GNC 2012 Annual Report Download - page 45

Table of Contents
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 an approximately 217,000
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.
In conjunction with the acquisition of LuckyVitamin.com, we lease an approximately 26,000 square foot facility in Norristown, Pennsylvania where
LuckyVitamin.com currently maintains its corporate headquarters and previously fulfilled the distribution of its products. We also lease an approximately
60,000 square foot distribution center near our current distribution center in Leetsdale, Pennsylvania where the distribution of LuckyVitamin.com products is
now being fulfilled.
We own our 253,000 square-foot corporate headquarters located in Pittsburgh, Pennsylvania. 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 6,500 square feet. We also lease a regional
office in Shanghai, China, which is less than 6,500 square feet.
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 the requirement to account for additional
contingencies in accordance with the standard on contingencies. If we are required to make a payment in connection with an adverse outcome in these
matters, it could have a material adverse effect on our business, financial condition, results of operations or cash flows.
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 us, it is possible that
current and future product liability claims could have a material adverse effect on our business, financial condition, results of operations or cash flows. 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 an 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 our costs and adversely affect our reputation, revenues and operating income.
Hydroxycut Claims. On May 1, 2009, the FDA issued a warning on several Hydroxycut-branded products manufactured by Iovate. The FDA warning
was based on 23 reports of liver injuries from consumers who claimed to have used the products between 2002 and 2009. As a result, Iovate voluntarily
recalled 14 Hydroxycut-branded products. Following the recall, GNC was named, among other defendants, in approximately 85 lawsuits related to
Hydroxycut-branded products in 13 states. Iovate previously accepted GNC's tender request for defense and indemnification under its purchasing agreement
with GNC and, as such, Iovate has accepted GNC's request for defense and indemnification in the Hydroxycut
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