Nautilus 2007 Annual Report Download - page 29

Table of Contents
Other Income, net
Other income, net increased to $1.1 million in 2006 from $0.5 million in 2005 primarily due to foreign currency gains realized by the Company
in 2006.
Consolidated Income Tax Expense
The provision for income tax expense from continuing operations decreased by 18.8% in 2006 to $9.1 million as compared to $11.2 million in
2005. Our effective tax rate from continuing operations in 2006 was 26.7% compared to 33.9% in 2005. The decrease in the effective tax rate
was primarily due to a $3.8 million reduction of our tax contingency reserves resulting from our determination that certain statutory periods for
the assessment of additional state income tax have closed.
Discontinued Operations
In 2007 the Company designated the financial results of the Fitness Apparel Business as discontinued operations. This resulted in recording the
financial results from these operations as gain from discontinued operations. The gain from discontinued operations during 2006 was $4.2
million compared to $1.0 million during 2005. The increase in gain from discontinued operations in 2006 was due to the acquisition of Pearl
Izumi occurring in July 2005 which resulted in a gain from discontinued operations for six months in 2005 compared to twelve months of
operations during 2006.
LIQUIDITY AND CAPITAL RESOURCES
During 2007, our operating activities from continuing operations provided $1.8 million in net cash compared to providing net cash of $38.5
million in 2006. The reduction in operating cash provided from continuing operations year over year was primarily due to a 19% reduction in net
sales resulting in a loss from continuing operations of $45.8 million offset by a reduction in trade receivables of $43.7 million. As a result of the
pre-tax loss recorded in 2007, the Company will be able to obtain tax refunds from prior years in which taxes were paid. We received a tax
refund of approximately $1.9 million in the first quarter 2008 and anticipate receiving approximately $8.0 million in the second quarter of 2008.
Net cash used in investing activities from continuing operations was $26.4 million in 2007 compared to $14.4 million in 2006. During 2007, the
Company invested $21.9 million in the Land America acquisition which was not closed and thus an impairment was recorded as of
December 31, 2007. In addition, capital expenditures were $10.7 million in 2007 compared to $10.9 million in 2006. Capital expenditures during
2007 consisted of manufacturing equipment and tooling to support new, innovative product offerings, and computer equipment to maintain and
expand current information systems. In 2007 we received proceeds from the sale of a building in Louisville, Colorado for $6.1 million while in
the prior year period, we sold a building and received $7.1 million in net proceeds and acquired intellectual property for $8.5 million.
Net cash provided by financing activities from continuing operations was $22.9 million in 2007 compared to net cash used of $22.9 million in
2006. Cash dividends paid were $9.5 million 2007 compared to $12.9 million in 2006. The Company repurchased $16.7 million of stock in
2006. Due to the current year operating losses and other activities, the Company borrowed $31.5 million in the current year and $7.4 million in
2006. In order to conserve cash and reduce our need to borrow, we suspended our quarterly dividend starting in the fourth quarter of 2007.
In the fourth quarter of 2007, management committed to a plan to sell the operations of our Fitness Apparel Business. Our Fitness Apparel
Business primarily consists of Pearl Izumi which designs, markets and sells branded fitness apparel and footwear sold primarily under the Pearl
Izumi brand globally. In February 2008 the Company entered into an agreement to sell Pearl Izumi and the Company anticipates the sale to be
completed late
26