GNC 2009 Annual Report Download - page 28

Table of Contents
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, 2008 approximately 32%, and as of December 31, 2007 approximately 33%, of our retail locations were operated by
franchisees. Our franchise operations generated approximately 15.6% of our revenues for the year ended December 31, 2008 and
approximately 15.5% of our revenues for the same period in 2007. 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 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.
Our operating results and financial condition could be adversely affected by the financial and operational performance of Rite Aid.
As of December 31, 2008, Rite Aid operated 1,712 GNC "store-within-a-store" locations and has committed to open additional "store-within-
a-store" locations. Revenue from sales to Rite Aid (including license fee revenue for new store openings) represented approximately 3.4% of
total revenue for the year ended December 31, 2008. Any liquidity and operational issues that Rite Aid may experience could impair its ability to
fulfill its obligations and commitments to us, which would adversely affect our operating results and financial condition.
Economic, political, and other risks associated with our international operations could adversely affect our revenues and
international growth prospects.
As of December 31, 2008, we had 160 company-owned Canadian stores and 1,190 international franchised stores in 44 international
markets. We derived 10.1% of our revenues for the year ended December 31, 2008 and 9.5% of our revenues for 2007 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.
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