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10.16.01
DIRECT FOCUS ANNOUNCES RECORD THIRD QUARTER RESULTS
DIRECT FOCUS ANNOUNCES RECORD THIRD QUARTER RESULTS
Vancouver, WA?October 16, 2001--Direct Focus, Inc. (Nasdaq: DFXI), a leading marketing company for fitness and healthy lifestyle products, today announced its results for the quarter ended September 30, 2001.
For the third quarter of 2001, Direct Focus reported net sales of $88.7 million, an increase of 53% from $57.8 million for the third quarter of 2000. Net income for the third quarter of 2001 was $16.8 million or $0.46 per diluted share, up 51% from $11.1 million or $0.31 per diluted share for the same period of 2000. eCommerce sales for the third quarter were $16.7 million, up 45% from $11.5 million for the same period of 2000.
For the first nine months of 2001, Direct Focus reported net sales of $238.6 million, up 56% from $153.3 million for the same period of 2000. Net income for the first nine months of 2001 was $46.1 million, or $1.28 per diluted share, up 63% from $28.2 million or $0.78 per diluted share for the same period of 2000.
During the quarter, Direct Focus completed its acquisition of the fitness division of Schwinn/GT (?Schwinn Fitness?) for approximately $65 million. From the date of acquisition on September 20, 2001, Schwinn Fitness contributed $4.3 million in sales to the Company?s commercial and retail division. Total sales from the commercial and retail division were $14.7 million, or 17% of total revenue. With the acquisition of Schwinn Fitness, the commercial and retail division is expected to represent about 33% of total sales in 2002.
Schwinn Fitness was accretive to earnings in the third quarter of 2001 and is again expected to be accretive in the fourth quarter. In 2002, Schwinn Fitness is expected to contribute over $120 million in revenue and be strongly accretive to earnings.
?Despite the generally weak economic environment, we are very pleased with our record sales and earnings, and our completion of a major acquisition in the third quarter,? said Brian Cook, chief executive officer. ?Our combination with Schwinn Fitness has positioned us as a worldwide leader in the fitness and healthy lifestyle markets.?
?In our direct business, we continue to see sustained sales growth as we leverage our direct business model and powerful brand names. Our Bowflex and Nautilus Sleep System products continue to address the fitness and healthy lifestyles needs of our direct customers. We are also pleased with the continued growth of our eCommerce channel, which has proven to be a strong complement to our data-driven business model.?
?In our retail and commercial business, we saw strength in sales for our Nautilus Nitro commercial products and the growing popularity of our retail products. We believe that the addition of Schwinn?s popular line of cardiovascular equipment will complement our consumer Nautilus line of strength-building products. We have also significantly enhanced our global distribution and product development capabilities.?
?Looking ahead, we believe that our powerful combination of distribution channels and branded product lines?Bowflex, Nautilus, and Schwinn?gives us an unmatched platform for continued growth in sales, earnings and market share.?
During the quarter, the Company repurchased 354,300 shares of its common stock for approximately $6.5 million. The Company ended the quarter with cash and short-term investments of $44.1 million. The ?Proforma Balance Sheets? for the combined company as of September 30, 2001 represent a current estimate and are not final because Direct Focus has not yet completed its purchase accounting analysis of the Schwinn Fitness acquisition. The Company expects to report final numbers for the third quarter on Form 10-Q.
A listen-only Internet broadcast of Direct Focus? third quarter conference call (2:00 PM Pacific/5:00 PM Eastern) will be available today at www.directfocusinc.com under ?Investor Relations? or by calling 866-503-1965 (reservation # 19805175). A 48-hour replay will be available by calling 800-633-8284 (reservation # 19805175). A replay will also be available through October 29, 2001 under ?Investor Relations? at www.directfocusinc.com.
About Direct Focus, Inc.
