EX-99.2 3 dex992.htm SLIDE PRESENTATION Slide presentation
Operating Review
July 31, 2008
Exhibit 99.2


2
Safe Harbor Statement
This presentation contains forward-looking statements, which may contain
words
such
as
“intends,”
“believes,”
“anticipates,”
and
“expects.”
These
forward-looking statements involve risks and uncertainties that may cause
our actual results to be materially different from those expressed or implied
by these statements.  A more detailed description of certain factors that could
affect actual results include, but are not limited to, those discussed in the
Nautilus, Inc. annual report on Form 10-K for the fiscal year ended December
31, 2007. This presentation utilizes management allocations to present
channel segment results. These allocations are based on management
estimates and are subject to revision. We do not undertake any duty to
update forward-looking statements after the date they are made or to
conform them to actual results or to changes in circumstances or
expectations.
Bowflex, Nautilus, Nautilus One, Schwinn Fitness, StairMaster and Universal
are registered trademarks of Nautilus, Inc.


3
Turnaround objectives
Strengthen balance sheet and liquidity
Reduce risk
Support growth strategy
Permit future distributions to shareholders
Improve profitability at current sales levels
Lower breakeven level
Reduce earnings volatility
Eliminate losses in commercial business
Maintain investment in advertising
Develop strategy for profitable growth
New product development
Resolve retail / direct channel conflict
Expand share in cardio market
Capitalize on retail brand portfolio
Increase financial transparency


4
Balance sheet and liquidity
Sale of apparel business in April
$58.4 million net cash received
Up to $4.3 million to be received from escrow in October 2009
Terminated $69 million agreement to acquire Land America
$8 million payment in Q2 settles all claims
Good supplier relationship restored
Maintaining liquidity
Operating cost reductions
Inventory reductions
Further outsourcing reduces required capital expenditures
Current position
Net
cash
of
$4
million
at
June
30
versus
net
debt
of
$71
million
at
December
31,
2007
Unutilized borrowing availability of approximately $35 million at June 30
Improved balance sheet position permits share repurchases
$10 million approved
$5.1 million repurchased through July 29


5
Improve profitability at current sales level
Historical
profitability
declined
despite
sales
increases
(1)
Fixed costs growing faster than sales
(1)
Excludes apparel division and restructuring and
other items; 2003 and 2004 results adjusted for
FAS 123R
($ millions)
2003
2004
2005
2006
2007
Sales
498.8
        
523.8
        
607.2
        
617.3
        
501.4
        
Gross Profit
243.5
        
238.6
        
262.6
        
266.3
        
196.3
        
Gross Margin
48.8%
45.6%
43.2%
43.1%
39.2%
Advertising
83.0
          
76.0
          
76.0
          
85.0
          
78.0
          
as % of sales
16.6%
14.5%
12.5%
13.8%
15.6%
Other SG&A
111.8
        
120.8
        
156.7
        
146.6
        
154.9
        
as % of sales
22.4%
23.1%
25.8%
23.7%
30.9%
Operating Profit
48.7
          
41.8
          
29.9
          
34.7
          
(36.6)
         
Operating Margin
9.8%
8.0%
4.9%
5.6%
-7.3%


6
Improve profitability at current sales level
Expense growth affected all channels negatively
(1)
Allocations based on management estimates and
are subject to revision
(2)
Corporate as a percent of Total Sales
Note: Excludes apparel division and restructuring and
other items; 2003 adjusted for FAS 123R
2003
2007
($ millions)
Direct
Retail
Comm.
Corporate
Total
Direct
Retail
Comm.
Corporate
Total
Sales
246.9
165.4
86.5
-
498.8
249.1
114.7
134.5
3.1
501.4
Cost of Goods Sold
(1)
79.8
116.7
58.8
-
255.3
98.5
96.1
109.8
0.7
305.1
Gross Profit
167.1
48.7
27.7
-
243.5
150.6
18.6
24.7
2.4
196.3
Gross Margin
67.7%
29.4%
32.0%
48.8%
60.5%
16.2%
18.4%
39.2%
Advertising
(1)
79.6
3.4
-
-
83.0
75.9
2.1
-
-
78.0
Other SG&A
(1)
54.7
21.9
16.5
18.7
111.8
67.7
18.0
37.1
32.1
154.9
Operating Profit
32.8
23.4
11.2
(18.7)
48.7
7.0
(1.5)
(12.4)
(29.7)
(36.6)
Operating Margin
(2)
13.3%
14.1%
12.9%
-3.7%
9.8%
2.8%
-1.3%
-9.2%
-5.9%
-7.3%
Net Income
31.3
(25.0)
EBITDA
63.7
(22.9)
-
-


7
Planned cost reductions
(1)
Excludes apparel division and restructuring and
other items
(2)
Incremental savings
(3)
Assumes constant sales volume and mix
Cost Reductions
2007
2007
Percent
($ millions)
Actual
(1)
Annualized
(2)
2008
Total
Reduction
Cost of Goods Sold
(3)
305.1
(2.4)
(16.3)
(18.7)
-6.1%
Advertising
78.0
-
(2.0)
(2.0)
-2.6%
Selling & Marketing
97.4
(2.5)
(21.3)
(23.8)
-24.4%
General & Administrative
47.3
(2.2)
(9.4)
(11.6)
-24.6%
Research & Development
10.2
(1.0)
(1.1)
(2.1)
-20.3%
Subtotal Other SG&A
154.9
(5.7)
(31.8)
(37.5)
-24.2%
Total Costs
538.0
(8.1)
(50.1)
(58.2)
-10.8%


8
Planned cost reductions
Pro forma 2007 reduction by channel
On a pro forma 2007 basis, each channel would have been profitable
($ millions)
Direct
Retail
Commercial
Corporate
Total
Cost of Goods Sold
(1)
4.4
                
