##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington D.C. 20549
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2005
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to .
 Commission File Number: 333-114502
 GENERAL NUTRITION CENTERS, INC.
  DELAWARE
    
    72-1575168(State or other jurisdiction of
    
    (I.R.S. EmployerIncorporation or organization)
    
    Identification No.)300 Sixth Avenue
    
    15222Pittsburgh, Pennsylvania
    
    (Zip Code)(Address of principal executive offices)
 (412) 288-4600
 þ o
 o þ
 o þ




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TABLE OF CONTENTS
 PAGEPART I FINANCIAL INFORMATIONItem 1 Financial StatementsConsolidated Balance Sheets as of September 30, 2005 (unaudited) and December 31, 2004
    
    
    3Unaudited Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2005 and 2004
    
    
    4Unaudited Consolidated Statement of Stockholders Equity for the nine months ended September 30, 2005
    
    
    5Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2005 and 2004
    
    
    6Summarized Notes to Unaudited Consolidated Financial Statements
    
    
    7Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    31Item 4 Controls and Procedures
    
    
    31PART II OTHER INFORMATIONItem 1 Legal Proceedings
    
    
    32Item 6 Exhibits
    
    
    33Signatures
    
    
    34EX-31.1EX-31.2EX-32.1
  2




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PART I FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 
 Consolidated Balance Sheets
 (in thousands, except share data)
 September 30,
    
    
    December 31,2005
    
    
    2004 *Current assets:
    
    (unaudited)Cash and cash equivalents
    
    $
    62,403
    
    
    $
    85,161Receivables, net of reserve of $7,942 and $7,214, respectively
    
    
    72,914
    
    
    
    70,013Inventories, net (Note 3)
    
    
    280,835
    
    
    
    272,254Deferred tax assets, net
    
    
    10,825
    
    
    
    14,133Other current assets
    
    
    32,590
    
    
    
    35,775Total current assets
    
    
    459,567
    
    
    
    477,336Long-term assets:Goodwill (Note 4)
    
    
    79,439
    
    
    
    78,585Brands (Note 4)
    
    
    212,000
    
    
    
    212,000Other intangible assets, net (Note 4)
    
    
    26,505
    
    
    
    28,652Property, plant and equipment, net
    
    
    181,684
    
    
    
    195,409Deferred financing fees, net
    
    
    16,809
    
    
    
    18,130Deferred tax assets, net
    
    
    
    
    
    
    1,093Other long-term assets
    
    
    11,735
    
    
    
    21,393Total long-term assets
    
    
    528,172
    
    
    
    555,262Total assets
    
    $
    987,739
    
    
    $
    1,032,598Current liabilities:Accounts payable, includes cash overdraft of $3,076 and $4,144,
respectively
    
    $
    82,380
    
    
    $
    106,557Accrued payroll and related liabilities
    
    
    15,978
    
    
    
    20,353Accrued interest (Note
5)
    
    
    9,164
    
    
    
    1,863Current portion, long-term debt (Note 5)
    
    
    2,043
    
    
    
    3,901Other current liabilities
    
    
    58,675
    
    
    
    61,162Total current liabilities
    
    
    168,240
    
    
    
    193,836Long-term liabilities:Long-term debt (Note 5)
    
    
    471,834
    
    
    
    506,474Deferred tax liabilities,
net
    
    
    1,965
    
    
    
    Other long-term liabilities
    
    
    10,687
    
    
    
    9,866Total long-term liabilities
    
    
    484,486
    
    
    
    516,340Total liabilities
    
    
    652,726
    
    
    
    710,176Stockholders equity:Common stock, $0.01 par value,
1,000 shares authorized, 100 shares issued and outstanding
    
    
    
    
    
    
    Paid-in-capital
    
    
    277,424
    
    
    
    278,258Retained earnings
    
    
    56,155
    
    
    
    43,001Accumulated other comprehensive income
    
    
    1,434
    
    
    
    1,163Total stockholders equity
    
    
    335,013
    
    
    
    322,422Total liabilities and stockholders equity
    
    $
    987,739
    
    
    $
    1,032,598
 
 *
    
    Footnotes summarized from the Audited Financial Statements.  3




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Operations and Comprehensive Income
 (unaudited)
 (in thousands)
 For the three months
    
    
    For the nine monthsended September 30,
    
    
    ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue
    
    $
    322,559
    
    
    $
    323,141
    
    
    $
    992,341
    
    
    $
    1,043,424Cost of sales, including costs of warehousing,
distribution and occupancy
    
    
    222,084
    
    
    
    216,818
    
    
    
    676,264
    
    
    
    690,541Gross
profit
    
    
    100,475
    
    
    
    106,323
    
    
    
    316,077
    
    
    
    352,883Compensation and related
benefits
    
    
    58,432
    
    
    
    54,034
    
    
    
    171,975
    
    
    
    172,959Advertising and
promotion
    
    
    8,639
    
    
    
    10,042
    
    
    
    36,780
    
    
    
    35,252Other selling, general and
administrative
    
    
    18,495
    
    
    
    19,132
    
    
    
    56,059
    
    
    
    55,749Foreign currency (gain)
loss
    
    
    (80
    )
    
    
    (300
    )
    
    
    (137
    )
    
    
    118Other
income
    
    
    
    
    
    
    
    
    
    
    (2,500
    )
    
    
    Operating
income
    
    
    14,989
    
    
    
    23,415
    
    
    
    53,900
    
    
    
    88,805Interest expense, net (note
5)
    
    
    9,957
    
    
    
    8,556
    
    
    
    33,233
    
    
    
    25,704Income before income
taxes
    
    
    5,032
    
    
    
    14,859
    
    
    
    20,667
    
    
    
    63,101Income tax
expense
    
    
    1,830
    
    
    
    5,479
    
    
    
    7,513
    
    
    
    23,056Net
income
    
    
    3,202
    
    
    
    9,380
    
    
    
    13,154
    
    
    
    40,045Other comprehensive
income
    
    
    805
    
    
    
    747
    
    
    
    271
    
    
    
    292Comprehensive
income
    
    $
    4,007
    
    
    $
    10,127
    
    
    $
    13,425
    
    
    $
    40,337
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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Stockholders Equity
 (in thousands, except share data)
 AccumulatedOther
    
    
    TotalCommon Stock
    
    
    
    
    
    
    Retained
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Dollars
    
    
    Paid-in-Capital
    
    
    Earnings
    
    
    Income
    
    
    EquityBalance at December
31,
2004
    
    
    100
    
    
    $
    
    
    
    $
    278,258
    
    
    $
    43,001
    
    
    $
    1,163
    
    
    $
    322,422GNC Corporation
investment in
General Nutrition
Centers,
Inc
    
    
    
