Nautilus, Shareholders Face Off at Meeting

Vancouver, WA — This month, Nautilus Inc. will find out whether shareholders agree with the direction the company is taking or whether they want to go with a proposal by 23.5 percent shareholder Sherborne Investors to replace four of the seven board members with Sherborne representatives. The special shareholder meeting is scheduled for Dec. 18 in Vancouver, WA, where Nautilus is headquartered. Nautilus agreed to the special meeting upon request of Edward Bramson, who heads Sherborne.

Last month, Nautilus sent a letter to shareholders requesting that they vote no on Sherborne's proposal. The letter states that the board had offered Sherborne board representation in proportion to Sherborne's ownership in Nautilus and representation on a new board committee that would oversee the company's turnaround efforts. Bramson turned down the offer.

So far, the board, led by newly appointed CEO Robert Falcone, has eliminated approximately $10 million in annual fixed expenses by laying off approximately 140 employees, or 9 percent of the company's employee base. In addition, the company has divested non-core assets and is studying a possible sale of Pearl iZUMi, the company's technical apparel and footwear business. Nautilus also is reducing its inventory and increasing cash by $20 million by the end of the year. It is working to increase global profitability and implement a growth strategy for the company's commercial, direct and retail business lines.

On the commercial side of the business, the company is targeting key accounts related to large fitness clubs, apartment complexes, hotels and other institutions.

“This segment is $1 billion domestically, and represents a large opportunity in the global fitness market,” the letter states. “Our international commercial business is on track for another healthy year of 15 to 20 percent sales growth.”

The board also stated it will try to improve the cost of goods profile of commercial products, including freight, components, manufacturing, packaging and delivery. It plans to introduce the Nautilus One line of circuit strength equipment at clubs globally this quarter and is preparing for a relaunch of StairMaster products. In addition, Nautilus will now rely upon field staff rather than distributors. It is also pursuing partnerships in the hospitality industry.

Falcone has restructured the Nautilus organization to mirror the business unit matrix structure employed by Nike in the 1990s during which the organization's sales quadrupled, the company says. Falcone worked for Nike during that time.

In addition, the company has named James A. Heidenreich as senior vice president, global marketing and chief marketing officer, and Aaron Brotherton as director, direct response TV and creative development. The company also created two positions of general business manager to develop profitable management of product portfolios through the entire life cycle of those products. Caroline Howe has been appointed senior vice president, general manager. Kenneth Fish, who was vice president, global finance at the company, is now senior vice president, general manager.

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