Nautilus 2002 Annual Report Download - page 18

and control. Precision Path(TM) Foot Motion Technology minimizes stress to the ankles, knees and back commonly associated with other
forms of exercise. The dual-action arm motion and synchronized stride work together to target all major muscle groups simultaneously.
NEW PRODUCT DEVELOPMENT AND INNOVATION
We continue to emphasize the expansion and diversification of our product development capabilities in health and fitness products. New
product development is a focal point of our company. We develop new products either from internally generated ideas or by acquiring or
licensing patented technology from outside inventors and then enhancing the technology.
Our research and development competencies have been enhanced through the acquisition of Schwinn Fitness and StairMaster. With the
purchase of these companies, we gained a state-of-the-art test facility and prototype shop. With the combination of this facility, along with the
designers and engineers, we have the capability of taking a concept from its origin, quickly and cost effectively through to its completion within
our company. This should allow us to become a leader in new product introduction and technologies. This group consists of industrial,
mechanical, and electrical design personnel.
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. Late in 2002, we expanded our portfolio of
commercial strength equipment with the introduction of the Nautilus XPload line of plate-loaded selectorized equipment. In August of 2002, we
expanded our retail product lines with the introduction of 16 new retail products that were first shown at the Health and Fitness Business show
in Denver, Colorado. The new retail products branded under our Nautilus name include treadmills, stationary bicycles, an elliptical motion
trainer, home strength equipment, and heart rate monitors. We also introduced new products under our Schwinn brand name including indoor
cycling bicycles and an elliptical motion trainer. In addition to the 16 new retail products, many of our existing products were updated and
enhanced. In March 2003, we introduced the TreadClimber, our newest direct-marketed product, under our Nautilus name.
The designs of all new products are rendered in solid modeling software. This allows us to see and communicate ideas rapidly, do finite element
analysis, and perform costing studies very quickly. 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.
For new direct-marketed products, we look for innovative high-quality and proprietary consumer products that can generate gross profit
margins in the range of 65% to 75%. In addition, we look for products that we anticipate will have 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 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.
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