SOURCE: Nautilus, Inc.

February 01, 2007 17:43 ET

Nautilus, Inc. Announces Intent to Acquire Its Largest Contract Manufacturer in China

VANCOUVER, WA -- (MARKET WIRE) -- February 1, 2007 --In a significant step toward achieving its long-range financial operating margin targets, Nautilus, Inc. (NYSE: NLS) announced today it has signed a purchase option agreement to acquire the assets of its largest contract manufacturer, Xiamen, China-based Land America Health and Fitness Co., Ltd.

The purchase option through June 30, 2007 gives Nautilus time to complete necessary due diligence and enter into definitive agreements, while extending procurement cost reductions through 2007. The agreement also includes rebates for the period of January 1, 2006 to June, 30, 2007, which will continue through December 31, 2007 upon exercise of the purchase option. Consideration for the acquisition is approximately $72 million in cash and stock with an anticipated closing date of December 31, 2007. The acquisition is expected to improve company gross margins by 1.5-2.0 percentage points in 2008.

"The prospect of acquiring Land America is a significant step toward our goal of achieving 11-14 percent operating margins in the next three years, and positioning our company for long-term competitiveness in the global fitness industry," said Gregg Hammann, Chairman and CEO of Nautilus, Inc.

"Diversifying our manufacturing supply chain is the next logical step after diversifying our brands and channels to prepare for a rhythm of sustainable and profitable growth. In addition to margin improvement, vertical ownership presents an opportunity to further control intellectual property, quality, and flow of goods from Asia, where three-fourths of our equipment is manufactured today."

Land America has manufactured the popular Bowflex® home exercise gyms for more than eight years and began manufacturing Bowflex® TreadClimber® cardio trainers for the company last year. The purchase option of Land America involves four modern buildings with approximately 700,000 square feet of manufacturing floor space on a 15-acre site in an economic development zone near Xiamen, China, as well as a trading company, Treuriver Investments Ltd. Land America was honored by Nautilus last spring as its supplier of the year for routinely meeting Nautilus standards for quality and delivery.

Hammann said the company will continue to work with its other contract manufacturing partners in Asia and its two domestic manufacturing plants to drive growth and improve margins.

"A diversified manufacturing and supply base is important to maximizing our margin potential and to mitigate supply risks as we grow our business. The combination of strategic partnerships with key suppliers, along with domestic and international manufacturing, helps us accomplish that goal."

Nautilus will discuss the agreement during its fourth quarter 2006 earnings call scheduled February 7, 2007.

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®, 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 $631 million in 2005. It has 1,600 employees and operations in Washington, Oregon, Colorado, Oklahoma, Texas, Illinois, Virginia, Canada, Switzerland, Germany, United Kingdom, Italy, China, and other locations around the world. More information is at

Safe Harbor Notice

This press release includes forward-looking statements, including statements related to the expected date of exercise for the option described in the press release, the expected date of completion for the transaction described in the press release, and the improvement in gross margins that is expected to result from exercising the purchase option and operating the purchased assets. Investors are cautioned that all forward-looking statements involve risks and uncertainties and several factors could cause actual results to differ materially from those in the forward-looking statements, including (a) uncertainties concerning factors discovered during the Company's ongoing due diligence process that may cause the Company to elect not to exercise the option; (b) uncertainties concerning the many factors that will affect the Company's actual costs of production following acquisition of the facility, including labor and material costs; and (c) uncertainties concerning the impact on the Company's results of operations of risks related to the ownership and operation of a manufacturing facility in a foreign jurisdiction, including uncertainties concerning changes in regulatory requirements, customs tariffs and regulations and applicable tax rates. Investors are directed to the Company's filings with the Securities and Exchange Commission, including the Company's 2005 Form 10-K and 2006 Form 10-Q's, which are available from the Company without charge, for a more complete description of the risks and uncertainties relating to forward-looking statements made by the Company as well as to other aspects of the Company's business. The forward-looking statements contained in this press release speak only as of the date on which they are made and the Company does not undertake any obligation to update any forward looking statements to reflect events or circumstances after the date of this press release.