Nutrisystem 2006 Annual Report Download - page 28

I
TEM 7. MANA
G
EMENT’
S
DI
SCUSS
I
O
N AND ANALY
S
I
SO
F FINAN
C
IAL
CO
NDITI
O
N AND
R
E
S
ULT
S
OF OPERATION
S
Exce
p
t for the historical information contained herein, this Re
p
ort on Form 10-K contains certain forward
-
l
oo
ki
ng statements t
h
at
i
nvo
l
ve su
b
stant
i
a
l
r
i
s
k
san
d
uncerta
i
nt
i
es. Wor
d
s suc
h
as “may,” “s
h
ou
ld
,” “cou
ld
,”
“wou
ld
,” “expect,” “p
l
an,” “ant
i
c
i
pate,” “
b
e
li
eve,” “est
i
mate,” “pre
di
ct,” “cont
i
nue,” or s
i
m
il
ar wor
d
sar
e
intended to identif
y
forward-lookin
g
statements, althou
g
h not all forward-lookin
g
statements contain thes
e
wor
d
s. Our actua
l
resu
l
ts, per
f
ormance or ac
hi
evements cou
ld diff
er mater
i
a
ll
y
f
rom t
h
e resu
l
ts expresse
di
n, or
i
mp
li
e
dby
,t
h
ese
f
orwar
d
-
l
oo
ki
n
g
statements. Factors t
h
at cou
ld
cause or contr
ib
ute to suc
h diff
erences
i
nc
l
u
de
those set forth in “Risk Factors.” Accordin
g
l
y
, there is no assurance that the results in the forward-lookin
g
statements
will b
eac
hi
e
v
e
d.
Th
e
f
o
ll
ow
i
n
gdi
scuss
i
on s
h
ou
ld b
e rea
di
n con
j
unct
i
on w
i
t
h
t
h
e
fi
nanc
i
a
li
n
f
ormat
i
on
i
nc
l
u
d
e
d
e
l
sew
h
ere
in
this Annual Re
p
ort on Form 10-K
.
Back
g
round
We prov
id
ewe
igh
t mana
g
ement an
dfi
tness pro
d
ucts an
d
serv
i
ces. Our pre-pac
k
a
g
e
df
oo
d
s are so
ld
to
wei
g
ht loss pro
g
ram participants directl
y
via the internet and telephone, referred to as the direct channel, and
t
h
roug
hi
n
d
epen
d
ent comm
i
ss
i
one
d
representat
i
ves, t
h
e
fi
e
ld
sa
l
es c
h
anne
l
,t
h
roug
hi
n
d
epen
d
ent center-
b
ase
d
di
str
ib
utors, t
h
e case
di
str
ib
utor c
h
anne
l
,an
d
t
h
rou
gh
QVC, a te
l
ev
i
s
i
on s
h
opp
i
n
g
networ
k
.Wea
l
so own S
lim
a
nd Tone LLC (“Slim and Tone”), a franchisor of women’s ex
p
ress fitness centers. Slim and Tone franchisees
se
ll
our
di
et program
i
nt
h
e
i
r centers as comm
i
ss
i
one
d
representat
i
ves. Su
b
stant
i
a
ll
ya
ll
o
f
our revenue
i
s
g
enerate
dd
omest
i
ca
lly.
R
evenue consists primaril
y
of food sales. For the
y
ear ended December 31, 2006, the direct channel
a
ccounted for 93% of total revenue compared to 5% for QVC and 2% for the other channels. We incu
r
s
ig
n
ifi
cant mar
k
et
i
n
g
expen
di
tures to support our
b
ran
d
.We
b
e
li
eve t
h
at our
b
ran
di
s cont
i
nu
i
n
g
to
g
a
i
n
a
wareness as we continue to increase our
p
urchases of media in all media channels. New media channels ar
e
teste
d
on a mont
hl
y
b
as
i
san
d
we cons
id
er our me
di
am
i
xto
b
e
hi
g
hl
y
di
verse. We mar
k
et our we
i
g
h
t
mana
g
ement s
y
stem t
h
rou
gh
te
l
ev
i
s
i
on, pr
i
nt,
di
rect ma
il
,
i
nternet an
d
pu
bli
cre
l
at
i
ons.
We review and anal
y
ze a number of ke
y
operatin
g
and financial metrics to mana
g
e our business, includin
g
t
h
e num
b
er o
f
new customers,
l
engt
h
o
f
stay, tota
l
revenues, mar
k
et
i
ng per new customer, operat
i
ng marg
i
ns an
d
react
i
vat
i
on revenue. In 2007, we w
ill
cont
i
nue to
f
ocus on t
h
ese metr
i
cs an
d
expan
d
our e
ff
orts w
i
t
hi
nte
g
rate
d
d
atabase marketin
g
, increased market se
g
mentation with women, men and seniors and new and deeper marketin
g
c
h
anne
l
exp
l
orat
i
on. We w
ill b
e
f
ocus
i
ng not on
l
yont
h
e acqu
i
s
i
t
i
on o
f
customers
b
ut a
l
so t
h
e retent
i
on an
d
react
i
vat
i
on o
f
customers. We w
ill l
oo
k
to
i
mprove t
h
e on-
li
ne exper
i
ence w
i
t
h
t
h
e mem
b
er sect
i
on o
f
our
website which should
p
rovide a more valuable, effective and interactive ex
p
erience and increase the level o
f
we
i
g
h
t
l
oss support t
h
at we o
ff
er w
i
t
h
our program to our customers.
C
r
i
t
i
cal Account
i
ng Pol
i
c
i
es and Est
i
mates
O
ur consolidated financial statements are prepared in accordance with U.S.
g
enerall
y
accepted accountin
g
pr
i
nc
i
p
l
es. Our s
i
gn
ifi
cant account
i
ng po
li
c
i
es are
d
escr
ib
e
di
n Note 2 o
f
t
h
e conso
lid
ate
dfi
nanc
i
a
l
statements
i
nc
l
u
d
e
di
n Item
8.
T
he preparation of these financial statements requires mana
g
ement to make estimates and assumptions tha
t
aff
ect t
h
e reporte
d
amounts o
f
assets an
dli
a
bili
t
i
es, t
h
e
di
sc
l
osure o
f
cont
i
ngent assets an
dli
a
bili
t
i
es at t
h
e
d
ate
of
t
h
e
fi
nanc
i
a
l
statements, an
d
t
h
e reporte
d
amounts o
f
revenue an
d
expenses
d
ur
i
n
g
t
h
e report
i
n
g
per
i
o
d
.
Mana
g
ement develops, and chan
g
es periodicall
y
, these estimates and assumptions based on historical experience
a
n
d
on var
i
ous ot
h
er
f
actors t
h
at are
b
e
li
eve
d
to
b
e reasona
bl
eun
d
er t
h
ec
i
rcumstances. Actua
l
resu
l
ts may
diff
er
f
rom t
h
ese est
i
mates un
d
er
diff
erent assumpt
i
ons or con
di
t
i
ons. Mana
g
ement cons
id
ers t
h
e
f
o
ll
ow
i
n
g
account
i
n
g
22