##### 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 March 31, 2006
 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 o þ
 o þ




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##### 



TABLE OF CONTENTS
 PAGEPART I FINANCIAL INFORMATIONItem 1.
    
    Financial Statements.Consolidated Balance Sheets as of March 31, 2006 (unaudited) and December 31, 2005
    
    
    3Unaudited Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2006 and 2005
    
    
    4Unaudited Consolidated Statement of Stockholders Equity for the three months ended March 31, 2006
    
    
    5Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2006 and 2005
    
    
    6Summarized Notes to Unaudited Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.
    
    
    21Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk.
    
    
    28Item 4.
    
    Controls and Procedures.
    
    
    28PART II OTHER INFORMATIONItem 1.
    
    Legal Proceedings.
    
    
    29Item 1A.
    
    Risk Factors.
    
    
    32Item 6.
    
    Exhibits.
    
    
    38Signatures
    
    
    
    
    39EX-31.1EX-31.2EX-32.1




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##### Table of Contents



PART I FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 
 Consolidated Balance Sheets
 (in thousands, except share data)
 March 31,
    
    
    December 31,2006
    
    
    2005 *Current assets:Cash and cash
equivalents
    
    $
    44,290
    
    
    $
    86,013Receivables, net of reserve of $7,493 and $8,898, respectively
    
    
    78,900
    
    
    
    72,439Inventories, net (Note 3)
    
    
    339,928
    
    
    
    298,166Deferred tax assets, net
    
    
    13,859
    
    
    
    13,861Other current assets
    
    
    30,005
    
    
    
    30,826Total current assets
    
    
    506,982
    
    
    
    501,305Long-term assets:Goodwill (Note 4)
    
    
    80,588
    
    
    
    80,109Brands (Note 4)
    
    
    212,000
    
    
    
    212,000Other intangible assets, net (Note 4)
    
    
    25,965
    
    
    
    26,460Property, plant and equipment, net
    
    
    174,705
    
    
    
    179,482Deferred financing fees, net
    
    
    15,390
    
    
    
    16,125Deferred tax assets, net
    
    
    45
    
    
    
    45Other long-term assets
    
    
    8,399
    
    
    
    10,114Total long-term assets
    
    
    517,092
    
    
    
    524,335Total assets
    
    $
    1,024,074
    
    
    $
    1,025,640Current liabilities:Accounts payable, includes cash overdraft of $5,219 and $5,063,
respectively
    
    $
    130,607
    
    
    $
    104,595Accrued payroll and related liabilities
    
    
    20,532
    
    
    
    20,812Accrued income taxes
    
    
    9,015
    
    
    
    2,431Accrued interest
    
    
    9,181
    
    
    
    7,877Current portion, long-term debt
    
    
    2,133
    
    
    
    2,117Other current liabilities
    
    
    68,790
    
    
    
    64,793Total current liabilities
    
    
    240,258
    
    
    
    202,625Long-term liabilities:Long-term debt
    
    
    470,710
    
    
    
    471,244Other long-term liabilities
    
    
    10,679
    
    
    
    10,891Total long-term liabilities
    
    
    481,389
    
    
    
    482,135Total liabilities
    
    
    721,647
    
    
    
    684,760Stockholders equity:Common
stock, $0.01 par value,
1,000 shares authorized, 100 shares issued and outstanding
    
    
    
    
    
    
    Paid-in-capital
    
    
    278,597
    
    
    
    277,989Retained earnings
    
    
    23,226
    
    
    
    61,667Accumulated other comprehensive income
    
    
    604
    
    
    
    1,224Total stockholders equity
    
    
    302,427
    
    
    
    340,880Total liabilities and stockholders
equity
    
    $
    1,024,074
    
    
    $
    1,025,640
 
 *
    
    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)
 Three months
    
    
    Three monthsended
    
    
    endedMarch 31,
    
    
    March 31,2006
    
    
    2005Revenue
    
    $
    386,892
    
    
    $
    336,435Cost of sales, including costs of warehousing,
distribution and occupancy
    
    
    256,872
    
    
    
    230,456Gross profit
    
    
    130,020
    
    
    
    105,979Compensation and related benefits
    
    
    65,852
    
    
    
    57,314Advertising and
promotion
    
    
    15,839
    
    
    
    14,601Other selling, general and administrative
    
    
    20,971
    
    
    
    18,822Foreign currency gain
    
    
    (588
    )
    
    
    (105
    )Other income
    
    
    
    
    
    
    (2,500
    )Operating income
    
    
    27,946
    
    
    
    17,847Interest expense, net (Note 5)
    
    
    9,676
    
    
    
    13,471Income before income taxes
    
    
    18,270
    
    
    