    
    
    
    
    
    
    
    (834
    )
    
    
    
    
    
    
    
    
    
    
    (834
    )Net
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,154
    
    
    
    
    
    
    
    13,154Foreign currency
translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    271
    
    
    
    271Balance at
September 30, 2005
(unaudited)
    
    
    100
    
    
    $
    
    
    
    $
    277,424
    
    
    $
    56,155
    
    
    $
    1,434
    
    
    $
    335,013
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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
 (unaudited)
 (in thousands)
 For the nine monthsended September 30,2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    13,154
    
    
    $
    40,045Depreciation expense
    
    
    27,840
    
    
    
    24,976Fixed asset
write-off
    
    
    366
    
    
    
    Deferred fee writedown  early debt
extinguishment
    
    
    3,890
    
    
    
    Amortization of intangible assets
    
    
    2,985
    
    
    
    3,011Amortization of deferred financing fees
    
    
    2,103
    
    
    
    2,058Increase in provision for inventory
losses
    
    
    5,889
    
    
    
    8,470Increase in provision for losses on accounts receivable
    
    
    1,894
    
    
    
    1,942Decrease in net deferred
taxes
    
    
    6,368
    
    
    
    21,682Changes in assets and liabilities:Increase in receivables
    
    
    (7,370
    )
    
    
    (4,454
    )Increase in inventory, net
    
    
    (13,431
    )
    
    
    (7,651
    )Decrease in franchise note receivables, net
    
    
    7,568
    
    
    
    8,520Decrease in other assets
    
    
    5,273
    
    
    
    723Decrease in accounts payable
    
    
    (23,128
    )
    
    
    (19,023
    )Decrease in accrued taxes
    
    
    
    
    
    
    (438
    )Increase in interest payable
    
    
    7,301
    
    
    
    4,674Decrease in accrued liabilities
    
    
    (6,048
    )
    
    
    (24,003
    )Net cash provided by operating activities
    
    
    34,654
    
    
    
    60,532CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (13,819
    )
    
    
    (17,865
    )Sale of corporate stores to franchisees
    
    
    23
    
    
    
    168Store acquisition costs
    
    
    (547
    )
    
    
    (522
    )Acquisition of General Nutrition Companies, Inc.
    
    
    
    
    
    
    2,102Net cash used in investing activities
    
    
    (14,343
    )
    
    
    (16,117
    )CASH FLOWS FROM FINANCING ACTIVITIES:GNC Corporation (return of capital from) investment in
General Nutrition Centers,
Inc.
    
    
    (834
    )
    
    
    1,581Decrease in cash
overdrafts
    
    
    (1,067
    )
    
    
    (3,813
    )Payments on long-term
debt
    
    
    (186,500
    )
    
    
    (2,866
    )Proceeds from senior notes
issuance
    
    
    150,000
    
    
    
    Financing
fees
    
    
    (4,672
    )
    
    
    (327
    )Net cash used in financing activities
    
    
    (43,073
    )
    
    
    (5,425
    )Effect of exchange rate on
cash
    
    
    4
    
    
    
    218Net (decrease) increase in
cash
    
    
    (22,758
    )
    
    
    39,208Beginning balance, cash
    
    
    85,161
    
    
    
    33,176Ending balance,
cash
    
    $
    62,403
    
    
    $
    72,384
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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 
 SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 1. NATURE OF BUSINESS
 General Nature of Business .
 Acquisition of the Company.
 NOTE 2. BASIS OF PRESENTATION
   Use of Estimates .
 Cash and Cash Equivalents .
 Accounts Receivable and Allowance for Doubtful Accounts.
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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED-CONTINUED)
 Stock Compensation .
  Three Months ended
    
    
    Nine Months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(unaudited)(in thousands)Net income as
reported
    
    $
    3,202
    
    
    $
    9,380
    
    
    $
    13,154
    
    
    $
    40,045Less: total stock-based employee compensation
costs determined using fair value method, net of
related tax
effects
    
    
    (187
    )
    
    
    (217
    )
    
    
    (582
    )
    
    
    (649
    )Adjusted net
income
    
    $
    3,015
    
    
    $
    9,163
    
    
    $
    12,572
    
    
    $
    39,396
 Recently Issued Accounting Pronouncements
    8




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED-CONTINUED)
  NOTE 3. INVENTORIES, NET
  September 30, 2005Net CarryingGross cost
    
    
    Reserves
    
    
    Value(unaudited)(in thousands)Finished product
ready for
sale
    
    $
    241,104
    
    
    $
    (9,067
    )
    
    $
    232,037Unpackaged bulk
product and raw
materials
    
    
    47,724
    
    
    
    (3,036
    )
    
    
    44,688Packaging
supplies
    
    
    4,110
    
    
    
    
    
    
    
    4,110$
    292,938
    
    
    $
    (12,103
    )
    
    $
    280,835
 December 31, 2004Net CarryingGross cost
    
    
    Reserves
    
    
    Value(in thousands)Finished product
ready for
sale
    
    $
    242,578
    
    
    $
    (11,542
    )
    
    $
    231,036Unpackaged bulk
product and raw
materials
    
    
    41,607
    
    
    
    (3,019
    )
    
    
    38,588Packaging
supplies
    
    
    2,630
    
    
    
    
    
    
    
    2,630$
    286,815
    
    
    $
    (14,561
    )
    
    $
    272,254
 NOTE 4. GOODWILL AND INTANGIBLE ASSETS, NET
   Manufacturing/Retail
    
    
    Franchising
    
    
    Wholesale
    
    
    Total(in thousands)Goodwill balance at
December 31, 2004
    
    $
    17,626
    
    
    $
    60,520
    
    
    $
    439
    
    
    $
    78,585Additions: Goodwill
related to store
acquisitions
    
    
    854
    
    
    
    
    
    
    
    
    
    
    
    854Goodwill balance at
September 30, 2005
(unaudited)
    
    $
    18,480
    
    
    $
    60,520
    
    
    $
    439
    
    
    $
    79,439
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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED-CONTINUED)
  Retail
    
    
    Franchise
    
    
    Operating
    
    
    FranchiseGold Card
    
    
    Brand
    
    
    Brand
    
    
    Agreements
    
    
    Rights
    
    
    Total(in thousands)Balance at December
31,
2004
    
    $
    1,413
    
    
    $
    49,000
    
    
    $
    163,000
    
    
    $
    27,239
    
    
    $
    
    
    
    $
    240,652Additions: Franchise
rights
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    838
    
    
    
    838Amortization
expense
    
    
    (674
    )
    
    
    
    
    
    
    
    
    
