GNC 2008 Annual Report Download - page 26

Table of Contents
Because we rely on our manufacturing operations to produce nearly all of the proprietary products we sell, disruptions in our
manufacturing system or losses of manufacturing certifications could adversely affect our sales and customer relationships.
Our manufacturing operations produced approximately 34% of the products we sold for the years ended December 31, 2007 and 2006.
Other than powders and liquids, nearly all of our proprietary products are produced in our manufacturing facility located in Greenville, South
Carolina. As of December 31, 2007, no one vendor supplied more than 10% of our raw materials. In the event any of our third-party suppliers or
vendors were to become unable or unwilling to continue to provide raw materials in the required volumes and quality levels or in a timely
manner, we would be required to identify and obtain acceptable replacement supply sources. If we are unable to obtain alternative supply
sources, our business could be adversely affected. Any significant disruption in our operations at our Greenville, South Carolina facility for any
reason, including regulatory requirements or the loss of certifications, power interruptions, fires, hurricanes, war, or other force of nature, could
disrupt our supply of products, adversely affecting our sales and customer relationships.
If we fail to protect our brand name, competitors may adopt trade names that dilute the value of our brand name.
We have invested significant resources to promote our GNC brand name in order to obtain the public recognition that we have today.
However, we may be unable or unwilling to strictly enforce our trademark in each jurisdiction in which we do business. In addition, because of
the differences in foreign trademark laws concerning proprietary rights, our trademark may not receive the same degree of protection in foreign
countries as it does in the United States. Also, we may not always be able to successfully enforce our trademark against competitors or against
challenges by others. For example, a third party is currently challenging our right to register in the United States certain marks that incorporate
our "GNC Live Well" trademark. This third party initiated proceedings in the United Stated Patent and Trademark Office to cancel four
registrations for our "GNC Live Well" mark. Subsequently, we permitted three of these registrations to lapse and the Patent and Trademark
Office has cancelled the fourth registration. Other third parties are also challenging our "GNC Live Well" trademark in foreign jurisdictions. Our
failure to successfully protect our trademark could diminish the value and effectiveness of our past and future marketing efforts and could cause
customer confusion. This could in turn adversely affect our revenues and profitability.
Intellectual property litigation and infringement claims against us could cause us to incur significant expenses or prevent us from
manufacturing, selling, or using some aspect of our products, which could adversely affect our revenues and market share.
We are currently and may in the future be subject to intellectual property litigation and infringement claims, which could cause us to incur
significant expenses or prevent us from manufacturing, selling, or using some aspect of our products. Claims of intellectual property
infringement also may require us to enter into costly royalty or license agreements. However, we may be unable to obtain royalty or license
agreements on terms acceptable to us or at all. Claims that our technology or products infringe on intellectual property rights could be costly
and would divert the attention of management and key personnel, which in turn could adversely affect our revenues and profitability.
A substantial amount of our revenues are generated from our franchisees, and our revenues could decrease significantly if our
franchisees do not conduct their operations profitably or if we fail to attract new franchisees.
As of December 31, 2007 approximately 33%, and as of December 31, 2006 approximately 34%, of our retail locations were operated by
franchisees. Our franchise operations generated approximately 15.5% of our revenues for the year ended December 31, 2007 and
approximately 15.6% of our revenues for the same period in 2006. Our revenues from franchised stores depend on the franchisees' ability to
operate their stores profitably and adhere to our franchise standards. The closing of unprofitable franchised stores or the failure of franchisees
to comply with our policies could adversely affect our 22