Nautilus 2014 Annual Report Download - page 21

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with the consolidated
financial statements and related notes that are included in Part II, Item 8 of this Form 10-K. This discussion contains forward-
looking statements
based upon current expectations that involve risks and uncertainties.
Our results of operations may vary significantly from period-to-
period. Our revenues typically fluctuate due to the seasonality of our industry,
customer buying patterns, product innovation, the nature and level of competition for health and fitness products, our ability to procure products
to meet customer demand, the level of spending on, and effectiveness of, our media and advertising programs and our ability to attract new
customers and maintain existing sales relationships. In addition, our revenues are highly susceptible to economic factors, including, among other
things, the overall condition of the economy and the availability of consumer credit in both the United States and Canada. Our profit margins
may vary in response to the aforementioned factors and our ability to manage product costs. Profit margins may also be affected by fluctuations
in the costs or availability of materials used to manufacture our products, product warranty costs, the cost of fuel, and changes in costs of other
distribution or manufacturing-
related services. Our operating profits or losses may also be affected by the efficiency and effectiveness of our
organization. Historically, our operating expenses have been influenced by media costs to produce and distribute advertisements of our products
on television, the Internet and other media, facility costs, operating costs of our information and communications systems, product supply chain
management, customer support and new product development activities. In addition, our operating expenses have been affected from time-to-
time by asset impairment charges, restructuring charges and other significant unusual or infrequent expenses.
As a result of the above and other factors, our period-to-
period operating results may not be indicative of future performance. You should not
place undue reliance on our operating results and should consider our prospects in light of the risks, expenses and difficulties typically
encountered by us and other companies, both within and outside our industry. We may not be able to successfully address these risks and
difficulties and, consequently, we cannot assure you any future growth or profitability. For more information, see our discussion of Risk Factors
located at Part I, Item 1A of this Form 10-K.
OVERVIEW
We are committed to providing innovative, quality solutions to help people achieve a fit and healthy lifestyle. Our principal business activities
include designing, developing, sourcing and marketing high-
quality cardio and strength fitness products and related accessories for consumer
use, primarily in the United States and Canada. Our products are sold under some of the most-
recognized brand names in the fitness industry:
Nautilus
®
, Bowflex
®
, Schwinn
®
and Universal
®
.
We market our products through two distinct distribution channels, Direct and Retail, which we consider to be separate business segments. Our
Direct
business offers products directly to consumers through television advertising, catalogs and the Internet. Our Retail
business offers our
products through a network of independent retail companies with stores and websites located in the United States and internationally. We also
derive a portion of our revenue from the licensing of our brands and intellectual property.
Our Net Sales in 2014 were $274.4 million , an increase of $55.6 million , or 25.4% , compared to Net Sales of $218.8 million in 2013
. Net
Sales of our Direct segment increased $38.9 million , or 28.5% , compared to 2013
, primarily due to increased consumer demand for our cardio
products, especially the Bowflex Max Trainer
®
. Net Sales of our Retail segment increased by $16.4 million , or 21.4% in 2014
, compared to
2013 , primarily due to growth in recently launched cardio products.
Income from Continuing Operations was $20.4 million , or $0.64 per diluted share, in 2014 , compared to $48.1 million , or $1.53
per diluted
share, in 2013 . Income from Continuing Operations in 2014 and 2013 included a $1.2 million and a $38.9 million
credit related to the reversal
of our deferred tax asset valuation allowance, respectively. Without consideration of the reversal of our deferred tax asset valuation allowance,
the improvement in our results from continuing operations in 2014, compared to 2013, was driven primarily by higher sales and increased
operating income in both our Direct and Retail segments.
Net Income was
$18.8 million , or $0.59 per diluted share, in 2014 , compared to $48.0 million , or $1.52 per diluted share, in 2013
. Net Income
in 2014 and 2013 included a $1.2 million and a $38.9 million
credit related to the reversal of our deferred tax asset valuation allowance,
respectively.
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