Loss and Change at Nautilus

Vancouver, Wa — The board at Nautilus Inc. has made several changes already this year to curtail the revenue losses the company experienced in 2007. The board suspended production of the commercial version of its Treadclimber TC916, stopped production of its MyStride EV916 elliptical, accepted an offer of $69.5 million from Shimano American Corp. for its Pearl iZumi apparel and footwear segment, and moved a call center in Winnipeg, Canada, to the company's headquarters in Vancouver, WA. The changes occurred as Bob Falcone, CEO, announced that Nautilus had a $47.7 million net loss for fourth quarter 2007 on sales of $147.3 million and a loss of $57.6 million in 2007 on sales of $502.1 million. About $45.1 million of the losses came from restructuring writedowns. The results exclude sales from the company's apparel segment, Pearl Izumi, which were $12.4 million for the fourth quarter 2007 and $67.1 million for the full year 2007.

Some fitness facilities, including 24 Hour Fitness, quickly began pulling the Treadclimbers and EV916 ellipticals from their floors. Even though the Treadclimber exceeded sales and usage expectations and won a FIBO Innovation Award last year for fitness product innovations, durability issues caused more downtime and service issues than forecasted, Falcone said in a call with analysts upon the release of the company's financials. The company has added $12.7 million to its warrantee reserves to take care of the Treadclimber issue.

This is the second time Treadclimbers have been pulled from the market. In fall 2005, the company withdrew the product to strengthen the hydraulic system, reintroducing it in summer 2006. Falcone did not say if the service issues were related to the hydraulic system.

The retail version of the Treadclimber will continue to be sold, and the commercial version will be reintroduced in the future. The company will no longer manufacture the EV916 elliptical.

Falcone says the Nautilus One products introduced in 2007 would continue to be produced.

“Our Nautilus One products are performing well from a sales and quality standpoint,” he says.

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