GNC 2010 Annual Report Download - page 29

Table of Contents
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 both December 31, 2009 and December 31, 2008, approximately 32% of our retail locations were operated by franchisees. Our
franchise operations generated approximately 15.5% and 15.6% of our revenues for the years ended December 31, 2009 and 2008,
respectively. Our revenues from franchised stores depend on the franchisees' ability to operate their stores profitably and adhere to our
franchise standards. In the twelve months ended December 31, 2009, a net 45 domestic franchise stores were closed. The closing of
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, 2009, Rite Aid operated 1,869 GNC franchised "store-within-a-store" locations and has committed to open additional
franchised "store-within-a-store" locations. Revenue from sales to Rite Aid (including license fee revenue for new store openings) represented
approximately 3.3% of total revenue for the year ended December 31, 2009. 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, 2009, we had 167 company-owned Canadian stores and 1,307 international franchised stores in 47 countries. We
derived 10.2% of our revenues for the year ended December 31, 2009 and 10.1% of our revenues for 2008 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;
24