Nutrisystem 2005 Annual Report Download - page 7

Special Note Regarding Forward-Looking Statements
Except for the historical information contained herein, this Annual Report (“Report”) on Form 10-K
contains certain forward-looking statements that involve substantial risks and uncertainties. Words such as
“may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,”
“continue,” or similar words are intended to identify forward-looking statements, although not all forward-
looking statements contain these words. Our actual results, performance or achievements could differ materially
from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or
contribute to such differences include those set forth in “Risk Factors.” Accordingly, there is no assurance that
the results in the forward-looking statements will be achieved.
PART I
ITEM 1. BUSINESS
Overview
We are a leading marketer and provider of a weight management system based on a portion-controlled,
prepared meal program. Typically, our customers purchase monthly food packages containing a 28-day supply of
breakfasts, lunches, dinners and desserts, which they supplement with fresh milk, fruit and vegetables. Most of
our customers order on an auto-delivery basis, which we call Autoship, in which we send a month’s food supply
on an ongoing basis until notified by the customer to stop our shipments. Our Autoship program is currently
priced at $289 per shipment, or about $10 per day for a full day’s supply of three entree meals and one snack.
Our food is shelf stable at room temperature and will last for up to two years, making it relatively inexpensive to
ship and store. As part of our weight management program, we provide online and telephone counseling and
support to our customers using our trained diet counselors.
In December 2003, we introduced our current line of portion-controlled, prepared meals under the
NutriSystem Nourish name. Our NutriSystem Nourish program consists of over 130 food items that are designed
to rank low on the glycemic index. The glycemic index is a measure of the quality of carbohydrates in foods.
Foods on the lower end of the index are generally considered “good” carbohydrates. We sell our weight
management programs primarily through a direct-to-consumer sales and distribution approach using the internet
and telephone (89% of 2005 revenue), the QVC Shopping Network (7% of 2005 revenue) and other channels that
accounted for 3% of 2005 revenue.
On our website, www.nutrisystem.com, our customers can order 24 hours a day, seven days a week. Our
customers can either choose one of our pre-set food packages or customize their monthly food orders for their
specific tastes. We ship orders directly to our customers through our fulfillment center as well as through third-
party fulfillment providers.
In December 2002, a new management team led by our CEO, Michael J. Hagan, and our President, George
Jankovic, began a series of strategic initiatives to revitalize our brand and attract new customers, including:
hiring key management executives in marketing, product development and fulfillment; using market research to
position our brand properly; launching a cohesive direct response marketing program; building systems to
measure our advertising performance; and launching the NutriSystem Nourish food program.
To promote our brand, we market our weight management system through multiple media, including
television, print, direct mail, internet and public relations. As a result of our promotional efforts, our program has
been featured on reality television shows, magazines and other media outlets. In 2003, we started our short-form
television advertising campaign. In late 2004, we added print media in the form of newspaper and magazine
advertisements. In 2005, we accelerated our use of print media, actively tested long format television
(infomercial) advertising and increased our focus on direct mail using our customer lists.
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