Nautilus 2012 Annual Report Download - page 8

Table of Contents
Our marketing efforts are based on an integrated combination of media and direct consumer contact. In addition to television advertising, which
ranges in length from 30 seconds to as long as five minutes, we utilize extended 30-minute television infomercials, Internet advertising, product
websites, inquiry-response mailings, catalogs and inbound/outbound call centers. Marketing and media effectiveness is measured continuously
based on sales inquiries generated, cost-per-lead, conversion rates, return on investment and other performance metrics. Almost all of our Direct
customer orders are received either on our Internet websites or through company-owned and third-party call centers.
In September 2010, we completed our transition to a new consumer credit program with a new primary third-party financing provider, GE
Capital Retail Bank, formerly GE Money Bank ("GE"). The relationship with GE has expanded the ability of our customers to obtain third-party
consumer financing for purchases of our products. In addition, we added one secondary third-party consumer credit financing provider during
the third quarter of 2010 and another in early 2011, both of which offer credit to certain qualified consumers whose credit applications have been
declined by GE. As a result, combined consumer credit approvals by our primary and secondary U.S. third-
party financing providers increased to
32% in 2012 from 25% in 2011 and 15% in 2010.
Retail
In our Retail business, we market and sell a comprehensive line of consumer fitness equipment under the Nautilus, Schwinn, Universal and
Bowflex brands. Our products are marketed through a network of retail companies, consisting of sporting goods stores, Internet retailers, large-
format and warehouse stores, and, to a lesser extent, smaller specialty retailers and independent bike dealers.
We offer programs that provide price discounts to our Retail customers for ordering container-sized shipments or placing orders early enough in
the season to allow for more efficient manufacturing by our Asian suppliers. These programs are designed to reduce our shipping and handling
costs, with much of the savings being passed on to our customers. In addition, our Retail customers generally are eligible for other types of sales
incentives, including volume discounts and various forms of rebates or allowances, which generally are intended to increase product exposure
and availability for consumers, reduce transportation costs, and encourage marketing and promotion of our brands or specific products.
PRODUCT DESIGN AND INNOVATION
Innovation is a vital part of our business, and we continue to expand and diversify our product offerings by leveraging our research and
development capabilities. We constantly search for new technologies and innovations that will help us grow our business, either through higher
sales or increased production efficiencies. To accomplish this objective, we seek out ideas and concepts both within our company and from
outside inventors.
We rely on financial and engineering models to assist us in assessing the potential operational and economic impacts of adopting new
technologies and innovations. If we determine that a third-party technology or innovation concept meets certain technical and financial criteria,
we may enter into a licensing arrangement to utilize the technology or, in certain circumstances, purchase the technology for our own use. Our
product design and engineering teams also invest considerable effort to improve product design and quality. As a consumer-driven company, we
invest from time-to-time in qualitative and quantitative consumer research to help us assess new product concepts, optimal features and
anticipated consumer adoption.
Our research and development expenses were $4.2 million , $3.2 million and $2.9 million in 2012 , 2011 and 2010 , respectively, as we
increased our investment in new product development resources and capabilities. We expect our research and development expenses to increase
in 2013 as we continue to increase our investment in new product development.
SEASONALITY
We expect our sales to vary seasonally. Sales are typically strongest in the first and fourth quarters, followed by the third quarter, and are
generally weakest in the second quarter. We believe that various factors, such as the broadcast of network season finales and seasonal weather
patterns, influence television viewers and cause our advertising on cable television stations to be less effective in the second quarter than in other
periods. In addition, during the spring and summer months, consumers tend to be involved in outdoor activities, including outdoor exercise,
which impacts sales of indoor fitness equipment. This seasonality can have a significant effect on our inventory levels, working capital needs and
resource utilization.
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