Nautilus, Inc. Announces Results for Third Quarter 2009

http://www.businesswire.com/news/home/20091109006391/en

Direct and Retail Business Segments Achieve Operating Income for Second
Consecutive Quarter
VANCOUVER, Wash.--(Business Wire)--
Fitness company Nautilus, Inc. (NYSE:NLS) today announced unaudited results for
the third quarter ended September 30, 2009. Continuing results include the
Company`s direct and retail businesses but exclude the Company's commercial
business, for which the Company is actively seeking a buyer as announced on
September 29, 2009. The commercial business is considered a discontinued
operation.

For the quarter ended September 30, 2009 the Company reported net sales from
continuing operations of $41.4 million, compared to net sales from continuing
operations of $62.7 million for the third quarter 2008.

The Company offset expected lower sales in the retail and direct businesses with
greater operating efficiencies. This resulted in profitable operating income for
both the retail and direct businesses in the third quarter ending September 30,
2009. Operating income for the retail business was $2.2 million for the third
quarter 2009, compared to $4.4 million in the third quarter 2008. The direct
business generated $1.7 million in operating income for the third quarter 2009,
compared to an operating loss of $0.9 million in the third quarter 2008.

The Company reported a loss from continuing operations for the third quarter
2009 of $1.5 million, or $0.05 per diluted share. Included in loss from
continuing operations is a non-cash pre-tax asset impairment charge of $2.1
million, related to the Company`s intellectual property, and a pre-tax benefit
from warranty expense reduction of $1.4 million, reflecting recent improvements
in warranty claims experience. In the third quarter of 2008, loss from
continuing operations was $22.2 million, or $0.72 per diluted share.

The Company reported a loss from discontinued operations for the third quarter
of 2009 of $22.9 million, or $0.75 per diluted share. The commercial business
qualified for "held-for-sale" accounting treatment as a result of the planned
divestiture of that business and, as such, loss from discontinued operations
includes a non-cash after-tax impairment loss of $17.9 million. Loss from
discontinued operations in the third quarter 2008 was $11.9 million, or $0.39
per diluted share.

Net loss from continuing and discontinued operations in the third quarter 2009
was $24.4 million, or $0.80 per diluted share, compared with a net loss of $34.1
million, or $1.11 per diluted share, in the third quarter 2008.

Comparative net sales by business segment were as follows:

Three Months Ended

($ thousands) Sept 30, 2009 Sept 30, 2008 $ Change % Change
Direct $ 25,253 $ 38,730 $ (13,477 ) -34.8 %
Retail 15,656 23,723 ( 8,067 ) -34.0 %
Corporate 522 203 319 157.1 %
Net Sales $ 41,431 $ 62,656 $ (21,225 ) -33.9 %

Net sales declined in the direct business, primarily due to the restricted
availability of consumer credit, as well as the Company`s decision to reduce
advertising spend commensurate with sales trends. The Company`s net sales in its
retail business declined primarily due to reductions in customer inventory
levels and reluctance by retailers to replenish inventory in this challenging
economic environment, as well as reduced product placement at certain customers,
partially offset by new business gains.

For continuing operations, consolidated gross profit margin in the third quarter
2009 increased 250 basis points to 49.0% of net sales, compared to gross profit
margin of 46.5% for the same period last year. The improvement in gross margin
is due primarily to a $1.4 million benefit relating to the Company`s warranty
expense following an analysis of recent warranty claim experience performed in
the third quarter 2009. While this is a one-time benefit, the Company
anticipates warranty expense as a percent of revenue to be lower than its
historical rates as a result of more stringent warranty claim management.
Additionally, gross margin benefited from both a shift in sales mix toward
higher-margin TreadClimber products in the Company`s direct business and
decreased shipping costs. Gross profit margin in the direct business was 62.8%
for the third quarter 2009, compared to 59.3% for the same period last year.
Retail business gross profit margin was 26.6% in the third quarter 2009,
compared to 29.0% for the same period last year.

Operating expenses for continuing operations declined by approximately $11.7
million, or 33.6%, in the third quarter 2009, compared to the third quarter
2008, primarily due to a decrease in prevailing advertising rates, improvement
in the creative content of the advertisements and optimized advertising
placement, as well as the Company`s continued commitment to align operating
costs with anticipated revenue. These cost reductions were partially offset by a
$2.1 million non-cash asset impairment charge in the third quarter 2009.

The Company generated net cash from operating activities of $19.1 million for
the first nine months of 2009, compared to $13.4 million for the same period
last year. The improvement is primarily the result of increased accounts
receivable collections and inventory reductions, in the commercial business
which is reported as discontinued operations.

For the third quarter 2009 total depreciation and amortization was $2.8 million,
with approximately $0.3 million related to commercial business discontinued
operations. Additionally, for the nine months ending September 30, 2009 total
depreciation and amortization was $8.6 million, with approximately $1.0 million
related to commercial business discontinued operations.

