GNC 2008 Annual Report Download - page 27

Table of Contents
reputation and could reduce the amount of our franchise revenues. These factors could have a material adverse effect on our revenues and
operating income.
If we are unable to attract new franchisees or to convince existing franchisees to open additional stores, any growth in royalties from
franchised stores will depend solely upon increases in revenues at existing franchised stores, which could be minimal. In addition, our ability to
open additional franchised locations is limited by the territorial restrictions in our existing franchise agreements as well as our ability to identify
additional markets in the United States and other countries that are not currently saturated with the products we offer. If we are unable to open
additional franchised locations, we will have to sustain additional growth internally by attracting new and repeat customers to our existing
locations.
Economic, political, and other risks associated with our international operations could adversely affect our revenues and
international growth prospects.
As of December 31, 2007, we had 147 company-owned Canadian stores and 1,078 international franchised stores in 49 international
markets. We derived 9.5% of our revenues for the year ended December 31, 2007 and 8.7% of our revenues for 2006 from our international
operations. As part of our business strategy, we intend to expand our international franchise presence. Our international operations are subject
to a number of risks inherent to operating in foreign countries, and any expansion of our international operations will increase the effects of
these risks. These risks include, among others:
• political and economic instability of foreign markets;
• foreign governments' restrictive trade policies;
• inconsistent product regulation or sudden policy changes by foreign agencies or governments;
• the imposition of, or increase in, duties, taxes, government royalties, or non-tariff trade barriers;
• difficulty in collecting international accounts receivable and potentially longer payment cycles;
• increased costs in maintaining international franchise and marketing efforts;
• difficulty in operating our manufacturing facility abroad and procuring supplies from overseas suppliers;
• exchange controls;
• problems entering international markets with different cultural bases and consumer preferences; and
• fluctuations in foreign currency exchange rates.
Any of these risks could have a material adverse effect on our international operations and our growth strategy.
Franchise regulations could limit our ability to terminate or replace under-performing franchises, which could adversely impact
franchise revenues.
Our franchise activities are subject to federal, state, and international laws regulating the offer and sale of franchises and the governance
of our franchise relationships. These laws impose registration, extensive disclosure requirements, and bonding requirements on the offer and
sale of franchises. In some jurisdictions, the laws relating to the governance of our franchise relationship impose fair dealing standards during
the term of the franchise relationship and limitations on our ability to terminate or refuse to renew a franchise. We may, therefore, be required to
retain an under-performing franchise and may be 23