VANCOUVER, WA -- 11/26/07 --
Global fitness company Nautilus, Inc. (NYSE: NLS) today announced that it recently mailed the following letter to its
shareholders:
November 23, 2007
Dear Fellow Shareholder:
Edward Bramson and Sherborne, Bramson's hedge fund, have requested a
special shareholder meeting, scheduled for December 18, 2007, in order to
replace a majority of the Nautilus Board of Directors. If Sherborne's
proposals are approved, Bramson and the other Sherborne nominees will
control your Board. Based upon the strategy previously outlined by
Sherborne, giving Bramson and his nominees control of your Board could
result in the reversal of many of the actions already undertaken by your
Board and management to increase the value of your investment. In
addition, approval of Sherborne's proposals would leave control of your
company in the hands of individuals with no apparent fitness industry
experience and individuals who have not provided any new ideas that your
Board believes would build shareholder value.
This is an important time in Nautilus' history. Your Board and management
team are implementing their strategy to further enhance our brands and to
bolster our strong industry leadership position. We have taken important
steps to focus on our core fitness equipment business and to restructure
our businesses and organization in order for Nautilus to grow into a highly
profitable, global leader. Your Board believes that the actions already
underway at Nautilus will build value for all shareholders.
Your Board unanimously urges you to vote AGAINST Sherborne's proposal to
remove a majority of your Board on the enclosed WHITE proxy card TODAY --
by telephone, Internet or by signing, dating and returning the WHITE proxy
card in the postage-paid envelope provided.
WE HAVE OUTSTANDING BRANDS AND AN INDUSTRY LEADERSHIP POSITION
We Are Taking Action to Deliver Value to ALL Shareholders
Your Board, together with Nautilus management, is in the midst of executing
a turnaround plan to build value for you. Among the first wave of
accomplishments, we are:
-- Eliminating approximately $10 million in annual fixed expenses by
reducing our workforce by approximately 140 employees, or 9 percent of our
entire employee base.
-- Divesting non-core assets, including engaging a leading investment
bank to explore the sale of our technical apparel and footwear business,
Pearl iZUMi.
-- Implementing an inventory reduction plan to decrease our inventory and
increase cash by $20 million by the end of 2007.
-- Developing a global profitability and growth strategy for our
company's commercial, direct and retail business lines.
-- Improving the financial terms for our previously announced acquisition
of Land America (our largest contract manufacturer) by $7 million and
negotiating a deferral of $22.5 million in payments for an additional ten
months.
We Are Convinced We Have the Plan to Build Nautilus Into a Highly
Profitable, Global Leader
Direct Response Business
We are redeveloping our direct response business by focusing on core
tactics with proven returns on investment in this $1 billion market. We
are focused on achieving profitable sales by targeting the best
opportunities for actual sales, utilizing effective print and TV
advertising, and continuing to eliminate product and channel confusion on
the Internet. To that end, we are:
-- Finishing a multi-year roadmap that more clearly segments products,
brands and channels. The direct response business requires unique products
with unwavering segmentation, and that is what the Nautilus direct response
business will have.
-- Employing sophisticated analyses to optimize our media spending,
because certain rates for cable advertising have risen 500 to 1,000 percent
in the last few years.
-- Applying our advertising investment smoothly across the quarter, while
refining creative approaches that break through a cluttered space and
selectively deploying new media.
Retail Business
We are also recalibrating our retail product assortments this winter. This
will improve our retail strategy by shifting away from reliance on sales of
home exercise gyms in the retail sales chain. We are pursuing this $3.5
billion retail fitness market by targeting sales of more Schwinn®Fitness
upright and recumbent bikes as well as Schwinn ellipticals, along with a
more modest presence of strength offerings. Our retail strategy involves:
-- Preparing for winter 2007-08 product assortments at 6,200 U.S. retail
locations and 600 Canadian retail locations. Additionally, our product
assortments have expanded at 8 of our top 10 customers, while remaining the
same at the other 2 top customers.
-- Testing comprehensive product assortments at 30 retail locations in
Australia and New Zealand.