The Company had cash of $7.0 million and no borrowings as of September 30, 2009,
compared to cash of $5.6 million and short-term borrowings of $17.9 million, a
net borrowing of $12.3 million, at December 31, 2008.

In addition, on November 6, 2009 a new law was enacted permitting companies to
elect to carry back 2008 or 2009 net operating losses to offset U.S. taxable
income reported in the preceding five years. As a result, the Company plans to
make this election and expects to receive a U.S. income tax refund of
approximately $11.9 million by March 31, 2010.

Edward Bramson, Chairman and Chief Executive Officer of Nautilus, Inc., stated,
"While our top line results continue to reflect the challenging consumer
spending environment, we are encouraged by the progress we are making towards
restoring our continuing operations to profitability. For the second consecutive
quarter, we achieved positive operating income for both our retail and direct
businesses, reflecting our success in aligning our cost structure with revenue
trends."

Mr. Bramson continued, "Over the past year, we have worked diligently to
restructure our business and position our company for long-term profitable
growth. As we announced in September, we made the decision to divest our
commercial business assets in order to enable our team to invest all of our
resources on our branded consumer businesses. While Nautilus Commercial has many
attractive assets, we believe we will benefit from greater operating
efficiencies by focusing exclusively on our direct and retail channels. In the
4th quarter we plan to launch a major new product, the Nautilus branded Mobia
low impact cardio machine. We are hopeful that this and other new product
programs will generate profitable sales growth in 2010."

Conference Call

Nautilus will host a conference call today, November 9, at 4:30 p.m. EST (1:30
p.m. PST). It will be broadcast live over the Internet hosted at
http://www.nautilusinc.com/events and will be archived online within one hour
after completion of the call. In addition, listeners may call (800) 940-6895 in
North America, and international listeners may call (303) 223-0120.

A telephonic playback will be available from 6:30 p.m. PST, November 9, 2009,
through 6:30 p.m. PST, November 23, 2009. Participants can dial (800) 633-8284
or (402) 977-9140 (international) passcode 21441954 to hear the playback.

About Nautilus, Inc.

Headquartered in Vancouver, Wash., Nautilus, Inc. (NYSE:NLS) is a global fitness
products company providing innovative, quality solutions to help people achieve
a healthy lifestyle. With a brand portfolio including Nautilus(R), Bowflex(R),
Schwinn(R)Fitness, StairMaster(R) and Universal(R), Nautilus markets innovative
fitness products through its direct and retail business channels. Formed in
1986, the Company had 2008 sales of $411 million ($283 million from continuing
operations). It has approximately 750 employees and operations in Washington,
Oregon, Virginia, Canada, Switzerland, Germany, United Kingdom, China and other
locations around the world. Website: www.nautilusinc.com

Safe Harbor Statement:

This press release includes forward-looking statements, including statements
concerning anticipated future profitability, estimated cost reductions, plans
for divestiture of the Company`s commercial business, availability and cost of
financing for the ongoing business, new product introductions and operational
improvement. Factors that could cause Nautilus, Inc. actual results to differ
materially from these forward-looking statements include availability of media
time and fluctuating advertising rates, our ability to successfully transfer
products to alternative manufacturing facilities, manufacturing quality issues
resulting in increased warranty costs, our ability to successfully divest our
commercial business, our ability to continue to reduce operating costs, a
decline in consumer spending due to unfavorable economic conditions, a change in
the availability of credit for our customers who finance their purchases, our
ability to effectively develop, market and sell future products, our ability to
get foreign-sourced product through customs in a timely manner, our ability to
effectively identify, negotiate and integrate any future strategic transactions,
our ability to protect our intellectual property, introduction of lower-priced
competing products, unpredictable events and circumstances relating to
international operations including our use of foreign manufacturers, government
regulatory action and general economic conditions. Please refer to our reports
and filings with the Securities and Exchange Commission, including our most
recent annual report on Form 10-K and quarterly reports on Form 10-Q, for a
further discussion of these risks and uncertainties. We also caution you not to
place undue reliance on forward-looking statements, which speak only as of the
date they are made. We undertake no obligation to update publicly any
forward-looking statements to reflect new information, events or circumstances
after the date they were made or to reflect the occurrence of unanticipated
events.

