Nautilus 2000 Annual Report Download - page 19

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companies that operate in evolving markets. We may not be able to successfully address these risks and difficulties. Although we have
experienced net sales growth in recent years, our net sales growth may not continue, and we cannot assure you of any future growth or
profitability.
The following table presents certain financial data as a percentage of total revenues:
Year Ended December31,
1998 1999 2000
Statement of Operations Data
Net sales 100.0 % 100.0 % 100.0 %
Cost of sales 29.0 34.9 33.7
Gross profit 71.0 65.1 66.3
Operating expenses
Selling and marketing 35.8 33.5 32.8
General and administrative 2.7 3.2 3.9
Royalties 2.6 2.2 2.2
Litigation settlement — 3.0 —
Total operating expenses 41.1 41.9 38.9
Operating income 29.9 23.2 27.4
Other income 0.5 0.7 1.6
Income before income taxes 30.4 23.9 29.0
Income tax expense 10.6 8.6 10.5
Net income 19.8 % 15.3 % 18.6 %
COMPARISON OF THE YEARS ENDING DECEMBER 31, 2000 AND DECEMBER 31, 1999
Net Sales
Net sales grew by 68.3% to $223.9million in 2000 from $133.1million in 1999. Sales within our direct products segment increased by 75.3%
over prior year levels and accounted for $198.1million, or 88.5%, of our aggregate net sales in 2000. Net sales within our commercial and retail
product segment increased by 28.6% over prior year levels and accounted for $25.8million, or 11.5% of our net sales.
Sales growth in 2000 primarily resulted from expanded direct marketing of our Bowflex and Nautilus Sleep Systems products and the growth
we experienced in eCommerce sales, as well as the positive impact of the strong domestic economy that existed until late 2000. Within our
direct products segment, with respect to both our Bowflex products and our Nautilus Sleep Systems, we intend to further expand our use of spot
television commercials and expand our use of infomercials of our Bowflex products during 2001 by increasing our presence in existing
television markets and entering new television markets. We intend to increase sales within our Nautilus products segment by continuing to
develop new products and expanding our direct sales efforts both domestically and internationally.
Except for the fourth quarter, fiscal 2000 sales of our Bowflex products appear to have been consistent with historic trends. As in prior years,
first and third quarter sales of our Bowflex products were strong, while the second quarter reflected seasonal weakness. Our direct marketing
business is largely dependent upon national cable television advertising, and we are finding that second quarter influences on television
viewership, such as the broadcast of national network season finales and seasonal weather factors, are causing our spot television commercials
on national cable television to be marginally less effective than in other periods of the year. During the fourth quarter of 2000 and 1999,
18
2002. EDGAR Online, Inc.