Nautilus 2011 Annual Report Download - page 23

Table of Contents
efficient spending. In addition, general and administrative expenses decreased by $2.2 million in 2011 , compared to 2010 .
Selling and Marketing
Selling and marketing expenses were $54.5 million in 2011 , a decrease of $9.5 million , or 14.9% , compared to 2010 . Advertising expense of
our Direct business, a component of selling and marketing expenses, in 2011
was $28.6 million, a decrease of $12.0 million, or 29.6%, compared
to 2010 . The comparative decrease in Direct advertising expenses was primarily attributable to management's decision in early 2011 to shift
advertising away from the mature home-gym category and to increase the media investment in our TreadClimber product line. Since early 2011,
we have marketed home gyms through more cost efficient online media. Lower comparable Direct advertising expenses were offset in part by
higher consumer credit financing costs, as a result of sequentially improving consumer credit approval rates, and the availability of additional
secondary consumer financing providers in 2011, as compared to 2010.
General and Administrative
General and administrative expenses were $17.1 million in 2011 , a decrease of $2.2 million , or 11.5% , compared to 2010 , primarily due to
lower depreciation, personnel and occupancy expenses.
Research and Development
Research and development expenses were $3.2 million in 2011 , an increase of $0.3 million , or 10.9% , compared to 2010 , as we increased our
investment in new product development resources and capabilities.
Other Income and Expense
Interest Expense
We incurred interest expense of $0.5 million in 2011 in connection with our long-term note payable, compared to $0.1 million in 2010
. We have
not borrowed under our current financing agreement with Bank of the West, other than to fund our outstanding letters of credit.
Other Expense
Other expense was less than $0.1 million in 2011 , compared to $0.5 million in 2010 , primarily due to changes in foreign currency exchange
gains and losses.
Income Tax Expense
Income tax expense was $0.7 million in 2011 , compared to income tax expense of $0.6 million in 2010 , and primarily relates to taxable income
generated in Canada and the result of the Company's uncertain tax positions.
We increased our valuation allowances in 2010 to reduce U.S. deferred income tax assets generated during the respective years to the amounts
expected, more likely than not, to be realized. As a result, generally we did not recognize U.S. income tax benefits associated with our operating
loss in 2010 .
Discontinued Operation
Loss from discontinued operation, net of income taxes, was $1.1 million in 2011 , compared to a loss of $13.0 million in 2010 , as we completed
the disposal of the assets of our former Commercial business in April 2011. Loss from discontinued operation in 2011 and 2010 was net of
reductions of $0.9 million and $3.7 million , respectively, in the amount of pre-tax disposal loss previously estimated in connection with the
divestiture of our Commercial business. Some expenses may be incurred in 2012 in connection with the settlement of contingencies arising from
and directly related to our Commercial business prior to its disposal.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2011 , we had $17.4 million of cash and cash equivalents, compared to $14.3 million as of December 31, 2010 . The
principal source of this increase in liquidity was cash provided by operating activities of $4.6 million in 2011 , compared to cash used in
operating activities of $10.7 million in 2010 . Management believes that sufficient funds will be
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