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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual report pursuant to Section 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 2002
Or
[_] Transition report pursuant to Section 15(d) of the Securities Exchange
Act of 1934
For the transition period from ____________ to _____________
Commission file number 000-25867
A. Full title of the plan and the address of the plan, if different from that
of the issuer named below:
The Nautilus Group, Inc.
401(k) Savings Plan
B. Name of issuer of the securities held pursuant to the plan and the address
of its principal executive office:
The Nautilus Group, Inc.
1400 NE 136th Avenue
Vancouver, WA 98684
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THE NAUTILUS GROUP, INC. 401(K) SAVINGS PLAN
TABLE OF CONTENTS
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PAGE
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS AS OF AND FOR THE YEARS
ENDED DECEMBER 31, 2002 AND 2001:
Statements of Net Assets Available for Benefits 4
Statements of Changes in Net Assets Available for Benefits 5
Notes to Financial Statements 6
SUPPLEMENTAL SCHEDULES AS OF AND FOR THE YEAR
ENDED DECEMBER 31, 2002(1):
Schedule H, Line 4i - Schedule of Assets (Held At End of Year) 9
Schedule G - Schedule of Non-Exempt Transactions 10
SIGNATURE 11
EXHIBIT INDEX 12
EXHIBIT 23, INDEPENDENT AUDITORS' CONSENT 13
EXHIBIT 99.1, CERTIFICATION PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002 14
EXHIBIT 99.2, CERTIFICATION PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002 15
(1) Schedules required by Form 5500 that are not applicable have not been
included.
2
INDEPENDENT AUDITORS' REPORT
The Nautilus Group, Inc. 401(k) Savings Plan
Vancouver, Washington
We have audited the accompanying statements of net assets available for benefits
of The Nautilus Group, Inc. 401(k) Savings Plan (formerly Direct Focus, Inc.
401(k) Savings Plan) (the "Plan") as of December 31, 2002 and 2001, and the
related statements of changes in net assets available for benefits for the years
then ended. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the net assets available for benefits of the Plan as of December 31,
2002 and 2001, and the changes in net assets available for benefits for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules listed in the
Table of Contents are presented for the purpose of additional analysis and are
not a required part of the basic financial statements, but are supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. These schedules are the responsibility of the Plan's management. The
supplemental schedules have been subjected to the auditing procedures applied in
our audit of the basic 2002 financial statements and, in our opinion, are fairly
stated in all material respects when considered in relation to the basic
financial statements taken as a whole.
DELOITTE & TOUCHE LLP
Portland, Oregon
June 16, 2003
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THE NAUTILUS GROUP, INC. 401(k) SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2002 AND 2001
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2002 2001
ASSETS:
Investments, at fair value (Note 3) $ 7,329,417 $ 3,991,045
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Receivables:
Employee contributions 86,904 51,362
Employer contributions 300,979 207,941
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Total receivables 387,883 259,303
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LIABILITIES:
Other payables (12,690) (3,935)
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NET ASSETS AVAILABLE FOR BENEFITS $ 7,704,610 $ 4,246,413
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See notes to financial statements.
4
THE NAUTILUS GROUP, INC. 401(k) SAVINGS PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED DECEMBER 31, 2002 AND 2001
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2002 2001
ADDITIONS:
Interest and dividends $ 78,173 $ 28,890
Net appreciation (depreciation) in fair
value of investments (Note 3) (2,203,949) 364,338
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Net investment income (loss) (2,125,776) 393,228
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Contributions:
Participant contributions 2,163,945 1,085,208
Employer matching contributions 300,979 207,941
Rollover contributions 3,587,854 1,006,993
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Total contributions 6,052,778 2,300,142
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Total additions 3,927,002 2,693,370
DEDUCTIONS:
Benefits paid to participants 468,805 220,970
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NET INCREASE 3,458,197 2,472,400
NET ASSETS AVAILABLE FOR BENEFITS,
BEGINNING OF YEAR 4,246,413 1,774,013
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NET ASSETS AVAILABLE FOR BENEFITS,
END OF YEAR $ 7,704,610 $ 4,246,413
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See notes to financial statements.
5
THE NAUTILUS GROUP, INC. 401(K) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
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1. DESCRIPTION OF PLAN
The following description of The Nautilus Group, Inc. 401(k) Savings Plan
(the "Plan") is provided for general information purposes only.
Participants should refer to the Plan document for a complete description
of the Plan's provisions.
GENERAL - The Plan is a defined contribution 401(k) plan maintained for
the benefit of all eligible employees of The Nautilus Group, Inc. (the
"Company"). On May 21, 2002, the Company changed its name to The Nautilus
Group, Inc. from Direct Focus, Inc., and now trades under the stock ticker
symbol "NLS". The Plan was established effective January 1, 1999 and
contributions to the Plan began on March 4, 1999. The Plan is available to
all eligible employees of the Company who are age 18 or older. The Plan is
subject to the provisions of the Employee Retirement Income Security Act
of 1974 ("ERISA").
