SOURCE: Nautilus, Inc.

February 07, 2007 16:10 ET

Nautilus, Inc. Achieves Record Revenues for Fourth Quarter and Fiscal Year 2006; Core Earnings Rise 29 Percent in 2006

VANCOUVER, WA -- (MARKET WIRE) -- February 7, 2007 -- Nautilus, Inc. (NYSE: NLS), a pure fitness company, today announced results for the three months and fiscal year ended December 31, 2006.

Net sales for the three months ended December 31, 2006, were $199.3 million compared to $182.0 million for the corresponding period last year, up 10 percent and the largest single quarter in the company's history. Net income for the quarter was $12.9 million, or $0.41 per share, up from $2.0 million, or $0.06 per share, for the fourth quarter of 2005.

For the 12 months ended December 31, 2006, the company generated $681.5 million in net sales compared to $631.3 million in the fiscal year ended December 31, 2005, an 8 percent increase. Net income for fiscal year 2006 was $29.1 million or $0.90 per share, compared to $23.0 million or $0.68 in fiscal 2005.

Including pro forma adjustments (see table), 2006 net income was $26.1 million or $0.81 per share, compared to $21.4 million or $0.63 per share in 2005, an increase in earnings per share of 29 percent.

"We achieved record net sales for the fourth quarter and 2007, and are well positioned for solid top and bottom line growth in 2007 with an exciting pipeline of innovative fitness products and education across all channels of distribution," said Gregg Hammann, Chairman and CEO of Nautilus, Inc.

"We are completing the transformation of our company's foundation with leading yet diverse brands, diversity in our channels of distribution, and diversity of our supply chain to prepare us for long-term sustainable growth. All of this heavy lifting has positioned us with a solid foundation for a sustainable rhythm of sales and earnings growth."

For fiscal 2007, the company expects net sales growth of approximately 10 percent and diluted earnings growth of 20-30 percent from a 2006 pro forma base of $0.81 per share. For the first quarter of 2007, the Company estimates that net sales will be in the $185-195 million range, with expected earnings of $0.18 to $0.21 per diluted share.

In addition, the Company announced that its Board of Directors declared a regular quarterly dividend of $0.10 per common share, payable March 9, 2007, to stockholders of record as of February 20, 2007.

The conference call is scheduled for 5:00 p.m. EST (2:00 p.m. PST), February 7, 2007. It will be broadcast live over the Internet hosted at www.nautilusinc.com/events and will be archived online within one hour after completion of the call. In addition, listeners may call 800-834-5691 in North America and 212-676-5285 from outside North America. Participants will include: Gregg Hammann, Chairman and Chief Executive Officer; Bill Meadowcroft, Chief Financial Officer; Tim Hawkins, President of Fitness Equipment; Juergen Eckmann, President of Apparel; and Mark Meussner, Sr. VP of Global Manufacturing, Quality and Engineering.

A telephonic playback will be available from 4:00 p.m. PST, February 7, through 4:00 p.m. PST, February 21, 2007. North American callers can dial (800)633-8284, and international callers can dial (402)977-9140 to hear the playback. The passcode is 21321565.

About Nautilus, Inc.

Headquartered in Vancouver, Wash., Nautilus, Inc. (NYSE: NLS) is a pure fitness company that provides tools and education necessary to help people achieve a fit and healthy lifestyle. With a brand portfolio that includes Nautilus®, Bowflex®, Schwinn® Fitness, StairMaster(R), and Pearl iZUMi®, Nautilus manufactures and markets a complete line of innovative health and fitness products through direct, commercial, retail, specialty and international channels. The Company was formed in 1986 and had sales of $682 million in 2006. It has 1,600 employees and operations in Washington, Oregon, Colorado, Oklahoma, Illinois, Virginia, Canada, Switzerland, Germany, United Kingdom, Italy, China, and other locations around the world. More information is at www.nautilusinc.com

This press release includes forward-looking statements, including statements concerning estimated future sales and earnings, new product introduction, 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, a decline in consumer spending due to unfavorable economic conditions, its ability to effectively develop, market, and sell future products, its ability to get foreign-sourced product through customs in a timely manner, its ability to effectively identify, negotiate and integrate any future strategic acquisitions, its ability to protect its intellectual property, introduction of lower-priced competing products, unpredictable events and circumstances relating to international operations including its 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.
                        CONSOLIDATED BALANCE SHEETS
                        DECEMBER 31, 2006 AND 2005
                        (Unaudited, in thousands)