    
    (2,208
    )
    
    
    (103
    )
    
    
    (2,985
    )Balance at
September 30, 2005
(unaudited)
    
    $
    739
    
    
    $
    49,000
    
    
    $
    163,000
    
    
    $
    25,031
    
    
    $
    735
    
    
    $
    238,505
  September 30, 2005
    
    
    December 31, 2004Accumulated
    
    
    Carrying
    
    
    
    
    
    
    Accumulated
    
    
    CarryingCost
    
    
    Amortization
    
    
    Amount
    
    
    Cost
    
    
    Amortization
    
    
    Amount(unaudited)(in thousands)Brands  retail
    
    $
    49,000
    
    
    $
    
    
    
    $
    49,000
    
    
    $
    49,000
    
    
    $
    
    
    
    $
    49,000Brands  franchise
    
    
    163,000
    
    
    
    
    
    
    
    163,000
    
    
    
    163,000
    
    
    
    
    
    
    
    163,000Gold card  retail
    
    
    2,230
    
    
    
    (1,589
    )
    
    
    641
    
    
    
    2,230
    
    
    
    (1,004
    )
    
    
    1,226Gold card  franchise
    
    
    340
    
    
    
    (242
    )
    
    
    98
    
    
    
    340
    
    
    
    (153
    )
    
    
    187Retail agreements
    
    
    8,500
    
    
    
    (2,152
    )
    
    
    6,348
    
    
    
    8,500
    
    
    
    (1,267
    )
    
    
    7,233Franchise agreements
    
    
    21,900
    
    
    
    (3,217
    )
    
    
    18,683
    
    
    
    21,900
    
    
    
    (1,894
    )
    
    
    20,006Franchise rights
    
    
    838
    
    
    
    (103
    )
    
    
    735
    
    
    
    
    
    
    
    
    
    
    
    $
    245,808
    
    
    $
    (7,303
    )
    
    $
    238,505
    
    
    $
    244,970
    
    
    $
    (4,318
    )
    
    $
    240,652
  EstimatedamortizationYears ending December 31,
    
    expense(unaudited)(in thousands)2005
    
    $
    9622006
    
    
    3,6252007
    
    
    3,1112008
    
    
    3,0622009
    
    
    2,451Thereafter
    
    
    13,294Total
    
    $
    26,505
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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED-CONTINUED)
 NOTE 5. LONG-TERM DEBT / INTEREST
     September 30,
    
    
    December 31,2005
    
    
    2004(unaudited)(in thousands)Mortgage
    
    $
    12,432
    
    
    $
    13,190Capital leases
    
    
    31
    
    
    
    35Senior credit
facility
    
    
    96,414
    
    
    
    282,1508 5/8% Senior Notes
    
    
    150,000
    
    
    
    8 1/2% Senior Subordinated
Notes
    
    
    215,000
    
    
    
    215,000Less: current maturities
    
    
    (2,043
    )
    
    
    (3,901
    )Total
    
    $
    471,834
    
    
    $
    506,474
  Mortgage
    
    
    
    
    
    
    
    
    
    
    8 1/2% SeniorLoan/Capital
    
    
    Senior
    
    
    8 5/8% Senior
    
    
    SubordinatedYears Ending December 31,
    
    Leases
    
    
    Credit Facility
    
    
    Notes
    
    
    Notes
    
    
    Total(unaudited)(in thousands)2005
    
    $
    289
    
    
    $
    246
    
    
    $
    
    
    
    $
    
    
    
    $
    5352006
    
    
    1,141
    
    
    
    981
    
    
    
    
    
    
    
    
    
    
    
    2,1222007
    
    
    1,195
    
    
    
    981
    
    
    
    
    
    
    
    
    
    
    
    2,1762008
    
    
    1,281
    
    
    
    981
    
    
    
    
    
    
    
    
    
    
    
    2,2622009
    
    
    1,373
    
    
    
    93,225
    
    
    
    
    
    
    
    
    
    
    
    94,598Thereafter
    
    
    7,184
    
    
    
    
    
    
    
    150,000
    
    
    
    215,000
    
    
    
    372,184$
    12,463
    
    
    $
    96,414
    
    
    $
    150,000
    
    
    $
    215,000
    
    
    $
    473,877
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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED-CONTINUED)
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(unaudited)(in thousands)Composition of interest expense:Mortgage
    
    $
    217
    
    
    $
    236
    
    
    $
    672
    
    
    $
    721Senior credit facility -
Revolver
    
    
    160
    
    
    
    156
    
    
    
    459
    
    
    
    397Senior credit facility  Term
Loan
    
    
    1,608
    
    
    
    3,262
    
    
    
    4,930
    
    
    
    9,3298 5/8% Senior
Notes
    
    
    3,234
    
    
    
    
    
    
    
    9,092
    
    
    
    8 1/2 % Senior Subordinated
Notes
    
    
    4,569
    
    
    
    4,569
    
    
    
    13,706
    
    
    
    13,655Deferred fee writedown  early
debt
extinguishment
    
    
    
    
    
    
    
    
    
    
    3,890
    
    
    
    Deferred financing
fees
    
    
    719
    
    
    
    583
    
    
    
    2,103
    
    
    
    2,129Interest income 
other
    
    
    (550
    )
    
    
    (250
    )
    
    
    (1,619
    )
    
    
    (527
    )Interest expense,
net
    
    $
    9,957
    
    
    $
    8,556
    
    
    $
    33,233
    
    
    $
    25,704
  September 30,
    
    
    December 31,2005
    
    
    2004(unaudited)(in thousands)Senior credit
facility
    
    $
    341
    
    
    $
    3408 5/8% Senior
Notes
    
    
    2,731
    
    
    
    8 1/2% Senior
Subordinated
Notes
    
    
    6,092
    
    
    
    1,523Total
    
    $
    9,164
    
    
    $
    1,863
 NOTE 6. COMMITMENTS AND CONTINGENCIES
 Litigation
   12




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED-CONTINUED)
 Ephedra (Ephedrine Alkaloids).
 Pro-Hormone/Androstenedione.
 
