Nautilus 2005 Annual Report Download - page 26

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
25
Critical Accounting Policies
26
Results of Operations
29
Liquidity and Capital Resources
35
Off
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Balance Sheet Arrangements
36
Inflation and Price Increases
36
Recent Accounting Pronouncements
37
In 2005, we embarked on a growth plan designed to place the Company as the global leader in the fitness industry. Following the
completion of our turnaround in 2004, we now offer a complete range of fitness products in virtually every business channel where consumers
shop or exercise, and we continue to focus on our future with significant investments in product development, information systems,
manufacturing, and marketing.
For the year, we delivered net sales of $631.3 million, a 20.5% increase from last year and the highest net sales in our Company’
s history.
While the first three quarters of 2005 surpassed prior year revenue and profit, we fell short of our target in the fourth quarter. We managed to
grow net sales in 2005, but experienced an earnings decline of 23.3% to $0.68 per diluted share. Interest in our products and innovation
remained strong, but we did not execute operationally as well as we should have. We uncovered gaps in our go-to-market process for new
products, with many delays due to manufacturing and distribution issues, resulting in higher than anticipated costs.
We have identified the issues in our manufacturing and distribution processes as well as in our information systems, and we have already
corrected many of the issues. Despite this setback, we did realize a number of noteworthy achievements in 2005:
• We completed two important acquisitions – fitness apparel brand Pearl Izumi USA and the Canadian fitness equipment distributor,
Belko Canada. Long popular with cyclists, the high-performance Pearl Izumi brand has been expanded to serve runners. We expect
other sports categories will follow. Belko Canada has been the exclusive Canadian distributor of the Company since 1996. We are
looking forward to expanding the reach of our Nautilus, Bowflex, Schwinn Fitness, StairMaster and Trimline brands in the specialty
and commercial markets, and intensifying our marketing of all brands across Canada.
• We invested heavily in product development and introduced approximately 22 new products, including the next generation of our
popular Bowflex TreadClimber cardio trainer, the Bowflex Revolution home gym, and Bowflex SelectTech dumbbells, specifically
for women and teens. Our company has long been known for strength equipment, but now has a competitive offering of cardio
equipment, which triples the addressable equipment market.
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• We grew in all five channels of distribution, with a 20.5% overall increase in net sales, and a net sales increase of 53.5% in our retail
channel as we broadened our reach into sporting goods stores, warehouse clubs and department stores. We are the leading equipment
supplier in the direct and specialty retail channels, and we recently established a team in China to work with suppliers and expand our
international market presence.