restrictions in settlement of the vesting portion of the Award.

5.    Income Taxes.

5.1    The Grantee shall be liable for all applicable income and withholding taxes, including without limitation, any federal, state, local or other income taxes, or any FICA, state disability insurance tax or other employment tax (“Withholding Taxes”) with respect to any compensation income arising out of the award, vesting and settlement hereunder.

5.2    If the Company becomes obligated to withhold an amount on account of any Withholding Taxes imposed in connection with the vesting or settlement of the Award, Grantee shall, on the date the Shares are issued, or such other date upon which the Company becomes so obligated to withhold (the “Withholding Date”), pay such amount (the “Withholding Liability”) to the Company in cash or check payable to the Company.

5.3    If Grantee does not pay such Withholding Liability to the Company on or before the Withholding Date, Grantee hereby authorizes the Company to withhold and/or reacquire from the earned award such number of whole shares as have an aggregate Fair Market Value on the date that the amount of tax to be withheld is to be determined as equals the amount of withholding tax so payable (the “Net Share Settlement”). Such withholding obligation shall be determined based on any applicable minimum statutory withholding rates. The Grantee will receive a cash refund for any fraction of a surrendered share not necessary for required Withholding Taxes.

5.4    In the event the Company cannot (under applicable legal, regulatory, listing or other requirements, or otherwise) satisfy such Withholding Liability in such methods as described in Sections 5.2 and 5.3, the Company may satisfy such withholding by deducting such amount out of any other compensation otherwise payable to the Grantee. Grantee hereby consents to the Company withholding the full amount of the Withholding Liability from any compensation or other amounts otherwise payable to Grantee (including, without limitation, any Shares issuable in settlement of the Award) if Grantee does not pay the Withholding Liability to the Company on the Withholding Date, and Grantee agrees that the withholding and payment of any such amount by the Company to the relevant taxing authorities shall constitute full satisfaction of the Company’s obligation to pay such compensation of other amounts to Grantee.

5.5    Regardless of any action the Company takes with respect to any or all Withholding Liability, the Grantee acknowledges and agrees that the ultimate liability for all Withholding Liability legally due from Grantee is and remains the Grantee’s responsibility.

6. Miscellaneous Provisions.

6.1    Notices. Any notices, designations, consents, offers, acceptances and any other communications required or permitted hereunder shall be given in writing and shall be delivered either personally or by registered or certified mail, postage prepaid, which shall be addressed, in the case of the Company to the principal office of the Company and, in the case of the Grantee, to the Grantee's address appearing on the books of the Company or to the Grantee's residence or to such other address as may be designated in writing by the Grantee.

6.2     Invalid Provision. The invalidity or unenforceability of any particular provision thereof shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision had been omitted.

6.3     Modifications. No change, modification or waiver of any provision of this Agreement shall be valid unless the same is in writing and signed by the parties hereto.

6.4     Entire Agreement. This Agreement sets forth the entire agreement and understanding of the parties with respect to the subject matter contained herein and supersedes all prior communications, representations and negotiations in respect thereto.

6.5    Governing Law. This agreement shall be interpreted and construed in accordance with the laws of the State of Washington.

IN WITNESS WHEREOF, the Company and the Grantee have executed this Stock Unit Award Agreement as of the date first set forth above.

NAUTILUS, INC.

By: /s/ Bruce Cazenave        

Name: Bruce Cazenave

Title: Chief Executive Officer

GRANTEE

/s/ Sidharth Nayar        

Sidharth Nayar

EX-10.3

EXHIBIT 10.3

July 26, 2013

PERSONAL AND CONFIDENTIAL

Jeffery Collins

2732 Broyles Lane

Franklin, TN 37069

Dear Jeff:

This is to confirm the terms and conditions of your offer of employment with Nautilus, Inc. as Vice President, Retail Sales. I have also enclosed a Business Protection Agreement that is part of the standard employment package. This letter is intended to highlight the material aspects of the offer and is contingent upon appropriate reference checks. If accepted, we will enter into a standard employment agreement incorporating these terms.

Your offer of employment with the Company will be on the following terms:

1. Annual base salary in the amount of $200,000.

2. An initial grant of 12,500 stock options in accordance with the terms of the Company’s 2005 Long Term Incentive Plan. The stock options vest in equal annual amounts over three years. You will be eligible for additional annual grants on the same basis as other similarly situated members of the management team.

3. Entitlement to a bonus in 2013 in the amount of 50% of your base salary earned in 2013, on the same basis as other members of the senior management team and premised on Company performance objectives and individual personal goals. The short term incentive plan also allows you to earn an additional 50% of your target range if the Company exceeds its performance objectives which could result in a potential maximum, in total, of 75% of annual base salary earned.

4. Severance benefits in the amount of 9 months upon relocation, reducing by one month for each calendar month of employment until the on-going level of 4 months is reached. Severance includes base salary and continued health care benefits on the same basis as an active employee (and subject to regular employee contributions and deductions) for the severance period in the event you are terminated without cause.

5. Four weeks paid time off.

6. A one-time signing bonus of $30,000 upon the beginning of employment. The bonus will vest monthly in 1/12 increments beginning in your first month of employment and over the next 12 months. Should you resign from the Company or be terminated for cause before 12 months of employment you agree to re-pay a pro rata amount of that bonus for any remaining time that you are no longer employed. For example, if you begin employment on August 1, 2013 and you resign in February 2014, you will repay 6/12ths of the signing bonus to reflect the fact that you resigned 6 months before fulfilling the 12 month commitment.