                                                  2006        2005
                                               ----------  ----------
ASSETS
CURRENT ASSETS:
   Cash and cash equivalents                   $    4,262  $    7,984
   Trade receivables, net                         138,933     116,908
   Inventories                                     75,676      96,084
   Prepaid expenses and other current assets       23,088       8,369
   Short-term note receivable                       2,461       2,496
   Asset held for sale                              1,677       6,115
   Deferred tax assets                              5,722       7,235
                                               ----------  ----------

      Total current assets                        251,819     245,191

PROPERTY, PLANT AND EQUIPMENT, net                 52,658      59,320

GOODWILL                                           65,037      64,404

INTANGIBLE AND OTHER ASSETS, net                   56,491      44,371
                                               ----------  ----------

TOTAL ASSETS                                   $  426,005  $  413,286
                                               ==========  ==========

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:
   Trade payables                              $   62,015  $   61,132
   Accrued liabilities                             31,867      29,097
   Short-term borrowings                           47,500      40,147
   Income taxes payable                             4,551       3,810
   Customer deposits                                2,229       3,327
   Current portion of long-term debt                  259         707
                                               ----------  ----------

     Total current liabilities                    148,421     138,220

LONG-TERM DEBT                                      4,158       5,610

NONCURRENT DEFERRED TAX LIABILITIES                16,792      16,990

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY:
   Common stock                                     1,026       3,549
   Unearned stock compensation                         --      (1,947)
   Retained earnings                              251,418     248,123
   Accumulated other comprehensive income           4,190       2,741
                                               ----------  ----------

      Total stockholders’ equity                  256,634     252,466
                                               ----------  ----------

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY     $  426,005  $  413,286
                                               ==========  ==========



                              NAUTILUS, INC.
                    CONSOLIDATED STATEMENTS OF INCOME
            (Unaudited, in thousands, except per share amounts)


                                    Three Months          Twelve Months
                                  Ended December31,     Ended December31,
                                --------------------- ---------------------
                                  2006       2005       2006       2005
                                ---------- ---------  ---------  ----------
NET SALES                       $  199,327 $ 182,033  $ 681,513  $  631,310
COST OF SALES                      111,605   110,332    381,797     352,496
                                ---------- ---------  ---------  ----------

      Gross profit                  87,722    71,701    299,716     278,814
                                ---------- ---------  ---------  ----------

OPERATING EXPENSES:
   Selling and marketing            49,666    50,231    187,552     179,656
   General and administrative       13,880    14,259     54,279      48,826
   Research and development          2,876     2,392     11,199      11,160
   Royalties                         1,617     1,416      5,607       5,368
                                ---------- ---------  ---------  ----------

      Total operating expenses      68,039    68,298    258,637     245,010
                                ---------- ---------  ---------  ----------
OPERATING INCOME                    19,683     3,403     41,079      33,804
OTHER INCOME (EXPENSE):
   Interest income (expense), net     (863)     (281)    (2,015)      1,179
   Other income (expense), net         388      (232)     1,605         310
                                ---------- ---------  ---------  ----------

      Total other income
       (expense)                      (475)     (513)      (410)      1,489
                                ---------- ---------  ---------  ----------

INCOME BEFORE INCOME TAXES          19,208     2,890     40,669      35,293
INCOME TAX EXPENSE                   6,355       920     11,569      12,293
                                ---------- ---------  ---------  ----------
NET INCOME                      $   12,853 $   1,970  $  29,100  $   23,000
                                ========== =========  =========  ==========
EARNINGS PER SHARE:
      BASIC                     $     0.41 $    0.06  $    0.90  $     0.69
      DILUTED                   $     0.41 $    0.06  $    0.90  $     0.68
WEIGHTED AVERAGE SHARES
 OUTSTANDING:
      BASIC                         31,478    33,115     32,300      33,303
      DILUTED                       31,642    33,931     32,457      33,857



                              NAUTILUS, INC.
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
               YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
                        (Unaudited, in Thousands)


