GNC 2008 Annual Report Download - page 14

Table of Contents
franchised locations at the end of 2002 to 1,078 international locations as of December 31, 2007, without incurring any capital expenditures
related to this expansion. We typically generate less revenue from franchises outside the United States due to lower international royalty rates
and due to the franchisees purchasing a smaller percentage of products from us compared to our domestic franchisees.
Franchisees in international locations enter into development agreements with us for either full-size stores, a store-within-a-store at a
host location, or wholesale distribution center operations. The development agreement grants the franchisee the right to develop a specific
number of stores in a territory, often the entire country. The international franchisee then enters into a franchise agreement for each location.
The full-size store franchise agreement has an initial ten-year term with two five-year renewal options. At the end of the initial term and renewal
periods, the international franchisee has the option to renew the agreement at 33% of the franchise fee that is then in effect. Franchise
agreements for international store-within-a-store locations have an initial term of five years, with two five-year renewal options. At the end of the
initial term and each of the renewal periods, the international franchisee of a store-within-a-store location has the option to renew the
agreement for up to a maximum of 50% of the franchise fee that is then in effect. Our international franchisees often receive exclusive
franchising rights to the entire country franchised, excluding military bases. Our international franchisees must meet minimum standards and
duties similar to our U.S. franchisees. Our international franchise agreements and international operations may be regulated by various country,
local and international laws. See "—Government Regulation—Franchise Regulation".
Manufacturing/Wholesale
Our Manufacturing/Wholesale segment is comprised of our manufacturing operations in South Carolina and our wholesale sales
business. This segment supplies our Retail and Franchise segments as well as various third parties with finished products. Our Manufacturing/
Wholesale segment generates revenues through sales of manufactured products to third parties, and the sale of our proprietary and third-party
brand products to Rite Aid and drugstore.com. Our wholesale operations, including our Rite Aid and drugstore.com wholesale operations, are
supported primarily by our Anderson, South Carolina distribution center.
Manufacturing
Our technologically sophisticated manufacturing and warehousing facilities support our Retail and Franchise segments and enable us to
control the production and distribution of our proprietary products, to better control costs, to protect product quality, to monitor delivery times,
and to maintain appropriate inventory levels. We operate two manufacturing facilities, one in Greenville, South Carolina and one in Anderson,
South Carolina. We utilize our plants primarily for the production of proprietary products. Our manufacturing operations are designed to allow
low-cost production of a variety of products of different quantities, sizes, and packaging configurations while maintaining strict levels of quality
control. Our manufacturing procedures are designed to promote consistency and quality in our finished goods. We conduct sample testing on
raw materials and finished products, including weight, purity, and micro-bacterial testing. Our manufacturing facilities also service our wholesale
operations, including the manufacture and supply of Rite Aid private label products for distribution to Rite Aid locations. We use our available
capacity at these facilities to produce products for sale to third-party customers.
The principal raw materials used in the manufacturing process are natural and synthetic vitamins, herbs, minerals, and gelatin. We
maintain multiple sources for the majority of our raw materials, with the remaining being single-sourced due to the uniqueness of the material.
As of December 31, 2007, no one vendor supplied more than 10% of our raw materials. Our distribution fleet delivers raw materials and
components to our manufacturing facilities and also delivers our finished goods and third-party products to our distribution centers.
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