5.1
                
9.2
                
-
                  
18.7
             
Advertising
2.0
                
-
                  
-
                  
-
                  
2.0
                
Other SG&A
12.1
             
3.5
                
9.2
                
12.7
             
37.5
             
Total
18.5
             
8.6
                
18.4
             
12.7
             
58.2
             
(1)
Assumes constant sales volume and mix


9
Improve profitability at current sales level
Initial phase of cost reductions benefit H1 2008
(1)
Allocations based on management estimates and
are subject to revision
(2)
Corporate as a percent of Total Sales
Note: Excludes apparel division and restructuring and
other items
H1 2007
H1 2008
($ millions)
Direct
Retail
Comm.
Corporate
Total
Direct
Retail
Comm.
Corporate
Total
Sales
128.3
46.9
62.9
1.3
239.4
110.9
51.8
60.4
2.0
225.1
Cost of Goods Sold
(1)
48.3
39.6
50.5
0.3
138.7
43.9
40.8
48.9
(0.2)
133.4
Gross Profit
80.0
7.3
12.4
1.0
100.7
67.0
11.0
11.5
2.2
91.7
Gross Margin
62.4%
15.6%
19.7%
42.1%
60.4%
21.2%
19.0%
40.7%
Advertising
(1)
38.6
0.9
-
-
39.5
35.1
0.6
-
-
35.7
Other SG&A
(1)
35.2
8.6
17.4
16.8
78.0
26.3
6.9
15.5
12.5
61.2
Operating Profit
6.2
(2.2)
(5.0)
(15.8)
(16.8)
5.6
3.5
(4.0)
(10.3)
(5.2)
Operating Margin
(2)
4.8%
-4.7%
-7.9%
-6.6%
-7.0%
5.0%
6.8%
-6.6%
-4.6%
-2.3%
Net Income
(11.2)
(4.2)
EBITDA
(9.8)
1.7
-
-


10
Planned cost reductions
Cost of goods sold
Facilities consolidation
Consolidation of distribution centers
Component costs
SG&A
Reduce management duplication
Efficiencies in marketing, finance, IT and International
Purchased services
Additional opportunities
Product redesign to improve manufacturability and reduce warranty expense
Improved component purchasing
Continuing SG&A cost control
Improved advertising effectiveness
Continuing profitability issues
Effect of economy on revenues
Purchased product cost increases
Freight (principally outbound)


11
Implementation of cost reductions
Expected timing of cost reductions and restructuring expenses
(1)
Assumes constant sales volume and mix
Note: Includes results of 2007 reductions
Cumulative Quarterly Run Rate
2008
2009
Annualized
($ millions)
Q1
Q2
Q3
Q4
Q1
Run Rate
Savings
Cost of Goods Sold
(1)
(0.9)
(1.0)
(1.2)
(1.6)
(4.7)
(18.7)
SG&A
(5.7)
(6.7)
(7.3)
(8.4)
(9.9)
(39.5)
Total
(6.6)
(7.7)
(8.5)
(10.0)
(14.6)
(58.2)
2008
2009
($ millions)
Q1
Q2
Q3
Q4
Q1
Total
Restructuring & Other Items
Asset Write-Downs
-
1.4
0.7
3.5
-
5.6
Severance
1.8
1.5
0.4
0.6
0.4
4.7
Land America Settlement
8.0
-
-
-
-
8.0
Other
-
3.7
-
0.4
0.2
4.3
Total
9.8
6.6
1.1
4.5
0.6
22.6


12
Implementation of cost reductions
Estimated composition of restructuring costs
2008
2009
($ millions)
Q1
Q2
Q3
Q4
Q1
Total
Cash
9.8
                
2.4
                
0.4
                
1.6
                
0.6
                
14.8
             
Non-Cash
-
                  
4.2
                
0.7
                
2.9
                
-
                  
7.8
                
Total
9.8
                
6.6
                
1.1
                
4.5
                
0.6
                
22.6
             


13
Strategic focus
Restore sales growth at acceptable margins
Increase overall share in cardio market
2007
U.S.
fitness
market
(1)
Cardio
72%
Strength
28%
Nautilus percentage of cardio
Retail
60%
Direct
25%
Commercial
63%
Increase penetration of mid-priced commercial strength market
Nautilus One leads at high end
Mid-market is 66% larger
Address Retail vs. Direct channel conflicts in consumer fitness products
Lowered margins
Reduced advertising efficiency
(1)
Source:
Sporting Goods Manufacturers
Association (SGMA)


14
Strategic focus
Capitalize on brand portfolio in Retail channel
Bowflex
Nautilus
Schwinn Fitness
StairMaster
Universal
Redesign Direct products to maintain gross profit margin at optimal price points
1,300
1,400
1,500
1,600
1,700
1,800
1,900
2,000
2,100
2003
2004
2005
2006
2007
170
190
210
230
250
270
290
Average Selling Price
Total
Direct
Channel
Sales
Optimal ASP Zone


15
Strategic focus
Most growth initiatives involve investment in new product development
Innovation
Design for manufacturability
Reposition price points
Consumer product differentiation
Expect to announce results of strategic review in Q1 2009


16
Summary
Balance sheet and liquidity now satisfactory
Current cost reduction program completed by Q1 2009
Near-term improvement in earnings
Offsets weak economic environment
Continued focus on cost control
Investment in key growth drivers of new product development and advertising
continue at current levels
Opportunity to use enhanced cash flow for growth or shareholder distributions
Strategic Review in Q1 2009
New and repositioned direct products
New cost-reduced commercial products
Retail brand optimization
Expansion in cardio market
Focus on profitable growth