Nautilus 2001 Annual Report Download - page 4

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ITEM 1. BUSINESS
INTRODUCTION
Direct Focus, Inc. is a leading marketer, developer and manufacturer of branded health and fitness products sold under such well-known names
as Nautilus, Bowflex, Schwinn Fitness and StairMaster. We market and sell our Bowflex and Nautilus Sleep Systems products through our
direct-marketing channel utilizing an effective combination of television commercials, infomercials, response mailings, the Internet, and
inbound/outbound call centers. We market and sell our Nautilus, Schwinn Fitness, StairMaster and Quinton commercial fitness equipment
through our sales force and selected dealers to health clubs, government agencies, hotels, corporate fitness centers, colleges, universities and
assisted living facilities. We also market a complete line of consumer fitness equipment, also sold under the Nautilus, Schwinn Fitness,
Trimline, and StairMaster brands, through a network of specialty dealers, distributors and retailers worldwide.
We have experienced rapid growth, with sales increasing from $133.1 million in 1999 to $363.9 million in 2001, representing a compound
annual growth rate of over 65%. This increase was primarily the result of organic growth in the sales of existing Nautilus and Bowflex product
lines. In addition, we significantly expanded our market through extensions of existing product lines in new channels and the strategic
acquisition of Schwinn Fitness and StairMaster. We have grown net income from $20.3 million in 1999 to $66.6 million in 2001, representing a
compound annual growth rate of over 81%.
Our success to-date, based on sales growth, profitability and cash flow, has been driven primarily by the expansion of our Bowflex and Nautilus
Sleep Systems product lines in the growing, direct-to-consumer distribution channel. We believe that we have been able to capture premium
price points as a result of our high quality, innovative products and direct sales to end customers. We intend to continue driving our growth
through our ability to identify, fulfill and increase customer demand for health and fitness products.
Through our extensive experience in direct marketing health and fitness products to consumers, we have developed a creative and highly
disciplined sales and marketing program. Over the past 9 years, we have spent over $164 million in television advertising for our direct
products. Core to our strategy is the continuous improvement of our direct marketing process by challenging and refining all aspects of our
marketing and selling cycle. This improvement has been accomplished in large part by our ability to gain relatively instantaneous customer
feedback from our advertisements. All customer inquiries are carefully monitored and analyzed through our state-of-the-art inbound and
outbound call center utilizing a customized automated database and its statistical applications. As a result, we have been able to predict with a
historically high degree of accuracy the inquiries of our marketing programs and their subsequent conversion into sales. This highly refined
marketing program, combined with our media purchasing power, has created an effective and cost efficient means for driving consumer
demand.
Our success has been enhanced by our continuing expansion into the commercial and retail channels of the fitness industry. To expand sales and
market share in these channels, we acquired substantially all of the assets of Nautilus International, Inc. ("Nautilus") in January 1999, the fitness
division of Schwinn/GT Corp. and its affiliates ("Schwinn Fitness") in September 2001, and StairMaster Sports/Medical, Inc. ("StairMaster") in
February 2002. These acquisitions have enabled us to considerably expand our portfolio of leading brands, product lines, channels of
distribution, product development and the size of our customer base. Through our purchase of Schwinn Fitness and
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2002. EDGAR Online, Inc.