Nautilus, Inc. reported a 15% decrease in net sales for the second quarter to $117.1 million from $137.6 million last year. Net income for the quarter was $1.1 million, or 4 cents per share, down 35.3% compared to $1.7 million or 5 cents per share for the second quarter of 2006.


Excluding pro forma adjustments pertaining to a valuation adjustment from access to intellectual property received through a litigation settlement with Icon Health and Fitness, net loss for the second quarter of 2007 was $9.5 million or 30 cents per share, compared to net income of $1.7 million or 5 cents per share in the second quarter of 2006.


“Our quarter was primarily affected by a softer-than-expected consumer environment in the North American home fitness market served by our retail and direct channels, especially within the home exercise gym segment. Meanwhile, our international, apparel and commercial businesses are performing in line with our growth plans,” said Gregg Hammann, chairman and CEO of Nautilus, Inc.


“While we cannot control the consumer spending environment, we believe by implementing a better brand assortment at retail, launching new advertising, achieving greater brand leverage, and better marketing and sell through support, we will improve our results in the retail and direct channels.”


“We continue to position our Company for long-term growth by providing the innovative tools and education people need to achieve a healthy life. We have the top five brands in the category, have put in place a diversified distribution strategy, and are now diversifying and gaining leverage with our supply chain.”


Taking into account trends in discretionary spending and softness in the North American home fitness market, for the second half of 2007 the company expects net sales of $350 million to $380 million and expects earnings of 20 cents to 30 cents per share.

                          NAUTILUS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except per share amounts)

Three Months Six Months
Ended June 30, Ended June 30,
——————– ——————–
2007 2006 2007 2006
——— ——— ——— ———
NET SALES $ 117,073 $ 137,613 $ 275,912 $ 322,602
COST OF SALES 71,577 77,022 157,146 182,699
——— ——— ——— ———
Gross profit 45,496 60,591 118,766 139,903
——— ——— ——— ———

OPERATING EXPENSES
Selling and marketing 43,941 43,111 94,893 95,266
General and administrative 13,360 12,243 26,683 25,892
Research and development 2,897 2,532 5,938 5,800
Royalties 1,389 1,116 2,707 2,695
Litigation settlement (18,300) — (18,300) —
——— ——— ——— ———

Total operating expenses 43,287 59,002 111,921 129,653
——— ——— ——— ———

OPERATING INCOME 2,209 1,589 6,845 10,250

OTHER INCOME (EXPENSE):
Interest expense (866) (250) (1,751) (839)
Interest income 24 86 43 224
Other income, net 536 1,207 787 1,222
——— ——— ——— ———
Total other income
(expense) (306) 1,043 (921) 607
——— ——— ——— ———

INCOME BEFORE INCOME TAXES 1,903 2,632 5,924 10,857
INCOME TAX EXPENSE 793 961 2,349 3,985
——— ——— ——— ———
NET INCOME $ 1,110 $ 1,671 $ 3,575 $ 6,872
========= ========= ========= =========

EARNINGS PER SHARE:
BASIC $ 0.04 $ 0.05 $ 0.11 $ 0.21
DILUTED $ 0.04 $ 0.05 $ 0.11 $ 0.21
WEIGHTED AVERAGE SHARES
OUTSTANDING:
BASIC 31,545 32,803 31,527 32,800
DILUTED 31,685 32,997 31,707 32,986