Direct Focus is a leading marketing company for fitness and healthy lifestyle products with direct, retail, and commercial sales channels worldwide. The Company currently markets its Bowflex line of home fitness equipment and Nautilus Sleep Systems directly to consumers, using an effective combination of television advertising, 800-call centers and Web sites. The Company sells its Nautilus and Schwinn consumer fitness products through retail athletic stores. In addition, Direct Focus sells its Nautilus and Schwinn commercial fitness equipment directly to health clubs and other institutions. The Company is headquartered in Vancouver, Washington. Direct Focus is located on the Web at www.directfocusinc.com.
###
This press release contains forward-looking statements relating to anticipated sales, revenue growth, gross margins, seasonal patterns, expense as a percentage of revenue, and the development of Direct Focus' products and services, including statements regarding its Nautilus and Schwinn businesses. Factors that could affect Direct Focus' actual results include its reliance on a limited product line, fluctuations in advertising rates, market acceptance of its existing and future products, growth management challenges including the growth resulting from the acquisition of the assets of Schwinn Fitness in September 2001, its limited experience in marketing Nautilus Sleep Systems, a decline in consumer spending due to unfavorable economic conditions, government regulatory action, its ability to effectively identify and negotiate any future strategic acquisitions, its ability to integrate the Schwinn Fitness business and any other acquired businesses into its operations, unpredictable events and circumstances relating to international operations including its use of foreign manufacturers, and general economic conditions. A more detailed description of certain factors that could affect actual results include, but are not limited to, those discussed in Direct Focus' annual report on Form 10-K for the fiscal year ended December 31, 2000.DIRECT FOCUS, INC. - CONSOLIDATED
Statement of Operations
DIRECT FOCUS, INC.-CONSOLIDATED
Proforma Balance Sheet*
For the third quarter of 2001, Direct Focus reported net sales of $88.7 million, an increase of 53% from $57.8 million for the third quarter of 2000. Net income for the third quarter of 2001 was $16.8 million or $0.46 per diluted share, up 51% from $11.1 million or $0.31 per diluted share for the same period of 2000. eCommerce sales for the third quarter were $16.7 million, up 45% from $11.5 million for the same period of 2000.
For the first nine months of 2001, Direct Focus reported net sales of $238.6 million, up 56% from $153.3 million for the same period of 2000. Net income for the first nine months of 2001 was $46.1 million, or $1.28 per diluted share, up 63% from $28.2 million or $0.78 per diluted share for the same period of 2000.
During the quarter, Direct Focus completed its acquisition of the fitness division of Schwinn/GT (?Schwinn Fitness?) for approximately $65 million. From the date of acquisition on September 20, 2001, Schwinn Fitness contributed $4.3 million in sales to the Company?s commercial and retail division. Total sales from the commercial and retail division were $14.7 million, or 17% of total revenue. With the acquisition of Schwinn Fitness, the commercial and retail division is expected to represent about 33% of total sales in 2002.
Schwinn Fitness was accretive to earnings in the third quarter of 2001 and is again expected to be accretive in the fourth quarter. In 2002, Schwinn Fitness is expected to contribute over $120 million in revenue and be strongly accretive to earnings.
?Despite the generally weak economic environment, we are very pleased with our record sales and earnings, and our completion of a major acquisition in the third quarter,? said Brian Cook, chief executive officer. ?Our combination with Schwinn Fitness has positioned us as a worldwide leader in the fitness and healthy lifestyle markets.?
?In our direct business, we continue to see sustained sales growth as we leverage our direct business model and powerful brand names. Our Bowflex and Nautilus Sleep System products continue to address the fitness and healthy lifestyles needs of our direct customers. We are also pleased with the continued growth of our eCommerce channel, which has proven to be a strong complement to our data-driven business model.?
?In our retail and commercial business, we saw strength in sales for our Nautilus Nitro commercial products and the growing popularity of our retail products. We believe that the addition of Schwinn?s popular line of cardiovascular equipment will complement our consumer Nautilus line of strength-building products. We have also significantly enhanced our global distribution and product development capabilities.?
?Looking ahead, we believe that our powerful combination of distribution channels and branded product lines?Bowflex, Nautilus, and Schwinn?gives us an unmatched platform for continued growth in sales, earnings and market share.?