    
    Brown v. General Nutrition Companies, Inc., Case No. 02-14221-AB, Florida Circuit Court
for the 15th Judicial Circuit Court, Palm Beach County;
    
    Rodriguez v. General Nutrition Companies, Inc., Index No. 02/126277, New York Supreme
Court, County of New York, Commercial Division;
    
    Abrams v. General Nutrition Companies, Inc., Docket No. L-3789-02, New Jersey Superior Court, Mercer County;
    
    Toth v. Bodyonics, Ltd., Case No. 003886, Pennsylvania Court of Common Pleas, Philadelphia County; and
    
    Pio v. General Nutrition Companies, Inc., Case No. 2-CH-14122, Illinois Circuit Court, Cook County.
 (Guzman v. General Nutrition
Companies, Inc., Case No. 04-00283).
 Class Action Settlement.
 Franklin Publications.
 13




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED-CONTINUED)
 NOTE 7. STOCK-BASED COMPENSATION PLANS
 Stock Options
   Weighted
    
    
    WeightedAverage
    
    
    Average Black-Total Options
    
    
    Exercise Price
    
    
    Scholes ValueOutstanding at December 31, 2004
    
    
    2,435,393
    
    
    $
    6.00Granted March
2005
    
    
    294,573
    
    
    
    6.00
    
    
    $
    0.28Granted June
2005
    
    
    450,000
    
    
    
    6.00
    
    
    
    0.27Forfeited
    
    
    (498,374
    )Outstanding at September 30, 2005
(unaudited)
    
    
    2,681,592
    
    
    
    6.00
    
    
    
    1.66
   September 30,
    
    December 31,2005
    
    2004(unaudited)Dividend
yield
    
    
    0.00
    %
    
    
    0.00
    %Expected option
life
    
    5 years
    
    5 yearsVolatility factor percentage of market
price
    
    
    24.00
    %
    
    
    40.00
    %Discount
rate
    
    
    4.18
    %
    
    
    3.63
    %
  14




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED-CONTINUED)
 NOTE 8. SEGMENTS
  Three
months endedSeptember 30,
    
    

Nine
months endedSeptember 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(unaudited)(in thousands)Revenues:Retail
    
    $
    239,172
    
    
    $
    235,054
    
    
    $
    744,701
    
    
    $
    776,050Franchise
    
    
    53,144
    
    
    
    57,588
    
    
    
    163,525
    
    
    
    180,616Manufacturing/Wholesale:Intersegment
(1)
    
    
    45,749
    
    
    
    37,322
    
    
    
    150,467
    
    
    
    136,600Third Party
    
    
    30,243
    
    
    
    30,499
    
    
    
    84,115
    
    
    
    86,758Sub total
Manufacturing/Wholesale
    
    
    75,992
    
    
    
    67,821
    
    
    
    234,582
    
    
    
    223,358Sub total segment
revenues
    
    
    368,308
    
    
    
    360,463
    
    
    
    1,142,808
    
    
    
    1,180,024Intersegment elimination(1)
    
    
    (45,749
    )
    
    
    (37,322
    )
    
    
    (150,467
    )
    
    
    (136,600
    )Total revenues
    
    
    322,559
    
    
    
    323,141
    
    
    
    992,341
    
    
    
    1,043,424Operating income:Retail
    
    
    16,431
    
    
    
    20,965
    
    
    
    55,537
    
    
    
    86,948Franchise
    
    
    14,640
    
    
    
    16,084
    
    
    
    37,607
    
    
    
    49,691Manufacturing/Wholesale
    
    
    11,477
    
    
    
    10,099
    
    
    
    36,087
    
    
    
    28,152Unallocated corporate and other (costs) income:Warehousing and distribution
costs
    
    
    (12,565
    )
    
    
    (12,083
    )
    
    
    (37,435
    )
    
    
    (37,110
    )Corporate costs
    
    
    (14,994
    )
    
    
    (11,650
    )
    
    
    (40,396
    )
    
    
    (38,876
    )Other income
    
    
    
    
    
    
    
    
    
    
    2,500
    
    
    
    Sub total unallocated corporate and
other (costs)
income
    
    
    (27,559
    )
    
    
    (23,733
    )
    
    
    (75,331
    )
    
    
    (75,986
    )Total operating
income
    
    
    14,989
    
    
    
    23,415
    
    
    
    53,900
    
    
    
    88,805Interest expense, net
    
    
    9,957
    
    
    
    8,556
    
    
    
    33,233
    
    
    
    25,704Income before income taxes
    
    
    5,032
    
    
    
    14,859
    
    
    
    20,667
    
    
    
    63,101Income tax expense
    
    
    1,830
    
    
    
    5,479
    
    
    
    7,513
    
    
    
    23,056Net income
    
    $
    3,202
    
    
    $
    9,380
    
    
    $
    13,154
    
    
    $
    40,045
 
 (1)
    
    Intersegment revenues are eliminated from consolidated revenue. September 30,
    
    
    December 31,2005
    
    
    2004Total assets:Retail
    
    $
    400,400
    
    
    $
    418,136Franchise
    
    
    308,691
    
    
    
    314,836Manufacturing /
Wholesale
    
    
    148,466
    
    
    
    143,151Corporate /
Other
    
    
    130,182
    
    
    
    156,475Total
assets
    
    $
    987,739
    
    
    $
    1,032,598
 15




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED-CONTINUED)
 NOTE 9. SUPPLEMENTAL GUARANTOR INFORMATION
   Supplemental Condensed Consolidating Balance Sheets
 Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorSeptember 30, 2005
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(unaudited)(in thousands)Current assetsCash and cash
equivalents
    
    $
    
    
    
    $
    59,922
    
    
    $
    2,481
    
    
    $
    
    
    
    $
    62,403Receivables, net
    
    
    1,570
    
    
    
    70,371
    
    
    
    973
    
    
    
    
    
    
    
    72,914Intercompany
receivables
    
    
    
    
    
    
    34,709
    
    
    
    
    
    
    
    (34,709
    )
    
    
    Inventories,
net
    
    
    
    
    
    
    264,941
    
    
    
    15,894
    
    
    
    
    
    
    
    280,835Other current assets
    
    
    2,962
    
    
    
    35,897
    
    
    
    4,556
    
    
    
    
    
    
    
    43,415Total current
assets
    
    
    4,532
    
    
    
    465,840
    
    
    
    23,904
    
    
    
    (34,709
    )
    
    
    459,567Goodwill,
net
    
    
    
    
    
    
    78,497
    
    
    
    942
    
    
    
    
    
    
    
    79,439Brands,
net
    
    
    
    
    
    
    209,000
    
    
    
    3,000
    
    
    
    
    
    
    
    212,000Property, plant and equipment,
net
    
    
    
    
    
    
    160,672
    
    
    
    21,012
    
    
    
    
    
    
    
    181,684Investment in
subsidiaries
    
    
    802,114
    
    
    
    5,631
    
    
    
    
    
    
    
    (807,745
    )
    
    
    Other
assets
    
    
    17,015
    
    
    
    46,738
    
    
    
    76
    
    
    
    (8,780
    )
    
    
    55,049Total
assets
    
    $
    823,661
    
    
    $
    966,378
    
    
    $
    48,934
    
    
    $
    (851,234
    )
    
