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18
the financial statements at the largest amount of benefit that is greater than 50 percent likely of being
realized upon ultimate settlement. FIN 48 also provides guidance on the accounting for related
interest and penalties, financial statement classification, and disclosure. FIN 48 is effective for fiscal
years beginning after December 15, 2006. We do not expect the adoption of FIN 48 to have a
material impact on our financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157,
“Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value measurements. SFAS 157 applies
where other accounting pronouncements require or permit fair value measurements; it does not
require any new fair value measurements. The effects of adopting SFAS 157 will be determined by
the types of instruments carried at fair value in our financial statements at the time of adoption as well
as the method utilized to determine their fair values prior to adoption. SFAS 157 is effective for fiscal
years beginning after November 15, 2007. We are currently evaluating the impact SFAS 157 will
have on our financial statements.
Results of Operations
The following table sets forth for the periods indicated information derived from our consolidated
statements of income expressed as a percentage of net sales:
Percentage of Net Sales
Financial Results Years Ended December 31,
2006 2005 2004
Net sales 100.0 % 100.0 % 100.0 %
Cost of sales 84.2 84.6 84.8
Gross profit 15.8 15.4 15.2
Selling and administrative expenses 7.8 6.9 6.7
Advertising expense 1.8 1.8 1.6
Litigation settlement 0.4 - -
Income from operations 5.8 6.7 6.9
Interest and other income 0.3 0.2 0.1
Income before income taxes 6.1 6.9 7.0
Income tax provision 2.2 2.6 2.8
Net income 3.9 % 4.3 % 4.2 %
The following table sets forth for the periods indicated a summary of certain of our consolidated
operating statistics:
Operating Statistics Years Ended December 31,
2006 2005 2004
Sales force, end of period (1) 2,589 2,153 2,012
Annualized inventory turnover 23 24 24
Accounts receivable - days sales outstanding (2) 46 37 37
Direct Web sales (000’s) $1,981,921 $1,769,032 $1,525,712
Net sales per coworker (000’s) (2) $1,389 $1,545 $1,504
Return on shareholders’ equity (2) 20.7% 22.4% 21.1%
(1) Includes 206 Berbee sales force coworkers.
(2) These statistics were negatively impacted, in part, by the acquisition of Berbee in October 2006.
Berbee results were only included in our consolidated financial statements from the date of
acquisition through the end of the year.