Nautilus 2006 Annual Report Download - page 23

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Table of Contents
result of the increase in net sales and the improvement in operating margins we were able to deliver a 32.4% increase in earnings to 90 cents
per diluted share. During the year we recorded a $3.8 million reduction of our tax contingency reserves along with $2.5 million of share-based
compensation expense resulting from the adoption of SFAS 123(R); we had no similar items last year. In addition, we increased our net cash
provided by operating activities by $43.5 million and continued to provide return on investment to shareholders through the payment of
dividends of 40 cents per share while repurchasing 1.3 million shares of our common stock.
RESULTS OF OPERATIONS
The following table sets forth selected financial information derived from our consolidated financial statements. The discussion that
follows the table should be read in conjunction with the consolidated financial statements
COMPARISON OF THE YEARS ENDED DECEMBER 31, 2006 AND DECEMBER 31, 2005
Consolidated Net Sales
Consolidated net sales were $680.3 million in 2006 compared to $631.3 million in 2005, an increase of $49.0 million or 7.8%. The
increase is primarily attributed to the acquisition of Pearl Izumi in July of 2005, which contributed approximately $39.0 million of incremental
net sales along with an increase in sales from our International Equipment Business of approximately $10.8 million.
Fitness Equipment Business – The fitness equipment business designs, produces, sells and markets fitness products sold under the
Nautilus, Bowflex, Schwinn Fitness, and StairMaster brand names. Depending on the brand, our fitness equipment is sold and marketed
through the direct, commercial, and retail channels of distribution located in the Americas, which includes the U.S., Canada, Mexico and South
America. Net sales for the fitness equipment business were flat at $553.4 million as compared to $554.2 million last year. Specific channel net
sales information is detailed below:
21
Years Ended December 31,
(In thousands)
2006
% of 2006
net sales
2005
% of 2005
net sales
2004
% of 2004
net sales
Net sales
$
680,295
100.0
%
$
631,310
100.0
%
$
523,837
100.0
%
Cost of sales
381,693
56.1
%
352,496
55.8
%
279,043
53.3
%
Gross profit
298,602
43.9
%
278,814
44.2
%
244,794
46.7
%
Operating expenses:
Selling and marketing
186,617
27.4
%
179,656
28.5
%
156,577
29.9
%
General and administrative
54,120
8.0
%
48,826
7.7
%
31,033
5.9
%
Research and development
11,179
1.6
%
11,160
1.8
%
6,754
1.3
%
Royalties
5,607
0.8
%
5,368
0.9
%
5,968
1.1
%
Total operating expenses
257,523
37.8
%
245,010
38.9
%
200,332
38.2
%
Operating income
41,079
6.1
%
33,804
5.3
%
44,462
8.5
%
Other Income (Expense):
Interest income (expense), net
(2,015
)
(0.3
%)
1,179
0.2
%
1,357
0.3
%
Other income (expense), net
1,605
0.2
%
310
0.0
%
(172
)
0.0
%
Total other income (expense)
(410
)
(0.1
%)
1,489
0.2
%
1,185
0.3
%
Income before income taxes
40,669
6.0
%
35,293
5.5
%
45,647
8.8
%
Income tax expense
11,569
1.7
%
12,293
1.9
%
15,662
3.0
%
Net income
$
29,100
4.3
%
$
23,000
3.6
%
$
29,985
5.8
%
•
In the direct channel , net sales declined 3.7% to $283.1 million compared to $293.9 million last year. Sales in the direct channel
consist of our Bowflex branded products and primarily include our rod-based home gyms, TreadClimber products, SelectTech
dumbbells, and the Bowflex Revolution.