    $
    987,739Current liabilitiesCurrent
liabilities
    
    $
    10,146
    
    
    $
    151,649
    
    
    $
    6,445
    
    
    $
    
    
    
    $
    168,240Intercompany
payables
    
    
    18,069
    
    
    
    
    
    
    
    16,640
    
    
    
    (34,709
    )
    
    
    Total current
liabilities
    
    
    28,215
    
    
    
    151,649
    
    
    
    23,085
    
    
    
    (34,709
    )
    
    
    168,240Long-term debt
    
    
    460,433
    
    
    
    
    
    
    
    20,181
    
    
    
    (8,780
    )
    
    
    471,834Other long-term liabilities
    
    
    
    
    
    
    12,615
    
    
    
    37
    
    
    
    
    
    
    
    12,652Total
liabilities
    
    
    488,648
    
    
    
    164,264
    
    
    
    43,303
    
    
    
    (43,489
    )
    
    
    652,726Total stockholders equity
(deficit)
    
    
    335,013
    
    
    
    802,114
    
    
    
    5,631
    
    
    
    (807,745
    )
    
    
    335,013Total liabilities and stockholders
equity
(deficit)
    
    $
    823,661
    
    
    $
    966,378
    
    
    $
    48,934
    
    
    $
    (851,234
    )
    
    $
    987,739
 16




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED-CONTINUED)
 Supplemental Condensed Consolidating Balance Sheets
 Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorDecember 31, 2004
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Current assetsCash and cash
equivalents
    
    $
    
    
    
    $
    82,722
    
    
    $
    2,439
    
    
    $
    
    
    
    $
    85,161Receivables, net
    
    
    1,865
    
    
    
    66,821
    
    
    
    1,327
    
    
    
    
    
    
    
    70,013Intercompany
receivables
    
    
    15,887
    
    
    
    16,848
    
    
    
    
    
    
    
    (32,735
    )
    
    
    Inventories,
net
    
    
    
    
    
    
    258,085
    
    
    
    14,169
    
    
    
    
    
    
    
    272,254Other current
assets
    
    
    257
    
    
    
    45,731
    
    
    
    3,920
    
    
    
    
    
    
    
    49,908Total current
assets
    
    
    18,009
    
    
    
    470,207
    
    
    
    21,855
    
    
    
    (32,735
    )
    
    
    477,336Goodwill,
net
    
    
    
    
    
    
    77,643
    
    
    
    942
    
    
    
    
    
    
    
    78,585Brands,
net
    
    
    
    
    
    
    209,000
    
    
    
    3,000
    
    
    
    
    
    
    
    212,000Property, plant and equipment,
net
    
    
    
    
    
    
    172,813
    
    
    
    22,596
    
    
    
    
    
    
    
    195,409Investment in
subsidiaries
    
    
    784,710
    
    
    
    3,951
    
    
    
    
    
    
    
    (788,661
    )
    
    
    Other
assets
    
    
    18,336
    
    
    
    59,339
    
    
    
    373
    
    
    
    (8,780
    )
    
    
    69,268Total
assets
    
    $
    821,055
    
    
    $
    992,953
    
    
    $
    48,766
    
    
    $
    (830,176
    )
    
    $
    1,032,598Current liabilitiesCurrent
liabilities
    
    $
    4,333
    
    
    $
    182,490
    
    
    $
    7,013
    
    
    $
    
    
    
    $
    193,836Intercompany
payables
    
    
    
    
    
    
    15,887
    
    
    
    16,848
    
    
    
    (32,735
    )
    
    
    Total current
liabilities
    
    
    4,333
    
    
    
    198,377
    
    
    
    23,861
    
    
    
    (32,735
    )
    
    
    193,836Long-term
debt
    
    
    494,300
    
    
    
    
    
    
    
    20,954
    
    
    
    (8,780
    )
    
    
    506,474Other long-term
liabilities
    
    
    
    
    
    
    9,866
    
    
    
    
    
    
    
    
    
    
    
    9,866Total
liabilities
    
    
    498,633
    
    
    
    208,243
    
    
    
    44,815
    
    
    
    (41,515
    )
    
    
    710,176Total stockholders equity
(deficit)
    
    
    322,422
    
    
    
    784,710
    
    
    
    3,951
    
    
    
    (788,661
    )
    
    
    322,422Total liabilities and stockholders
equity
(deficit)
    
    $
    821,055
    
    
    $
    992,953
    
    
    $
    48,766
    
    
    $
    (830,176
    )
    
    $
    1,032,598
 17




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED-CONTINUED)
 Supplemental Condensed Consolidating Statements of Operations
 Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorThree months ended September 30, 2005
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(unaudited)(in thousands)Revenue
    
    $
    
    
    
    $
    307,427
    
    
    $
    17,696
    
    
    $
    (2,564
    )
    
    $
    322,559Cost of sales, including costs of warehousing,
distribution and
occupancy
    
    
    
    
    
    
    211,586
    
    
    
    13,062
    
    
    
    (2,564
    )
    
    
    222,084Gross
profit
    
    
    
    
    
    
    95,841
    
    
    
    4,634
    
    
    
    
    
    
    
    100,475Compensation and related
benefits
    
    
    
    
    
    
    55,370
    
    
    
    3,062
    
    
    
    
    
    
    
    58,432Advertising and
promotion
    
    
    
    
    
    
    8,501
    
    
    
    138
    
    
    
    
    
    
    
    8,639Other selling, general and
administrative
    
    
    522
    
    
    
    16,667
    
    
    
    1,306
    
    
    
    
    
    
    
    18,495Subsidiary (income)
expense
    
    
    (3,990
    )
    
    
    204
    
    
    
    
    
    
    
    3,786
    
    
    
    Other
income
    
    
    
    
    
    
    (22
    )
    
    
    (58
    )
    
    
    
    
    
    
    (80
    )Operating income
(loss)
    
    
    3,468
    
    
    
    15,121
    
    
    
    186
    
    
    
    (3,786
    )
    
    
    14,989Interest expense, net
    
    
    719
    
    
    
    8,868
    
    
    
    370
    
    
    
    
    
    
    
    9,957Income (loss) before income
taxes
    
    
    2,749
    
    
    
    6,253
    
    
    
    (184
    )
    
    
    (3,786
    )
    
    
    5,032Income tax (benefit)
expense
    
    
    (453
    )
    
    
    2,263
    
    
    
    20
    
    
    
    
    
    
    
    1,830Net income
(loss)
    
    $
    3,202
    
    
    $
    3,990
    
    
    $
    (204
    )
    
    $
    (3,786
    )
    
