GNC 2009 Annual Report Download - page 35

Table of Contents
In our Manufacturing/Wholesale segment, we lease facilities for manufacturing, packaging, warehousing, and distribution operations. We
manufacture a majority of our proprietary products at an approximately 300,000 square-foot facility in Greenville, South Carolina. We also lease
an approximately 630,000 square-foot complex located in Anderson, South Carolina, for packaging, materials receipt, lab testing, warehousing,
and distribution. Both the Greenville and Anderson facilities are leased on a long-term basis pursuant to "fee-in-lieu-of-taxes" arrangements with
the counties in which the facilities are located, but we retain the right to purchase each of the facilities at any time during the lease for $1.00,
subject to a loss of tax benefits. We lease a 210,000 square-foot distribution center in Leetsdale, Pennsylvania and a 112,000 square-foot
distribution center in Phoenix, Arizona. We also lease space at a distribution center in Canada.
We lease three small regional sales offices in Fort Lauderdale, Florida; Tustin, California; and Mississauga, Ontario. None of the regional
sales offices is larger than 5,000 square feet. Our 253,000 square-foot corporate headquarters in Pittsburgh, Pennsylvania, is owned by
Gustine Sixth Avenue Associates, Ltd., a Pennsylvania limited partnership, of which we are a limited partner entitled to share in 75% of the
partnership's profits or losses. The partnership's ownership of the land and buildings, and the partnership's interest in the ground lease to us,
are all encumbered by a mortgage in the original principal amount of $17.9 million, with an outstanding balance of $8.6 million as of
December 31, 2008. This partnership is included in our consolidated financial statements.
ITEM 3. LEGAL PROCEEDINGS.
We are engaged in various legal actions, claims and proceedings arising in the normal course of business, including claims related to breach
of contracts, products liabilities, intellectual property matters and employment-related matters resulting from our business activities. As with
most actions such as these, an estimation of any possible and/or ultimate liability cannot always be determined. We continue to assess its
requirement to account for additional contingencies in accordance with SFAS 5. If we are required to make a payment in connection with an
adverse outcome in these matters, it could have a material impact on our financial condition and operating results.
As a manufacturer and retailer of nutritional supplements and other consumer products that are ingested by consumers or applied to their
bodies, we have been and are currently subjected to various product liability claims. Although the effects of these claims to date have not been
material to the Company, it is possible that current and future product liability claims could have a material adverse impact on its business or
financial condition. We currently maintain product liability insurance with a deductible/retention of $3.0 million per claim with an aggregate cap
on retained loss of $10.0 million. We typically seek and have obtained contractual indemnification from most parties that supply raw materials
for our products or that manufacture or market products we sell. We also typically seek to be added, and have been added, as additional
insured under most of such parties' insurance policies. We are also entitled to indemnification by Numico for certain losses arising from claims
related to products containing ephedra or Kava Kava sold prior to December 5, 2003. However, any such indemnification or insurance is limited
by its terms and any such indemnification, as a practical matter, is limited to the creditworthiness of the indemnifying party and its insurer, and
the absence of significant defenses by the insurers. We may incur material products liability claims, which could increase its costs and
adversely affect our reputation, revenues and operating income.
Pro-Hormone/Androstenedione Cases. We are currently defending six lawsuits (the "Andro Actions") relating to the sale by GNC of certain
nutritional products alleged to contain the ingredients commonly known as Androstenedione, Androstenediol, Norandrostenedione, and
Norandrostenediol (collectively, "Andro Products"). Five of these lawsuits were filed in California, New York, New Jersey, Pennsylvania, and
Florida. The most recent case was filed in Illinois (see Stephens and Pio matter discussed below).
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