Nutrisystem 2008 Annual Report Download - page 17

Freight and Fulfillment. In 2008, more than 95% of our orders are shipped by one third-party, United Parcel
Service or UPS and more than 85% of our order fulfillment is handled by another third party, Ozburn-Hessey
Logistics, or OHL. Should UPS or OHL be unable to service our needs for even a short duration, our revenue and
business could be harmed. Additionally, the cost and time associated with replacing OHL or UPS on short notice
would add to our costs. Any replacement fulfillment provider would also require startup time, which could cause
us to lose sales and market share.
Internet, Networking and Call Centers. Our business also depends on a number of third parties for Internet
access, networking and call center services, and we have limited control over these third parties. Should our
network connections go down, our ability to fulfill orders would be delayed. Further, if our website or call
centers become unavailable for a noticeable period of time due to Internet or communication failures, our
business could be adversely affected, including harm to our brand and loss of sales.
Therefore, we are dependent on maintaining good relationships with these third parties. The services we
require from these parties may be disrupted by a number of factors associated with their businesses, including the
following:
• labor disruptions;
• delivery problems;
• financial condition of operations;
• internal inefficiencies;
• equipment failure;
• natural or man-made disasters; and
• with respect to our food suppliers, shortages of ingredients or United States Department of Agriculture
(“USDA”) and United States Food and Drug Administration (“FDA”) compliance issues.
We are dependent on the QVC Shopping Network for a percentage of revenue.
In 2008, sales of our products through our relationship with the QVC Shopping Network accounted for 6%
of our revenue. For 2009, we have a one-year contractual agreement with QVC with an automatic extension
unless either party decides not to extend the agreement and a minimum level of sales has not been achieved for
the year. Under the QVC agreement, QVC controls when and how often our products and services are offered
on-air, and we are not guaranteed any minimum level of sales or transactions. QVC has the exclusive right in the
United States, its possessions and territories, the United Kingdom and Germany to promote our products using
home shopping television programs other than our own infomercials during the contract term and on a
non-exclusive basis for two years thereafter. If QVC elects not to renew the agreement or reduces airtime for
promoting our products, our operating profits will suffer and we will be prohibited from selling our products
through competitors of QVC for six months after the termination of the agreement.
We may be subject to claims that our personnel are unqualified to provide proper weight loss advice.
Some of our counselors for our weight management program do not have extensive training or certification
in nutrition, diet or health fields and have only undergone the training they receive from us. We may be subject to
claims from our customers alleging that our personnel lack the qualifications necessary to provide proper advice
regarding weight loss and related topics. We may also be subject to claims that our personnel have provided
inappropriate advice or have inappropriately referred or failed to refer customers to health care providers for
matters other than weight loss. Such claims could result in damage to our reputation and divert management’s
attention from our business, which would adversely affect our business.
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