Nautilus 2008 Annual Report Download - page 49

Table of Contents
NAUTILUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Business – Nautilus, Inc. (“Nautilus” or the “Company”) is a leading designer, developer, manufacturer and marketer of
fitness products sold under such well-known brand names as Nautilus, Bowflex, Schwinn Fitness and StairMaster. The Company’s goal is to
develop and market fitness equipment and related products to help people enjoy healthier lives. Nautilus was founded in 1986 and incorporated
in the State of Washington in 1993. The Company’s headquarters is located in Vancouver, Washington.
(b) Basis of Presentation – The accompanying consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”) and relate to Nautilus, Inc. and its subsidiaries, all of which are wholly-
owned. Intercompany transactions and balances have been eliminated in consolidation.
On April 18, 2008, the Company completed the sale of its former fitness apparel business, DashAmerica, Inc. d/b/a Pearl Izumi (“Pearl Izumi”).
Accordingly, all assets, liabilities and results of operations associated with the fitness apparel business have been presented in the consolidated
financial statements as discontinued operations.
(c) Liquidity – As of December 31, 2008 and 2007, the Company had cash and cash equivalents of $5.5 million and $7.9 million, respectively,
working capital of $39.2 million and $97.3 million, respectively and short-
term borrowings of $17.9 million and $79.0 million respectively. Cash
provided by operating activities of continuing operations was $7.2 million and $1.8 million, and we incurred losses from continuing operations
of $93.0 million and $45.8 million, for the years ended December 31, 2008 and 2007, respectively.
During 2007 and 2008, the Company implemented a number of restructuring initiatives to reduce ongoing operating expenses and improve our
overall financial performance. In January 2008 the Company, and its subsidiary Nautilus International S.A., entered into an asset-based loan
agreement with a lender. The loan agreement, as amended (described more fully in Note 9) provides for $30 million of borrowing capacity based
primarily on the value of domestic inventory and accounts receivable. The loan agreement contains a financial covenant, as well as limitations on
capital expenditures, mergers and acquisitions, indebtedness, liens, dispositions, dividends, and investments. The financial covenant is applicable
only during a trigger period that would be in effect when excess availability (based on the value of our collateral assets, less then current
borrowings) falls below certain pre-
established limits. Once activated, the trigger period would generally last until the Company meets minimum
excess borrowing capacity requirements for a 90-day period. Upon an event of default, the lender would have the option of accelerating all
obligations under the loan agreement and taking possession of collateral supporting the borrowings. Our ability to continue to meet our
obligations as they come due in the short term is dependent upon retaining access to borrowings available under our loan agreement.
Based on our current plans, we believe we will remain in compliance with the covenants under our loan agreement. We also believe that
available borrowings along with cash provided by operations will be sufficient to meet our anticipated cash needs for working capital and capital
expenditures for at least the next twelve months. This will depend on our ability to continue to remain in compliance with the loan limits and
covenants of our loan agreement in order to access available borrowings and not be obligated to repay outstanding amounts in the short term.
Our ability to effectively manage our costs and to generate sufficient cash flows from operations, will depend to a significant extent on our
ability to complete our restructuring plans. We intend to continually monitor and adjust our business plan as necessary to respond to
developments in our business, our markets and the broader economy. However, there can be no assurance that we will be able to successfully
execute our business plan, further reduce costs as needed, or generate the level of revenue that we expect or that is necessary to generate positive
cash flow from operations.
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