-- Working with two large retailers to significantly increase their
product assortments for the fitness season beginning fall 2008, including
proper merchandising to support sell-through.
Commercial Business
We are expanding our commercial business led by our industry-leading
strength equipment and our breakthrough Nautilus TreadClimber. Our
products also include StairMaster stepping products and Schwinn indoor
cycles for groups. We are targeting large fitness clubs as well as other
commercial equipment buyers such as apartment complexes, hotels and other
institutions around the world. This segment is $1 billion domestically,
and represents a large opportunity in the global fitness market.
We intend to continue growing our commercial revenues on a global basis by
targeting key accounts. For example, Nautilus TreadClimber units can now
be found in Fitness First (world's largest fitness club), 24 Hour Fitness,
Virgin Active, JJB, David Lloyd, Goodlife in Canada, Genesis in Australia,
Talwalkers in India, YMCAs and other clubs around the world. Our
international commercial business is on track for another healthy year of
15 to 20 percent sales growth. Our plans to continue building our
commercial business include:
-- Undertaking a detailed review to improve the cost of goods profile of
commercial products, including freight, components, manufacturing,
packaging and delivery.
-- Introducing our revolutionary new Nautilus One line of circuit
strength equipment at clubs globally in 4Q 2007, with weight that is
adjusted by a simple dial instead of pins and clanking weights.
-- Strategically transitioning our business to rely upon our own field
staff rather than distributors.
-- Preparing for a relaunch of StairMaster products, celebrating 25 years
of excellence in stepping technologies for fitness.
-- Pursuing substantial partnerships in the hospitality space.
In addition to restructuring the way we look at each of our products, your
Nautilus Board and management are also restructuring the Nautilus
organization. We are finalizing a new organizational structure, which
includes the addition of two general managers to oversee product lines from
idea through the entire product life, and the hiring of a chief marketing
officer. This organizational design mirrors the business unit matrix
structure employed by Nike in the 1990s during which the organization's
sales quadrupled -- an organizational structure with which your management
team has direct experience.
Finally, Nautilus has previously announced its acquisition of Land America,
our largest contract manufacturer in Asia (expected to close in January
2008). Land America not only presents an immediate benefit of 150-200
basis points of margin improvement, but creates an opportunity to
consolidate our Asian suppliers from 12 to between 3 and 5.
In addition, the factory can make components for commercial equipment,
reducing our need to outsource.
SHOULD ONE SHAREHOLDER'S NOMINEES CONTROL NAUTILUS?
The Company does not believe that now is the time for Bramson and the other
Sherborne nominees to take control of your Board. Bramson and the other
Sherborne nominees, with no apparent experience in the fitness industry,
have offered few insights about how they would improve Nautilus. Instead,
Sherborne's strategy would reverse many of the actions your board has
recently undertaken to build shareholder value and would replace your
company's newly appointed CEO with two additional CEOs before Bramson's
"turnaround plans" are complete and without giving your Board and
management the opportunity to complete its turnaround plan.
In the interest of working productively with Sherborne to build value for
all shareholders, your Board previously offered Sherborne board
representation in proportion to Sherborne's ownership in Nautilus. The
Board also offered Sherborne representation on a new, significant board
committee which would be formed to help oversee our turnaround efforts --
efforts which we are in the midst of implementing. Despite all of your
Board's and management's efforts to work constructively with Sherborne,
Bramson turned the offer down. Instead, Sherborne is seeking to have its
nominees gain control of your Board, even though Sherborne does not own a
controlling economic or voting interest in your company and Bramson's
record in running companies is checkered.
If Bramson and the other Sherborne nominees are elected, Sherborne says it
reserves the right to seek reimbursement from Nautilus for Sherborne's
campaign costs for the special meeting -- and Sherborne "does not intend to
submit the question of such reimbursement to a vote of Nautilus' security
holders." Bramson seems to expect Nautilus to take money out of your
pocket and put it in Sherborne's, in order to reimburse Sherborne's
expenses for the special meeting that it requested.
Your Board believes that the changes proposed by Sherborne would disrupt
our strategic turnaround and adversely impact the value of your investment.
