Nautilus 2007 Annual Report Download - page 22

Table of Contents
For the year, we delivered net sales from continuing operations of $501.5 million compared to $617.3 million in 2006, a decrease of 18.8%.
Gross profit margins decreased to 35.8% in 2007 compared to 43.2% in 2006. The largest contributor to our decrease in gross margins in 2007
was a $16.9 million charge recorded for warranty and inventory reserves related to quality issues and the decision to stop selling certain of our
commercial cardiovascular products until quality issues can be remedied. Operating expenses were $248.0 million in 2007 compared to $231.6
million in the prior year, an increase of 7.1%. This increase is primarily the result of $30.5 million of significant charges incurred in connection
with strategic decisions made by management in an effort to return the company to profitability, offset by an $18.3 million lawsuit settlement in
which the Company received the rights to utilize a variety of fitness equipment patents and related technologies.
In the fourth quarter of 2007, management committed to a plan to sell the operations of our Fitness Apparel Business. Our Fitness Apparel
Business primarily consists of Pearl Izumi which designs, markets and sells branded fitness apparel and footwear sold primarily under the Pearl
Izumi brand globally. In February 2008 the Company entered into an agreement to sell Pearl Izumi and the Company anticipates the sale to be
completed late in the first quarter of 2008. Accordingly, assets, liabilities and results of operations of the Fitness Apparel Business have been
presented as discontinued operations in accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment
or Disposal of Long-Lived Assets”. See Note 2 “Discontinued Operations” to Nautilus, Inc.’s Consolidated Financial Statements and later in the
MD&A.
Loss from discontinued operations in 2007 was $9.8 million, including an impairment charge of $13.2 million, compared to income from
discontinued operations of $4.2 million in 2006.
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and administrative) related to nonrefundable deposits made towards the purchase and costs incurred during the Company
’
s due
diligence efforts;
•
In the first quarter of 2008, we suspended sales and production of the commercial TreadClimber and retired certain commercial grade
elliptical trainers due to quality and reliability issues resulting in pretax charges of $16.9 million charged to cost of goods sold in
2007;
•
We stopped or delayed development of certain products which resulted in intellectual property impairment charges in the amount of
$3.0 million charged to operating expenses;
•
We exited certain marketing contracts, resulting in a $1.2 million charge to operating expenses; and
•
We restructured staff to address declining revenues, terminated the former Chief Executive Officer and incurred fees recruiting for a
new Chief Executive, resulting in a $3.6 million charge to operating expenses.