During the quarter, the Company repurchased 354,300 shares of its common stock for approximately $6.5 million. The Company ended the quarter with cash and short-term investments of $44.1 million. The ?Proforma Balance Sheets? for the combined company as of September 30, 2001 represent a current estimate and are not final because Direct Focus has not yet completed its purchase accounting analysis of the Schwinn Fitness acquisition. The Company expects to report final numbers for the third quarter on Form 10-Q.
A listen-only Internet broadcast of Direct Focus? third quarter conference call (2:00 PM Pacific/5:00 PM Eastern) will be available today at www.directfocusinc.com under ?Investor Relations? or by calling 866-503-1965 (reservation # 19805175). A 48-hour replay will be available by calling 800-633-8284 (reservation # 19805175). A replay will also be available through October 29, 2001 under ?Investor Relations? at www.directfocusinc.com.
About Direct Focus, Inc.
Direct Focus is a leading marketing company for fitness and healthy lifestyle products with direct, retail, and commercial sales channels worldwide. The Company currently markets its Bowflex line of home fitness equipment and Nautilus Sleep Systems directly to consumers, using an effective combination of television advertising, 800-call centers and Web sites. The Company sells its Nautilus and Schwinn consumer fitness products through retail athletic stores. In addition, Direct Focus sells its Nautilus and Schwinn commercial fitness equipment directly to health clubs and other institutions. The Company is headquartered in Vancouver, Washington. Direct Focus is located on the Web at www.directfocusinc.com.
###
This press release contains forward-looking statements relating to anticipated sales, revenue growth, gross margins, seasonal patterns, expense as a percentage of revenue, and the development of Direct Focus' products and services, including statements regarding its Nautilus and Schwinn businesses. Factors that could affect Direct Focus' actual results include its reliance on a limited product line, fluctuations in advertising rates, market acceptance of its existing and future products, growth management challenges including the growth resulting from the acquisition of the assets of Schwinn Fitness in September 2001, its limited experience in marketing Nautilus Sleep Systems, a decline in consumer spending due to unfavorable economic conditions, government regulatory action, its ability to effectively identify and negotiate any future strategic acquisitions, its ability to integrate the Schwinn Fitness business and any other acquired businesses into its operations, unpredictable events and circumstances relating to international operations including its use of foreign manufacturers, and general economic conditions. A more detailed description of certain factors that could affect actual results include, but are not limited to, those discussed in Direct Focus' annual report on Form 10-K for the fiscal year ended December 31, 2000.
Statement of Operations
| 3 Mos. Ended September 30, | 9 Mos. Ended September 30, | |||
| 2001 | 2000 | 2001 | 2000 | |
| ------------ | ------------ | ------------ | ------------ | |
| NET SALES | $88,701,833 | $57,834,085 | $238,566,220 | $153,298,248 |
| COST OF SALES | 33,011,137 | 18,770,650 | 84,087,294 | 50,896,359 |
| ------------ | ------------ | ------------ | ------------ | |
| Gross profit | 55,690,746 | 39,063,435 | 154,478,926 | 102,401,889 |
| ------------ | ------------ | ------------ | ------------ | |
| EXPENSES | ||||
| Selling and marketing | 25,082,161 | 19,054,085 | 70,867,246 | 51,270,420 |
| General and administrative | 3,726,318 | 2,459,320 | 10,342,756 | 6,241,623 |
| Royalties | 1,685,888 | 1,288,811 | 5,007,430 | 3,454,124 |