7. A household goods allowance of up to $25,000. Paid family travel for up to two house hunting trips in the Vancouver area. Nautilus will also pay for temporary housing in the Vancouver area for up to three months.

Provided you satisfy eligibility criteria, you may participate in Nautilus, Inc.’s generally applicable benefit programs. Details about current benefit programs, including policies concerning medical insurance coverage, are contained in the Company’s employee handbook and the Summary Plan Descriptions for those benefit plans. A condition of your employment is complying with the guidelines set forth in the handbook as they are amended from time to time and with the terms of your employment application. Of course, all Company policies, including policies regarding medical coverage and other employee benefits, may be amended by the Company from time to time or discontinued, in the Company’s sole discretion.

Nautilus, Inc. generally obtains background information on all prospective employees, including in many instances reference checks, drug screening and a criminal background check. As such, this offer of employment is contingent upon the Company completing these background checks without the disclosure of adverse information.

This offer is also contingent upon your signing the following forms:

Business Protection Agreement: This document refers to the non-disclosure of confidential information, ownership of inventions and contains certain non-compete protections. The Company requires all employees to sign this document prior to employment. This letter and the Business Protection Agreement constitute the entire agreement between you and the Company regarding your terms and conditions of employment and supersede and replace any prior agreement either written or oral.

Employment Eligibility Verification Form (Form I-9): We are required by the Immigration Reform and Control Act of 1986 to have this form completed and on file for all Company employees.

Further, you will be expected to comply with all rules, policies and procedures of the Company as they may be modified from time to time.

Should you have any questions concerning any part of the offer letter please contact me or Wayne M. Bolio. To confirm you acceptance of this offer, please sign the original of this letter where indicated and return to me. If we are both in agreement, the Company will prepare a formal contract of employment which we will forward to you for your review and which will incorporate the terms of this offer letter.

Jeff, we have great expectations for the contributions you can bring to Nautilus. We believe you will make an excellent addition to the Nautilus team and we look forward to you becoming part of our exciting future.

Very truly yours,

/s/ William McMahon        

William McMahon

Chief Operating Officer

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Bruce M. Cazenave, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Nautilus, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

May 8, 2014	By:	/s/ Bruce M. Cazenave
Date		Bruce M. Cazenave
		Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Sidharth Nayar, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Nautilus, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

May 8, 2014	By:	/s/ Sidharth Nayar
Date		Sidharth Nayar
		Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

Certification

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of Nautilus, Inc., a Washington corporation (the “Company”), does hereby certify that:

To my knowledge, the Quarterly Report on Form 10-Q for the period ended March 31, 2014 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

May 8, 2014	By:	/s/ Bruce M. Cazenave
Date		Bruce M. Cazenave
		Chief Executive Officer (Principal Executive Officer)

May 8, 2014	By:	/s/ Sidharth Nayar
Date		Sidharth Nayar
		Chief Financial Officer (Principal Financial and Accounting Officer)

XML

Income Per Share (Details) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Income per share:
Shares used to calculate basic income per share	31,172	30,947
Dilutive effect of outstanding options, performance stock units and restricted stock units	378	317
Shares used to calculate diluted income per share	31,550	31,264
Stock options
Income per share:
Anti-dilutive securities excluded from computation of diluted income per share	320	340
Performance stock units
Income per share:
Anti-dilutive securities excluded from computation of diluted income per share	84	125

XML

Goodwill and Other Intangible Assets (Details) (USD $) In Thousands, unless otherwise specified			3 Months Ended
	Mar. 31, 2014	Dec. 31, 2013	Mar. 31, 2014 Patents [Member] Minimum [Member]	Mar. 31, 2014 Patents [Member] Maximum [Member]
Other intangible assets:
Indefinite-lived trademarks	$ 9,052	$ 9,052
Patents	18,154	18,154
Total other intangible assets, gross	27,206	27,206
Accumulated amortization - patents	(15,101)	(14,591)
Other intangible assets, net	$ 12,105	$ 12,615
Estimated Useful Life (in years)			8 years	16 years

XML

Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2014

Fair Value Disclosures [Abstract]

Assets measured at fair value on a recurring basis

Assets measured at fair value on a recurring basis were as follows (in thousands):

	March 31, 2014
	Level 1		Level 2		Level 3		Total
Cash Equivalents
Money market funds	$	27,975	$	—	$	—	$	27,975
Available for Sale Securities
Corporate bonds	—		5,352		—		5,352
Commercial paper	—		4,495		—		4,495
Certificates of deposit	—		3,671		—		3,671
	—		13,518		—		13,518
	$	27,975	$	13,518	$	—	$	41,493

XML

Fair Value Measurements (Details) (Fair Value, Measurements, Recurring [Member], USD $) In Thousands, unless otherwise specified	Mar. 31, 2014
Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	$ 0
Assets measured at fair value	27,975
Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	13,518
Assets measured at fair value	13,518
Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	0
Assets measured at fair value	0
Total
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	13,518
Assets measured at fair value	41,493
Money market funds | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash Equivalents	27,975
Money market funds | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash Equivalents	0
Money market funds | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash Equivalents	0
Money market funds | Total
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash Equivalents	27,975
Corporate bonds | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	0
Corporate bonds | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	5,352
Corporate bonds | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	0
Corporate bonds | Total
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	5,352
Commercial paper | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	0
Commercial paper | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	4,495
Commercial paper | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	0
Commercial paper | Total
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	4,495
Certificates of deposit | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	0
Certificates of deposit | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	3,671
Certificates of deposit | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	0
Certificates of deposit | Total
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	$ 3,671

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Discontinued Operations

3 Months Ended

Mar. 31, 2014

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operation

DISCONTINUED OPERATIONS

On September 25, 2009, in light of continuing operating losses in our Commercial business and in order to focus exclusively on managing our Direct and Retail businesses, we committed to a plan for the complete divestiture of our Commercial business, which qualified for held-for-sale accounting treatment. The Commercial business is presented as Discontinued Operations in our Condensed Consolidated Statements of Operations for all periods.

