Nautilus 2003 Annual Report Download - page 6

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Table of Contents
BUSINESS SEGMENTS
Our operating segments include the direct, commercial/retail, and corporate segments. The direct segment includes all products and related
operations involved in marketing to consumers through a variety of direct marketing channels. The Bowflex line of strength equipment and
TreadClimber line of cardiovascular equipment are the principal fitness equipment products in our direct segment. Sales from our Bowflex
product line, including related shipping revenue, accounted for 52% of our aggregate net sales in 2003, down from 61% and 74% in 2002 and
2001, respectively, as we continued our strategies of diversification into the commercial and retail markets and the introduction of new direct-
marketed products. In the rest product market, we offer a line of premium air sleep systems, called Nautilus Sleep Systems, which are also
marketed through our direct segment. In the nutrition market, we have established a strategic relationship with Champion Nutrition
(“Champion”) as supplier of nutritional supplements that are complementary with our fitness and healthy lifestyle product offerings and are
marketed through our direct segment.
The commercial/retail segment includes all products and related operations that do not involve direct marketing to consumers. Products in this
segment currently consist of fitness equipment branded under the Nautilus, Schwinn, StairMaster, Trimline, and Bowflex names, and
depending on the brand, are sold through commercial and/or retail sales channels. Product categories sold through the commercial/retail
segment include strength equipment, treadmills, ellipticals, exercise bikes, stairclimbers, stepmills, and other fitness-related accessories.
Beginning in 2003, we augmented our segment reporting with the addition of a separate reporting segment to reflect the activities associated
with the corporate holding company. Activities reflected in this segment consist mainly of director costs, general legal and accounting fees,
salaries of corporate personnel, as well as other costs not specifically attributable to the other two business segments. In addition, treasury is a
corporate function, so interest income from investments is included in the corporate segment.
Detailed financial information about our three business segments is included in Note 3 of the Notes to Consolidated Financial Statements.
Certain prior period balances have been reclassified to conform to this three-segment presentation with no effect on previously reported
consolidated net income or stockholders’ equity.
DIRECT BUSINESS SEGMENT
Direct to Consumer Marketing
Through our direct-to-consumer sales and distribution channel, we market and sell our products directly to the end customer. We market and
sell Bowflex, TreadClimber, and Nautilus Sleep Systems products through this channel utilizing an integrated combination of media and direct
customer contact. Along with “spot” television advertising, which ranges in length from 30 seconds to as long as five minutes, we also utilize
extended 30-minute television “infomercials,”
Internet advertising, our product websites, inquiry response mailings, and inbound/outbound call
centers. By selling directly to consumers, we are able to fully realize premium price points paid for our products by the end customer,
eliminating all other parties from the sales transaction. Our ability to capture the full amount of sales revenue in our direct channel has
consistently produced a high level of financial return on our time and invested money. The size of the direct market is substantial. Through our
advertising initiatives, we estimate that we currently reach approximately 70 million homes. Success within this distribution channel is almost
entirely dependent on the ability to accurately measure target customer demographics. Toward this aim, we employ hundreds of separate toll
free telephone numbers and dozens of Internet address URLs in our sales and marketing efforts, which allow us to measure very specifically
the consumer response rates to each of our advertising placements. We have built a comprehensive database that allows us to hone our
marketing strategies and more effectively reach our
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