Nautilus 2009 Annual Report Download - page 31

Table of Contents
Income Tax Benefit
The provision for income tax benefit from continuing operations was $10.9 million in 2009, compared to a tax benefit from continuing
operations of $5.9 million in 2008. Our effective tax benefit rate in 2009 was 36.9%, compared to a benefit rate of 10.1% in the prior year. The
change in our effective tax rate primarily reflects the impact of 2009 legislation allowing us to carry back net operating losses for a period of five
years. As a result, in January 2010 we received an income tax refund of $12.1 million in connection with a net operating loss carryback. In 2008,
we provided a valuation reserve against deferred income tax assets as we determined it was more likely than not that such assets would not be
realized.
Discontinued Operations
On September 25, 2009 management committed to a plan for the complete divestiture of our commercial business. The results of our commercial
business have been classified as discontinued operations in all periods presented. Loss from our commercial business discontinued operation, net
of income taxes, was $34.3 million in 2009, including an estimated after-tax disposal loss of $9.0 million. Loss from our commercial business
discontinued operation, net of income taxes, was $40.4 million in 2008.
We currently expect to incur additional costs related to our planned divestiture, including employee termination severance payments of
approximately $1.8 million and termination charges for leases and other commercial contract obligations of approximately $2.2 million, which
charges will be included in results of discontinued operations in the respective periods when such liabilities are incurred. The estimated amounts
of additional costs may be adjusted in future periods, depending on changes that may occur in the underlying facts and circumstances, and the
amount of adjustment may be material.
Our former fitness apparel business (“Pearl iZumi”) was sold in 2008 and reported as a discontinued operation. We reported an after-tax loss
related to Pearl iZumi of $0.4 million in 2009, compared to after-tax income of $2.4 million in 2008.
LIQUIDITY AND CAPITAL RESOURCES
In November 2009, the President signed into U.S. federal law a provision allowing taxpayers to carry back an applicable net operating loss for a
period of up to five years. We elected to carry-back our 2008 net operating loss and, as a result, we received a U.S. income tax refund of
approximately $12.1 million in January 2010. On March 8, 2010 we entered into a new bank borrowing agreement, providing for a $15.0 million
revolving secured credit line. Based on the amount of cash currently on hand and expected future cash flows from operations, management
believes that sufficient funds will be available to meet our expected cash needs for at least the next twelve months.
Operating activities provided cash of $14.8 million in 2009, compared to $5.6 million in the prior year. Cash from operating activities in 2009
was primarily provided by the collection of accounts receivable, reductions in inventory levels and the receipt of a $10.7 million U.S. federal
income tax refund. Cash provided by operating activities in 2008 was primarily related to the collection of accounts receivable.
Net cash provided by investing activities was $4.7 million in 2009, compared to $62.4 million in the prior year. Cash provided by investing
activities in 2009 included $7.4 million from the sale of assets of our discontinued operations, $4.0 million from the release of Pearl iZumi
escrow funds and $0.2 million in proceeds from the sale of equipment. Cash used in investing activities in 2009 included $4.9 million for
restricted cash accounts, as collateral for our outstanding letters of credit, and $2.0 million for capital expenditures. We do not expect capital
expenditures to increase substantially in 2010. Cash provided by investing activities in 2008 included $58.4 million in proceeds from the sale of
Pearl iZumi, a $5.0 million refund of an escrow deposit, $2.4 million in payments on a note receivable and $1.4 million in proceeds from the sale
of equipment. Capital expenditures in 2008 were $4.8 million.
27