The disposal of the Commercial business assets was completed in April 2011. We reached substantial completion of asset liquidation at December 2012. However, we continue to have legal and accounting expenses as we work with authorities on final deregistration of certain European entities and product liability expenses associated with product previously sold into the Commercial channel. There was no revenue related to the Commercial business for the year ended December 31, 2013 or the three-month period ended March 31, 2014.

The following table summarizes liabilities for exit costs related to discontinued operations, included in Accrued Liabilities and Other Long-Term Liabilities in our Condensed Consolidated Balance Sheets (in thousands):

	Facilities Leases
Balance, December 31, 2013	$	831
Adjustments	—
Payments	(63		)
Balance, March 31, 2014	$	768

We expect the lease obligations to be paid out through 2016.

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Discontinued Operation (Details) (Facilities Leases, USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014
Facilities Leases
Restructuring Reserve [Roll Forward]
Balance, December 31, 2013	$ 831
Adjustments	0
Payments	(63)
Balance, March 31, 2014	$ 768

XML

Segment and Enterprise-wide Information (Tables)

3 Months Ended

Mar. 31, 2014

Segment Reporting [Abstract]

Summary Information by Reportable Segments

Following is summary information by reportable segment (in thousands):

	Three months ended March 31,
	2014			2013
Net sales:
Direct	$	50,735		$	42,635
Retail	20,103			15,134
Unallocated royalty income	1,065			1,445
Consolidated net sales	$	71,903		$	59,214
Contribution:
Direct	$	10,352		$	6,708
Retail	2,509			1,960
Unallocated royalty income	1,065			1,445
Consolidated contribution	$	13,926		$	10,113
Reconciliation of consolidated contribution to income   from continuing operations:
Consolidated contribution	$	13,926		$	10,113
Amounts not directly related to segments:
Operating expenses	(4,925		)	(4,120		)
Other expense, net	(60		)	(116		)
Income tax expense	(3,193		)	(353		)
Income from continuing operations	$	5,748		$	5,524

XML

Inventories (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Inventory Disclosure [Abstract]
Finished goods	$ 12,246	$ 14,259
Parts and components	1,216	1,565
Total inventories	$ 13,462	$ 15,824

XML

Property, Plant and Equipment (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014		Dec. 31, 2013
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	$ 49,454		$ 49,040
Accumulated depreciation	(40,784)		(40,541)
Total property, plant and equipment, net	8,670		8,499
Leasehold improvements
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	2,850		2,869
Leasehold improvements | Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated Useful Life (in years)	5 years
Leasehold improvements | Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated Useful Life (in years)	20 years
Computer equipment
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	35,519		35,554
Computer equipment | Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated Useful Life (in years)	3 years
Computer equipment | Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated Useful Life (in years)	5 years
Machinery and equipment
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	5,755		5,648
Machinery and equipment | Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated Useful Life (in years)	3 years
Machinery and equipment | Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated Useful Life (in years)	5 years
Furniture and fixtures
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	700		688
Estimated Useful Life (in years)	5 years
Work in Progress
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	$ 4,630	[1]	$ 4,281	[1]

[1] Work in progress includes internal use software development and production tooling construction in progress.

XML

General Information

3 Months Ended

Mar. 31, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

General Information

GENERAL INFORMATION

Basis of Consolidation and Presentation

The accompanying condensed consolidated financial statements present the financial position, results of operations and cash flows of Nautilus, Inc. and its subsidiaries, all of which are wholly owned. Intercompany transactions and balances have been eliminated in consolidation.

The accompanying condensed consolidated financial statements have not been audited. We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Management believes the disclosures contained herein are adequate to make the information presented not misleading. However, these condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013 (the “2013 Form 10-K”).

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Further information regarding significant estimates can be found in our 2013 Form 10-K.

In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments necessary to present fairly our financial position as of March 31, 2014 and December 31, 2013 and our results of operations, comprehensive income and cash flows for the three months ended March 31, 2014 and 2013. Interim results are not necessarily indicative of results for a full year. Our revenues typically vary seasonally and this seasonality can have a significant effect on operating results, inventory levels and working capital needs.

Unless indicated otherwise, all information regarding our operating results pertain to our continuing operations.

New Accounting Pronouncements

ASU 2014-08

In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) and Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." ASU 2014-08 amends the definition for what types of asset disposals are to be considered discontinued operations, and amends the required disclosures for discontinued operations and assets held for sale. ASU 2014-08 also enhances the convergence of the FASB’s and the International Accounting Standard Board’s reporting requirements for discontinued operations. ASU 2014-08 is effective for annual periods beginning on or after December

15, 2014, and interim periods within annual periods beginning on or after December 15, 2015. We do not expect the adoption of ASU 2014-08 to have a material effect on our financial position, results of operations or cash flows.

ASU 2013-11

In July 2013, the FASB issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” ASU 2013-11 amends the guidance related to the presentation of unrecognized tax benefits and allows for the reduction of a deferred tax asset for a net operating loss (“NOL”) carryforward whenever the NOL or tax credit carryforward would be available to reduce the additional taxable income or tax due if the tax position is disallowed. ASU 2013-11 is effective for annual and interim periods for fiscal years beginning after December 15, 2013. Since ASU 2013-11 relates only to the presentation of unrecognized tax benefits, our adoption of ASU 2013-11 in January 2014 did not have a material effect on our financial position, results of operations or cash flows.

