Nautilus 2001 Annual Report Download - page 16

In recent years, successful new product introductions and extensions have included the Nautilus Sleep Systems, the Nitro commercial line of
strength equipment, and new Nautilus selectorized home gym and free weight equipment.
Our research and development competencies have been augmented through the acquisition of Schwinn Fitness and StairMaster. Schwinn
Fitness possesses advanced design development and testing expertise and a state-of-the-art prototype and test facility. Schwinn Fitness has
successfully developed and grown many new product categories, including both indoor group cycling and wind resistance machines sold under
the Airdyne brand name. The acquisition of StairMaster has brought additional capabilities and product development in the stepper and stair
climbing categories. StairMaster is widely credited with creating and growing these categories.
Our additional research and development resources have allowed us to become fully integrated in the product development process, allowing us
to take a new product from the beginning of feasibility studies straight through to production and continuing product review. This integration
allows us a greater degree of control over the new product process, which will allow us to generate a higher quality product, increase our speed
to market, and control our costs.
For new direct-marketed products, we look for high-quality, high margin, and proprietary consumer products. In addition, these products should
have the potential for mass consumer appeal, particularly among members of the "baby-boom" generation, who are accustomed to watching
television and, in general, are likely to have higher disposable income.
For commercial/retail fitness products, we gather and evaluate ideas from various areas, including existing and potential customers, sales and
marketing, manufacturing and engineering, and we determine which ideas will be incorporated into existing products or will serve as the basis
for new products. Based on these ideas, we design new or enhanced products, develop prototypes, test and modify products, develop a
manufacturing plan, and finally bring products to market. The Company evaluates, designs, and develops each new or enhanced product, taking
into consideration our marketing requirements, target price points, gross margin requirements and manufacturing constraints. In addition, each
new or enhanced product must maintain the Nautilus, Schwinn Fitness, and StairMaster standard of quality and reputation for excellence.
Research and development expense was $716,240, $1,186,216, and $2,229,242 for 1999, 2000, and 2001, respectively.
COMPETITION
DIRECT PRODUCTS SEGMENT
BOWFLEX. The market for our Bowflex products is highly competitive. Our competitors frequently introduce new and/or improved products,
often accompanied by major advertising and promotional programs. We believe the principal competitive factors affecting this portion of our
business are price, quality, brand name recognition, product innovation and customer service.
We compete directly with a large number of companies that manufacture, market and distribute home fitness equipment. We also compete with
the many health clubs that offer exercise and recreational facilities and, indirectly, with outdoor fitness, sporting goods and other recreational
products. Our principal direct competitors include ICON Health & Fitness (through its Health Rider, NordicTrak, Image, ProForm, Weider and
Weslo brands), Precor and Total Gym. Some of our competitors have
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2002. EDGAR Online, Inc.