Nutrisystem 2008 Annual Report Download - page 21

Risks Related to Our Industry
Changes in consumer preferences could negatively impact our operating results.
Our program features pre-packaged food selections, which we believe offer convenience and value to our
customers. Our continued success depends, to a large degree, upon the continued popularity of our program
versus various other weight loss, weight management and fitness regimens, such as low carbohydrate diets,
appetite suppressants and diets featured in the published media. Changes in consumer tastes and preferences
away from our pre-packaged food and support and counseling services, and any failure to provide innovative
responses to these changes, may have a materially adverse impact on our business, financial condition, operating
results, cash flows and prospects.
The weight loss industry is subject to adverse publicity, which could harm our business.
The weight loss industry receives adverse publicity from time to time, and the occurrence of such publicity
could harm us, even if the adverse publicity is not directly related to us. In the early 1990s, our predecessor
businesses were subject to extremely damaging adverse publicity relating to a large number of lawsuits alleging
that the NutriSystem weight loss program in use at that time led to gall bladder disease. This publicity was a
factor that contributed to the bankruptcy of our predecessor businesses in 1993. More recently, our predecessor
businesses were severely impacted by significant litigation and damaging publicity related to their customers’ use
of fen-phen as an appetite suppressant, which the FDA ordered withdrawn from the market in September 1997.
The significant decline in business resulting from the fen-phen problems caused our predecessor businesses to
close all of their company-owned weight loss centers.
Congressional hearings about practices in the weight loss industry have also resulted in adverse publicity
and a consequent decline in the revenue of weight loss businesses. Future research reports or publicity that are
perceived as unfavorable or that question certain weight loss programs, products or methods could result in a
decline in our revenue. Because of our dependence on consumer perceptions, adverse publicity associated with
illness or other undesirable effects resulting from the consumption of our products or similar products by
competitors, whether or not accurate, could also damage customer confidence in our weight loss program and
result in a decline in revenue. Adverse publicity could arise even if the unfavorable effects associated with
weight loss products or services resulted from the user’s failure to use such products or services appropriately.
Our industry is subject to governmental regulation that could increase in severity and hurt results of
operations.
Our industry is subject to federal, state and other governmental regulation. For example, some advertising
practices in the weight loss industry have led to investigations from time to time by the FTC and other
governmental agencies. Many companies in the weight loss industry, including our predecessor businesses, have
entered into consent decrees with the FTC relating to weight loss claims and other advertising practices. We
continue to be subject to these consent decrees, which restrict how we advertise the successes our customers have
achieved in losing weight through the program and require us to include the phrase “results not typical” in
advertisements. In November 2008, the FTC published in the Federal register, a notice seeking public comments
on proposed revisions to its Guides concerning the Use of Endorsements and Testimonials in Advertising.
Regulation of advertising practices in the weight loss industry may increase in scope or severity in the future,
which could have a material adverse impact on our business.
Other aspects of our industry are also subject to government regulation. For example, food manufacturers
are subject to rigorous inspection and other requirements of the USDA and FDA, and companies operating in
foreign markets must comply with those countries’ requirements for proper labeling, controls on hygiene, food
preparation and other matters. If federal, state, local or foreign regulation of our industry increases for any
reason, then we may be required to incur significant expenses, as well as modify our operations to comply with
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