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Goodwill and Other Intangible Assets Goodwill Roll Forward (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	12 Months Ended
	Mar. 31, 2014	Dec. 31, 2013
Goodwill [Roll Forward]
Balance	$ 2,740	$ 2,940
Currency exchange rate adjustment	(91)	(200)
Balance	$ 2,649	$ 2,740

XML

Segment and Enterprise-wide Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014 segment	Mar. 31, 2013
Segment Reporting Information [Line Items]
Number of reportable segments	2
Net sales	$ 71,903	$ 59,214
Contribution	13,926	10,113
Reconciliation of consolidated contribution to income (loss) from continuing operations:
Operating expenses	(29,480)	(24,700)
Income tax expense	(3,193)	(353)
Income from continuing operations	5,748	5,524
One Customer [Member] | Customer Concentration Risk [Member] | Sales [Member]
Reconciliation of consolidated contribution to income (loss) from continuing operations:
Percentage of Net Sales	10.00%
Direct
Segment Reporting Information [Line Items]
Net sales	50,735	42,635
Contribution	10,352	6,708
Retail
Segment Reporting Information [Line Items]
Net sales	20,103	15,134
Contribution	2,509	1,960
Unallocated royalty income
Segment Reporting Information [Line Items]
Net sales	1,065	1,445
Contribution	1,065	1,445
Reconciliation of consolidated contribution to income (loss) from continuing operations:
Operating expenses	(4,925)	(4,120)
Other expense, net	(60)	(116)
Income tax expense	(3,193)	(353)
Income from continuing operations	$ 5,748	$ 5,524

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Condensed Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Current assets:
Cash and cash equivalents	$ 42,035	$ 40,979
Marketable securities, current	12,512	0
Trade receivables, net of allowances of $38 and $53	13,394	25,336
Inventories	13,462	15,824
Prepaids and other current assets	4,389	6,927
Income taxes receivable	31	80
Deferred income tax assets	5,237	4,441
Total current assets	91,060	93,587
Marketable securities, long-term	1,006	0
Property, plant and equipment, net	8,670	8,499
Goodwill	2,649	2,740
Other intangible assets, net	12,105	12,615
Long-term deferred income tax assets	22,333	25,725
Other assets	307	401
Total assets	138,130	143,567
Liabilities and Shareholders' Equity
Trade payables	27,320	37,192
Accrued liabilities	7,836	9,123
Warranty obligations, current portion	1,983	1,610
Total current liabilities	37,139	47,925
Warranty obligations, non-current	0	28
Income taxes payable, non-current	2,664	2,577
Other long-term liabilities	1,359	1,472
Total liabilities	41,162	52,002
Commitments and contingencies (Note 12)
Shareholders' equity:
Common stock - no par value, 75,000 shares authorized, 31,188 and 31,162 shares issued and outstanding	6,975	6,769
Retained earnings	89,926	84,552
Accumulated other comprehensive income	67	244
Total shareholders' equity	96,968	91,565
Total liabilities and shareholders' equity	$ 138,130	$ 143,567

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Condensed Consolidated Statements of Comprehensive Income (Unaudited) (Parentheticals) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Statement of Comprehensive Income [Abstract]
Other Comprehensive Income (Loss), Foreign Currency Translation Adjustment, Tax, Portion Attributable to Parent	$ 5	$ 8
Other Comprehensive Income (Loss), Unrealized Holding Gain (Loss) on Securities Arising During Period, Tax	$ 0	$ 0

XML

Goodwill and Other Intangible Assets Future intangible amortization (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014
Goodwill and Intangible Assets Disclosure [Abstract]
Remainder of 2014	$ 1,530
2015	828
2016	430
2017	143
2018	65
Thereafter	57
Finite-Lived Intangible Assets, Net	$ 3,053

XML

Property, Plant, and Equipment (Tables)

3 Months Ended

Mar. 31, 2014

Property, Plant and Equipment [Abstract]

Schedule of Property, Plant and Equipment

Property, plant and equipment consisted of the following (in thousands):

	Estimated Useful Life (in years)			As of
				March 31, 2014			December 31, 2013
Leasehold improvements	5	to	20	$	2,850		$	2,869
Computer equipment	3	to	5	35,519			35,554
Machinery and equipment	3	to	5	5,755			5,648
Furniture and fixtures	5			700			688
Work in progress 1	N/A			4,630			4,281
Total cost				49,454			49,040
Accumulated depreciation				(40,784		)	(40,541		)
Total property, plant and equipment, net				$	8,670		$	8,499

¹ Work in progress includes internal use software development and production tooling construction in progress.