    $
    3,202
 Supplemental Condensed Consolidating Statements of Operations
 Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorNine months ended September 30, 2005
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(unaudited)(in thousands)Revenue
    
    $
    
    
    
    $
    947,920
    
    
    $
    53,196
    
    
    $
    (8,775
    )
    
    $
    992,341Cost of sales, including costs of warehousing,
distribution and
occupancy
    
    
    
    
    
    
    645,974
    
    
    
    39,065
    
    
    
    (8,775
    )
    
    
    676,264Gross
profit
    
    
    
    
    
    
    301,946
    
    
    
    14,131
    
    
    
    
    
    
    
    316,077Compensation and related
benefits
    
    
    
    
    
    
    163,009
    
    
    
    8,966
    
    
    
    
    
    
    
    171,975Advertising and
promotion
    
    
    
    
    
    
    36,365
    
    
    
    415
    
    
    
    
    
    
    
    36,780Other selling, general and
administrative
    
    
    1,536
    
    
    
    52,106
    
    
    
    2,417
    
    
    
    
    
    
    
    56,059Subsidiary (income)
expense
    
    
    (17,967
    )
    
    
    (1,350
    )
    
    
    
    
    
    
    19,317
    
    
    
    Other
income
    
    
    
    
    
    
    (2,492
    )
    
    
    (145
    )
    
    
    
    
    
    
    (2,637
    )Operating income
(loss)
    
    
    16,431
    
    
    
    54,308
    
    
    
    2,478
    
    
    
    (19,317
    )
    
    
    53,900Interest expense, net
    
    
    5,993
    
    
    
    26,169
    
    
    
    1,071
    
    
    
    
    
    
    
    33,233Income (loss) before income
taxes
    
    
    10,438
    
    
    
    28,139
    
    
    
    1,407
    
    
    
    (19,317
    )
    
    
    20,667Income tax (benefit)
expense
    
    
    (2,716
    )
    
    
    10,172
    
    
    
    57
    
    
    
    
    
    
    
    7,513Net income
(loss)
    
    $
    13,154
    
    
    $
    17,967
    
    
    $
    1,350
    
    
    $
    (19,317
    )
    
    $
    13,154
 18




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED-CONTINUED)
 Supplemental Condensed Consolidating Statements of Operations
 Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorThree months ended September 30, 2004
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(unaudited)(in thousands)Revenue
    
    $
    
    
    
    $
    308,195
    
    
    $
    17,327
    
    
    $
    (2,381
    )
    
    $
    323,141Cost of sales, including costs of warehousing,
distribution and
occupancy
    
    
    
    
    
    
    206,855
    
    
    
    12,344
    
    
    
    (2,381
    )
    
    
    216,818Gross
profit
    
    
    
    
    
    
    101,340
    
    
    
    4,983
    
    
    
    
    
    
    
    106,323Compensation and related
benefits
    
    
    
    
    
    
    51,157
    
    
    
    2,877
    
    
    
    
    
    
    
    54,034Advertising and
promotion
    
    
    
    
    
    
    9,972
    
    
    
    70
    
    
    
    
    
    
    
    10,042Other selling, general and
administrative
    
    
    438
    
    
    
    18,032
    
    
    
    662
    
    
    
    
    
    
    
    19,132Subsidiary (income)
expense
    
    
    (9,657
    )
    
    
    (1,190
    )
    
    
    
    
    
    
    10,847
    
    
    
    Other (income)
expense
    
    
    
    
    
    
    (58
    )
    
    
    (242
    )
    
    
    
    
    
    
    (300
    )Operating income
(loss)
    
    
    9,219
    
    
    
    23,427
    
    
    
    1,616
    
    
    
    (10,847
    )
    
    
    23,415Interest expense, net
    
    
    
    
    
    
    8,159
    
    
    
    397
    
    
    
    
    
    
    
    8,556Income (loss) before income
taxes
    
    
    9,219
    
    
    
    15,268
    
    
    
    1,219
    
    
    
    (10,847
    )
    
    
    14,859Income tax (benefit)
expense
    
    
    (161
    )
    
    
    5,611
    
    
    
    29
    
    
    
    
    
    
    
    5,479Net income
(loss)
    
    $
    9,380
    
    
    $
    9,657
    
    
    $
    1,190
    
    
    $
    (10,847
    )
    
    $
    9,380
 Supplemental Condensed Consolidating Statements of Operations
 Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorNine months ended September 30, 2004
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(unaudited)(in thousands)Revenue
    
    $
    
    
    
    $
    995,711
    
    
    $
    54,935
    
    
    $
    (7,222
    )
    
    $
    1,043,424Cost of sales, including costs of warehousing,
distribution and
occupancy
    
    
    
    
    
    
    658,266
    
    
    
    39,497
    
    
    
    (7,222
    )
    
    
    690,541Gross
profit
    
    
    
    
    
    
    337,445
    
    
    
    15,438
    
    
    
    
    
    
    
    352,883Compensation and related
benefits
    
    
    
    
    
    
    164,075
    
    
    
    8,884
    
    
    
    
    
    
    
    172,959Advertising and
promotion
    
    
    
    
    
    
    35,030
    
    
    
    222
    
    
    
    
    
    
    
    35,252Other selling, general and
administrative
    
    
    1,297
    
    
    
    52,990
    
    
    
    1,462
    
    
    
    
    
    
    
    55,749Subsidiary (income)
expense
    
    
    (40,868
    )
    
    
    (3,514
    )
    
    
    
    
    
    
    44,382
    
    
    
    Other (income)
expense
    
    
    
    
    
    
    7
    
    
    
    111
    
    
    
    
    
    
    
    118Operating income
(loss)
    
    
    39,571
    
    
    
    88,857
    
    
    
    4,759
    
    
    
    (44,382
    )
    
    
    88,805Interest expense, net
    
    
    
    
    
    
    24,517
    
    
    
    1,187
    
    
    
    
    
    
    
    25,704Income (loss) before income
taxes
    
    
    39,571
    
    
    
    64,340
    
    
    
    3,572
    
    
    
    (44,382
    )
    
    
    63,101Income tax (benefit)
expense
    
    
    (474
    )
    
    
    23,472
    
    
    
    58
    
    
    
    
    
    
    
    23,056Net income
(loss)
    
    $
    40,045
    
    
    $
    40,868
    
    
    $
    3,514
    
    
    $
    (44,382
    )
    
    $
    40,045
 19




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED-CONTINUED)
 Supplemental Condensed Consolidating Statements of Cash Flows
 Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorNine months ended September 30, 2005
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Consolidated(unaudited)(in thousands)Net cash provided by operating
activities
    
