Nautilus 2005 Annual Report Download - page 36

Table of Contents
LIQUIDITY AND CAPITAL RESOURCES
Our operating, investing, and financing activities resulted in cash and cash equivalents of $8.0 million as of December 31, 2005. We used
$9.6 million in our operating activities in 2005 compared to $47.0 million in net cash generated by our operating activities in 2004. Excluding
assets acquired through acquisition, the changes in operating cash flow comparing 2005 to 2004 can be attributed to increases in trade
receivables and inventories of $16.3 million and $33.3 million, respectively. The increase in trade receivables reflects our ongoing growth in
sales channels with longer payment terms. More specifically, the direct-marketing model involves collecting cash at time of shipment, while
sales through commercial and retail channels involve shipping product and subsequently collecting cash according to agreed upon payment
terms. The majority of our sales growth during 2005 was in the commercial and retail sales channels. While inventories at the end of 2005 were
higher than what we anticipated, the increase in inventories reflect unseasonably low levels at the end of 2004 due to supply chain issues.
Working capital was $107.0 million at December 31, 2005 compared to $169.5 million at December 31, 2004. The decrease in working
capital is primarily due to the acquisitions of Pearl Izumi and Belko Canada. The combination of these acquisitions during 2005 reduced our
cash, cash equivalents and short-term investments by $73.7 million.
Net cash used by investing activities was $17.6 million in 2005 compared with net cash used by investing activities in 2004 of
$42.6 million. The largest single component of investing activities during 2005 was cash inflow associated with the liquidation of short-term
investments in the amount of $85.3 million. Cash outflows associated with two acquisitions and capital expenditures exceeded cash received
from investment liquidations in 2005. During 2005, the Company invested approximately $73.7 million to acquire Belko Canada and Pearl
Izumi. Capital expenditures were $31.8 million in 2005 compared to $9.0 million in 2004. Capital expenditures during 2005 consisted of
manufacturing equipment to support our new product offerings, information systems to support the implementation of a unified technology
platform, and renovation costs associated with our new world headquarters. The capital expenditures in 2004 primarily consisted of
manufacturing equipment and information systems and related equipment. In addition during the first quarter of 2005, the Company collected
$3.0 million from the sale of a property in Las Vegas that occurred during the third quarter of 2004.
Net cash generated in financing activities was $16.5 million in 2005, which can be largely attributed to net borrowings of $40.1 million
on a multi-year revolving credit facility established in the fourth quarter, as well as $5.6 million in proceeds from the exercise of stock options.
This cash infusion was partially offset by cash dividends paid of $13.4 million and $15.6 million in repurchased stock. Net cash used in
financing activities was $6.5 million in 2004, which can be attributed to cash dividends paid of $13.1 million offset by the proceeds from the
exercise of stock options of $6.6 million.
On November 18, 2005, the Company entered into a five year unsecured credit agreement to include revolving loans, letters of credit and
swing loans for a maximum commitment of $65.0 million, with sub-limits on the swing loans and letters of credit. The credit facility includes
an option for the Company to reduce the maximum commitment from time to time. Under the credit agreement, borrowings will bear interest
based upon the prime rate or Eurodollar rates with a provision for a spread over such rates based upon the Company’s consolidated leverage
ratio. At December 31, 2005, the interest rate ranged from 5.025% to 5.275% and the Company had $40.1 million outstanding under the credit
agreement. The credit agreement contains certain financial and non-financial covenants, which include but are not limited to a leverage ratio
and fixed charge coverage ratio. The credit facility was amended in March 2006, which included a waiver for the fixed charge coverage ratio
and certain technical covenants with which the Company was out of compliance.
Prior to executing the credit agreement, the Company had a line of credit for $10.0 million with a different financial institution. At
December 31, 2005 and 2004, the Company had $8.7 million and $8.1 million, respectively in stand by letters of credit with Asian vendors
reducing the available balance.
The Company issued a $1.5 million non-interest bearing promissory note ($1.3 million, net of imputed interest) as part of the purchase
price in the Belko Canada acquisition which is payable in full in May, 2008. As part of the acquisition of Pearl Izumi, the Company became
obligated on two non-interest bearing notes of
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