XML

Accrued Liabilities (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Payables and Accruals [Abstract]
Payroll and related liabilities	$ 3,257	$ 4,244
Other	4,579	4,879
Total accrued liabilities	$ 7,836	$ 9,123

XML

Accrued Liabilities (Tables)

3 Months Ended

Mar. 31, 2014

Payables and Accruals [Abstract]

Schedule of Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

	As of
	March 31, 2014		December 31, 2013
Payroll and related liabilities	$	3,257	$	4,244
Other	4,579		4,879
Total accrued liabilities	$	7,836	$	9,123

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Cash flows from operating activities:
Income from continuing operations	$ 5,748	$ 5,524
Loss from discontinued operations	(374)	(365)
Net income	5,374	5,159
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	865	818
Bad debt expense	30	169
Inventory lower-of-cost-or-market adjustments	589	0
Stock-based compensation expense	265	214
Loss on asset dispositions	1	14
Deferred income taxes, net of valuation allowance	2,321	257
Excess tax deficiency related to stock-based awards	102	0
Changes in operating assets and liabilities:
Trade receivables, net	11,752	9,280
Inventories	1,765	5,130
Prepaids and other current assets	2,617	1,498
Income taxes payable	356	(105)
Trade payables	(9,830)	(14,968)
Accrued liabilities, including warranty obligations	(1,085)	(1,431)
Net cash provided by operating activities	15,122	6,035
Cash flows from investing activities:
Purchase of marketable securities	(13,518)	0
Proceeds from sale of assets of discontinued operations	0	96
Purchases of property, plant and equipment	(521)	(762)
Net cash used in investing activities	(14,039)	(666)
Cash flows from financing activities:
Proceeds from exercise of stock options	42	147
Excess tax deficiency related to stock-based awards	(102)	0
Net cash provided by (used in) financing activities	(60)	147
Effect of exchange rate changes on cash and cash equivalents	33	(43)
Increase in cash and cash equivalents	1,056	5,473
Cash and cash equivalents:
Beginning of period	40,979	23,207
End of period	42,035	28,680
Supplemental disclosure of cash flow information:
Cash paid for interest	7	10
Cash paid for income taxes, net	$ 95	$ 109

XML

Condensed Consolidated Balance Sheets (Unaudited) (Parentheticals) (USD $) In Thousands, except Per Share data, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Statement of Financial Position [Abstract]
Allowance for doubtful trade receivables	$ 38	$ 53
Common stock, par value (in dollars per share)	$ 0	$ 0
Common stock, shares authorized	75,000	75,000
Common stock, shares issued	31,188	31,162
Common stock, shares outstanding	31,188	31,162

XML

Income Per Share

3 Months Ended

Mar. 31, 2014

Earnings Per Share [Abstract]

Income Per Share

INCOME PER SHARE

Basic per share amounts were computed using the weighted average number of common shares outstanding. Diluted per share amounts were calculated using the number of basic weighted average shares outstanding increased by dilutive potential common shares related to stock-based awards, as determined by the treasury stock method. The weighted average numbers of shares outstanding used to compute income per share were as follows (in thousands):

	Three months ended March 31,
	2014	2013
Shares used to calculate basic income per share	31,172	30,947
Dilutive effect of outstanding options, performance stock units and restricted stock units	378	317
Shares used to calculate diluted income per share	31,550	31,264

The weighted average numbers of shares outstanding listed in the table below were anti-dilutive and excluded from the computation of diluted income per share, primarily because the average market price did not exceed the exercise price. These shares may be dilutive potential common shares in the future (in thousands):

	Three months ended March 31,
	2014	2013
Stock options	320	340
Performance stock units	84	125

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2014	Apr. 30, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	NAUTILUS, INC.
Entity Central Index Key	0001078207
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Document Type	10-Q
Document Period End Date	Mar. 31, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Common Stock, Shares Outstanding		31,188,133

XML

Segment and Enterprise-wide Information

3 Months Ended

Mar. 31, 2014

Segment Reporting [Abstract]

Segment and Enterprise-wide Information

SEGMENT AND ENTERPRISE-WIDE INFORMATION

We have two reportable segments - Direct and Retail. Contribution is the measure of profit or loss, defined as net sales less product costs and directly attributable expenses. Directly attributable expenses include Selling and Marketing expenses, General and Administrative expenses, and Research and Development expenses that are directly related to segment operations. Segment assets are those directly assigned to an operating segment's operations, primarily Accounts Receivable, Inventories and Intangible Assets. Unallocated assets primarily include shared information technology infrastructure, distribution centers, corporate headquarters, Prepaids and Other Current Assets, Deferred Income Tax Assets and Other Assets. Capital expenditures directly attributable to the Direct and Retail segments were not significant in any period.

Following is summary information by reportable segment (in thousands):

	Three months ended March 31,
	2014			2013
Net sales:
Direct	$	50,735		$	42,635
Retail	20,103			15,134
Unallocated royalty income	1,065			1,445
Consolidated net sales	$	71,903		$	59,214
Contribution:
Direct	$	10,352		$	6,708
Retail	2,509			1,960
Unallocated royalty income	1,065			1,445
Consolidated contribution	$	13,926		$	10,113
Reconciliation of consolidated contribution to income   from continuing operations:
Consolidated contribution	$	13,926		$	10,113
Amounts not directly related to segments:
Operating expenses	(4,925		)	(4,120		)
Other expense, net	(60		)	(116		)
Income tax expense	(3,193		)	(353		)
Income from continuing operations	$	5,748		$	5,524

There was no material change in the allocation of assets by segment during the first three months of 2014 and, accordingly, assets by segment are not presented.

No customer represented 10.0% or more of our total Net Sales in the three months ended March 31, 2014 or 2013.