    $
    4,672
    
    
    $
    28,980
    
    
    $
    1,002
    
    
    $
    34,654CASH FLOWS FROM INVESTING ACTIVITIES:Capital
expenditures
    
    
    
    
    
    
    (13,620
    )
    
    
    (199
    )
    
    
    (13,819
    )Investment/distribution
    
    
    36,569
    
    
    
    (36,569
    )
    
    
    
    
    
    
    Other
investing
    
    
    
    
    
    
    (524
    )
    
    
    
    
    
    
    (524
    )Net cash provided by (used in)
investing
activities
    
    
    36,569
    
    
    
    (50,713
    )
    
    
    (199
    )
    
    
    (14,343
    )CASH FLOWS FROM FINANCING ACTIVITIES:GNC Corporation return of capital
from General Nutrition Centers,
Inc
    
    
    (834
    )
    
    
    
    
    
    
    
    
    
    
    (834
    )Payments on long-term debt  third
parties
    
    
    (185,735
    )
    
    
    
    
    
    
    (765
    )
    
    
    (186,500
    )Proceeds from senior notes
issuance
    
    
    150,000
    
    
    
    
    
    
    
    
    
    
    
    150,000Other
financing
    
    
    (4,672
    )
    
    
    (1,067
    )
    
    
    
    
    
    
    (5,739
    )Net cash used in financing
activities
    
    
    (41,241
    )
    
    
    (1,067
    )
    
    
    (765
    )
    
    
    (43,073
    )Effect of exchange rate on
cash
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    4Net (decrease) increase in
cash
    
    
    
    
    
    
    (22,800
    )
    
    
    42
    
    
    
    (22,758
    )Beginning balance,
cash
    
    
    
    
    
    
    82,722
    
    
    
    2,439
    
    
    
    85,161Ending balance,
cash
    
    $
    
    
    
    $
    59,922
    
    
    $
    2,481
    
    
    $
    62,403
 20




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED-CONTINUED)
 Supplemental Condensed Consolidating Statements of Cash Flows
 Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Consolidated(unaudited)Nine months ended September 30, 2004
    
    (in thousands)Net cash (used in) provided by
operating
activities
    
    $
    (3,356
    )
    
    $
    62,765
    
    
    $
    1,123
    
    
    $
    60,532CASH FLOWS FROM INVESTING ACTIVITIES:Capital
expenditures
    
    
    
    
    
    
    (17,259
    )
    
    
    (606
    )
    
    
    (17,865
    )Acquisition of General Nutrition
Companies,
Inc.
    
    
    2,102
    
    
    
    
    
    
    
    
    
    
    
    2,102Investment/distribution
    
    
    2,137
    
    
    
    (2,137
    )
    
    
    
    
    
    
    Other
investing
    
    
    
    
    
    
    (354
    )
    
    
    
    
    
    
    (354
    )Net cash provided by (used in)
investing
activities
    
    
    4,239
    
    
    
    (19,750
    )
    
    
    (606
    )
    
    
    (16,117
    )CASH FLOWS FROM FINANCING ACTIVITIES:GNC Corporation
investment in General Nutrition
Centers,
Inc.
    
    
    1,581
    
    
    
    
    
    
    
    
    
    
    
    1,581Other
financing
    
    
    (2,464
    )
    
    
    (3,813
    )
    
    
    (729
    )
    
    
    (7,006
    )Net cash used in financing
activities
    
    
    (883
    )
    
    
    (3,813
    )
    
    
    (729
    )
    
    
    (5,425
    )Effect of exchange rate on
cash
    
    
    
    
    
    
    
    
    
    
    218
    
    
    
    218Net increase in
cash
    
    
    
    
    
    
    39,202
    
    
    
    6
    
    
    
    39,208Beginning balance,
cash
    
    
    
    
    
    
    30,642
    
    
    
    2,534
    
    
    
    33,176Ending balance,
cash
    
    $
    
    
    
    $
    69,844
    
    
    $
    2,540
    
    
    $
    72,384
 21




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Forward-Looking Statements
  Overview
  Trends and Other Factors Affecting Our Business
  Results of Operations
     22




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 Results of Operations and Comprehensive Income
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues:Retail
    
    $
    239.2
    
    
    
    74.1
    %
    
    $
    235.0
    
    
    
    72.8
    %
    
    $
    744.7
    
    
    
    75.0
    %
    
    $
    776.0
    
    
    
    74.4
    %Franchise
    
    
    53.2
    
    
    
    16.5
    %
    
    
    57.6
    
    
    
    17.8
    %
    
    
    163.5
    
    
    
    16.5
    %
    
    
    180.6
    
    
    
    17.3
    %Manufacturing / Wholesale
    
    
    30.2
    
    
    
    9.4
    %
    
    
    30.5
    
    
    
    9.4
    %
    
    
    84.1
    
    
    
    8.5
    %
    
    
    86.8
    
    
    
    8.3
    %Total net revenues
    
    
    322.6
    
    
    
    100.0
    %
    
    
    323.1
    
    
    
    100.0
    %
    
    
    992.3
    
    
    
    100.0
    %
    
    
    1,043.4
    
    
    
    100.0
    %Operating expenses:Cost of sales, including costs of
warehousing, distribution and
occupancy
    
    
    222.1
    
    
    
    68.9
    %
    
    
    216.8
    
    
    
    67.1
    %
    
    
    676.2
    
    
    
    68.2
    %
    
    
    690.5
    
    
    
    66.1
    %Compensation and related
benefits
    
    
    58.5
    
    
    
    18.1
    %
    
    
    54.0
    
    
    
    16.7
    %
    
    
    172.0
    
    
    
    17.3
    %
    
    
    173.0
    
    
    
    16.6
    %Advertising and
promotion
    
    
    8.7
    
    
    
    2.7
    %
    
    
    10.0
    
    
    
    3.1
    %
    
    
    36.8
    
    
    
    3.7
    %
    
    
    35.3
    
    
    
    3.4
    %Other selling, general and administrative
expenses
    
    
    17.3
    
    
    
    5.4
    %
    
    
    18.1
    
    
    
    5.6
    %
    
    
    53.0
    
    
    
    5.4
    %
    
    
    52.7
    
    
    
    5.1
    %Amortization
expense
    
    
    1.1
    
    
    
    0.3
    %
    
    
    1.0
    
    
    
    0.3
    %
    
    
    3.0
    
    
    
    0.3
    %
    
    
    3.0
    
    
    
    0.3
    %Foreign currency (gain)
loss
    
    
    
    
    
    
    0.0
    %
    
    
    (0.3
    )
    
    
    -0.1
    %
    
    
    (0.1
    )
    
    
    0.0
    %
    
    
    0.1
    
    
    
