Nutrisystem 2006 Annual Report Download - page 22

Congressional hearings about practices in the weight loss industry have also resulted in adverse publicit
y
a
n
d
a consequent
d
ec
li
ne
i
nt
h
e revenue o
f
we
i
g
h
t
l
oss
b
us
i
nesses. Future researc
h
reports or pu
bli
c
i
ty t
h
at are
perceived as unfavorable or that question certain wei
g
ht loss pro
g
rams, products or methods could result in a
d
ecline in our revenue. Because of our dependence on consumer perceptions, adverse publicity associated wit
h
ill
ness or ot
h
er un
d
es
i
ra
bl
ee
ff
ects resu
l
t
i
ng
f
rom t
h
e consumpt
i
on o
f
our pro
d
ucts or s
i
m
il
ar pro
d
ucts
by
competitors, whether or not accurate, could also dama
g
e customer confidence in our wei
g
ht loss pro
g
ram an
d
result in a decline in revenue. Adverse publicity could arise even if the unfavorable effects associated wit
h
we
i
g
h
t
l
oss pro
d
ucts or serv
i
ces resu
l
te
df
rom t
h
e user’s
f
a
il
ure to use suc
h
pro
d
ucts or serv
i
ces appropr
i
ate
l
y
.
O
ur industry is subject to governmental regulation that could increase in severity and hurt results o
f
o
p
erat
i
ons.
O
ur industr
y
is sub
j
ect to federal, state and other
g
overnmental re
g
ulation. For example, some advertisin
g
practices in the weight loss industry have led to investigations from time to time by the FTC and othe
r
g
overnmenta
l
agenc
i
es. Many compan
i
es
i
nt
h
ewe
i
g
h
t
l
oss
i
n
d
ustry,
i
nc
l
u
di
ng our pre
d
ecessor
b
us
i
nesses,
h
ave
entered into consent decrees with the FTC relatin
g
to wei
g
ht loss claims and other advertisin
g
practices. W
e
continue to be subject to these consent decrees, which restrict how we advertise the successes our customers have
a
c
hi
eve
di
n
l
os
i
ng we
i
g
h
tt
h
roug
h
t
h
e program an
d
requ
i
re us to
i
nc
l
u
d
et
h
ep
h
rase “resu
l
ts not typ
i
ca
l
”
i
n
a
dvertisements. Re
g
ulation of advertisin
g
practices in the wei
g
ht loss industr
y
ma
y
increase in scope or severit
y
in the future, which could have a material adverse im
p
act on our business.
O
ther aspects of our industry are also subject to government regulation. For example, food manufacturer
s
a
re su
bj
ect to r
i
gorous
i
nspect
i
on an
d
ot
h
er requ
i
rements o
f
t
h
e USDA an
d
FDA, an
d
compan
i
es operat
i
ng
in
f
orei
g
n markets must compl
y
with those countries’ requirements for proper labelin
g
, controls on h
yg
iene, food
preparation and other matters. If federal, state, local or foreign regulation of our industry increases for any
reason, t
h
en we may
b
e requ
i
re
d
to
i
ncur s
i
gn
ifi
cant expenses, as we
ll
as mo
dif
y our operat
i
ons to comp
l
yw
i
t
h
new re
g
ulator
y
requirements, which could harm our operatin
g
results. Additionall
y
, remedies available in an
y
potential administrative or regulatory actions may include requiring us to refund amounts paid by all affected
customers or pay ot
h
er
d
amages, w
hi
c
h
cou
ld b
esu
b
stant
i
a
l
.
Changes in consumer preferences and discretionary spending could negatively impact our operating
r
esults.
O
ur pro
g
ram features pre-packa
g
ed food selections, which we believe offer convenience and value to our
customers. Our continued success depends, to a large degree, upon the continued popularity of our program
v
ersus var
i
ous ot
h
er we
i
g
h
t
l
oss, we
i
g
h
t management an
dfi
tness reg
i
mens, suc
h
as
l
ow car
b
o
h
y
d
rate
di
ets
,
a
ppetite suppressants and diets featured in the published media. Chan
g
es in consumer tastes and preference
s
a
way from our pre-packaged food and support and counseling services, and any failure to provide innovative
responses to t
h
ese c
h
anges, may
h
ave a mater
i
a
ll
ya
d
verse
i
mpact on our
b
us
i
ness,
fi
nanc
i
a
l
con
di
t
i
on, operat
i
n
g
results, cash flows and
p
ros
p
ects
.
A
dditionall
y
, the success of our business and our operatin
g
results is dependent on discretionar
y
spendin
g
by consumers. A decline in discretionary spending could adversely affect our business, financial condition,
o
perat
i
ng resu
l
ts an
d
cas
hfl
ows. Our
b
us
i
ness cou
ld
a
l
so
b
ea
d
verse
l
ya
ff
ecte
db
y genera
l
econom
i
c con
di
t
i
ons
,
d
emo
g
raphic trends, consumer confidence in the econom
y
and chan
g
es in disposable consumer income.
The sale o
fi
n
g
ested products
i
nvolves product l
i
ab
i
l
i
ty and other r
i
sks.
Like other distributors of products that are in
g
ested, we face an inherent risk of exposure to product liabilit
y
claims if the use of our products results in illness or injury. The foods that we resell are subject to laws and
regu
l
at
i
ons,
i
nc
l
u
di
ng t
h
ose a
d
m
i
n
i
stere
db
yt
h
e USDA an
d
FDA t
h
at esta
bli
s
h
manu
f
actur
i
ng pract
i
ces an
d
qualit
y
standards for food products. Product liabilit
y
claims could have a material adverse effect on our busines
s
a
s we do not have contractual indemnification rights against our other suppliers, and our other remedies agains
t
16