| ------------ | ------------ | ------------ | ------------ | |
| Total operation expenses | 30,494,367 | 22,802,216 | 86,217,432 | 60,966,167 |
| ------------ | ------------ | ------------ | ------------ | |
| INCOME FROM OPERATIONS | 25,196,379 | 16,261,219 | 68,261,494 | 41,435,722 |
| ------------ | ------------ | ------------ | ------------ | |
| OTHER INCOME | ||||
| Interest income | 966,819 | 969,872 | 3,478,664 | 2,409,584 |
| other -net | 30,657 | 83,866 | 217,490 | 168,897 |
| ------------ | ------------ | ------------ | ------------ | |
| Total other income-net | 996,819 | 1,053,738 | 3,696,154 | 2,578,481 |
| ------------ | ------------ | ------------ | ------------ | |
| INCOME BEFORE INCOME TAXES | 23,193,198 | 17,314,957 | 71,957,648 | 44,014,203 |
| INCOME TAX EXPENSE | 9,429,682 | 6,233,387 | 25,904,734 | 15,845,114 |
| ------------ | ------------ | ------------ | ------------ | |
| NET INCOME | $16,763,516 | $11,081,570 | $46,052,914 | $28,169,089 |
| ------------ | ------------ | ------------ | ------------ | |
| BASIC EARNINGS PER SHARE | $0.48 | $0.31 | $1.31 | $0.80 |
| DILUTED EARNINGS PER SHARE | $0.46 | $0.31 | $1.28 | $0.78 |
| Basic shares outstanding | 35,209,547 | 35,283,269 | 35,268,137 | 35,280,281 |
| Diluted shares outstanding | 36,180,696 | 36,186,172 | 36,090,841 | 36,030,996 |
Proforma Balance Sheet*
| Balace Sheet without Schwinn September 30, 2001 |
Consolidated September 30, 2001 |
December 31, 2000 |
|
| ------------ | ------------ | ------------ | |
| ASSETS | |||
| CURRENT ASSETS | |||
| Cash | $34,884,549 | $34,895,769 | $77,181,064 |
| Short Term Investments | 9,234,970 | 9,234,970 | - |
| Trade receivables | 5,817,608 | 19,019,798 | 4,941,286 |
| Inventories | 20,547,410 | 38,552,748 | 12,653,117 |
| Prepaid expenses and other current assets | 2,497,896 | 2,863,125 | 591,453 |
| Notes receivable | 2,739,785 | 2,7739,785 | - |
| Deferred income taxes | 740,511 | 740,511 | 950,303 |
| ------------ | ------------ | ------------ | |
| Total Current assets | 76,462,729 | 108,046,706 | 96,317,283 |
| ------------ | ------------ | ------------ | |
| PROPERTY, PLANT AND EQUIPMENT | 18,502,502 | 25,714,298 | 16,668,884 |
| INVESTMENT IN SCHWINN FITNESS | 65,739,262 | - | - |
| OTHER ASSETS -NET | 4,224,605 | 37,347,624 | 4,140,277 |
| TOTAL ASSETS | $164,929,098 | $171,108,628 | $117,126,444 |
| ------------ | ------------ | ------------ | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||
| CURRENT LIABILITIES | |||
| Trade payables | $17,727,265 | $21,497,564 | $12,335,776 |
| Accrued liabilities | 8,042,112 | 9,945,240 | 5,344,225 |
| Income taxes payable | 9,680,425 | 10,024,466 | 2,542,967 |
| Royalty payable to stockholders | 1,617,383 | 1,617,383 | 1,481,886 |
| Customer deposits | 853,219 | 853,219 | 2,092,611 |
| ------------ | ------------ | ------------ | |
| Total current liabilities | 37,920,404 | 43,937,872 | 23,797,465 |
| ------------ | ------------ | ------------ | |
| LONG-TERM DEFERRED TAX LIAILITY | 1,037,023 | 1,037,023 | 462,004 |
| ------------ | ------------ | ------------ | |
| STOCKHOLDERS' EQUITY | |||
| Common stock | 4,026,320 | 4,026,320 | 16,812,476 |
| Retained earnings | 121,945,351 | 122,107,413 | 76,054,499 |
| ------------ | ------------ | ------------ | |
| Total stockholders' equity | 125,971,671 | 126,133,733 | 92,866,975 |
| ------------ | ------------ | ------------ | |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $164,929,098 | $171,108,628 | $177,126,444 |
| ------------ | ------------ | ------------ |
*Proforma Balance Sheets represent a current estimate as of September 30, 2001 and are not final because Direct Focus has not yet completed its purchase accounting analysis of the Schwinn Fitness acqusition. The Company expects to report final numbers for the third quarter on Form 10-Q.