Nautilus 2012 Annual Report Download - page 19

Table of Contents
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation
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 II, Item 8 of this report. All
references to the years 2012, 2011 and 2010 mean the twelve-month periods ended December 31, 2012, 2011 and 2010, 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, higher or lower fuel prices, 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 air television
advertisements of our products, facility costs, operating costs of our information and communications 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 of any future growth or profitability. For more information, see our discussion of Risk
Factors located at Part I, Item 1A of this report.
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 cardiovascular and strength fitness products and related accessories for
consumer home 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, the Internet and catalogs. Our Retail business offers our
products through a network of third-party retailers with stores and websites located in the United States and internationally. We also derive a
portion of our revenues from the licensing of our brands and intellectual property.
Our net sales in 2012 were $193.9 million , an increase of $13.5 million , or 7.5% , compared to net sales of $180.4 million in 2011 , largely due
to higher sales of cardio products, especially the Bowflex TreadClimber, which we believe was driven by increased advertising effectiveness,
improved call center effectiveness and higher U.S. consumer credit approval rates.
Income from continuing operations was $10.6 million in 2012 , compared to $2.5 million for 2011 . Income from continuing operations was
$0.34 per diluted share in 2012 , compared to $0.08 per diluted share in 2011 . The significant improvement in our results from continuing
operations was primarily attributable to increased sales and higher gross margin in our Direct business, compared to 2011.
RESULTS OF OPERATIONS
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires estimates and assumptions that
affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of
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