Nautilus 2009 Annual Report Download - page 9

Table of Contents
For the year ended December 31, 2009, approximately half of our U.S. customers took advantage of a financing program offered by HSBC Bank
Nevada, N.A. (
“HSBC”) to purchase our products using the private label Bowflex revolving credit card, as compared to approximately two-
thirds of our U.S. customers in 2008, reflecting the application of more stringent credit approval standards by HSBC. We expect that HSBC will
continue to apply these more stringent credit approval standards to our customers in 2010. Accordingly, we are investigating other consumer
financing options and developing marketing strategies that do not rely on access to consumer credit as a principal factor in the customer’s
purchase decision. Our current agreement with HSBC expires in 2013.
Retail
In our retail business, we market and sell a comprehensive line of consumer fitness equipment under the Nautilus , Schwinn Fitness,
Universal and Bowflex brands. Our products are marketed through a network of retail locations, consisting of sporting goods stores,
department stores, governmental agencies and, to a lesser extent, smaller specialty retailers and independent bike dealers.
Retail business sales have historically been led by our strength products, including the Bowflex rod-based home gym and SelectTech
dumbbells. However, we believe the fitness equipment market for cardio products is much larger and provides greater opportunity for growth.
As a result we have focused our retail business product development efforts on the introduction of new cardio products, including a line of
Schwinn Fitness branded indoor bikes and ellipticals. We plan to continue to invest in the development of cardio products for the retail
business, anticipating that such investments will help us achieve greater market share.
We have implemented sales programs which provide discounts to our customers for ordering container sized shipments and/or placing orders
early enough in the season to allow for efficient manufacturing by our Asian suppliers. These sales programs are designed to reduce our shipping
and handling costs, with much of the savings being passed on to our customers. Many of our retail customers are also eligible for other types of
sales incentives, including volume discounts and various forms of rebates or allowances, which primarily are intended to increase product
availability, offset transportation costs and encourage marketing of our brands.
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 to 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 third-party technology or innovation concepts meet 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.
Our research and development expenses were approximately $5.2 million and $6.6 million for the years ended December 31, 2009 and 2008,
respectively.
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 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.
5
™
™ ™
™ ™
™ ™
™