XML

Condensed Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Income Statement [Abstract]
Net sales	$ 71,903	$ 59,214
Cost of sales	33,422	28,520
Gross profit	38,481	30,694
Operating expenses:
Selling and marketing	21,774	18,626
General and administrative	5,803	4,947
Research and development	1,903	1,127
Total operating expenses	29,480	24,700
Operating income	9,001	5,994
Other income (expense):
Interest income	8	1
Interest expense	(7)	(9)
Other	(61)	(109)
Total other income (expense)	(60)	(117)
Income from continuing operations before income taxes	8,941	5,877
Income tax provision	3,193	353
Income from continuing operations	5,748	5,524
Discontinued operations:
Loss from discontinued operations before income taxes	(512)	(374)
Income tax benefit from discontinued operations	(138)	(9)
Loss from discontinued operations	(374)	(365)
Net income	$ 5,374	$ 5,159
Earnings Per Share, Basic [Abstract]
Basic income per share from continuing operations (in dollars per share)	$ 0.18	$ 0.18
Basic loss per share from discontinued operation (in dollars per share)	$ (0.01)	$ (0.01)
Basic net income per share (in dollars per share)	$ 0.17	$ 0.17
Earnings Per Share, Diluted [Abstract]
Diluted income per share from continuing operations (in dollars per share)	$ 0.18	$ 0.18
Diluted loss per share from discontinued operation (in dollars per share)	$ (0.01)	$ (0.01)
Diluted net income per share (in dollars per share)	$ 0.17	$ 0.17
Shares used in per share calculations:
Basic (in shares)	31,172	30,947
Diluted (in shares)	31,550	31,264

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Property, Plant and Equipment

3 Months Ended

Mar. 31, 2014

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following (in thousands):

	Estimated Useful Life (in years)			As of
				March 31, 2014			December 31, 2013
Leasehold improvements	5	to	20	$	2,850		$	2,869
Computer equipment	3	to	5	35,519			35,554
Machinery and equipment	3	to	5	5,755			5,648
Furniture and fixtures	5			700			688
Work in progress 1	N/A			4,630			4,281
Total cost				49,454			49,040
Accumulated depreciation				(40,784		)	(40,541		)
Total property, plant and equipment, net				$	8,670		$	8,499

¹ Work in progress includes internal use software development and production tooling construction in progress.

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Inventories

3 Months Ended

Mar. 31, 2014

Inventory Disclosure [Abstract]

Inventories

INVENTORIES

Inventories consisted of the following (in thousands):

	As of
	March 31, 2014		December 31, 2013
Finished goods	$	12,246	$	14,259
Parts and components	1,216		1,565
Total inventories	$	13,462	$	15,824

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Goodwill and Other Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Goodwill and Other Intangible Assets

The rollforward of goodwill was as follows (in thousands):

Balance, January 1, 2013	$	2,940
Currency exchange rate adjustment	(200		)
Balance, December 31, 2013	2,740
Currency exchange rate adjustment	(91		)
Balance, March 31, 2014	$	2,649

Other Intangible Assets

Other intangible assets consisted of the following (in thousands):

	Estimated Useful Life (in years)			As of
				March 31, 2014			December 31, 2013
Other intangible assets:
Indefinite-lived trademarks	N/A			$	9,052		$	9,052
Patents	8	to	16	18,154			18,154
				27,206			27,206
Accumulated amortization - patents				(15,101		)	(14,591		)
				$	12,105		$	12,615

Amortization Expense

Amortization expense was as follows (in thousands):

	Three months ended March 31,
	2014		2013
Patent amortization	$	510	$	513

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense

Future amortization of patents is as follows (in thousands):

Remainder of 2014	$	1,530
2015	828
2016	430
2017	143
2018	65
Thereafter	57
	$	3,053

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

COMMITMENTS AND CONTINGENCIES

Guarantees, Commitments and Off-Balance Sheet Arrangements

As of March 31, 2014, we had approximately $0.4 million in standby letters of credit with certain vendors with expiration dates through August 2014.

We have long lead times for inventory purchases and, therefore, must secure factory capacity from our vendors in advance. As of March 31, 2014, we had approximately $5.7 million in non-cancelable market-based purchase obligations, primarily for inventory purchases expected to be received within the next twelve months. Purchase obligations can vary from quarter-to-quarter and versus the same period in prior years due to a number of factors, including the amount of products that are shipped directly to Retail customer warehouses versus through Nautilus warehouses.

In the ordinary course of business, we enter into agreements that require us to indemnify counterparties against third-party claims. These may include: agreements with vendors and suppliers, under which we may indemnify them against claims arising from use of their products or services; agreements with customers, under which we may indemnify them against claims arising from their use or sale of our products; real estate and equipment leases, under which we may indemnify lessors against third-party claims relating to the use of their property; agreements with licensees or licensors, under which we may indemnify the licensee or licensor against claims arising from their use of our intellectual property or our use of their intellectual property; and agreements with parties to debt arrangements, under which we may indemnify them against claims relating to their participation in the transactions.

The nature and terms of these indemnification obligations vary from contract to contract, and generally a maximum obligation is not stated within the agreements. We hold insurance policies that mitigate potential losses arising from certain types of indemnification obligations. Management does not deem these obligations to be significant to our financial position, results of operations or cash flows and, therefore, no related liabilities were recorded as of March 31, 2014.

Legal Matters

In 2004, we were sued in the Southern District of New York by BioSig Instruments, Inc. for alleged patent infringement in connection with our incorporation of heart rate monitors into certain cardio products. No significant activity in the litigation occurred until 2008. In 2012, the United States District Court granted summary judgment to us on grounds that BioSig’s patents were invalid as a matter of law. BioSig appealed the grant of summary judgment and, in April 2013, the United States Court of Appeals for the Federal Circuit reversed the District Court’s decision on summary judgment and remanded the case to the District Court for further proceedings. On January 10, 2014, the U.S. Supreme Court granted our petition for a writ of certiorari to address the legal standard applied by the Federal Circuit in determining whether the patents may be valid under applicable law. The case was argued before the Supreme Court on April 28, 2014 and a decision is expected in June 2014. We do not believe that our use of heart rate monitors utilized or purchased from third parties, and otherwise, infringe the BioSig patents.