    4,376Income tax expense
    
    
    6,777
    
    
    
    1,581Net income
    
    
    11,493
    
    
    
    2,795Other comprehensive loss
    
    
    (620
    )
    
    
    (264
    )Comprehensive income
    
    $
    10,873
    
    
    $
    2,531
  4




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 
 Consolidated Statement of Stockholders Equity
 (in thousands, except share data)
 AccumulatedOther
    
    
    TotalCommon Stock
    
    
    
    
    
    
    Retained
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Dollars
    
    
    Paid-in-Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    EquityBalance at December 31,
2005
    
    
    100
    
    
    $
    
    
    
    $
    277,989
    
    
    $
    61,667
    
    
    $
    1,224
    
    
    $
    340,880GNC Corporation investment in
General Nutrition Centers, Inc.
    
    
    
    
    
    
    
    
    
    
    (68
    )
    
    
    
    
    
    
    
    
    
    
    (68
    )Non-cash stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    676
    
    
    
    
    
    
    
    
    
    
    
    676Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,493
    
    
    
    
    
    
    
    11,493Restricted payment made by General
Nutrition Centers, Inc. to GNC
Corporation Common
Stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (49,934
    )
    
    
    
    
    
    
    (49,934
    )Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (620
    )
    
    
    (620
    )Balance at March 31, 2006
(unaudited)
    
    
    100
    
    
    $
    
    
    
    $
    278,597
    
    
    $
    23,226
    
    
    $
    604
    
    
    $
    302,427
  5




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
 (unaudited)

(in thousands)
 Three months
    
    
    Three monthsended
    
    
    endedMarch 31,
    
    
    March 31,2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    11,493
    
    
    $
    2,736Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation expense
    
    
    8,656
    
    
    
    9,139Deferred fee writedown  early debt extinguishment
    
    
    
    
    
    
    3,890Amortization of intangible assets
    
    
    978
    
    
    
    961Amortization of deferred financing fees
    
    
    735
    
    
    
    683Increase in provision for inventory losses
    
    
    909
    
    
    
    2,238Non-cash stock-based compensation
    
    
    676
    
    
    
    (Decrease) increase in provision for losses on accounts receivable
    
    
    (395
    )
    
    
    591Decrease in net deferred
taxes
    
    
    
    
    
    
    2,408Changes in assets and liabilities:Increase in
receivables
    
    
    (7,061
    )
    
    
    (872
    )Increase in inventory,
net
    
    
    (42,217
    )
    
    
    (23,159
    )Decrease in franchise note receivables,
net
    
    
    1,109
    
    
    
    3,604Decrease in other
assets
    
    
    348
    
    
    
    1,495Increase in accounts
payable
    
    
    25,846
    
    
    
    26,157Increase in accrued
taxes
    
    
    6,584
    
    
    
    Increase in interest
payable
    
    
    1,303
    
    
    
    7,159Increase (decrease) in accrued
liabilities
    
    
    3,509
    
    
    
    (1,490
    )Net cash provided by operating activities
    
    
    12,473
    
    
    
    35,540CASH FLOWS FROM INVESTING ACTIVITIES:Capital
expenditures
    
    
    (3,692
    )
    
    
    (4,383
    )Store acquisition
costs
    
    
    (131
    )
    
    
    (558
    )Net cash used in investing activities
    
    
    (3,823
    )
    
    
    (4,941
    )CASH FLOWS FROM FINANCING ACTIVITIES:GNC Corporation return of capital from
General Nutrition Centers, Inc
    
    
    (68
    )
    
    
    (416
    )Restricted payment made by General Nutrition Centers, Inc. to
GNC Corporation Common Stockholders
    
    
    (49,934
    )
    
    
    Increase in cash
overdrafts
    
    
    156
    
    
    
    1,760Proceeds from senior notes issuance
    
    
    
    
    
    
    150,000Payments on long-term
debt
    
    
    (517
    )
    
    
    (185,491
    )Financing fees
    
    
    
    
    
    
    (3,785
    )Net cash used in financing activities
    
    
    (50,363
    )
    
    
    (37,932
    )Effect of exchange rate on cash
    
    
    (10
    )
    
    
    (63
    )Net decrease in cash
    
    
    (41,723
    )
    
    
    (7,396
    )Beginning balance, cash
    
    
    86,013
    
    
    
    85,161Ending balance, cash
    
    $
    44,290
    
    
    $
    77,765
  6




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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 .
 Recently Issued Accounting Pronouncements
  7




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
   NOTE 3. INVENTORIES, NET
  March 31, 2006Net CarryingGross cost
    
    
    Reserves
    
    
    Value(unaudited)(in thousands)Finished product ready for sale
    
    $
    288,626
    
    
    $
    (8,929
    )
    