NAUTILUS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited and in thousands)

September 30, December 31,
2009 2008
ASSETS
Current assets:
Cash and cash equivalents $ 7,012 $ 5,547
Trade receivables, net of allowances of $4,352 in 2009 and $6,602 in 2008 27,635 53,770
Inventories 12,548 43,802
Prepaid expenses and other current assets 9,708 11,628
Income taxes receivable 509 11,954
Assets held-for-sale 10,462 -

Total current assets 67,874 126,701

Property, plant and equipment, net 9,681 32,883
Goodwill 2,699 2,398
Other intangible assets, net 25,408 34,403
Other assets 905 1,134

Total assets $ 106,567 $ 197,519

LIABILITIES AND STOCKHOLDERS` EQUITY
Current liabilities:
Trade payables $ 32,585 $ 38,198
Accrued liabilities 22,094 30,472
Short-term borrowings - 17,944
Deferred income tax liabilities 1,120 919

Total current liabilities 55,799 87,533
Long-term liabilities 4,998 6,301

Total liabilities 60,797 93,834

Commitments and contingencies
Stockholders` equity:
Common stock - no par value, 75,000 shares authorized, 30,744 and 30,614 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively 3,755 3,207
Retained earnings 35,425 94,433
Accumulated other comprehensive income 6,590 6,045

Total stockholders` equity 45,770 103,685

Total liabilities and stockholders` equity $ 106,567 $ 197,519

NAUTILUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited and in thousands, except per share amounts)

Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Net sales $ 41,431 $ 62,656 $ 135,588 $ 219,809
Cost of sales 21,150 33,526 65,194 112,696

Gross profit 20,281 29,130 70,394 107,113

Operating expenses:
Selling and marketing 14,278 23,753 53,202 83,452
General and administrative 5,240 8,951 18,587 27,176
Research and development 1,283 1,798 3,917 5,106
Asset impairment losses 2,101 - 2,101 -
Restructuring 201 300 14,046 13,370

Total operating expenses 23,103 34,802 91,853 129,104

Operating loss (2,822 ) (5,672 ) (21,459 ) (21,991 )

Other income (expense):
Interest (4 ) (169 ) (152 ) (1,499 )
Other, net 863 (203 ) 491 63

Total other income (expense) 859 (372 ) 339 (1,436 )

Loss from continuing operations before income taxes (1,963 ) (6,044 ) (21,120 ) (23,427 )
Income tax expense (benefit) (440 ) 16,177 505 10,037

Loss from continuing operations (1,523 ) (22,221 ) (21,625 ) (33,464 )

Discontinued operations:
Loss from discontinued operations before income taxes (23,538 ) (7,704 ) (37,936 ) (11,096 )
Income tax expense (benefit) from discontinued operations (643 ) 4,193 (553 ) 4,794

Loss from discontinued operations, net of tax (22,895 ) (11,897 ) (37,383 ) (15,890 )

Net loss $ (24,418 ) $ (34,118 ) $ (59,008 ) $ (49,354 )

Loss per common share from continuing operations:
Basic and diluted $ (0.05 ) $ (0.72 ) $ (0.71 ) $ (1.07 )
Loss per common share from discontinued operations:
Basic and diluted $ (0.75 ) $ (0.39 ) $ (1.22 ) $ (0.51 )
Net loss per common share:
Basic and diluted $ (0.80 ) $ (1.11 ) $ (1.93 ) $ (1.58 )
Weighted average common shares outstanding:
Basic and diluted 30,681 30,739 30,637 31,285

NAUTILUS, INC.

REPORTABLE SEGMENTS - SELECTED FINANCIAL INFORMATION

(Unaudited and in thousands)

Three months ended September 30, 2009: Direct Retail Corporate Total
Net sales $ 25,253 $ 15,656 $ 522 $ 41,431
Gross profit 15,861 4,171 249 20,281
Operating income (loss) 1,740 2,229 (6,791 ) (2,822 )
Other income, net - - 859 859
Income (loss) from continuing operations before income taxes 1,740 2,229 (5,932 ) (1,963 )

Three months ended September 30, 2008:
Net sales $ 38,730 $ 23,723 $ 203 $ 62,656
Gross profit (loss) 22,966 7,122 (958 ) 29,130
Operating income (loss) (922 ) 4,440 (9,190 ) (5,672 )
Other expense, net - - (372 ) (372 )
Income (loss) from continuing operations before income taxes (922 ) 4,440 (9,562 ) (6,044 )

Nine months ended September 30, 2009: Direct Retail Corporate Total
Net sales $ 94,169 $ 39,560 $ 1,859 $ 135,588
Gross profit 58,025 11,478 891 70,394
Operating income (loss) 5,055 4,803 (31,317 ) (21,459 )
Other income, net - - 339 339
Income (loss) from continuing operations before income taxes 5,055 4,803 (30,978 ) (21,120 )

Nine months ended September 30, 2008:
Net sales $ 149,657 $ 67,959 $ 2,193 $ 219,809
Gross profit 90,610 16,179 324 107,113
Operating income (loss) 6,047 6,907 (34,945 ) (21,991 )
Other expense, net - - (1,436 ) (1,436 )
Income (loss) from continuing operations before income taxes 6,047 6,907 (36,381 ) (23,427 )

For Nautilus, Inc.
Investor Relations
John Mills, 310-954-1100

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