CONTRIBUTIONS - Participants may voluntarily contribute between 1% and 30%
of their compensation, limited to $11,000 and $10,500 in 2002 and 2001,
respectively, as prescribed by the Internal Revenue Code. Participants may
change their contribution percentage quarterly. Participants may also
contribute amounts representing distributions from other qualified defined
benefit or contribution plans. Participants direct the investment of their
contributions and employer matching contributions into various investment
options offered by the Plan. The Plan currently offers ten mutual funds
and an employer stock fund as investment options for participants.
Participants can change the allocation of contributions or transfer
balances between funds up to six times per year. The Company may match a
portion of the participant's elective contribution. The Company makes
matching contributions of 50% of the employee contributions on the first
6% of allowable employee compensation for all eligible employees excluding
Nautilus Human Performance Systems, Inc. ("Nautilus HPS") employees. For
eligible Nautilus HPS employees, the Company matches 35% of employee
contributions on the first 4% of allowable employee compensation.
Beginning in the 2003 Plan year, qualified Nautilus HPS employees became
eligible for matching contributions of 50% of the employee contributions
on the first 6% of allowable employee compensation. Matching contributions
are subject to certain limitations. Participants must be employed by the
Company for 12 consecutive months in order to become eligible to begin
earning matching contributions. Once eligibility has been established,
participants must work a minimum of 1,000 hours during the Plan year and
be employed by the Company on the last day of the Plan year to be eligible
to receive matching contributions.
On February 8, 2002, the Company acquired StairMaster Sports/Medical Inc.
("StairMaster"). As a result of this acquisition, StairMaster employees
became eligible to participate in the Plan and execute rollover
contributions to the Plan beginning March 1, 2002.
On September 20, 2001, the Company acquired the Fitness Division ("Schwinn
Fitness") of Schwinn/GT Corp. As a result of this acquisition, Schwinn
Fitness employees became eligible to participate in the Plan and execute
rollover contributions to the Plan beginning October 1, 2001.
PARTICIPANT ACCOUNTS - A separate account is maintained for each
participant, which is credited with the participant's contributions, the
Company's matching contributions, and an allocation of Plan earnings or
losses. Allocation of Plan earnings or losses is based upon participant
account balances. The benefit to which a participant is entitled is the
benefit that can be provided from the participant's vested account.
6
VESTING - Participants are fully vested at all times in that portion of
their accounts attributable to their own contributions and earnings or
losses thereon. A participant vests in the Company's matching
contributions and earnings or losses thereon pursuant to the following
vesting schedule.
YEARS OF SERVICE VESTING PERCENTAGE
---------------- ------------------
Less than 1 0%
1 25%
2 50%
3 75%
4 100%
PAYMENT OF BENEFITS - Upon termination of service, a participant will be
paid a lump-sum amount equal to the vested account value if less than
$5,000. In addition to the lump-sum payment option, participants who
maintain a balance greater than or equal to $5,000 may elect to maintain
their account in the Plan until a future date, elect a partial
distribution, or elect to receive installment payments.
FORFEITURES - During the 2002 Plan year, forfeited balances of terminated
participants' nonvested accounts were used to offset the employer match
liability. Prior to 2002, forfeited balances of terminated participants'
nonvested accounts were allocated as a discretionary matching contribution
for the Plan year in which the forfeiture occurred.
LOANS - Loans to participants are not permitted under the Plan. However,
StairMaster employees with loans that existed prior to the acquisition in
February 2002 were permitted to rollover any remaining loan balance into
the Plan for repayments only.
TERMINATION - Although it has not expressed any intent to do so, the
Company may terminate the Plan or discontinue contributions at any time,
subject to the provisions of ERISA. In the event of total or partial
termination of the Plan, the accounts of all affected participants shall
become fully vested and nonforfeitable.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING - The financial statements of the Plan are prepared
under the accrual method of accounting.
INVESTMENT VALUATION AND INCOME RECOGNITION - The Plan's investments are
stated at fair value, which is based on published market prices at
year-end.
Purchases and sales of securities are recorded on a trade-date basis.
Interest income is recorded on the accrual basis. Dividends are recorded
on the ex-dividend date.
BENEFIT PAYMENTS - Benefits are recorded when paid.
ADMINISTRATIVE EXPENSES - Administrative expenses are paid by the Plan to
the extent not paid by the Company.
USE OF ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, and changes therein, and
disclosure of contingent assets and liabilities. Actual results could
differ from those estimates.
7
INCOME TAXES - The Plan document is based on a non-standardized prototype
plan and adoption agreement, which were approved by the Internal Revenue
Service ("IRS"), as to form, by a letter dated November 19, 2001. However,
the Plan has not yet received a determination letter from the IRS for the
specific provisions of the adoption agreement as adopted by the Plan. The
Plan Administrator believes that the Plan is currently designed and being
operated in accordance with the applicable requirements of the Internal
Revenue Code. Accordingly, no provision for income taxes has been included
in the Plan's financial statements.
