Nautilus 2005 Annual Report Download - page 18

Table of Contents
Our commercial strength fitness products are manufactured in Virginia, and our commercial cardiovascular fitness products are primarily
manufactured in Oklahoma. These operations are vertically integrated and include such functions as metal fabrication, powder coating,
upholstery and vacuum-formed plastics processes. By managing our own manufacturing operations, we can control the quality of our
commercial products and offer customers greater color specification flexibility, build-to-order capability, and unique product configurations.
Domestically, we inspect, package, and ship our products from our facilities in Washington, Oregon, Virginia, Illinois, Texas, and
Oklahoma. We rely primarily on United Parcel Service (“UPS”) to deliver our direct products. We distribute our retail and commercial fitness
equipment from our facilities in Illinois, Oklahoma, and Texas using various commercial truck lines. We distribute commercial strength fitness
equipment from our Virginia warehouse facilities directly to customers primarily through our truck fleet. This method of distribution allows us
to effectively control the set up and inspection of equipment at the end-user’s facilities.
For international sales, we work with distributors in more than 50 countries, and we ship our products from leased facilities in the
Netherlands, Switzerland, the United Kingdom and Germany. We also lease, on a month
-to-month basis, flexible warehouse space in multiple
countries in Asia and Europe, the largest of which is located in the Netherlands. This flexible warehouse space is devoted to international
distribution of our products.
Fitness Apparel
Our apparel products are manufactured primarily in Asia and the U.S. The manufacturers are monitored closely to ensure conformity and
quality in the products they produce.
Independent manufacturers in Asia purchase the raw materials needed according to our high standards to produce our garments from
suppliers at prices and on terms negotiated by us. We are usually required to purchase any unused materials from the factories at the end of the
season. For some of our products that are produced in the U.S., we are responsible for purchasing and shipping the raw material to our
manufacturer. Although this arrangement exposes us to additional risks before a garment is manufactured, we believe that it increases our
manufacturing flexibility and quality control. All of our costs are quoted in U.S. dollars to preclude us from any foreign exchange fluctuation
risks.
Our quality control program is designed to ensure that our products meet the highest quality standards. A large portion of the quality
control process occurs at the factories. The factories either ship the products to our warehouse facilities in the U.S. or Germany or drop ship
direct to our customers.
For domestic sales we generally ship our products from our facilities in Colorado. We rely primarily on UPS to deliver our products. For
European sales the products are shipped from our facilities in Germany. For international distributor shipments the products are either drop
shipped to our customers or shipped from our facilities in Colorado or Germany.
Item 1A. Risk Factors
RISKS AND UNCERTAINTIES
Because of the following factors, as well as other variables affecting our operating results, past financial performance may not be a
reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods.
A significant decline in availability of media time or fluctuating advertising rates may hinder our ability to effectively market our
products and may reduce profitability.
We depend primarily on 30 and 60 second “spot” television commercials and 30-minute television “infomercials” to market and sell our
direct-marketed products. Consequently, a marked increase in the price we must pay for our preferred media time or a reduction in its
availability may adversely impact our financial performance.
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