Nautilus 2005 Annual Report Download - page 8

Table of Contents
We have a modern test and prototype facility, along with a staff of designers and engineers. With the acquisition of Pearl Izumi, we have
the basis for technically superior apparel products. 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 concept 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 should allow us to generate a higher quality product, increase our speed to market, and control our costs.
Research and development expense was $11.2 million, $6.8 million and $5.7 million for 2005, 2004, and 2003, respectively.
Leverage Sales Channels
We repositioned our products in 2005 to better meet consumer demand and shopping patterns and to expand our sales channels. This
means offering more of the products consumers want (e.g., cardiovascular fitness equipment) in the places consumers want to buy our products
(e.g., retail outlets). We are moving more of our products to the retail channel and are differentiating our products to specifically fit the needs of
the consumer shopping in each sales channel. For example, we will sell different models of Bowflex in retail compared to the direct sales
channel. This strategy will allow our partners to have differentiated products under the same brand, enabling each channel to provide the
products its consumers demand.
Streamline Company Operations
Another foundational element of our strategy is our effort to reorganize from a channel focus to a consumer focus. Included in this focus
change is a drive to leverage our expertise, experience and diversity of thought from across our organization to realize synergies, efficiencies
and cost savings. In 2006 we will continue to adopt best practices across our locations. We are establishing a performance-driven culture based
on teamwork that clearly ties employee compensation to both company and individual performance. We are seeking to develop a high-energy
collaborative culture with a clear focus on the metrics that drive performance and create shareholder value.
We expect to benefit from of the considerable capital investments we made in 2005, which primarily consisted of an upgrade to our ERP
systems and our new world headquarters facility. In 2006 we are committed to achieving operational excellence by structuring our efforts
around the principles of Quality control, Customer service and Cost takeout or “QC
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” as it is known within our organization. Key elements of
QC
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include improving flexibility and efficiency in our domestic plants, working collaboratively with suppliers to take costs out of the system
while improving quality and streamlining our distribution system.
BUSINESS SEGMENTS
Effective July 7, 2005, the closing date of the Company’s acquisition of Pearl Izumi, the Company began operating as two reportable
segments, the fitness equipment segment and the fitness apparel segment.
The fitness equipment segment is responsible for the design, production, selling and marketing of branded health and fitness products
sold under the Nautilus, Bowflex, Schwinn Fitness, StairMaster, and Trimline brand names. Depending on the brand, our fitness equipment is
sold through direct, commercial, retail, and specialty retail channels and international channels. Sales from our Bowflex home-
gym product line
across all sales channels, including related shipping revenue, accounted for approximately 44% of our aggregate net sales in 2005, down from
48% and 52% in 2004 and 2003, respectively, as we continue our strategies of diversifying our breadth of products in all channels. The fitness
equipment segment also consists of corporate overhead costs consisting mainly of director costs, general legal and accounting fees, and salaries
of corporate personnel. The treasury function is part of the fitness equipment segment so interest income from investments and interest expense
from short-term borrowings are also included.
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