During the year ended December 31, 2002, the Plan failed to pass the
requirements for the Actual Contribution Percentage ("ACP") discrimination
test. To maintain its qualified status, the Plan distributed the excess
contributions subsequent to December 31, 2002. During the year ended
December 31, 2001, the Plan failed to pass the requirements for the Actual
Deferral Percentage ("ADP") discrimination test. To maintain its qualified
status, the Plan distributed the excess contributions subsequent to
December 31, 2001.
3. INVESTMENTS
The following presents investments that represent 5% or more of the Plan's
net assets available for benefits at December 31:
2002 2001
Growth Fund of America, Inc. $1,327,309 $ 926,189
American Balanced Fund, Inc. Income Fund 1,003,597 301,039
The Nautilus Group, Inc. Common Stock 970,297 1,345,250
MetLife Stable Value Fund 878,427 N/A
Dreyfus Premier Core Fund 787,922 N/A
New Perspective Fund 626,016 325,508
Fundamental Investors Fund 517,791 303,352
Net appreciation (depreciation) by investment type for the year ended
December 31 is as follows:
2002 2001
Mutual funds $ (969,866) $ (233,632)
Common stock (1,234,083) 597,970
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Total $(2,203,949) $ 364,338
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4. PARTY-IN-INTEREST TRANSACTIONS
The Plan invests in shares of the Company's common stock at the direction
of the participants.
5. CONCENTRATION OF RISK
The Plan's assets consist of financial instruments including temporary
cash investments, mutual funds, and Company common stock. These financial
instruments may subject the Plan to concentrations of risk as, from time
to time, cash balances exceed amounts insured by the Federal Deposit
Insurance Corporation, and investments in mutual funds and Company stock
are subject to changes in market values of such investments. Due to the
level of risk associated with such investments, it is reasonably possible
that changes in the values of such investments will occur in the near term
and that such changes could materially affect the amounts reported in the
statements of net assets available for benefits.
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THE NAUTILUS GROUP, INC. 401(k) SAVINGS PLAN
SCHEDULE H, LINE 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2002
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(e)
(b) Identity of Issue/ (d) Current
(a) (c) Description of Investment Cost(1) Value
CASH $ 15,913
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MUTUAL FUNDS:
American Balanced Fund, Inc. Income Fund 1,003,597
Dreyfus Premier Core Fund 787,922
Euro Pacific Growth Fund 260,917
Franklin Small Capital Growth Fund 313,010
Fundamental Investors Fund 517,791
Growth Fund of America, Inc. 1,327,309
MetLife Stable Value Fund 878,427
New Perspective Fund 626,016
Munder Index 500 A Fund 213,753
Putnam Small Cap Value A Fund 302,853
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Total mutual funds 6,231,595
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COMMON STOCK - The Nautilus Group, Inc.(2) 970,297
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PARTICIPANT LOANS - (Interest rates ranging from 7.0% to 11.5%,
maturing from 01/01/2003 to 03/12/2015) 111,612
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TOTAL INVESTMENTS $7,329,417
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(1) Historical cost information is not required for participant-directed
investments
(2) Denotes a party-in-interest with respect to the Plan
9
THE NAUTILUS GROUP, INC. 401(k) SAVINGS PLAN
SCHEDULE G - SCHEDULE OF NONEXEMPT TRANSACTIONS
YEAR ENDED DECEMBER 31, 2002
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(i)
(g) Current
(c) Expense Value
(a) (b) Description (d) (e) (f) Incurred (h) of Asset (j)
Identity of Relationship of Purchase Selling Lease with Trans- Cost Transac- Net Gain
Party Involved to Plan Transaction Price Price Rental action of Asset tion Date or (Loss)
The Nautilus Group, Inc. Plan Sponsor Untimely $ - $ - $ - $ - $ 1,584 $ 1,584 $ -
remittance of
employee
contributions(1)
(1) In 2002, the Plan Sponsor failed to remit certain employee deferrals to the trustee within the required time frame. The
deferrals, plus estimated earnings thereon, were remitted to the trustee and allocated to participant accounts subsequent to
this date.
10
SIGNATURE
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THE PLAN. Pursuant to the requirements of the Securities Exchange Act
of 1934, the plan administrator of The Nautilus Group, Inc. 401(k) Savings Plan
has duly caused this annual report to be signed on its behalf by the undersigned
hereunto duly authorized.
THE NAUTILUS GROUP, INC. 401(k) SAVINGS PLAN
By: THE NAUTILUS GROUP, INC., the plan
administrator
Date: June 27, 2003 By: /s/ Rod W. Rice
-----------------------------------------
Rod W. Rice, Chief Financial Officer,
Treasurer and Secretary,
The Nautilus Group, Inc.
11
EXHIBIT INDEX
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DOCUMENT EXHIBIT NUMBER
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Independent Auditors' Consent 23
Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 99.1
Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 99.2
12