    $
    279,697Unpackaged bulk product and raw
materials
    
    
    57,395
    
    
    
    (2,110
    )
    
    
    55,285Packaging
supplies
    
    
    4,946
    
    
    
    
    
    
    
    4,946$
    350,967
    
    
    $
    (11,039
    )
    
    $
    339,928
 December 31, 2005Net CarryingGross cost
    
    
    Reserves
    
    
    Value(in thousands)Finished product ready for sale
    
    $
    257,525
    
    
    $
    (10,025
    )
    
    $
    247,500Unpackaged bulk product and raw
materials
    
    
    48,513
    
    
    
    (2,128
    )
    
    
    46,385Packaging
supplies
    
    
    4,281
    
    
    
    
    
    
    
    4,281$
    310,319
    
    
    $
    (12,153
    )
    
    $
    298,166
 NOTE 4. GOODWILL AND INTANGIBLE ASSETS, NET
   8




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Manufacturing/Retail
    
    
    Franchising
    
    
    Wholesale
    
    
    Total(in thousands)Goodwill at December 31,
2005
    
    $
    22,970
    
    
    $
    56,693
    
    
    $
    446
    
    
    $
    80,109Additions: Acquired franchise stores
    
    
    479
    
    
    
    
    
    
    
    
    
    
    
    479Reclassification: Due to franchise
store aquisitions
    
    
    1,266
    
    
    
    (1,266
    )
    
    
    
    
    
    
    Goodwill at March 31, 2006 (unaudited)
    
    $
    24,715
    
    
    $
    55,427
    
    
    $
    446
    
    
    $
    80,588
  Retail
    
    
    Franchise
    
    
    Operating
    
    
    FranchiseGold Card
    
    
    Brand
    
    
    Brand
    
    
    Agreements
    
    
    Rights
    
    
    Total(in thousands)Balance at December 31,
2005
    
    $
    514
    
    
    $
    59,659
    
    
    $
    152,341
    
    
    $
    24,296
    
    
    $
    1,650
    
    
    $
    238,460Additions: Acquired franchise
stores
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    483
    
    
    
    483Reclassification: Due to franchise
store
aquisitions
    
    
    
    
    
    
    3,539
    
    
    
    (3,539
    )
    
    
    
    
    
    
    
    
    
    
    Amortization
expense
    
    
    (129
    )
    
    
    
    
    
    
    
    
    
    
    (736
    )
    
    
    (113
    )
    
    
    (978
    )Balance at March 31, 2006
(unaudited)
    
    $
    385
    
    
    $
    63,198
    
    
    $
    148,802
    
    
    $
    23,560
    
    
    $
    2,020
    
    
    $
    237,965
  Estimated
    
    
    March 31, 2006
    
    
    December 31, 2005Life
    
    
    
    
    
    
    Accumulated
    
    
    Carrying
    
    
    
    
    
    
    Accumulated
    
    
    Carryingin years
    
    
    Cost
    
    
    Amortization
    
    
    Amount
    
    
    Cost
    
    
    Amortization
    
    
    Amount(unaudited)(in
thousands)Brands 
retail
    
    
    
    
    
    $
    63,198
    
    
    $
    
    
    
    $
    63,198
    
    
    $
    59,659
    
    
    $
    
    
    
    $
    59,659Brands 
franchise
    
    
    
    
    
    
    148,802
    
    
    
    
    
    
    
    148,802
    
    
    
    152,341
    
    
    
    
    
    
    
    152,341Gold card 
retail
    
    
    3
    
    
    
    2,230
    
    
    
    (1,896
    )
    
    
    334
    
    
    
    2,230
    
    
    
    (1,784
    )
    
    
    446Gold card 
franchise
    
    
    3
    
    
    
    340
    
    
    
    (289
    )
    
    
    51
    
    
    
    340
    
    
    
    (272
    )
    
    
    68Retail
agreements
    
    
    5-10
    
    
    
    8,500
    
    
    
    (2,742
    )
    
    
    5,758
    
    
    
    8,500
    
    
    
    (2,447
    )
    
    
    6,053Franchise
agreements
    
    
    10-15
    
    
    
    21,900
    
    
    
    (4,098
    )
    
    
    17,802
    
    
    
    21,900
    
    
    
    (3,657
    )
    
    
    18,243Franchise
rights
    
    
    5
    
    
    
    2,281
    
    
    
    (261
    )
    
    
    2,020
    
    
    
    1,798
    
    
    
    (148
    )
    
    
    1,650$
    247,251
    
    
    $
    (9,286
    )
    
    $
    237,965
    
    
    $
    246,768
    
    
    $
    (8,308
    )
    
