Nutrisystem 2009 Annual Report Download - page 23

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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 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 166,143 square feet of office space at a combined 2009 rent of $2.3 million. One lease in Horsham
expires in 2010, the second in 2011 and the third in 2018. In October 2009, we signed a fourth lease in Fort
Washington, Pennsylvania with approximately 119,767 square feet of office space which we do not yet occupy
but intend to consolidate all of our administrative and call center operations into this space. This lease expires in
2022. We have additional fulfillment capacity in Chambersburg, Pennsylvania and Sparks, Nevada 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 outsourced fulfillment capacity is adequate to meet our needs for the foreseeable future.
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