Nautilus, Inc. Performance and Status
Overview
Nautilus, Inc. is a company with its headquarters in Vancouver, Washington, U.S and is listed NYSE: NLS. The company deals with products and education aimed at helping people live fit and healthy lifestyles— sporting goods. Together with its subsidiaries, it is involved in designing, developing, sourcing and marketing cardiovascular and strength fitness products, and associated accessories to be used by its clients. The company’s consumer base is both the U.S and Canada. Its brands include Bowflex, Schwinn Fitness, Nautalus, Universal and StairMaster. Methods of marketing include retail, direct, specialty retail and international channels.
Executive sumary
• Nautilus, Inc., based in Vancouver, Washington, U.S., deals with sporting goods
• the company Nautilus, Bowflex, Schwinn, Universal and StairMaster brands
• Its methods of marketing are retail, direct, specilaty retail and international channels
• with a 7.1% increment in direct, retail and royalty returns, it shows that Nautilus Inc. sales are healthy.
• There’s a relatively larger difference between direct and retail sales and another very large between retail sales and royalty income which shows that the sales are not balanced
• NYSE notified the company that it was not complying with its regulation of $ 50 million market capitalization for a 30-training day period and its stock faced delisting the NYSE, thus, equity investors should be displeased with its performance
• with $ 78, 459 (2011), $ 76, 746 (2010), $ 96, 515 (2009), $ 150, 637 (2008), and $ 179, 363 net income trend, it’s a clear indication that that growth profit has been on a decline
• The assets are not working hard enough because following the 2011 ($ 82, 813 ), 2010 ($ 78, 367) and 2009 ($ 115, 172) trend of the total assets, shows that they are on a decrease meaning that either they are selling off or the total assets are depreciating. Over the five years the annual reports have shown that the Nautilus Inc assets have been on the decrease from 2007 to 2011
• the financial leverage is 0.6 and since the highest acceptable limit of financial leverage ratio is 2:1, it’s within the limits
• the growth of equity between 2007 to 2011 trend shows that it has been on a decrement
• operating cash flows have been $ 8, 504 (2007); $ 5,570 (2008); $ 14, 782 (2009); $ 10,659 (2010); and $ 4,598 (2011)
• free cash flows have been 2007 FCF =$ -2.19M; 2008 FCF=1.06M; 2009 FCF= $12.78; 2010 FCF=$-10.88M; 2011 FCF=2.09M; the trend shows the cash flows are unsustainable
• the company will have cash flow problems if it won’t raise enough capital to finance its activities
• 15% is an appropriate discount rate because it can account for the risk of investing, and, it is over the average 8-10% annual rate of return
• the present value of the predicted free cash flows for the coming five years is $ 2.12 M.
Nautilus Inc. Sales
Nautilus Inc. sales are healthy as its 2010 and 2011 net sales reflect. The direct net sales of Nautilus Inc. in terms of dollars as of December 31, 2011 was $ 107, 061 while the retail net sales was $ 68, 591; its royalty returns stood at $ 4, 760, totaling at $ 180, 412 . The 2011 net sales report were a good performance compared to the net sales realized as of December 31, 2010; whereby, the direct net sales were $ 96,668, the retail net sales were $ 67, 789, while the royalty income was $ 3, 993; totaling $ 168, 450. Based on the differences of 2010 and 2011 ($ 168, 450 and $ 180, 412 respectively), the company recorded a profit increment by $ 11, 962; a 7.1% increment. This is a satisfactory proof that the company’s sales are healthy.

