Nutrisystem 2006 Annual Report Download - page 18

u
nless either party decides not to extend the agreement and a minimum level of sales has not been achieved for
t
h
e year. Un
d
er t
h
e QVC agreement, QVC contro
l
sw
h
en an
dh
ow o
f
ten our pro
d
ucts an
d
serv
i
ces are o
ff
ere
d
o
n-air, and we are not
g
uaranteed an
y
minimum level of sales or transactions. QVC has the exclusive ri
g
ht to
promote our products using home shopping television programs other than our own infomercials during the
contract term an
d
on a non-exc
l
us
i
ve
b
as
i
s
f
or two years t
h
erea
f
ter. I
f
QVC e
l
ects not to renew t
h
e agreement or
reduces airtime for promotin
g
our products, our operatin
g
profits will suffer and we will be prohibited from
selling our products through competitors of QVC for six months after the termination of the agreement
.
W
e may be sub
j
ect to cla
i
ms that our personnel are unqual
ifi
ed to prov
i
de proper we
i
ght loss adv
i
ce.
S
ome of our counselors for our wei
g
ht mana
g
ement pro
g
ram do not have extensive trainin
g
or certificatio
n
in nutrition, diet or health fields and have only undergone the training they receive from us. We may be subject to
c
l
a
i
ms
f
rom our customers a
ll
eg
i
ng t
h
at our personne
ll
ac
k
t
h
e qua
lifi
cat
i
ons necessary to prov
id
e proper a
d
v
i
ce
re
g
ardin
g
wei
g
ht loss and related topics. We ma
y
also be sub
j
ect to claims that our personnel have provided
inappropriate advice or have inappropriately referred or failed to refer customers to health care providers for
matters ot
h
er t
h
an we
i
g
h
t
l
oss. Suc
h
c
l
a
i
ms cou
ld
resu
l
t
i
n
d
amage to our reputat
i
on an
ddi
vert management’s
a
ttention from our business, which would adversel
y
affect our business.
W
ema
y
be sub
j
ect to health-related cla
i
ms
f
rom our customers
.
O
ur we
i
g
h
t
l
oss program
d
oes not
i
nc
l
u
d
eme
di
ca
l
treatment or me
di
ca
l
a
d
v
i
ce, an
d
we
d
o not engage
ph
y
sicians or nurses to monitor the pro
g
ress of our customers. Man
y
people who are overwei
g
ht suffer from
o
ther physical conditions, and our target consumers could be considered a high-risk population. A customer who
exper
i
ences
h
ea
l
t
h
pro
bl
ems cou
ld
a
ll
ege or
b
r
i
ng a
l
awsu
i
t aga
i
nst us on t
h
e
b
as
i
st
h
at t
h
ose pro
bl
ems wer
e
caused or worsened b
y
participatin
g
in our wei
g
ht mana
g
ement pro
g
ram. For example, our predecesso
r
businesses suffered substantial losses due to health-related claims and related publicity. Currently, we are neither
su
bj
ect to any suc
h
a
ll
egat
i
ons nor
h
ave we
b
een name
di
n any suc
hli
t
i
gat
i
on. However,
if
we were, we wou
ld
d
efend ourselves a
g
ainst such claims. Defendin
g
ourselves a
g
ainst such claims, re
g
ardless of their merit and
u
ltimate outcome, would likely be lengthy and costly, and adversely affect our results of operations. Further, our
g
enera
lli
a
bili
ty
i
nsurance may not cover c
l
a
i
ms o
f
t
h
ese types
.
The weight management industry is highly competitive. If any of our competitors or a new entrant into th
e
market w
i
th s
ig
n
ifi
cant resources pursues a we
ig
ht mana
g
ement pro
g
ram s
i
m
i
lar to ours, our bus
i
ness
could be s
i
gn
ifi
cantly a
ff
ected.
Competition is intense in the wei
g
ht mana
g
ement industr
y
and we must remain competitive in the areas of
program efficacy, price, taste, customer service and brand recognition. Some of our competitors are significantly
l
arger t
h
an us an
dh
ave su
b
stant
i
a
ll
y greater resources. Our
b
us
i
ness cou
ld b
ea
d
verse
l
ya
ff
ecte
dif
someone w
i
t
h
si
g
nificant resources decided to imitate our wei
g
ht mana
g
ement pro
g
ram. For example, if a ma
j
or supplier of
pre-packaged foods decided to enter this market and made a substantial investment of resources in advertising
a
n
d
tra
i
n
i
ng
di
et counse
l
ors, our
b
us
i
ness cou
ld b
es
i
gn
ifi
cant
l
ya
ff
ecte
d
. Any
i
ncrease
d
compet
i
t
i
on
f
rom ne
w
entrants into our industr
y
or an
y
increased success b
y
existin
g
competition could result in reductions in our sale
s
o
r
p
rices, or both, which could have an adverse effect on our business and results of o
p
erations.
New we
i
ght loss products or serv
i
ces may put us at a compet
i
t
i
ve d
i
sadvantage
.
O
nanon
g
oin
g
basis, man
y
existin
g
and potential providers of wei
g
ht loss solutions, includin
g
man
y
pharmaceutical firms with significantly greater financial and operating resources than us, are developing ne
w
pro
d
ucts an
d
serv
i
ces. T
h
e creat
i
on o
f
awe
i
g
h
t
l
oss so
l
ut
i
on, suc
h
as a
d
rug t
h
erapy, t
h
at
i
s perce
i
ve
d
to
b
esa
f
e,
effective and “easier” than a portion-controlled meal plan would put us at a disadvanta
g
e in the marketplace an
d
o
ur results of operations could be negatively affected
.
12