In addition to the matter described above, from time to time we are subject to litigation, claims and assessments that arise in the ordinary course of business, including disputes that may arise from intellectual property related matters. Management believes that any liability resulting from such additional matters will not have a material adverse effect on our financial position, results of operations or cash flows.

We record expenses for litigation and loss contingencies when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. When a loss contingency is not both probable and estimable, we do not establish an accrued liability. However, if the loss (or an additional loss in excess of the accrual) is at least a reasonable possibility and material, then we disclose an estimate of the possible loss or range of loss, if such estimate can be made, or disclose that an estimate cannot be made.

Litigation and jury verdicts are, to some degree, inherently unpredictable, and although we have determined that a loss is not probable in connection with any current legal proceeding at this time, it is reasonably possible that a loss may be incurred in connection with proceedings to which we are a party. Assessment of whether incurrence of a loss is probable, or a reasonable possibility, in connection with a particular proceeding, and estimation of the loss, or a range of loss, involves complex judgments and numerous uncertainties. Management is unable to estimate a range of reasonably possible losses related to litigation in its early stages, especially when the damages sought are indeterminate, or the legal and factual basis for the relevant claims have not been developed with specificity.

We regularly monitor our estimated exposure to these contingencies and, as additional information becomes known, may change our estimates accordingly. We evaluate, on a quarterly basis, developments in legal proceedings, investigations or claims that could affect the amount of any accrual, as well as any developments that would make a loss probable or reasonably possible, and whether the amount of a probable or reasonably possible loss is estimable. Among other factors, we evaluate the advice of internal and external counsel, the outcomes from similar litigation, current status of the lawsuits (including settlement initiatives), legislative developments and other factors. Due to the numerous variables associated with these judgments and assumptions, both the precision and reliability of the resulting estimates of the related loss contingencies are subject to substantial uncertainties.

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Fair Value Measurements

3 Months Ended

Mar. 31, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements

FAIR VALUE MEASUREMENTS

Factors used in determining the fair value of financial assets and liabilities are summarized into three broad categories:

• Level 1 - observable inputs such as quoted prices (unadjusted) in active markets for identical securities as of the reporting date;

• Level 2 - other significant directly or indirectly observable inputs, including quoted prices for similar securities, interest rates, prepayment speeds and credit risk; or observable market prices in markets with insufficient volume and/or infrequent transactions; and

• Level 3 - significant inputs that are generally unobservable inputs for which there is little or no market data available, including our own assumptions in determining fair value.

Assets measured at fair value on a recurring basis were as follows (in thousands):

	March 31, 2014
	Level 1		Level 2		Level 3		Total
Cash Equivalents
Money market funds	$	27,975	$	—	$	—	$	27,975
Available for Sale Securities
Corporate bonds	—		5,352		—		5,352
Commercial paper	—		4,495		—		4,495
Certificates of deposit	—		3,671		—		3,671
	—		13,518		—		13,518
	$	27,975	$	13,518	$	—	$	41,493

The company recognizes transfers between levels at the actual date of the event or change in circumstance that caused the transfer.  There were no transfers between levels during the first quarter of 2014.

We classify our marketable securities as available-for-sale and, accordingly, record them at fair value based on quoted market prices. The factors or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Unrealized holding gains and losses are excluded from earnings and are reported net of tax in other comprehensive income until realized. During the first quarter of 2014 and 2013, we did not record any other-than-temporary impairments on our financial assets required to be measured at fair value on a nonrecurring basis.

We recognize or disclose the fair value of certain assets, such as non-financial assets, primarily long-lived assets, goodwill, intangible assets and certain other assets in connection with impairment evaluations. All of our nonrecurring valuations use significant unobservable inputs and therefore fall under Level 3 of the fair value hierarchy. We did not perform any valuations on  assets or liabilities that are valued at fair value on a nonrecurring basis during the first quarter of 2014 or the last quarter of 2013 except for the Goodwill impairment evaluation that was prepared effective October 1, 2013.

The carrying value of Cash and Cash Equivalents, Trade Receivables, Prepaids and Other Current Assets, Trade Payables and Accrued Liabilities approximates their fair values due to the short-term nature of their maturities.

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Goodwill and Other Intangible Assets

3 Months Ended

Mar. 31, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangible Assets

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

All goodwill is assigned to our Direct reporting segment. The rollforward of goodwill was as follows (in thousands):

Balance, January 1, 2013	$	2,940
Currency exchange rate adjustment	(200		)
Balance, December 31, 2013	2,740
Currency exchange rate adjustment	(91		)
Balance, March 31, 2014	$	2,649

Other Intangible Assets

Other intangible assets consisted of the following (in thousands):

	Estimated Useful Life (in years)			As of
				March 31, 2014			December 31, 2013
Other intangible assets:
Indefinite-lived trademarks	N/A			$	9,052		$	9,052
Patents	8	to	16	18,154			18,154
				27,206			27,206
Accumulated amortization - patents				(15,101		)	(14,591		)
				$	12,105		$	12,615

Amortization expense was as follows (in thousands):

	Three months ended March 31,
	2014		2013
Patent amortization	$	510	$	513

Future amortization of patents is as follows (in thousands):

Remainder of 2014	$	1,530
2015	828
2016	430
2017	143
2018	65
Thereafter	57
	$	3,053

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Accrued Liabilities

3 Months Ended

Mar. 31, 2014

Payables and Accruals [Abstract]

Accrued Liabilities

ACCRUED LIABILITIES

Accrued liabilities consisted of the following (in thousands):

