Nautilus 2003 Annual Report Download - page 23

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Table of Contents
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The purpose of the Management’s Discussion and Analysis of Financial Condition and Results of Operations (the “MD&A”) is to provide
readers with information necessary to understand the Company’s financial condition, changes in financial condition, liquidity and capital
resources, and results of operations, as well as our prospects for the future. Below is an index to the MD&A.
EXECUTIVE OVERVIEW
Executive Overview
22
Critical Accounting Policies
23
Results of Operations
26
Liquidity and Capital Resources
34
Off
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Balance Sheet Arrangements
35
Inflation and Price Increases
35
Recent Accounting Pronouncements
35
Risks and Uncertainties
36
2003 was a challenging year for the Company. We experienced declines in year-over-year net sales and net income for the first time in
Company history. We attribute these results primarily to increased competition and higher advertising costs, which adversely impacted sales of
our Bowflex products. After years of uninterrupted growth, unit sales of Bowflex products through the direct sales channel declined 42.5% in
2003 from an all-time high in 2002.
The Company responded with a turnaround plan focused on repositioning our products to better meet customer demand and shopping patterns,
leveraging our multiple sales channels by cross-selling products and offering complete packages of cardiovascular and strength products, and
innovation in providing our customers with new differentiated products at a more rapid pace. In 2003, two notable examples of executing on
our strategic initiatives were the introduction of the Bowflex line of strength equipment to the retail sales channel and the launch of the
revolutionary TreadClimber line of cardiovascular equipment through the direct sales channel.
Heading into 2004, we are encouraged by some trends that we intend to build upon going forward including increased net sales and earnings
for our commercial/retail business segment, greater diversification of our net sales and earnings with new product introductions such as the
TreadClimber, and sequential growth in quarterly Bowflex units sold beginning in the third quarter of 2003 for the first time since the second
quarter of 2002.
We are also presented with some challenges heading into 2004. Our Bowflex Power Pro model was the subject of a voluntary product safety
reinforcement program in cooperation with the Consumer Product Safety Commission (the “CPSC”) that was formally announced in January
2004. In addition, we expect an increase in competition with our Bowflex product line as the patent on the Power Rod resistance technology
expires in April 2004.
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22
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