VANCOUVER, WA—Robert S. Falcone, who has been interim president and CEO of Nautilus since August 2007, was appointed as CEO of Nautilus this month, just two days before the company announced a net loss of $13 million in the third quarter 2007. Net sales for the third quarter were $134 million, compared to $159.6 million for the corresponding period last year, down 16 percent. Sales in Nautilus’ health club sector was down 13.4 percent in the third quarter.
Falcone has been an independent director of Nautilus Inc. since 2003 and is chairman of the board. Falcone has already begun to build his management team and has undertaken development of a long-term strategic plan that includes the development of a global growth strategy for the company's commercial, direct and retail business lines. He is also considering divestitures of non-core assets, including the company's technical apparel business, Pearl iZUMi.
In addition, Falcone’s operational review of Nautilus has led to a reduction of 140 positions, including about 80 at the company's headquarters. The workforce reduction will trim Nautilus’ expenses by more than $10 million on an annualized basis. The adjustments equate to about 9 percent of the company's workforce and about 12 percent of its annualized compensation. Severance and benefits packages based upon years of service were offered to affected staff.
"We are pursuing this workforce reduction, along with a number of other restructuring initiatives, to improve operating margins in a period of lower-than-expected sales," says Falcone.
Nautilus also signed a proposal letter with Bank of America, N.A. to expand its current debt facility to a 5-year, $150 million asset-based loan with a $50 million accordion. The company plans to close the new facility by the end of this year, subject to market conditions.
In the interim, Nautilus is negotiating an amendment and has executed an agreement to secure its existing 5-year, $125 million unsecured debt facility with its current lending syndicate led by Bank of America.
In September, the company received an amendment to Schedule 13D from Sherborne Investors LP, a Delaware limited partnership. The amendment demanded a special meeting of shareholders to consider removal of four board members. It also demanded the installation of four board nominees proposed by Sherborne Investors, the requirement that board vacancies be filled only by shareholders, and the limitation of the board to seven or fewer members.
Under Washington corporate law, Nautilus had 30 days from Sept. 21, to give notice of a special meeting of shareholders and to hold that meeting within 60 days of the notice.
The Nautilus board said it was considering the updated request, but no announcement has been made as of press time about whether the request would be granted.