Nutrisystem 2008 Annual Report Download - page 22

new regulatory requirements, which could harm our operating results. Additionally, remedies available in any
potential administrative or regulatory actions may include requiring us to refund amounts paid by all affected
customers or pay other damages, which could be substantial.
The sale of ingested products involves product liability and other risks.
Like other distributors of products that are ingested, we face an inherent risk of exposure to product liability
claims if the use of our products results in illness or injury. The foods that we resell in the U.S. are subject to
laws and regulations, including those administered by the USDA and FDA that establish manufacturing practices
and quality standards for food products. Product liability claims could have a material adverse effect on our
business as we do not have contractual indemnification rights against our other suppliers, and our other remedies
against third parties and our existing insurance coverage may not be adequate. Distributors of weight loss food
products, vitamins, nutritional supplements and minerals, including our predecessor businesses, have been named
as defendants in product liability lawsuits from time to time. The successful assertion or settlement of an
uninsured claim, a significant number of insured claims or a claim exceeding the limits of our insurance coverage
would harm us by adding costs to the business and by diverting the attention of senior management from the
operation of the business. We may also be subject to claims that our products contain contaminants, are
improperly labeled, include inadequate instructions as to use or inadequate warnings covering interactions with
other substances. Product liability litigation, even if not meritorious, is very expensive and could also entail
adverse publicity for us and reduce our revenue. In addition, the products we distribute, or certain components of
those products, may be subject to product recalls or other deficiencies. Any negative publicity associated with
these actions would adversely affect our brand and may result in decreased subscriptions and product sales and,
as a result, lower revenues and profits.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We currently lease three locations in Horsham, Pennsylvania. The three Horsham locations total
approximately 212,400 square feet of office and warehouse space at a combined 2009 rent of $2.6 million. One
lease in Horsham expires in 2009, the second in 2010 and the third in 2011. In November 2008, a fourth lease in
Horsham, Pennsylvania commenced with approximately 51,390 square feet of office space which we do not yet
occupy. Rent payments for this space will be approximately $487,000 in 2009. This lease expires in 2018. We
have additional fulfillment capacity in Chambersburg, Pennsylvania; Sparks, Nevada; McDonough, Georgia; and
Mississauga, Ontario through an outsourced provider. We have no lease obligations to any of our outsourced
fulfillment providers; however, we are subject to minimum space commitments which we may reduce over a
specified period of time. Management believes the Horsham facilities, combined with the outsourced fulfillment
capacity, are adequate to meet our needs for the foreseeable future.
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