Nautilus 2008 Annual Report Download - page 38

Table of Contents
Cash provided by investing activities from continuing operations in 2008 totaled $3.9 million, compared to cash used in investing activities from
continuing operations of $26.4 million in 2007. The change primarily reflects the $21.9 million payment to Land America in 2007 for the
terminated acquisition agreement. In addition, during 2008, we received the return of our $5.0 million deposit related to the terminated Land
America agreement. In 2008, we received $2.4 million representing full payment on a note receivable from a previous business partnership and
$1.4 million related to the sale of a building. During 2007, we received $6.1 million from the sale of a building. The Company invested $4.5
million in capital expenditures during 2008, compared to $10.7 million in 2007. The decrease reflects management’s decision to reduce capital
spending in response to a sluggish economy. The Company anticipates it will continue to operate at a reduced capital spending level for the
foreseeable future. In the second quarter of 2008, we received $58.4 million from the sale of our Pearl Izumi apparel business. We reported the
cash effect of this transaction as cash flows from investing activities from discontinued operations.
Net cash used in financing activities from continuing operations totaled $68.9 million in 2008, compared to $22.9 million in net cash provided
from such activities in 2007. In 2008, we made $61.1 million in net payments to reduce our short-term borrowings, principally using funds
received from the sale of our apparel business in the 2008 second quarter, and paid $2.0 million in financing fees, legal expenses and other costs
to establish the revolving credit agreement. During 2008, we also used $5.3 million to repurchase outstanding shares of the Company’s common
stock based on a stock repurchase program approved by our Board of Directors in May 2008. We do not anticipate any further repurchases under
the repurchase program unless and until we return to sustained profitability. Cash used for financing activities from continuing operations in
2007 included $9.5 million in dividend payments to our shareholders. In the fourth quarter of 2007, our Board of Directors suspended the
quarterly dividend payment. We do not anticipate further dividend payments in the foreseeable future due to the difficult economic environment.
The economy’s impact on our operating results has been worse than we anticipated, and we are uncertain as to when the economy will stabilize
or begin to improve. Over the last two years, we have initiated a series of restructuring activities, which have generated substantial charges
contributing to significant operating losses and negative cash flows. While the restructuring strategies we have implemented are expected to
result in substantial cost savings in future periods, they have not been able to offset the full impact of the poor economic conditions and our
decline in revenues. As a result of these and other factors, we cannot presently project when or if we might become profitable. Our return to
profitability is highly dependent on numerous factors, including: increased consumer confidence; improved global economic conditions,
particularly in the U.S.; relaxed credit markets including improved availability of credit for our customers; and resumed growth in consumer
spending on discretionary goods.
In light of the aforementioned uncertainties, there can be no assurance we will return to generating positive cash flows. We anticipate receiving
U.S. federal income tax refunds totaling approximately $11.4 million, in the second or third quarter of 2009, and receiving the refund of a $4.4
million escrow deposit, in the fourth quarter of 2009, from the sale of our fitness apparel business. We believe these sources of cash and
borrowings available under our credit facilities will be sufficient to meet our operating and capital requirements for the next twelve months.
Financing Arrangement
The Company relies on its current banking relationship to meet its ongoing cash needs, particularly during seasonal periods of reduced cash
flow. The Company has a Loan and Security Agreement (the “Loan Agreement”) with Bank of America N.A., which provides the Company
with a revolving secured credit line to fund the Company’s letters of credit, working capital needs and for other general business purposes,
including acquisition financing. The Company entered into a Fifth Amendment of the Loan Agreement, effective March 10, 2009, which
reduced the amount of the credit line, from $40.0 million, to $30.0 million, and amended certain loan covenants. The actual amount the
Company is able to borrow against the credit line is calculated as the lower of either $30 million, or the borrowing capacity, which is based
primarily on the month-end value of
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