	As of
	March 31, 2014		December 31, 2013
Payroll and related liabilities	$	3,257	$	4,244
Other	4,579		4,879
Total accrued liabilities	$	7,836	$	9,123

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Product Warranties

3 Months Ended

Mar. 31, 2014

Product Warranties Disclosures [Abstract]

Product Warranties

PRODUCT WARRANTIES

Our products carry limited, defined warranties for defects in materials or workmanship which, according to their terms, generally obligate us to pay the costs of supplying and shipping replacement parts to customers and, in certain instances, pay for labor and other costs to service products. Outstanding product warranty periods range from sixty days to, in limited circumstances, the lifetime of certain product components. We record a liability at the time of sale for the estimated costs of fulfilling future warranty claims. If necessary, we adjust the liability for specific warranty-related matters when they become known and are reasonably estimable. Estimated warranty expense is included in Cost of Sales, based on historical warranty claim experience and available product quality data. Warranty expense is affected by the performance of new products, significant manufacturing or design defects not discovered until after the product is delivered to the customer, product failure rates, and higher or lower than expected repair costs. If warranty expense differs from previous estimates, or if circumstances change such that the assumptions inherent in previous estimates are no longer valid, the amount of product warranty obligations is adjusted accordingly.

Changes in our product warranty obligations were as follows (in thousands):

	Three months ended March 31,
	2014			2013
Balance, beginning of period	$	1,638		$	2,492
Accruals	921			653
Adjustments	—			—
Payments	(576		)	(535		)
Balance, end of period	$	1,983		$	2,610

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Goodwill and Other Intangible Assets Patent amortization (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Goodwill and Intangible Assets Disclosure [Abstract]
Patent amortization	$ 510	$ 513

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Inventories (Tables)

3 Months Ended

Mar. 31, 2014

Inventory Disclosure [Abstract]

Schedule of Inventories, Net of Valuation Allowances

Inventories consisted of the following (in thousands):

	As of
	March 31, 2014		December 31, 2013
Finished goods	$	12,246	$	14,259
Parts and components	1,216		1,565
Total inventories	$	13,462	$	15,824

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Product Warranties (Tables)

3 Months Ended

Mar. 31, 2014

Product Warranties Disclosures [Abstract]

Schedule of Product Warranty Liability

Changes in our product warranty obligations were as follows (in thousands):

	Three months ended March 31,
	2014			2013
Balance, beginning of period	$	1,638		$	2,492
Accruals	921			653
Adjustments	—			—
Payments	(576		)	(535		)
Balance, end of period	$	1,983		$	2,610

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Commitments and Contingencies (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2014
Commitments and Contingencies Disclosure [Abstract]
Standby letters of credit outstanding	$ 0.4
Non-cancelable market-based purchase obligation	$ 5.7

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Condensed Consolidated Statements of Comprehensive Income (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Statement of Comprehensive Income [Abstract]
Net income	$ 5,374	$ 5,159
Other comprehensive income (loss):
Unrealized loss on marketable securities, net of income tax expense of $0 and $0	(13)	0
Foreign currency translation, net of income tax expense of $5 and $8	(164)	(147)
Comprehensive income	$ 5,197	$ 5,012

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Marketable Securities

3 Months Ended

Mar. 31, 2014

Investments, Debt and Equity Securities [Abstract]

Marketable Securities

MARKETABLE SECURITIES

We classify our marketable securities as available-for-sale and, accordingly, record them at fair value. Unrealized holding gains and losses are excluded from earnings and are reported net of tax in other comprehensive income until realized. Dividend and interest income is recognized when earned. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of securities sold.

We periodically evaluate whether declines in fair values of our investments below their cost are "other-than-temporary." This evaluation consists of qualitative and quantitative factors regarding the severity and duration of the unrealized loss, as well as our ability and intent to hold the investment until a forecasted recovery occurs.

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Income Per Share (Tables)

3 Months Ended

Mar. 31, 2014

Earnings Per Share [Abstract]

Schedule of Weighted Average Number of Shares Outstanding Used to Compute Income Per Share

The weighted average numbers of shares outstanding used to compute income per share were as follows (in thousands):

	Three months ended March 31,
	2014	2013
Shares used to calculate basic income per share	31,172	30,947
Dilutive effect of outstanding options, performance stock units and restricted stock units	378	317
Shares used to calculate diluted income per share	31,550	31,264

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share

The weighted average numbers of shares outstanding listed in the table below were anti-dilutive and excluded from the computation of diluted income per share, primarily because the average market price did not exceed the exercise price. These shares may be dilutive potential common shares in the future (in thousands):

	Three months ended March 31,
	2014	2013
Stock options	320	340
Performance stock units	84	125

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Product Warranties (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Movement in Product Warranty Liability [Roll Forward]
Balance, beginning of period	$ 1,638	$ 2,492
Accruals	921	653
Adjustments	0	0
Accruals	(576)	(535)
Balance, end of period	$ 1,983	$ 2,610
Minimum [Member]
Product Liability Contingency [Line Items]
Product warranty period	60 days

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Discontinued Operation (Tables)

3 Months Ended

Mar. 31, 2014

Discontinued Operations and Disposal Groups [Abstract]

Schedule of Operating Results of Company's Former Commercial Business

The following table summarizes liabilities for exit costs related to discontinued operations, included in Accrued Liabilities and Other Long-Term Liabilities in our Condensed Consolidated Balance Sheets (in thousands):

	Facilities Leases
Balance, December 31, 2013	$	831
Adjustments	—
Payments	(63		)
Balance, March 31, 2014	$	768