                                                2006      2005      2004
                                              --------  --------  --------
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                 $ 29,100  $ 23,000  $ 29,985
   Adjustments to reconcile net income to net
    cash provided by (used in) operating
    activities:
      Depreciation and amortization             16,786    16,354    11,972
      Amortization of unearned stock
       compensation                                 --       363       340
      Stock-based compensation                   2,534        --        --
      (Gain) loss on sale of property, plant
       and equipment                               146        17    (1,214)
      Tax benefit from exercise of
       nonqualified options                         --     1,788     1,285
      Excess tax benefit from exercise of
       employee stock options                      (48)       --        --
      Deferred income taxes                        656      (437)      860
      Foreign currency transaction gain         (1,545)       --        --
      Decrease in allowance for notes
       receivable                                   --        --      (594)
      Changes in assets and liabilities, net
       of the effect of acquisitions:
         Trade receivables                     (25,472)  (16,261)  (19,702)
         Inventories                            21,729   (33,342)    4,693
         Prepaid expenses and other current
          assets                               (12,228)   (1,564)   (1,036)
         Trade payables                           (392)    2,228    22,774
         Accrued liabilities                     2,372     2,315    (5,991)
         Income taxes payable                      806    (4,600)    2,261
         Customer deposits                      (1,384)      493     1,373
                                              --------  --------  --------
         Net cash provided by (used in)
          operating activities                  33,060    (9,646)   47,006
                                              --------  --------  --------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property, plant and equipment  (11,155)  (31,771)   (9,043)
   Proceeds from sale of property, plant and
    equipment, and assets held for sale          7,143     2,972       641
   Net increase in intangible and other
    assets                                     (10,989)     (449)     (596)
   Acquisitions, net of cash acquired               --   (73,689)       --
   Purchases of short-term investments              --   (49,352) (126,143)
   Proceeds from maturities of short-term
    investments                                     --   134,671    92,106
   Net (decrease) increase in notes
    receivable                                     (21)        8       453
                                              --------  --------  --------

         Net cash used in investing
          activities                           (15,022)  (17,610)  (42,582)
                                              --------  --------  --------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Cash dividends paid on common stock         (12,913)  (13,351)  (13,091)
   Proceeds from exercise of stock options         603     5,609     6,569
   Excess tax benefit from exercise of
    employee stock options                          48        --        --
   Stock repurchases                           (16,653)  (15,636)       --
   Net increase of short-term borrowings         7,353    40,147        --
   Principal payments on long-term debt         (1,900)     (300)       --
                                              --------  --------  --------

         Net cash provided by (used in)
          financing activities                 (23,462)   16,469    (6,522)
                                              --------  --------  --------
Net effect of foreign currency exchange rate
 changes                                         1,702      (495)       12
                                              --------  --------  --------

NET DECREASE IN CASH AND CASH EQUIVALENTS     $ (3,722) $(11,282) $ (2,086)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR     7,984    19,266    21,352
                                              --------  --------  --------
CASH AND CASH EQUIVALENTS, END OF YEAR        $  4,262  $  7,984  $ 19,266
                                              ========  ========  ========



                    SUPPLEMENTAL PRO FORMA DISCLOSURE

          Reconciliation of GAAP to Pro Forma Earnings Statement
            (Unaudited, in thousands, except per share amounts)


                                                  Twelve Months
                                                Ended December 31,
                                              ---------------------
                                                2006        2005
                                              ---------   ---------

GAAP NET INCOME                               $  29,100   $  23,000
Adjustments:
 Net Share-Based Payment ("SFAS 123R")
  expense, net of tax                                --      (1,617)
 State Income Tax Reserve adjustment             (2,967)         --
                                              ---------   ---------

PRO FORMA NET INCOME                          $  26,133   $  21,383
                                              =========   =========

GAAP net income per common share, diluted     $    0.90   $    0.68
Pro forma net income per common share,
 diluted                                      $    0.81   $    0.63


* To supplement our consolidated financial statements presented in
  accordance with GAAP, the Company uses non-GAAP measures of pro forma
  net income and pro forma earnings per share, which are adjusted from our
  GAAP results as shown above.  These non-GAAP adjustments are provided to
  enhance the user's overall understanding of our current financial
  performance.  We believe the non-GAAP results provide useful information
  to both management and investors by including or excluding certain
  charges and other amounts that we believe are not indicative of our core
  operating results.  These non-GAAP measures are included to provide
  investors and management with an alternative method for assessing the
  Company's operating results in a manner that is focused on the
  performance of the Company's ongoing operations and to provide a more
  consistent basis for comparison between quarters.  These measures are not
  in accordance with or an alternative for, GAAP and may be different from
  pro forma measures used by other companies.