Nautilus 2002 Annual Report Download - page 29

infrastructure expenses necessary to support our growth. As a percentage of net sales, general and administrative expenses increased marginally
to 4.4% in 2002 from 4.3% in 2001.
ROYALTIES. Royalty expense grew to $10.1 million in 2002 from $7.4 million in 2001, an increase of 37.3%. Both our direct and
commercial/retail segments have several royalty agreements. The increase in our royalty expenses is primarily attributable to the increased sales
of our Bowflex products, along with sales of other products under royalty agreements that have been added as part of our diversification
strategy. The patent for the Bowflex Power Rod resistance technology expires on April 27, 2004. The Company will no longer be obligated to
pay royalties related to Bowflex sales following the expiration of this patent.
OTHER INCOME
In 2002, other income was $1.9 million compared to $4.4 million for 2001. This decline resulted primarily from a decrease in interest earned on
invested cash and cash equivalents. Because we used a significant portion of our cash for acquisitions and stock buybacks, we had less cash
from which to derive interest income. Interest income also decreased due to interest rate cuts by the Federal Reserve Bank in 2002.
INCOME TAX EXPENSE
Income tax expense increased by $16.8 million for 2002 primarily due to the growth in our income before taxes. The decrease in our effective
tax rate from 36.5% in 2001 to 36.0% in 2002 is due to state income tax issues relating to our commercial and retail business increasing our
2001 rate while the 2002 rate is in line with our historical experience. We expect our income tax expense to increase in line with our growth in
income before taxes.
NET INCOME
For the reasons discussed above, net income grew to $97.9 million in 2002 from $66.6 million in 2001, an increase of 47.0%. Our net income
as a percentage of sales, though down from 18.3% in 2001, was a strong 16.7% in 2002. The expansion of our commercial/retail segment
business and product lines during 2002 resulted in a decline in net income as a percentage of sales, but increased net income in real dollars.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000
NET SALES
Net sales grew by 62.5% to $363.9 million in 2001 from $223.9 million in 2000. Sales were driven by the growth in our direct segment and our
continued expansion into the commercial and retail market segments. In 2001, we capitalized on favorable advertising costs and availability to
increase the consumer awareness of our Bowflex and Nautilus Sleep System product lines. Meanwhile, we continued to expand our market
share in the commercial/retail products segment, where we grew the Nautilus brand and successfully integrated the acquisition of the Schwinn
Fitness business.
Sales in our direct segment were comprised primarily of sales of our Bowflex product line; however, as the Nautilus Sleep Systems product line
continued to grow, it also became an increasingly important component of our direct business. Sales within our direct products segment were
$292.5 million in 2001, an increase of 47.7% over the prior year. Our direct segment accounted for 80.4% of our aggregate net sales in 2001,
down from 88.5% in 2000, as we continued our strategies of diversification into the commercial and retail products segments and of introducing
new direct-marketed products.
Sales within our commercial/retail products segment were $71.3 million in 2001, an increase of 176.2% over 2000. Our commercial/retail
segment accounted for 19.6% of our net sales, up from 11.5% in 2000 as we
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2003. EDGAR Online, Inc.