Nutrisystem 2011 Annual Report Download - page 19

Freight and Fulfillment. In 2011, more than 90% of our orders were shipped by one third party provider and
100% of our order fulfillment was handled by our third party providers. Should these providers be unable to
service our needs for even a short duration, our revenue and business could be harmed. Additionally, the cost and
time associated with replacing these providers on short notice would add to our costs. Any replacement
fulfillment provider would also require startup time, which could cause us to lose sales and market share.
Internet, Networking and Call Center. Our business also depends on a number of third parties for Internet
access, networking and call center services, and we have limited control over these third parties. Should our
network connections go down, our ability to fulfill orders would be delayed. Further, if our website or call center
become unavailable for a noticeable period of time due to Internet or communication failures, our business could
be adversely affected, including harm to our brand and loss of sales.
Therefore, we are dependent on maintaining good relationships with these third parties. The services we
require from these parties may be disrupted by a number of factors associated with their businesses, including the
following:
• labor disruptions;
• delivery problems;
• financial condition or results of operations;
• internal inefficiencies;
• equipment failure;
• natural or man-made disasters; and
• with respect to our food suppliers, shortages of ingredients or United States Department of Agriculture
(“USDA”) or United States Food and Drug Administration (“FDA”) compliance issues.
We may be subject to claims that our personnel are unqualified to provide proper weight loss advice.
Some of our counselors for our weight management program do not have extensive training or certification
in nutrition, diet or health fields and have only undergone the training they receive from us. We may be subject to
claims from our customers alleging that our personnel lack the qualifications necessary to provide proper advice
regarding weight loss and related topics. We may also be subject to claims that our personnel have provided
inappropriate advice or have inappropriately referred or failed to refer customers to health care providers for
matters other than weight loss. Such claims could result in lawsuits, damage to our reputation and divert
management’s attention from our business, which would adversely affect our business.
We may be subject to health or advertising related claims from our customers.
Our weight loss program does not include medical treatment or medical advice, and we do not engage
physicians or nurses to monitor the progress of our customers. Many people who are overweight suffer from
other physical conditions, and our target consumers could be considered a high-risk population. A customer who
experiences health problems could allege or bring a lawsuit against us on the basis that those problems were
caused or worsened by participating in our weight management program. For example, our predecessor
businesses suffered substantial losses due to health-related claims and related publicity. Further, customers who
allege that they were deceived by any statements that we made in advertising or labeling could bring a lawsuit
against us under consumer protection laws. Currently, we are neither subject to any such allegations nor have we
been named in any such litigation. If we were subject to any such claims, while we would defend ourselves
against such claims, we may ultimately be unsuccessful in our defense. Also, defending ourselves against such
claims, regardless of their merit and ultimate outcome, would likely be lengthy and costly, and adversely affect
our results of operations. Further, our general liability insurance may not cover claims of these types.
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