Nautilus 2003 Annual Report Download - page 32

Table of Contents
General and Administrative
General and administrative expenses increased 42.6% in 2003 compared to 2002. Our direct segment accounted for $6.6 million of the $11.1
million increase due primarily to depreciation, consulting costs, and wages associated with our newly implemented computer information
systems. Our commercial/retail segment general and administrative expenses declined by $0.8 million due mostly to cost savings associated
with the integration of the Schwinn Fitness and StairMaster businesses that we acquired in September 2001 and February 2002, respectively.
Our financial statements now reflect a third segment comprised of our corporate holding company which includes primarily general and
administrative expenses such as investor relations, director costs, legal and accounting fees, and salaries of corporate personnel, as well as other
costs not specifically attributable to our other two segments. For financial reporting purposes, we have reclassified prior year balances to
conform to this three segment presentation with no effect on previously reported consolidated net income or stockholders’ equity. Corporate
general and administrative expenses increased $5.2 million due primarily to additional legal related expenses. As a percentage of net sales,
general and administrative expenses increased to 7.4% in 2003 from 4.5% in 2002.
Royalties
Royalty expense decreased 21.0% in 2003 from 2002. Our direct and commercial/retail segments have several agreements under which we are
obligated to pay royalty fees on certain products. The decrease in our royalty expense is primarily attributable to the decreased sales of our
Bowflex products. This decrease in Bowflex-
related royalties was partially offset by royalty expense associated with our TreadClimber product
sales. The patent for the Bowflex Power Rod resistance technology expires April 27, 2004, at which time we will no longer be obligated to pay
royalties related to Bowflex sales. We are obligated to pay royalties (3% of TreadClimber sales) to the inventor of the main patent on the
TreadClimber until this patent expires on December 13, 2013.
Income Tax Expense
Income tax expense decreased 64.9% in 2003 due to the decline in our income before taxes. We expect our income tax expense to fluctuate in
line with changes in our income before taxes.
Net Income
For the reasons discussed above, net income declined to $34.4 million in 2003 from $97.9 million in 2002, a decrease of 64.9%.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 2002 AND DECEMBER 31, 2001
Net Sales
Net sales increased by 60.7% to $584.7 million in 2002 from $363.9 million in 2001. Excluding our acquisitions of Schwinn Fitness and
StairMaster, sales grew by approximately 32.6% on a consolidated basis in 2002 compared to 2001. The increase in sales was driven by the
growth in our direct segment and continued expansion of our commercial/retail business.
Sales within our direct segment were $392.6 million in 2002, an increase of 34.2% over 2001. A significant reason for the increase in direct
segment sales can be attributed to the introduction of our high-end Bowflex “Ultimate” at the end of the fourth quarter of 2001. The “Ultimate”
was well received by consumers leading to sequential growth in the average selling price of our Bowflex product line in each quarter from its
introduction in 2001 through 2002.
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