    0.0
    %Other income
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    (2.5
    )
    
    
    -0.3
    %
    
    
    
    
    
    
    0.0
    %Total operating
expenses
    
    
    307.7
    
    
    
    95.4
    %
    
    
    299.6
    
    
    
    92.7
    %
    
    
    938.4
    
    
    
    94.6
    %
    
    
    954.6
    
    
    
    91.5
    %Operating income:Retail
    
    
    16.4
    
    
    
    5.1
    %
    
    
    20.9
    
    
    
    6.4
    %
    
    
    55.5
    
    
    
    5.6
    %
    
    
    86.9
    
    
    
    8.3
    %Franchise
    
    
    14.7
    
    
    
    4.6
    %
    
    
    16.1
    
    
    
    5.0
    %
    
    
    37.6
    
    
    
    3.8
    %
    
    
    49.7
    
    
    
    4.8
    %Manufacturing / Wholesale
    
    
    11.4
    
    
    
    3.5
    %
    
    
    10.2
    
    
    
    3.2
    %
    
    
    36.1
    
    
    
    3.6
    %
    
    
    28.2
    
    
    
    2.7
    %Unallocated corporate and other
(costs) income:Warehousing and distribution
costs
    
    
    (12.5
    )
    
    
    -3.9
    %
    
    
    (12.1
    )
    
    
    -3.7
    %
    
    
    (37.4
    )
    
    
    -3.8
    %
    
    
    (37.1
    )
    
    
    -3.6
    %Corporate
costs
    
    
    (15.1
    )
    
    
    -4.7
    %
    
    
    (11.6
    )
    
    
    -3.6
    %
    
    
    (40.4
    )
    
    
    -4.1
    %
    
    
    (38.9
    )
    
    
    -3.7
    %Other (expense) income
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    2.5
    
    
    
    0.3
    %
    
    
    
    
    
    
    0.0
    %Subtotal unallocated corporate and
other (costs)
income
    
    
    (27.6
    )
    
    
    -8.6
    %
    
    
    (23.7
    )
    
    
    -7.3
    %
    
    
    (75.3
    )
    
    
    -7.6
    %
    
    
    (76.0
    )
    
    
    -7.3
    %Total operating
income
    
    
    14.9
    
    
    
    4.6
    %
    
    
    23.5
    
    
    
    7.3
    %
    
    
    53.9
    
    
    
    5.4
    %
    
    
    88.8
    
    
    
    8.5
    %Interest expense,
net
    
    
    9.9
    
    
    
    
    
    
    
    8.6
    
    
    
    
    
    
    
    33.2
    
    
    
    
    
    
    
    25.7Income before income
taxes
    
    
    5.0
    
    
    
    
    
    
    
    14.9
    
    
    
    
    
    
    
    20.7
    
    
    
    
    
    
    
    63.1Income tax
expense
    
    
    1.8
    
    
    
    
    
    
    
    5.5
    
    
    
    
    
    
    
    7.6
    
    
    
    
    
    
    
    23.1Net
income
    
    
    3.2
    
    
    
    
    
    
    
    9.4
    
    
    
    
    
    
    
    13.1
    
    
    
    
    
    
    
    40.0Other comprehensive
income
    
    
    0.8
    
    
    
    
    
    
    
    0.7
    
    
    
    
    
    
    
    0.3
    
    
    
    
    
    
    
    0.3Comprehensive
income
    
    $
    4.0
    
    
    
    
    
    
    $
    10.1
    
    
    
    
    
    
    $
    13.4
    
    
    
    
    
    
    $
    40.3
 23




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 Comparison of the Three Months Ended September 30, 2005 and September 30, 2004
 Revenues
 Consolidated.
 Retail.
 Franchise.
 Manufacturing/Wholesale.
 Cost of Sales
     24




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 Selling, General and Administrative Expenses
     Foreign Currency Loss
  Operating Income
 Consolidated.
 Retail.
 Franchise.
 Manufacturing/Wholesale.
 Warehousing and Distribution Costs.
 Corporate Costs.
 25




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 Interest Expense
  Income Tax Expense
  Net Income
  Other Comprehensive Income
  Comparison of the Nine Months Ended September 30, 2005 and September 30, 2004
 Revenues
 Consolidated.
 Retail.
 Franchise.
 Manufacturing/Wholesale.
 26




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 Cost of Sales
     Selling, General and Administrative Expenses
     Foreign Currency Gain / Loss
  27




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 Other Income
  Operating Income
 Consolidated.
 Retail.
 Franchise.
 Manufacturing/Wholesale.
 Warehousing and Distribution Costs.
 Corporate Costs.
 Interest Expense
  Income Tax Expense
  Net Income
  Other Comprehensive Income
  28




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 Liquidity and Capital Resources
  Cash Provided by Operating Activities
  Cash Used in Investing Activities
  Cash Used in Financing Activities
   Contractual Obligations
  Off Balance Sheet Arrangements
  29




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
  Effect of Inflation
  Recently Issued Accounting Pronouncements
     30




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  Foreign Exchange Rate Market Risk.
 Interest Rate Market Risk.
  
 Item 4. Controls and Procedures
  31




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 
 PART II OTHER INFORMATION
 
 Item 1. Legal Proceedings
   Ephedra (Ephedrine Alkaloids).
 Pro-Hormone/Androstenedione.
 
    
    Brown v. General Nutrition Companies, Inc., Case No. 02-14221-AB, Florida Circuit
Court for the 15th Judicial Circuit Court, Palm Beach County;
    
    Rodriguez v. General Nutrition Companies, Inc., Index No. 02/126277, New York
Supreme Court, County of New York, Commercial Division;
    
    Abrams v. General Nutrition Companies, Inc., Docket No. L-3789-02, New Jersey
Superior Court, Mercer County;
    
    Toth v. Bodyonics, Ltd., Case No. 003886, Pennsylvania Court of Common Pleas,
Philadelphia County; and
    
    Pio v. General Nutrition Companies, Inc., Case No. 2-CH-14122, Illinois Circuit
Court, Cook County.
 Guzman v. General Nutrition
Companies, Inc.
 32




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 Class Action Settlement.
 Franklin Publications.
 
 Item 6. Exhibits
 Exhibit 31.1 
    
    Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.Exhibit 31.2 
    
    Certification of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of
2002.Exhibit 32.1 
    
    Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
 33




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 
 SIGNATURES
  General Nutrition Centers, Inc.(Registrant)November 4, 2005
    /s/ Bruce E. BarkusBruce E. BarkusChief Executive Officer November 4, 2005
    /s/ Curtis J. LarrimerCurtis J. LarrimerChief Financial Officer 34