    $
    238,460
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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  EstimatedamortizationYears ending December 31,
    
    expense(unaudited)(in thousands)2006 (1)
    
    $
    2,9352007
    
    
    3,4002008
    
    
    3,3512009
    
    
    2,7402010
    
    
    2,592Thereafter
    
    
    10,947Total
    
    $
    25,965
 
 (1) This period is a partial year and represents the period
from April 1 to December 31, 2006. NOTE 5. INTEREST EXPENSE
  Three months endedMarch 31,2006
    
    
    2005(unaudited)(in thousands)Senior credit facilityTerm Loan
    
    $
    1,812
    
    
    $
    1,834Revolver
    
    
    159
    
    
    
    1498 5/8% Senior Notes
    
    
    3,234
    
    
    
    2,6238 1/2% Senior Subordinated
Notes
    
    
    4,569
    
    
    
    4,569Deferred financing fees
    
    
    736
    
    
    
    683Deferred fee writedown  early
extinguishment
    
    
    
    
    
    
    3,890Mortgage
    
    
    152
    
    
    
    232Interest income  other
    
    
    (986
    )
    
    
    (509
    )Interest expense,
net
    
    $
    9,676
    
    
    $
    13,471
 NOTE 6. COMMITMENTS AND CONTINGENCIES
 Litigation
  10




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Ephedra (Ephedrine Alkaloids).
 Pro-Hormone/Androstenedione Cases.
 Harry Rodriguez v. General Nutrition Companies, Inc. (previously pending in the
Supreme Court of the State of New York, New York County, New York, Index No. 02/126277).
 Everett Abrams v. General Nutrition Companies, Inc. (previously pending in the
Superior Court of New Jersey, Mercer County, New Jersey, Docket No. L-3789-02).
 Shawn Brown, Ozan Cirak, Thomas Hannon, and Luke Smith v. General Nutrition Companies,
Inc. (previously pending in the 15 th Judicial Circuit Court, Palm Beach
County, Florida, Index. No. CA-02-14221AB).
 Abrams, et al. v. General Nutrition Companies, Inc., et al., previously pending in
the Common Pleas Court of Philadelphia County, Philadelphia, Class Action No. 02-703886).
 David Pio and Ty Stephens, individually and on behalf of all others similarly situated v.
General Nutrition Companies, Inc. , previously pending in the Circuit Court of Cook
County, Illinois, County Department, Chancery Division, Case No. 02-CH-14122).
 Santiago Guzman, individually, on behalf of all others similarly situated, and on behalf
of the general public v. General Nutrition Companies, Inc., previously pending on the
California Judicial Counsel Coordination Proceeding No. 4363, Los Angeles County Superior
Court).
 11




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Companies Creditors
Arrangement Act In re MuscleTech Research and Development, Inc., et al.
  Class Action Settlement.
 Franklin Publications.
 Visa/MasterCard antitrust litigation.
 Pennsylvania Claim
  12




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 7. STOCK-BASED COMPENSATION PLANS
   Weighted Average
    
    AggregateTotal Options
    
    
    Exercise Price
    
    Intrinsic Value(in thousands)Outstanding at December 31,
2005
    
    
    2,757,150
    
    
    $
    6.00Granted
    
    
    92,500
    
    
    
    9.36Outstanding at March 31, 2006
(unaudited)
    
    
    2,849,650
    
    
    
    6.11
    
    
    $
    10,394Exercisable at March 31, 2006
(unaudited)
    
    
    1,456,386
    
    
    $
    6.06
    
    
    $
    5,396
     March 31,
    
    March 31,2006
    
    2005(unaudited)Dividend
yield
    
    
    0.00
    %
    
    
    0.00
    %Expected option
life
    
    5 years
    
    
    5 yearsVolatility factor percentage of
market
price
    
    
    22.00
    %
    
    
    24.00
    %Discount
rate
    
    
    4.82
    %
    
    
    4.18
    %
 13




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
   Three MonthsEndedMarch 31,2005(unaudited)(in thousands)Net income as
reported
    
    $
    2,795Less: total stock-based employee compensation
costs determined using fair value method, net
of tax
    
    
    (313
    )Adjusted net
income
    
    $
    2,482
 NOTE 8. SEGMENTS
  14




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Three Months ended March 31,2006
    
    
    2005(unaudited)(in thousands)Revenue:Retail
    
    $
    294,890
    
    
    $
    255,252Franchise
    
    
    60,337
    
    
    
    52,627Manufacturing/Wholesale:Intersegment
(1)
    
    
    43,931
    
    
    
    45,049Third Party
    
    
    31,665
    
    
    
    28,556Sub total
Manufacturing/Wholesale
    
    
    75,596
    
    
    
