Nautilus Reports Net Loss, Suspends Treadclimber Production

VANCOUVER, WA -- Nautilus Inc. had a $47.7 million net loss for fourth quarter 2007 compared to net income of $12.9 million, and the company will suspend production of its commercial version of the Treadclimber TC916 and the company’s MyStride EV916 elliptical, CEO Bob Falcone announced in a call with analysts today.

Net sales from continuing operations for the three months ended Dec. 31, 2007, were $147.3 million compared to $185.1 million for the corresponding period last year, a decrease of 20 percent. Loss from continuing operations for the quarter was $31.4 million compared to income from continuing operations of $12.6 million for the fourth quarter of 2006.

The results from continuing operations for the current and prior periods exclude the company’s apparel segment, which is considered a discontinued operation as it is currently offered for sale. Sales from discontinued operations of the company's former apparel segment, Pearl Izumi, were $12.4 million for the fourth quarter 2007 and $67.1 million for the full year 2007. Discontinued operations resulted in a pre-tax loss of $17.1 million in the quarter, primarily reflecting an impairment of $15.9 million in book value of the apparel segment.

The company’s year 2007 financials weren’t any better. For the year, Nautilus generated $502.1 million in net sales from continuing operations compared to $617.3 million in 2006, a 19 percent decrease. Loss from continuing operations for fiscal year 2007 was $45 million, compared to income from continuing operations of $24.9 million in fiscal 2006.

Falcone also says that despite the Treadclimber TC916 exceeding sales and usage expectations, durability issues have caused more downtime and service issues than forecasted.

“Our warrantee costs have been very large,” Bill Meadowcroft, chief financial officer, said on the call. 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 Treadclimber TC916 won a FIBO Innovation Award last year. The European award is given for fitness product innovations. The retail version of the Treadclimber will continue to be sold, Falcone says.

Falcone also said the company would pull its MyStride EV916 elliptical from the market due to performance issues. Together, the EV916 elliptical and Treadclimber accounted for 5 percent of the company’s sales.

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.

Earlier this week, the company also announced that it would consolidate direct sales call centers serving North America, resulting in the transition of a call center in Winnipeg, Canada, to the company’s headquarters in Vancouver.

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