As was reported in the company's last letter, Ampex recently reported that
it is on the verge of bankruptcy just months after Bramson left as its CEO.
Ask yourself whether Bramson and the other Sherborne nominees -- with no
new ideas to deliver shareholder value and no relevant fitness industry
experience -- deserve control of your company.
Although your Board does not believe that it should be controlled by the
nominees of only one shareholder, your Board believes that all shareholders
could benefit from shareholder representation on the Board during our
restructuring. Therefore, if Nautilus is successful in preventing Bramson
and the other Sherborne nominees from taking control of your Board,
Nautilus will offer Board representation to both Sherborne and our next
largest shareholder, Sun Capital Securities, LLC.
THE STAKES ARE HIGH. THE CHOICE IS CLEAR. YOUR VOTE IS IMPORTANT.
Your Board and management team are confident that we are on the right path
to a stronger future for Nautilus and increased value for all shareholders.
We see no reason to turn back the clock to antiquated business strategies
or to give control of your Board to Bramson and the other Sherborne
nominees. With your support -- and your vote on the enclosed WHITE proxy
card -- we can send Bramson and Sherborne a strong message by soundly
rejecting their proposals. Please use the enclosed WHITE proxy card to
vote AGAINST the removal of your directors TODAY -- by telephone, by
Internet, or by signing, dating and returning the WHITE proxy card.
Very truly yours,
Bob Falcone
President, Chief Executive Officer and Chairman of the Board of Directors
About Nautilus, Inc.
Headquartered in Vancouver, Wash., Nautilus, Inc. (NYSE: NLS) is a pure
fitness company that provides tools and education necessary to help people
achieve a fit and healthy lifestyle. With a brand portfolio that includes
Nautilus®, Bowflex®, Schwinn® Fitness, StairMaster(R), and Pearl iZUMi®, Nautilus manufactures
and markets a complete line of innovative health and fitness products
through direct, commercial, retail, specialty and international channels.
The Company was formed in 1986 and had sales of $680 million in 2006. It
has 1,500 employees and operations in Washington, Oregon, Colorado,
Oklahoma, Illinois, Virginia, Canada, Switzerland, Germany, United Kingdom,
Italy, China, Australia and other locations around the world. More
information is at www.nautilusinc.com.
Safe Harbor Statement
Certain information included herein and in other company releases, reports
or documents may contain forward-looking statements, including statements
concerning estimated future sales and earnings, new product introduction,
and operational improvement. Factors that could cause Nautilus, Inc. actual
results to differ materially from these forward-looking statements include
availability of media time and fluctuating advertising rates, a decline in
consumer spending due to unfavorable economic conditions, its ability to
effectively develop, market, and sell future products, its ability to get
foreign-sourced product through customs in a timely manner, its ability to
effectively identify, negotiate and integrate any future strategic
acquisitions, its ability to protect its intellectual property,
introduction of lower-priced competing products, unpredictable events and
circumstances relating to international operations including its use of
foreign manufacturers, government regulatory action, and general economic
conditions. Please refer to our reports and filings with the Securities and
Exchange Commission, including our most recent annual report on Form 10-K
and quarterly reports on Form 10-Q, for a further discussion of these risks
and uncertainties. We also caution you not to place undue reliance on
forward-looking statements, which speak only as of the date they are made.
We undertake no obligation to update publicly any forward-looking
statements to reflect new information, events or circumstances after the
date they were made or to reflect the occurrence of unanticipated events.
In connection with the solicitation of proxies, Nautilus has filed with the
Securities and Exchange Commission (the "SEC") and mailed to shareholders a
definitive proxy statement (the "Proxy Statement"). The Proxy Statement
contains detailed information about Nautilus, the special meeting and
individuals who are deemed to be participants in Nautilus' solicitation of
proxies. Nautilus' shareholders are urged to read the Proxy Statement
carefully in its entirety. Shareholders may obtain additional free copies
of the Proxy Statement and other relevant documents filed with the SEC by
Nautilus through the website maintained by the SEC at www.sec.gov or at
Nautilus' website at www.nautilusinc.com.