    73,605Sub total segment
revenues
    
    
    430,823
    
    
    
    381,484Intersegment elimination
(1)
    
    
    (43,931
    )
    
    
    (45,049
    )Total revenue
    
    $
    386,892
    
    
    $
    336,435(1)
       Intersegment revenues are eliminated from consolidated revenue.Operating income:Retail
    
    $
    35,263
    
    
    $
    17,906Franchise
    
    
    16,088
    
    
    
    10,843Manufacturing/Wholesale
    
    
    11,159
    
    
    
    12,059Unallocated corporate and other (costs) income:Warehousing and distribution
costs
    
    
    (12,846
    )
    
    
    (12,659
    )Corporate costs
    
    
    (21,718
    )
    
    
    (12,802
    )Other income
    
    
    
    
    
    
    2,500Sub total unallocated corporate and
other (costs)
income
    
    
    (34,564
    )
    
    
    (22,961
    )Total operating
income
    
    $
    27,946
    
    
    $
    17,847
 March 31,
    
    
    December 31,2006
    
    
    2005(in thousands)(unaudited)Total assetsRetail
    
    $
    466,317
    
    
    $
    441,364Franchise
    
    
    291,968
    
    
    
    290,092Manufacturing /
Wholesale
    
    
    157,050
    
    
    
    148,445Corporate / Other
    
    
    108,739
    
    
    
    145,739Total assets
    
    $
    1,024,074
    
    
    $
    1,025,640
 NOTE 9. SUPPLEMENTAL GUARANTOR INFORMATION
   15




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Supplemental Condensed Consolidating Balance Sheets
 Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorMarch 31, 2006
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(unaudited)(in
thousands)Current assetsCash and cash
equivalents
    
    $
    
    
    
    $
    40,342
    
    
    $
    3,948
    
    
    $
    
    
    
    $
    44,290Receivables, net
    
    
    1,893
    
    
    
    76,131
    
    
    
    876
    
    
    
    
    
    
    
    78,900Intercompany
receivables
    
    
    
    
    
    
    33,079
    
    
    
    
    
    
    
    (33,079
    )
    
    
    Inventories,
net
    
    
    
    
    
    
    325,647
    
    
    
    14,281
    
    
    
    
    
    
    
    339,928Other current
assets
    
    
    340
    
    
    
    38,672
    
    
    
    4,852
    
    
    
    
    
    
    
    43,864Total current
assets
    
    
    2,233
    
    
    
    513,871
    
    
    
    23,957
    
    
    
    (33,079
    )
    
    
    506,982Goodwill
    
    
    
    
    
    
    79,646
    
    
    
    942
    
    
    
    
    
    
    
    80,588Brands
    
    
    
    
    
    
    209,000
    
    
    
    3,000
    
    
    
    
    
    
    
    212,000Property,
plant and equipment, net
    
    
    
    
    
    
    154,334
    
    
    
    20,371
    
    
    
    
    
    
    
    174,705Investment in
Subsidiaries
    
    
    771,829
    
    
    
    8,057
    
    
    
    
    
    
    
    (779,886
    )
    
    
    Other
assets
    
    
    15,596
    
    
    
    42,912
    
    
    
    71
    
    
    
    (8,780
    )
    
    
    49,799Total
assets
    
    $
    789,658
    
    
    $
    1,007,820
    
    
    $
    48,341
    
    
    $
    (821,745
    )
    
    $
    1,024,074Current liabilitiesCurrent
liabilities
    
    $
    6,334
    
    
    $
    224,255
    
    
    $
    9,669
    
    
    $
    
    
    
    $
    240,258Intercompany
payables
    
    
    20,955
    
    
    
    1,093
    
    
    
    11,031
    
    
    
    (33,079
    )
    
    
    Total current
liabilities
    
    
    27,289
    
    
    
    225,348
    
    
    
    20,700
    
    
    
    (33,079
    )
    
    
    240,258Long-term
debt
    
    
    459,942
    
    
    
    
    
    
    
    19,548
    
    
    
    (8,780
    )
    
    
    470,710Other long-term
liabilities
    
    
    
    
    
    
    10,643
    
    
    
    36
    
    
    
    
    
    
    
    10,679Total
liabilities
    
    
    487,231
    
    
    
    235,991
    
    
    
    40,284
    
    
    
    (41,859
    )
    
    
    721,647Total stockholders equity
(deficit)
    
    
    302,427
    
    
    
    771,829
    
    
    
    8,057
    
    
    
    (779,886
    )
    
    
    302,427Total liabilities and stockholders
equity
(deficit)
    
    $
    789,658
    
    
    $
    1,007,820
    
    
    $
    48,341
    
    
    $
    (821,745
    )
    
