Nutrisystem 2005 Annual Report Download - page 17

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.
We may be subject to health-related claims from our customers.
Our weight loss program does not include medical treatment or medical advice, and we do not engage
physicians or nurses to monitor the progress of our customers. Many people who are overweight suffer from
other physical conditions, and our target consumers could be considered a high-risk population. A customer who
experiences health problems could allege or bring a lawsuit against us on the basis that those problems were
caused or worsened by participating in our weight management program. For example, our predecessor
businesses suffered substantial losses due to health-related claims and related publicity. Currently, we are neither
subject to any such allegations nor have we been named in any such litigation. However, if we were, we would
defend ourselves against such claims. Defending ourselves against such claims, regardless of their merit and
ultimate outcome, would likely be lengthy and costly, and adversely affect our results of operations. Further, our
general liability insurance may not cover claims of these types.
The weight management industry is highly competitive. If any of our competitors or a new entrant into the
market with significant resources pursues a weight management program similar to ours, our business
could be significantly affected.
Competition is intense in the weight management industry and we must remain competitive in the areas of
program efficacy, price, taste, customer service and brand recognition. Some of our competitors are significantly
larger than us and have substantially greater resources. Our business could be adversely affected if someone with
significant resources decided to imitate our weight management program. For example, if a major supplier of
pre-packaged foods decided to enter this market and made a substantial investment of resources in advertising
and training diet counselors, our business could be significantly affected. Any increased competition from new
entrants into our industry or any increased success by existing competition could result in reductions in our sales
or prices, or both, which could have an adverse effect on our business and results of operations.
New weight loss products or services may put us at a competitive disadvantage.
On an ongoing basis, many existing and potential providers of weight loss solutions, including many
pharmaceutical firms with significantly greater financial and operating resources than us, are developing new
products and services. The creation of a weight loss solution, such as a drug therapy, that is perceived to be safe,
effective and “easier” than a portion-controlled meal plan would put us at a disadvantage in the marketplace and
our results of operations could be negatively affected.
If we pursue competitive advertising, we may be subject to litigation from our competitors.
If we pursue competitive advertising, our competitors may pursue litigation regardless of its merit and
chances of success. Defending such litigation may be lengthy and costly, strain our resources and divert
management’s attention from their core responsibilities, which would have a negative impact on our business.
If consumers do not widely accept an online or telephonic source for weight management products and
services, we will be unable to increase our customer base.
Our success depends on attracting and retaining a high volume of online and telephonic customers. Factors
that could prevent or delay the widespread consumer acceptance of purchasing weight management products and
services online or by telephone include problems with or customer concerns about:
• the security of online or telephonic transactions;
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