Nautilus 2007 Annual Report Download - page 5

Table of Contents
In addition, we took several actions during the second half of 2007 to restore strength to our balance sheet. The Company decided in the fourth
quarter 2007 to divest our Fitness Apparel segment by seeking a purchaser for the Pearl Izumi business. In addition, we addressed EBITDA-
related covenant violations in our $100 million unsecured debt agreement by replacing the credit facility with a 5-year $100 million asset-based
line of credit (to be reduced to $70 million upon the close of the Pearl Izumi sale). We also initiated an inventory reduction program to reduce
the working capital required to operate the business, and sold a building we owned in Louisville, Colorado.
For a further discussion of the financial impact of these actions, refer to Management’s Discussion and Analysis of Financial Condition and
Results of Operation
located at Part II, Item 7 of this Form 10-K.
On September 20, 2007, Sherborne Investors LP (together with its affiliates, “Sherborne”), our largest shareholder, sent a letter to the Company
demanding a special meeting of shareholders for the purpose of presenting certain proposals, including a proposal to remove four members of
our Board and replace them with nominees put forth by Sherborne. Following a proxy contest, a special meeting of shareholders was convened
on December 18, 2007 at which the Company’s shareholders voted in favor of all the proposals put forth by Sherborne. As a result, in December
2007 four of the Company’
s former directors were removed and replaced by the Sherborne nominees and Mr. Edward J. Bramson, the Managing
Member of Sherborne, was named Chairman of our Board of Directors.
BUSINESS SEGMENTS
The Company’s reportable segments are evidence of the structure of the Company’s internal organization and allow focus on specific business
opportunities in the Company’s worldwide market. Following the 2007 decision to exit its Fitness Apparel Segment, which is reported as a
discontinued operation, the Company operates in two business segments as follows:
Detailed financial information about our business segments, including information regarding geographic areas, is included in Note 13 of the
Notes to Consolidated Financial Statements.
2
•
We began a rationalization and segmentation of the products offered in various channels. The result is expected to be fewer and more
profitable products offered with clear delineation of product offerings between segments.
• We initiated a gross margin improvement program that includes: (i) a focus on reducing the cost of existing products; (ii) a focus on
profitability by customer and (iii) a global evaluation of our manufacturing and distribution infrastructure.
•
The Fitness Equipment Business is responsible for the design, production, marketing and the selling of branded fitness equipment
sold under the Nautilus, Bowflex, Schwinn Fitness, and StairMaster brand names and is responsible for servicing customers within
North and South America.
The Company’s original flagship product was a Bowflex home exercise gym with Power Rod Technology. The Company has been
diversifying its product line since 1999 through acquisitions and innovation. As a result, sales of the original Bowflex Power Rod
home gyms have continued to drop as a percentage of revenue. In 2007, our Power Rod home gym product line accounted for
approximately 31% of our revenue, down from 43% and 46% in 2006 and 2005, respectively, as we continue our strategy of
diversifying our breadth of products in all channels.
•
The International Equipment Business is responsible for marketing and selling branded fitness equipment under the Nautilus,
Bowflex, Schwinn Fitness, and StairMaster brand names and is responsible for servicing customers outside of the Americas. The
International Equipment Business primarily reflects sales in the commercial business sector. Sales in this segment have grown over
the last three years and comprised 15%, 10% and 9% of consolidated sales for the years ended December 31, 2007, 2006 and 2005,
respectively.