    $
    1,024,074
 16




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Supplemental Condensed Consolidating Balance Sheets
 Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorDecember 31, 2005
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Current assetsCash and cash
equivalents
    
    $
    
    
    
    $
    83,143
    
    
    $
    2,870
    
    
    $
    
    
    
    $
    86,013Receivables, net
    
    
    1,809
    
    
    
    69,518
    
    
    
    1,112
    
    
    
    
    
    
    
    72,439Intercompany
receivables
    
    
    
    
    
    
    33,079
    
    
    
    
    
    
    
    (33,079
    )
    
    
    Inventories,
net
    
    
    
    
    
    
    283,511
    
    
    
    14,655
    
    
    
    
    
    
    
    298,166Other current
assets
    
    
    97
    
    
    
    39,825
    
    
    
    4,765
    
    
    
    
    
    
    
    44,687Total current
assets
    
    
    1,906
    
    
    
    509,076
    
    
    
    23,402
    
    
    
    (33,079
    )
    
    
    501,305Goodwill
    
    
    
    
    
    
    79,167
    
    
    
    942
    
    
    
    
    
    
    
    80,109Brands
    
    
    
    
    
    
    209,000
    
    
    
    3,000
    
    
    
    
    
    
    
    212,000Property, plant and equipment,
net
    
    
    
    
    
    
    158,877
    
    
    
    20,605
    
    
    
    
    
    
    
    179,482Investment in
subsidiaries
    
    
    809,105
    
    
    
    7,081
    
    
    
    
    
    
    
    (816,186
    )
    
    
    Other
assets
    
    
    16,331
    
    
    
    45,120
    
    
    
    73
    
    
    
    (8,780
    )
    
    
    52,744Total
assets
    
    $
    827,342
    
    
    $
    1,008,321
    
    
    $
    48,022
    
    
    $
    (858,045
    )
    
    $
    1,025,640Current liabilitiesCurrent
liabilities
    
    $
    5,801
    
    
    $
    188,362
    
    
    $
    8,462
    
    
    $
    
    
    
    $
    202,625Intercompany
payables
    
    
    20,474
    
    
    
    
    
    
    
    12,605
    
    
    
    (33,079
    )
    
    
    Total current
liabilities
    
    
    26,275
    
    
    
    188,362
    
    
    
    21,067
    
    
    
    (33,079
    )
    
    
    202,625Long-term
debt
    
    
    460,187
    
    
    
    
    
    
    
    19,837
    
    
    
    (8,780
    )
    
    
    471,244Other long-term
liabilities
    
    
    
    
    
    
    10,854
    
    
    
    37
    
    
    
    
    
    
    
    10,891Total
liabilities
    
    
    486,462
    
    
    
    199,216
    
    
    
    40,941
    
    
    
    (41,859
    )
    
    
    684,760Total stockholders equity
(deficit)
    
    
    340,880
    
    
    
    809,105
    
    
    
    7,081
    
    
    
    (816,186
    )
    
    
    340,880Total liabilities and stockholders
equity
(deficit)
    
    $
    827,342
    
    
    $
    1,008,321
    
    
    $
    48,022
    
    
    $
    (858,045
    )
    
    $
    1,025,640
 17




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Supplemental Condensed Consolidating Statements of Operations
 Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorThree months ended March 31, 2006
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(unaudited)(in thousands)Revenue
    
    $
    
    
    
    $
    369,164
    
    
    $
    20,896
    
    
    $
    (3,168
    )
    
    $
    386,892Cost of sales, including costs of warehousing,
distribution and
occupancy
    
    
    
    
    
    
    245,126
    
    
    
    14,914
    
    
    
    (3,168
    )
    
    
    256,872Gross
profit
    
    
    
    
    
    
    124,038
    
    
    
    5,982
    
    
    
    
    
    
    
    130,020Compensation and related
benefits
    
    
    
    
    
    
    62,600
    
    
    
    3,252
    
    
    
    
    
    
    
    65,852Advertising and
promotion
    
    
    
    
    
    
    15,745
    
    
    
    94
    
    
    
    
    
    
    
    15,839Other selling, general and
administrative
    
    
    1,029
    
    
    
    19,414
    
    
    
    528
    
    
    
    
    
    
    
    20,971Subsidiary (income)
expense
    
    
    (12,603
    )
    
    
    (1,596
    )
    
    
    
    
    
    
    14,199
    
    
    
    Other expense
(income)
    
    
    
    
    
    
    26
    
    
    
    (614
    )
    
    
    
    
    
    
    (588
    )Operating income
(loss)
    
    
    11,574
    
    
    
    27,849
    
    
    
    2,722
    
    
    
    (14,199
    )
    
    
    27,946Interest expense, net
    
    
    735
    
    
    