The following table shows the net sales of Nautilus Inc. for years ended December 31, 2011 and 2010 (in thousands):
appropriately diversified

Year Ended December 31,
2011 2010 Change % Change
Net sales:
Direct $ 107,061 $ 96,668 $ 10,393 10.8 %
Retail 68,591 67,789 802 1.2 %
Royalty income 4,760 3,993 767 19.2 %
Total net sales $ 180,412 $ 168,450 $ 11,962 7.1 %

As the above table reflects, the sales are skewed to direct net sales whereby it leads with $ 107, 061 (2011) and $ 96, 668 (2010). After a relatively bigger difference, the retail net sales come second with $ 68, 591 (2011) and $ 67, 789 (2012) ; and then, after a very huge difference, the royalty net sales come last with a mere $ 4, 760 (2011) and $ 3, 993 (2010). The big differences between direct, retail and royalty income sales in the two years, explicitly show that the sales are not balanced.
Nautilus Inc. has an assorted line of products of cardiovascular and strength fitness products. The company has four brands namely Nautilus, Bowflex, Schwinn, and Universal (Nautilus, Inc., 2009). These brands are appurtenance as they deal with diverse products in their category as the following examples show. The Nautilus brand is comprised of treadmills, specialized cardiovascular, exercise bikes and ellipticals. The Bowflex brand constitutes of a line of fitness products ranging from cardiovascular to strength products, such as PowerRod and Revolution home gyms, and treadmills. The Schwinn brand is comprised of exercise bikes (a newly introduced indoor cycling bike and a new product on its Airdyne model), ellipticals and treadmills. The Universal brand comprises of products for consumer use in kettlebell weights, weight benches, and newly introduced dumbbells. This is a clear indication that the sales are properly diversified.
Nautilus Inc. revenue growth rate stands at 7.10% in the first year. In three years’ time, its projected revenue growth rate will be -22.80% while in the fifth year, the revenue growth rate will be -28.31%. With this trend, where the growth rate is headed for a negative growth rate, we can deduce that the company is not growing at an appropriate rate.
The company will have cash flow problems if it won’t raise enough capital to finance its activities Investors
Based on the New York Stock Exchange (NYSE) regulations, the listed organizations have two options: maintaining an average of $ 50 million global market capitalization during a consecutive 30 trading-day period, or, have a total stockholders’ equity of over $ 50 million. On December 3, 2010, NYSE notified Nautilus Inc. that it was not complying with that regulation. Despite the fact that over the following 30-training day period it registered a market capitalization of $ 75 million that complied with the regulations, the company’s inability to maintain compliance with the NYSE could lead to the delisting of its stock by the NYSE. Also, in the four quarters of 2010 and 2011, no dividends were paid. Therefore, equity investors should be displeased with the company’s performance.
High Low Dividends Paid
2011:
Quarter 1 $ 3.30 $ 1.81 —
Quarter 2 3.45 1.58 —
Quarter 3 2.24 1.32 —
Quarter 4 2.20 1.39 —
2010:
Quarter 1 4.35 1.96 —
Quarter 2 3.63 1.52 —
Quarter 3 2.02 1.27 —
Quarter 4 1.92 1.30 —

Profitability
In 2010 and 2011, the company had a net income (loss) of $ 22, 481and $ 1, 420 respectively. Despite the fact that there was a difference of net income (loss) of $ 24, 261 between the two years, with 2011 year recording less net income loss, the trend of the two financial years shows that the company is not yet profitable enough. The company’s gross profit (in thousands) in the last five years was $ 78, 459 (2011); $ 76, 746 (2010); $ 96, 515 (2009); $ 150, 637 (2008); and $ 179, 363. This shows that growth profit has been on a decline.

The following table compares selected financial information in our consolidated statements of operations for the years ended December 31, 2011 and 2010 (in thousands):

