Nautilus 2002 Annual Report Download - page 26

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our product lines in conjunction with market trends to assess salability of our products. Our assessment of necessary adjustments to market
value of inventory is sensitive to changes in fitness technology and competitor product offerings driven by customer demand. Any major change
in the aforementioned factors may result in reductions to market value of inventory below cost, which could have a significant impact on our
financial position, results of operations and cash flows.
INTANGIBLE ASSET VALUATION
Intangible assets predominantly consist of the Nautilus, Schwinn, and StairMaster trademarks and goodwill associated with the acquisition of
Schwinn Fitness. Management estimates affecting these trademark and goodwill valuations include determination of useful lives, and estimates
of future cash flows and fair values to perform the annual impairment analysis. The useful lives assigned by management to the Nautilus,
Schwinn, and StairMaster trademarks and Schwinn Fitness goodwill are indefinite, 20 years, indefinite, and indefinite, respectively. Any major
change in the useful lives and/or the determination of an impairment associated with the valuation of the aforementioned intangible assets may
result in asset value write-downs, which could have a significant impact on our current and future financial position and results of operations.
RESULTS OF OPERATIONS
This discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in
this report. We believe that period-to-period comparisons of our operating results are not necessarily indicative of future performance. You
should consider our prospects in light of the risks, expenses and difficulties frequently encountered by companies experiencing rapid growth
and, in particular, rapidly growing 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 net sales:
Year Ended December 31,
-----------------------
Statement of Operations Data 2002 2001 2000
Net sales 100.0 % 100.0 % 100.0
%
Cost of sales 43.2 38.7 33.7
----- ----- -----
Gross profit 56.8 61.3 66.3
----- ----- -----
Operating expenses:
Selling and marketing 24.9 27.4 32.8
General and administrative 4.4 4.3 4.0
Royalties 1.7 2.0 2.2
----- ----- -----
Total operating expenses 31.0 33.7 39.0
----- ----- -----
Operating income 25.8 27.6 27.3
Other income 0.3 1.2 1.8
----- ----- -----
Income before income taxes 26.1 28.8 29.1
Income tax expense 9.4 10.5 10.5
----- ----- -----
Net income 16.7 % 18.3 % 18.6
%
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2003. EDGAR Online, Inc.