    8,558
    
    
    
    383
    
    
    
    
    
    
    
    9,676Income (loss) before income
taxes
    
    
    10,839
    
    
    
    19,291
    
    
    
    2,339
    
    
    
    (14,199
    )
    
    
    18,270Income tax (benefit)
expense
    
    
    (654
    )
    
    
    6,688
    
    
    
    743
    
    
    
    
    
    
    
    6,777Net income
(loss)
    
    $
    11,493
    
    
    $
    12,603
    
    
    $
    1,596
    
    
    $
    (14,199
    )
    
    $
    11,493
 Supplemental Condensed Consolidating Statements of Operations
 Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorThree months ended March 31, 2005
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(unaudited)(in thousands)Revenue
    
    $
    
    
    
    $
    322,346
    
    
    $
    17,685
    
    
    $
    (3,596
    )
    
    $
    336,435Cost of sales, including costs of warehousing,
distribution and
occupancy
    
    
    
    
    
    
    220,927
    
    
    
    13,125
    
    
    
    (3,596
    )
    
    
    230,456Gross
profit
    
    
    
    
    
    
    101,419
    
    
    
    4,560
    
    
    
    
    
    
    
    105,979Compensation and related
benefits
    
    
    
    
    
    
    54,321
    
    
    
    2,993
    
    
    
    
    
    
    
    57,314Advertising and
promotion
    
    
    
    
    
    
    14,483
    
    
    
    118
    
    
    
    
    
    
    
    14,601Other selling, general and
administrative
    
    
    478
    
    
    
    17,930
    
    
    
    414
    
    
    
    
    
    
    
    18,822Subsidiary (income)
expense
    
    
    (6,022
    )
    
    
    (810
    )
    
    
    
    
    
    
    6,832
    
    
    
    Other
income
    
    
    
    
    
    
    (2,510
    )
    
    
    (95
    )
    
    
    
    
    
    
    (2,605
    )Operating income
(loss)
    
    
    5,544
    
    
    
    18,005
    
    
    
    1,130
    
    
    
    (6,832
    )
    
    
    17,847Interest expense, net
    
    
    4,574
    
    
    
    8,571
    
    
    
    326
    
    
    
    
    
    
    
    13,471Income (loss) before income
taxes
    
    
    970
    
    
    
    9,434
    
    
    
    804
    
    
    
    (6,832
    )
    
    
    4,376Income tax (benefit)
expense
    
    
    (1,825
    )
    
    
    3,412
    
    
    
    (6
    )
    
    
    
    
    
    
    1,581Net income
(loss)
    
    $
    2,795
    
    
    $
    6,022
    
    
    $
    810
    
    
    $
    (6,832
    )
    
    $
    2,795
 18




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Supplemental Condensed Consolidating Statements of Cash Flows
 Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorThree months ended March 31, 2006
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Consolidated(unaudited)(in thousands)NET CASH PROVIDED BY OPERATING ACTIVITIES:
    
    $
    
    
    
    $
    10,778
    
    
    $
    1,695
    
    
    $
    12,473CASH FLOWS FROM INVESTING ACTIVITIES:Capital
expenditures
    
    
    
    
    
    
    (3,357
    )
    
    
    (335
    )
    
    
    (3,692
    )Investment/distribution
    
    
    50,247
    
    
    
    (50,247
    )
    
    
    
    
    
    
    Other
investing
    
    
    
    
    
    
    (131
    )
    
    
    
    
    
    
    (131
    )Net cash provided by (used in) investing
activities
    
    
    50,247
    
    
    
    (53,735
    )
    
    
    (335
    )
    
    
    (3,823
    )CASH FLOWS FROM FINANCING ACTIVITIES:GNC Corporation return of capital
from General Nutrition Centers,
Inc.
    
    
    (68
    )
    
    
    
    
    
    
    
    
    
    
    (68
    )Restricted payment made to GNC
Corporation
shareholders
    
    
    (49,934
    )
    
    
    
    
    
    
    
    
    
    
    (49,934
    )Payments on long-term
debt
    
    
    (245
    )
    
    
    
    
    
    
    (272
    )
    
    
    (517
    )Other
financing
    
    
    
    
    
    
    156
    
    
    
    
    
    
    
    156Net cash (used in) provided by financing
activities
    
    
    (50,247
    )
    
    
    156
    
    
    
    (272
    )
    
    
    (50,363
    )Effect of exchange rate on
cash
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    (10
    )Net (decrease) increase in
cash
    
    
    
    
    
    
    (42,801
    )
    
    
    1,078
    
    
    
    (41,723
    )Beginning balance,
cash
    
    
    
    
    
    
    83,143
    
    
    
    2,870
    
    
    