Year Ended December 31,
2011 2010 Change % Change
Net sales $ 180,412 $ 168,450 $ 11,962 7.1 %
Cost of sales 2007 FCF =$ -2.19M; 2008 FCF=1.06M; 2009 FCF= $12.78; 2010 FCF=$-10.88M; 2011 FCF=2.09M 101,953 91,704 10,249 11.2 %
Gross profit 78,459 76,746 1,713 2.2 %
Operating expenses:
Selling and marketing 54,494 64,039 (9,545 ) (14.9 )%
General and administrative 17,143 19,371 (2,228 ) (11.5 )%
Research and developme 2007 FCF =$ -2.19M; 2008 FCF=1.06M; 2009 FCF= $12.78; 2010 FCF=$-10.88M; 2011 FCF=2.09M nt 3,223 2,905 318 10.9 %
Total operating expenses 74,860 86,315 (11,455 ) (13.3 )%
Operating income (loss 2007 FCF =$ -2.19M; 2008 FCF=1.06M; 2009 FCF= $12.78; 2010 FCF=$-10.88M; 2011 FThe company will have cash flow problems if it won’t raise enough capital to finance its activitiesCF=2.09M) 3,599 (9,569 ) 13,168
Other income (expense):
Interest income 65 15 50
InThe company will have cash flow problems if it won’t raise enough capital to finance its activitiesterest expense (466 ) (140 ) (326 )
OThe company will have cash flow problems if it won’t raise enough capital to finance its activitiesther (11 ) 464 (475 )
Total other income (expense) (412 ) 339 (751 )
Income (loss) before income taxes 3,187 (9,230 ) 12,417
InThe company will have cash flow problems if it won’t raise enough capital to finance its activitiescome tax expense 686 588 98
Income (loss) from continuing oThe company will have cash flow problems if it won’t raise enough capital to finance its activitiesperations 2,501 (9,818 ) 12,319
The company will have cash flow problems if it won’t raise enough capital to finance its activitiesoss from discontinued operation, net of income taxes (1,081 ) (13,023 ) 11,942
Net income (loss) $ 1,420 $ (22,841 ) $ 24,261

Assets
The assets are not working hard enough because following the 2011 ($ 82, 813 ), 2010 ($ 78, 367) and 2009 ($ 115, 172) trend of the total assets, shows that they are on a decrease meaning that eThe company will have cash flow problems if it won’t raise enough capital to finance its activitiesither The company will have cash flow problems if it won’t raise enough capital to finance its activitiestThe company will have cash flow problems if it won’t raise enough capital to finance its activitieshey are selling off or the total assets are depreciating. Over the five years the annual reports have shown that the Nautilus Inc assets have been on the decrease from 2007 to 2011.
Financial leverage
The financial leverage for Nautilus Inc. is for 2011 and 2010 is 50, 860/ 82, 813=0.6 and 47,568/78, 367= 0.6. If they perceive it to be risky they will be hesitant borrowing debt. The highest acceptable limit of financial leverage ratio is 2:1, having not more than 1/3 of debt in the long term. Therefore, the financial leverage is appropriate as it’s within the limits.
Growth of equity
The growth of equity was $ 31, 953 (2011); $ 30, 799 (2010); $ 52, 483 (2009); $ 103, 685 (2008) and $ 196, 454 (2007). The trend shows that the growth of equity has been on a decrement.
Operating cash flow
The operating cash flows for the five years have been $ 8, 504 (2007); $ 5,570 (2008); $ 14, 782 (2009); $ 10,659 (2010); and $ 4,598 (2011). Free cash flow (FCF) = Operating cash flow- capital expenditures. 2007 FCF =$ -2.19M; 2008 FCF=1.06M; 2009 FCF= $12.78; 2010 FCF=$-10.88M; 2011 FCF=2.09M. The trend shows that the cash flows are unsustainable as they vacillate between negative and positive. Assuming that the behavior of the company will not change, within the next five years, the free cash flow will be headed for a steep decrement as its trend has some records steeply declining below 0.
The company will have cash flow problems if it won’t raise enough capital to finance its activities. An appropriate discount rate is 15%. The rate is appropriate because it can account for the risk of investing and it is over the average 8-10% annual rate of return. The present value of the predicted free cash flows for the coming five years is $ 2.12 M.

References
Nautilus, Inc. (2009). Homepage. Retrieved on April 10, 2012 from
http://investors.nautilusinc.com/sec.cfm?DocType=Annual