GNC 2008 Annual Report Download - page 28

Table of Contents
unable to replace the franchisee, which could adversely impact franchise revenues. In addition, we cannot predict the nature and effect of any
future legislation or regulation on our franchise operations.
We are not insured for a significant portion of our claims exposure, which could materially and adversely affect our operating income
and profitability.
We have procured insurance independently for the following areas: (1) general liability; (2) product liability; (3) directors and officers
liability; (4) property insurance; (5) workers' compensation insurance; and (6) various other areas. We are self-insured for other areas,
including: (1) medical benefits; (2) workers' compensation coverage in New York, with a stop loss of $250,000; (3) physical damage to our
tractors, trailers, and fleet vehicles for field personnel use; and (4) physical damages that may occur at company-owned stores. We are not
insured for some property and casualty risks due to the frequency and severity of a loss, the cost of insurance, and the overall risk analysis. In
addition, we carry product liability insurance coverage that requires us to pay deductibles/retentions with primary and excess liability coverage
above the deductible/retention amount. Because of our deductibles and self-insured retention amounts, we have significant exposure to
fluctuations in the number and severity of claims. We currently maintain product liability insurance with a retention of $2.0 million per claim with
an aggregate cap on retained loss of $10.0 million. As a result, our insurance and claims expense could increase in the future. Alternatively, we
could raise our deductibles/retentions, which would increase our already significant exposure to expense from claims. If any claim exceeds our
coverage, we would bear the excess expense, in addition to our other self-insured amounts. If the frequency or severity of claims or our
expenses increase, our operating income and profitability could be materially adversely affected. See Item 3, "Legal proceedings."
The controlling stockholders of our Parent may take actions that conflict with the interests of other stockholders and investors. This
control may have the effect of delaying or preventing changes of control or changes in management.
Affiliates of Ares Management LLC and Teachers' Private Capital, a division of Ontario Teachers' Pension Plan Board, and certain of our
directors and members of our management will indirectly beneficially own substantially all of the outstanding equity of our Parent and, as a
result, will have the indirect power to elect our directors, to appoint members of management, and to approve all actions requiring the approval
of the holders of our common stock, including adopting amendments to our certificate of incorporation and approving mergers, acquisitions, or
sales of all or substantially all of our assets. The interests of our ultimate controlling stockholders might conflict with the interests of other
stockholders or the holders of our debt. Our ultimate controlling stockholders also may have an interest in pursuing acquisitions, divestitures,
financings or other transactions that, in their judgment, could enhance their equity investment, even though such transactions might involve
risks to the holders of our debt.
Risks Related to Our Substantial Indebtedness
Our substantial debt could adversely affect our results of operations and financial condition and otherwise adversely impact our
operating income and growth prospects.
As of December 31, 2007, our total consolidated long-term debt (including current portion) was approximately $1,087.0 million, and we
had an additional $53.5 million available for borrowing on a collateralized basis under our $60.0 million senior revolving credit facility after giving
effect to the use of $6.5 million of the revolving credit facility to secure letters of credit.
All of the debt under our senior credit facility bears interest at variable rates. We are subject to additional interest expense if these rates
increase significantly, which could also reduce our ability to borrow additional funds.
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