Nautilus, Inc. has entered into a settlement agreement with the U.S. Consumer Product Safety Commission which will require the NLS to pay a civil penalty in the amount of $950,000. The penalty settles allegations that the Nautilus failed to timely report to the Commission product defects associated with certain Bowflex Power Pro Fitness Machines and Bowflex Ultimate Fitness Machines sold between January 1995 and April 2004.
The Company denied that a defect in any of its products caused injury to any person, or that it knowingly violated the reporting requirements of the Consumer Product Safety Act. The Company entered into the settlement agreement to resolve the Commissions claims without the expense and distraction of litigation. By agreeing to this settlement, the Company does not admit any of the allegations set forth by the Commission, or any fault, liability or statutory or regulatory violation.
Although the Bowflex models that were the subject of these allegations are either no longer marketed or have been redesigned, the Company believes its dialogue with the Commission has resulted in producing higher quality products. The Company has introduced a new Nautilus standard for quality for the fitness products it brings to market. It also has made improvements to its reporting systems in close coordination with the Commission. The Company believes this has generated a positive outcome for consumers, customers, the Commission, and the Company.
The penalty will be fully accrued in the first quarter of 2005. Based on preliminary financial results, the Company believes higher-than-anticipated net sales in the first quarter will offset the impact of the charge on anticipated first quarter earnings.
