Nautilus 2002 Annual Report Download - page 20

durability, diversity of features, financing options, product service network, and warranties. Some of our competitors have greater financial
resources, more experience in the fitness industry, and more extensive experience manufacturing their products.
RETAIL FITNESS EQUIPMENT. The market for retail fitness equipment is extremely competitive. Our Nautilus, Schwinn, StairMaster, and
Trimline retail products compete against the products of numerous domestic retail fitness equipment companies including ICON Health &
Fitness (marketing products under the brand names Weslo, Health Rider, Weider, NordicTrak and ProForm), Star Trac, Life Fitness, Cybex,
Fitness Quest, and Precor. We believe the key competitive factors in the retail fitness equipment industry include price, product quality, brand
name recognition, customer service and the ability to create and develop new, innovative products. In addition, there are no significant
technological, manufacturing or marketing barriers to entry into the fitness equipment markets in which we compete, even though like many
companies in the industry, we have sought and received patent and trademark protection in an effort to protect our competitive position.
We believe that our combination of high-quality products, recognized brand names, multiple distribution channels, and dependable customer
service gives us the ability to compete in our current markets.
MANUFACTURING AND DISTRIBUTION
Our primary manufacturing and distribution objectives for all of our products are to maintain product quality, reduce and control costs,
maximize production flexibility and improve delivery speed. We use computerized inventory management systems to forecast our
manufacturing requirements.
Our commercial strength fitness manufacturing operations are located in Virginia. 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 strength products, while offering commercial customers greater color specification
flexibility. Our manufacturing operations also include a plant in Texas for Schwinn, Trimline, and Nautilus consumer treadmills and a plant in
Oklahoma for our commercial cardiovascular products. By manufacturing these products in our own facilities, we ensure the highest quality
control standards.
The resistance component of our Bowflex products, the Power Rods, is assembled exclusively in our facilities to protect our manufacturing
trade secrets and to ensure the highest quality control standards. In addition, we use outside suppliers to manufacture many of our components
and finished parts for our direct and retail products. Whenever possible, we attempt to use at least two suppliers to manufacture each product
component in order to improve flexibility.
Domestically, we inspect, package, and ship our products from our facilities in Washington, Virginia, Illinois, Texas, Oklahoma, and Nevada.
We rely primarily on United Parcel Service (UPS) to deliver our Bowflex and our Nautilus Sleep Systems products. We distribute our retail
equipment and accessories and retail and commercial fitness equipment from our Illinois and Oklahoma facilities 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 have distributors in over 50 countries, and we ship our products from leased facilities in 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.
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