Nautilus 2001 Annual Report Download - page 26

full year of results from Schwinn and with the acquisition of StairMaster, we expect our commercial and retail segment to continue to grow as a
percentage of our net sales.
Our direct-marketing business is largely dependent upon national cable television advertising. We have found that second quarter influences on
television viewership, such as the broadcast of national network season finales and seasonal weather factors, cause our spot television
commercials on national cable television to be marginally less effective in the second quarter than in other periods of the year. We believe that
sales within our commercial and retail products segment will be considerably lower in the second quarter of the year compared to the other
quarters. Our strongest commercial/retail products quarter should be the fourth quarter, followed by the first and third quarters. We believe the
principle reason for this trend is the commercial and retail fitness industry's preparation for the impact of New Year's fitness resolutions and
seasonal weather patterns related to colder winter months.
GROSS PROFIT
Gross profits continued to be strong, growing 50.4% to $223.2 million in 2001, from $148.4 million in the same period a year ago. However,
due to our product diversification strategy, which has increased sales in the commercial and retail segment and due to the inherent lower
margins in that segment, our overall gross profit margin decreased 5.0% to 61.3% in 2001, from 66.3% in 2000. We expect this trend to
continue as we further expand in the commercial and retail segments of the market.
The gross profit margin within our direct products segment was 69.8% in 2001 and 70.2% in 2000. Gross margins on our Bowflex product line
continue to be very strong. We also outsource all non-proprietary manufacturing through established overseas production. The decrease in gross
margins within our commercial and retail products segment to 26.4% in 2001, compared with 36.2% in 2000, was largely due to the Schwinn
Fitness acquisition and higher research and development expenditures for the Nautilus retail fitness products. Schwinn's manufactured treadmill
inventory was subject to purchase accounting guidelines that required step-up basis adjustments, negatively affecting our gross profit margins.
Research and development costs increased 83.3% to $2.2 million in 2001 from $1.2 million in 2000.
OPERATING EXPENSES
SELLING AND MARKETING
Selling and marketing expenses grew to $99.8 million in 2001 from $73.5 million in the same period a year ago, an increase of 35.8%. This
increase in selling and marketing expenses resulted primarily from the expansion of our direct marketing campaign for Bowflex products and
Nautilus Sleep Systems and variable costs associated with our sales growth.
As a percentage of net sales, overall selling and marketing expenses decreased to 27.4% in 2001 from 32.8% in 2000. The decrease was a result
of our planned product diversification efforts leading to a higher proportion of commercial and retail product sales. We benefited from the
increased availability of advertising time and the reduction of advertising rates due to the dramatic reduction of dot.com media spending
coupled with the economic downturn. Selling and marketing expenses within our direct products segment were 31.3% of net sales in 2001,
compared to 33.9% in 2000. Overall, we expect that our selling and marketing expenses will increase in real dollar terms, but not as a
percentage of net sales, as we continue to expand our Bowflex and Nautilus Sleep Systems direct-marketing campaign and expand our product
diversification efforts in the commercial and retail segment.
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2002. EDGAR Online, Inc.