Nautilus 2008 Annual Report Download - page 33

Download and view the complete annual report

Please find page 33 of the 2008 Nautilus annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 103

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103

Table of Contents
business to provide a more appropriate match between the costs of media advertising and anticipated sales results. The Company uses the
services of outside media placement firms to assist in maximizing the return on media advertising and regularly adjusts the advertising –
by type,
product and total spend – to improve profitability. Other cost reduction activities that reduced selling and marketing expense during 2008
included a $7.2 million decline in personnel costs as a result of restructuring activities; a $7.5 million reduction in other discretionary expenses
related to travel, trade show, catalog and sales promotions; and a $2.7 million reduction in financing fees as a result of lower direct business
sales. Selling and marketing expenses in 2008 included $1.5 million in bad debt charges associated with the Company’s China subsidiary.
Selling and marketing expenses in 2007 included charges of $4.8 million for bad debt expense for a significant customer and $1.6 million in
costs supporting our Australian operations which were closed in early 2008.
General and Administrative
Our general and administrative expenses are primarily comprised of costs associated with corporate support functions, general management and
other activities not related to our selling and marketing or research and development efforts, including when applicable, the impact of goodwill
and intangible impairment losses.
General and administrative expenses in 2008 were $46.5 million compared to $49.4 million in 2007, a decrease of $2.8 million or 5.7%. General
and administrative expenses in 2008 included: charges of $2.0 million for legal and contract settlement costs; $1.3 million in asset impairments
related to the suspension of operations in our China sales office; $1.1 million in impairment charges on the StairMaster trade name; $1.1 million
write down of previously deferred financing costs as a result of amending our loan agreement; and $0.6 million in reimbursement obligations
related to a shareholder action. General and administrative expenses in 2007 included expenses of $2.7 million related to the special
shareholders’ meeting in December 2007.
Research and Development
Our research and development expenses consist of internal and third-party costs associated with obtaining, creating and designing new
technologies and innovations necessary to market new products, update or reengineer existing products or improve manufacturing efficiencies.
Research and development expenses decreased by $1.9 million, or 18.1%, to $8.5 million in 2008, compared to $10.3 million in 2007. The
decline reflects a $0.9 million decrease in personnel expenses; a $0.7 million decrease in prototype expenses related to the Nautilus One product
launch in 2007; and other decreases in discretionary expenses. The impact of these items was partially offset by increased facility charges for
new leased space in Colorado and a $0.5 million increase in preproduction royalties related to a new product in development.
Restructuring
Our restructuring expenses primarily relate to the reorganization or termination of business activities and initiatives and include: contract
termination fees, costs associated with abandoned purchase agreements, severance, charges for inventory write-downs on discontinued products
and impairment charges associated with the discontinued use of intellectual property rights.
Restructuring expenses decreased $12.8 million, or 47.7%, to $14.0 million in 2008, compared to $26.8 million in 2007. Restructuring charges in
2008 include the effect of an $8.0 million settlement with Land America related to the terminated asset purchase agreement for a manufacturing
entity located in China; and severance costs of $4.9 million related to reductions in personnel. Restructuring expenses in 2007 included $19.4
million in charges associated with the decision to terminate the Land America asset purchase agreement; severance costs of $3.2 million; $3.0
million in impairment charges related to acquired technology no longer being used; and an additional $1.2 million related to changes in strategic
plans regarding products and marketing arrangements that were cancelled.
29