Nautilus 2005 Annual Report Download - page 17

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Table of Contents
EMPLOYEES
As of December 31, 2005, we employed approximately 1,550 employees, including eight executive officers. None of our employees are
subject to any collective bargaining agreements.
INTELLECTUAL PROPERTY
We own many trademarks including the Nautilus
®
, Bowflex
®
, Power Rod
®
, TreadClimber
®
, Schwinn
®
Fitness, SelectTech
®
,
StairMaster
®
, Trimline
®
, Pearl Izumi
®
, Microsensor
®
, Ultrasensor
®
, Syncroframe
®
and 3D Chamois
®
marks. Our trademarks, the great
majority of which are either registered or protected by common law rights, are used on a variety of our products in the United States and around
the world. We believe that our trademarks are of great value, assuring the consumer that the product being purchased is of high quality and
provides a good value.
We also place significant value on product innovation, design and processes which, as much as trademarks, distinguish our products in
the marketplace. We own many United States and foreign patents and have submitted additional applications for patent protection that are
pending registration. We believe patents are important to our strategy and have identified the patents on our TreadClimber
®
products as among
the most significant to our business. Although our Bowflex
®
trademark is protected as long as we continuously use it, the main U.S. patent on
our Bowflex
®
Power Rod
®
resistance technology expired on April 27, 2004. The main U.S. patent in the large portfolio of patents related to
our TreadClimber
®
line of cardiovascular equipment expires on December 13, 2013. The expiration of our patents could trigger the
introduction of similar products by competitors.
Building our intellectual property portfolio is an important factor in maintaining our competitive position in the fitness equipment and
apparel industries. If we do not, or are unable to, adequately protect our intellectual property, our sales and profitability could be adversely
affected. We are very protective of these proprietary rights and take action to prevent counterfeit reproductions or other infringing products. As
we expand our market share, geographic scope and product categories, intellectual property disputes are anticipated to increase making it more
expensive and challenging to establish and protect our proprietary rights and to defend against claims of infringement by others. Refer to
Item 3, Legal Proceedings, and Note 15 of the Notes to Consolidated Financial Statements for a discussion of significant intellectual property
disputes.
Each federally registered trademark is renewable indefinitely if the trademark is still in use at the time of renewal. We are not aware of
any material claims of infringement or other challenges to our trademark rights.
MANUFACTURING AND DISTRIBUTION
Fitness Equipment
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. This is accomplished by applying the popular lean manufacturing philosophy to
our manufacturing infrastructure. Our product components are manufactured primarily in the U.S. and Asia. We have not experienced any
significant issues with availability of raw materials. From time to time, we have experienced issues with quality control and production of new
products both domestically and abroad, especially during that latter part of 2005. While such unanticipated disruptions have adversely impacted
our revenues and costs when they have occurred, we believe we have been able to react and correct the issues in a timely manner.
For our direct-
marketed and retail products, we mainly use Asian suppliers to manufacture the components and finished goods. Whenever
possible, we attempt to use at least two suppliers to manufacture each product component in order to improve flexibility, efficiency, and
emphasis on product quality. We also have domestic operations in Texas that manufacture our various lines of consumer treadmills and the
Bowflex TreadClimber product line.
16