GNC 2008 Annual Report Download - page 25

Table of Contents
comply with the new rules, we may experience increased cost or delays in obtaining certain raw materials and third-party products. Also, the
FDA has announced that it plans to publish a guidance governing the notification of new dietary ingredients in 2007. Although FDA guidance is
not mandatory, it is a strong indication of the FDA's current views on the topic discussed in the guidance, including its position on enforcement.
Depending on its recommendations, particularly those relating to animal or human testing, such guidance could also raise our costs and
negatively impact our business. We may not be able to comply with the new rules without incurring additional expenses, which could be
significant. See Item 1, "Business—Government regulation—Product regulation" for additional information.
Our failure to comply with FTC regulations and existing consent decrees imposed on us by the FTC could result in substantial
monetary penalties and could adversely affect our operating results.
The FTC exercises jurisdiction over the advertising of dietary supplements and has instituted numerous enforcement actions against
dietary supplement companies, including us, for failure to have adequate substantiation for claims made in advertising or for the use of false or
misleading advertising claims. As a result of these enforcement actions, we are currently subject to three consent decrees that limit our ability to
make certain claims with respect to our products and required us to pay civil penalties and other amounts in the aggregate amount of
$3.0 million. See Item 1, "Business—Government regulation—Product regulation." Failure by us or our franchisees to comply with the consent
decrees and applicable regulations could occur from time to time. Violations of these orders could result in substantial monetary penalties,
which could have a material adverse effect on our financial condition or results of operations.
We may incur material product liability claims, which could increase our costs and adversely affect our reputation, revenues, and
operating income.
As a retailer, distributor, and manufacturer of products designed for human consumption, we are subject to product liability claims if the
use of our products is alleged to have resulted in injury. Our products consist of vitamins, minerals, herbs, and other ingredients that are
classified as foods or dietary supplements and are not subject to pre-market regulatory approval in the United States. Our products could
contain contaminated substances, and some of our products contain ingredients that do not have long histories of human consumption.
Previously unknown adverse reactions resulting from human consumption of these ingredients could occur. In addition, third-party
manufacturers produce many of the products we sell. As a distributor of products manufactured by third parties, we may also be liable for
various product liability claims for products we do not manufacture. We have been and may be subject to various product liability claims,
including, among others, that our products include inadequate instructions for use or inadequate warnings concerning possible side effects and
interactions with other substances. For example, as of February 29, 2008, we have been named as a defendant in 2 pending cases involving
the sale of products that contain ephedra. See Item 1, "Business—Legal Proceedings." Any product liability claim against us could result in
increased costs and could adversely affect our reputation with our customers, which in turn could adversely affect our revenues and operating
income. All claims to date have been tendered to the third-party manufacturer or to our insurer, and we have incurred no expense to date with
respect to litigation involving ephedra products. Furthermore, we are entitled to indemnification by Numico for losses arising from claims related
to products containing ephedra sold before December 5, 2003. All of the pending cases relate to products sold before that time.
Our operations are subject to environmental and health and safety laws and regulations that may increase our cost of operations or
expose us to environmental liabilities.
Our operations are subject to environmental and health and safety laws and regulations, and some of our operations require
environmental permits and controls to prevent and limit pollution of the environment. We could incur significant costs as a result of violations of,
or liabilities under, environmental laws and regulations, or to maintain compliance with such environmental laws, regulations, or permit
requirements. 21