Nutrisystem 2007 Annual Report Download - page 23

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and quality standards for food products. Product liability claims could have a material adverse effect on our
business as we do not have contractual indemnification rights against our other suppliers, and our other remedies
against third parties and our existing insurance coverage may not be adequate. Distributors of weight loss food
products, vitamins, nutritional supplements and minerals, including our predecessor businesses, have been named
as defendants in product liability lawsuits from time to time. The successful assertion or settlement of an
uninsured claim, a significant number of insured claims or a claim exceeding the limits of our insurance coverage
would harm us by adding costs to the business and by diverting the attention of senior management from the
operation of the business. We may also be subject to claims that our products contain contaminants, are
improperly labeled, include inadequate instructions as to use or inadequate warnings covering interactions with
other substances. Product liability litigation, even if not meritorious, is very expensive and could also entail
adverse publicity for us and reduce our revenue.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We currently lease three locations in Horsham, Pennsylvania. The three Horsham locations total
approximately 212,400 square feet of office and warehouse space at a combined 2008 rent of $2.6 million. One
lease in Horsham expires in 2009, the second in 2010 and the third in 2011. In October 2007, we signed a fourth
lease in Horsham, Pennsylvania with approximately 51,390 square feet of office space which we do not yet
occupy. Rent payments will be approximately $81,000 in 2008. This lease expires in 2018. We have additional
fulfillment capacity in Chambersburg, Pennsylvania; Sparks, Nevada; Kansas City, Missouri; McDonough,
Georgia; Dallas, Texas; Mississauga, Ontario through an outsourced provider. We have no lease obligations to
any of our outsourced fulfillment providers; however, we are subject to minimum space commitments which we
may reduce over a specified period of time. Management believes the Horsham facilities, combined with the
outsourced fulfillment capacity, are adequate to meet our needs for the foreseeable future.
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