Nautilus, Inc. filed a report with the SEC stating that the company will report adjustments to the preliminary fourth quarter and full year 2005 results, previously reported on February 2, 2006. In addition, the Company will report two material weaknesses in its internal controls. Management determined that the controls for the testing of and training for the enterprise resource planning (“ERP”) system which was implemented in the fourth quarter of 2005 for the commercial, retail and specialty channels did not operate effectively. Management also determined that efforts to mitigate the impact of inadequate ERP testing and training resulted in insufficient resources being devoted to controls over analyzing and recording contingencies, and, accordingly, such controls failed to operate effectively.

For the fourth quarter of 2005, the Company will report the following adjustments: an increase in net sales of $0.7 million, an increase in cost of sales of $1.1 million, an increase in sales and marketing of $0.6 million, and an increase in general and administrative expenses of $0.3 million. As a result of these fourth quarter adjustments, for the full year 2005 the Company will report net sales of $631.3 million, net income of $23.0 million, and earnings of $0.68 per fully diluted share.

The following remedial actions have been undertaken to address the material weakness in the controls for testing and training for the ERP system:

  • Data migration issues have been identified and continue to be corrected by Company personnel.
  • System users are receiving additional training on the effective and efficient use of the system to assure data accuracy.
  • System reporting is being enhanced based on identified business needs, including daily sales and standard margin reporting among numerous other reports.
  • Enhancements to the operation of the system implementation controls are being developed. As such, the implementation of the ERP for International operations has been postponed until 2007 to enable the Company to effectively execute the implementation thereby limiting the risk of similar issues arising in future implementations.

The following remedial actions have been undertaken to address the material weakness in internal controls surrounding analyzing and recording contingencies:

  • Additional training is being provided to the accountants responsible for determining the financial impact of each contingency.
  • The importance of the review function is being reiterated to the senior members of the accounting department who have been assigned responsibility for review of accounting estimates.
  • An additional level of review has been implemented requiring all significant accounting estimates be reported to and reviewed by the CFO and Controller on a monthly basis.

According to the company's SEC filings, it has made considerable progress in its efforts to remediate these material weaknesses since December 31, 2005. As on-going remediation continues, the Company is focusing its training and education efforts so that operating effectiveness will be demonstrated over a period of time sufficient to conclude that the material weaknesses have been remediated.