Fitness company Nautilus, Inc. revealed a loss from continuing operations for the second quarter ended June 30, 2008 of $9.6 million or 30 cents per diluted share after recording restructuring related and other charges of $6.6 million, or 14 cents per diluted share after tax.
The charges principally related to severance, inventory reserves and anticipated settlements related to licensing agreements. In the second quarter of 2007, Nautilus reported income from continuing operations of $0.7 million or 2 cents per diluted share including a benefit of $18.3 million or 34 cents per diluted share after-tax from a litigation settlement.
Results from continuing operations exclude the Company’s former apparel business, which is considered a discontinued operation and was sold on April 18, 2008 for $69.4 million. Net loss (including discontinued operations) for the second quarter 2008 was $8.9 million, or 28 cents per diluted share, compared to net income of $1.1 million, or 4 cents per diluted share for the second quarter of 2007.
An important part of the company’s restructuring activities has been the establishment of separate teams with authority and responsibility for the profitability of each of its global business units. It will now be reporting the commercial, direct and retail businesses on a global basis.
As a result of changing the reportable business segments in the second quarter of 2008, accounting rules require the company to perform an interim goodwill impairment test. Nautilus is in the process of determining whether a goodwill impairment charge is required as of June 30, 2008. An impairment charge, if any, would be a non-cash charge.
The company expects to complete this goodwill impairment assessment prior to the filing of its Form 10-Q for the second quarter.
Net sales from continuing operations for the three months ended June 30, 2008, were $95.6 million compared to $102.5 million for the corresponding period last year, a decrease of 7%. Net sales increases in Nautilus retail business were offset by declines in the direct business, principally due to a weak consumer and tight credit environment, as well as declines in dommercial sales principally due to suspending sales of the dommercial TreadClimber.
Net sales from continuing operations for the three months ended June 30, 2008, were $95.6 million compared to $102.5 million for the corresponding period last year, a decrease of 7%. Net sales increases in Nautilus retail business were offset by declines in the direct business, principally due to a weak consumer and tight credit environment, as well as declines in dommercial sales principally due to suspending sales of the dommercial TreadClimber.
As of June 30, 2008, the company had a net cash position of $4 million and unutilized borrowing availability of approximately $35 million versus net debt of $71 million at December 31, 2007. During the second quarter of 2008, the company repurchased $2.2 million of common stock. As of July 29, 2008, the company had repurchased 981,398 shares of common stock at an average price of $5.16 per share or a total of $5.1 million, leaving $4.9 million remaining on the $10 million share repurchase program authorized by the Board of Directors in May 2008.
Stated Edward Bramson, chairman and CEO of Nautilus, Inc.. “The four areas of strategic focus are new product development, resolving channel conflict, expanding our share of the cardio market, and capitalizing on our strong portfolio of brands. In order to improve our profitability in the current economic environment, we have initiated a restructuring program which is expected to reduce fixed costs significantly.”
NAUTILUS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
ASSETS June 30, December 31,
2008 2007
——– ————
CURRENT ASSETS:
Cash and cash equivalents $ 4,433 $ 7,911
Trade receivables (net of allowance for doubtful
accounts of $4,763 and $4,490 at June 30, 2008
and December 31, 2007, respectively) 54,617 88,311
Inventories, net 62,277 58,910
Prepaid expenses and other current assets 6,774 13,759
Income taxes receivable 15,522 11,382
Assets of discontinued operations — 73,771
Assets held for sale 1,677 1,677
Short-term note receivable — 2,384
Deferred tax assets 10,633 18,615
——– ————
Total current assets 155,933 276,720
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation of $63,368 and $59,673
on June 30, 2008 and December 31, 2007,
respectively 39,138 42,291
GOODWILL 32,656 32,743
OTHER INTANGIBLES AND OTHER ASSETS, net 43,284 39,086
——– ————
TOTAL ASSETS $271,011 $ 390,840
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LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Trade payables $ 35,232 $ 43,993
Accrued liabilities 38,095 37,318
Short-term borrowings 397 79,000
Income taxes payable 311 283
Customer deposits 2,402 2,925
Liabilities of discontinued operations — 15,867
——– ————
Total current liabilities 76,437 179,386
NON-CURRENT LIABILITIES 4,857 6,919
NON-CURRENT DEFERRED TAX LIABILITIES 3,578 5,123
LONG-TERM TAXES PAYABLE 3,621 2,958
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS EQUITY:
Common stock – no par value, 75,000 shares
authorized, 31,232 and 31,557 shares issued and
outstanding at June 30, 2008 and December 31,
2007, respectively 4,158 4,346
Retained earnings 169,784 185,021
Accumulated other comprehensive income 8,576 7,087
——– ————
Total stockholders equity 182,518 196,454
——– ————
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $271,011 $ 390,840
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