    86,013Ending balance,
cash
    
    $
    
    
    
    $
    40,342
    
    
    $
    3,948
    
    
    $
    44,290
 19




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Supplemental Condensed Consolidating Statements of Cash Flows
 Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorThree months ended March 31, 2005
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Consolidated(unaudited)(in thousands)NET CASH PROVIDED BY OPERATING ACTIVITIES:
    
    $
    4,201
    
    
    $
    30,373
    
    
    $
    966
    
    
    $
    35,540CASH FLOWS FROM INVESTING ACTIVITIES:Capital
expenditures
    
    
    
    
    
    
    (4,361
    )
    
    
    (22
    )
    
    
    (4,383
    )Investment/distribution
    
    
    35,245
    
    
    
    (35,245
    )
    
    
    
    
    
    
    Other
investing
    
    
    
    
    
    
    (558
    )
    
    
    
    
    
    
    (558
    )Net cash provided by (used in) investing
activities
    
    
    35,245
    
    
    
    (40,164
    )
    
    
    (22
    )
    
    
    (4,941
    )CASH FLOWS FROM FINANCING ACTIVITIES:GNC Corporation return of capital
from General Nutrition Centers,
Inc.
    
    
    (416
    )
    
    
    
    
    
    
    
    
    
    
    (416
    )Payments on long-term debt  third
parties
    
    
    (185,245
    )
    
    
    
    
    
    
    (246
    )
    
    
    (185,491
    )Proceeds from senior notes
issuance
    
    
    150,000
    
    
    
    
    
    
    
    
    
    
    
    150,000Other
financing
    
    
    (3,785
    )
    
    
    1,760
    
    
    
    
    
    
    
    (2,025
    )Net cash (used in) provided by financing
activities
    
    
    (39,446
    )
    
    
    1,760
    
    
    
    (246
    )
    
    
    (37,932
    )Effect of exchange rate on
cash
    
    
    
    
    
    
    
    
    
    
    (63
    )
    
    
    (63
    )Net (decrease) increase in
cash
    
    
    
    
    
    
    (8,031
    )
    
    
    635
    
    
    
    (7,396
    )Beginning balance,
cash
    
    
    
    
    
    
    82,722
    
    
    
    2,439
    
    
    
    85,161Ending balance,
cash
    
    $
    
    
    
    
    74,691
    
    
    $
    3,074
    
    
    $
    77,765
 20




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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
  Business Overview
  Executive Overview
    
    
    Continued improvements in comparable same store sales, as the domestic company-owned
stores, including sales from the internet, posted a 14.5% increase over the prior year.
    
    Continued operational improvements in the domestic franchise stores, which posted a
second consecutive quarter of positive comparable same store sales, and steady improvements
throughout the quarter.
    
    Continued leveraging of expenses within all business units, as strong expense control,
coupled with increased sales and margins, allowed for a greater percentage of margin
dollars to contribute to net income.
 Results of Operations
   21




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
  Results of Operations
  Three Months EndedMarch 31,2006
    
    
    2005(unaudited)Revenues:Retail
    
    $
    294.9
    
    
    
    76.2
    %
    
    $
    255.2
    
    
    
    75.9
    %Franchise
    
    
    60.3
    
    
    
    15.6
    %
    
    
    52.6
    
    
    
    15.6
    %Manufacturing / Wholesale
    
    
    31.7
    
    
    
    8.2
    %
    
    
    28.6
    
    
    
    8.5
    %Total net revenues
    
    
    386.9
    
    
    
    100.0
    %
    
    
    336.4
    
    
    
    100.0
    %Operating expenses:Cost of sales, including warehousing,
distribution and occupancy costs
    
    
    256.9
    
    
    
    66.4
    %
    
    
    230.4
    
    
    
    68.5
    %Compensation and related benefits
    
    
    65.9
    
    
    
    17.0
    %
    
    
    57.3
    
    
    
    17.0
    %Advertising and promotion
    
    
    15.8
    
    
    
    4.1
    %
    
    
    14.6
    
    
    
    4.3
    %Other selling, general and administrative
expenses
    
    
    20.0
    
    
    
    5.2
    %
    
    
    17.9
    
    
    
    5.3
    %Amortization expense
    
    
    1.0
    
    
    
    0.3
    %
    
    
    1.0
    
    
    
    0.3
    %Foreign currency gain
    
    
    (0.6
    )
    
    
    -0.2
    %
    
    
    (0.1
    )
    
    
    0.0
    %Other income
    
    
    
    
    
    
    0.0
    %
    
    
    (2.5
    )
    
    
    -0.7
    %Total operating expenses
    
    
    359.0
    
    
    
    92.8
    %
    
    
    318.6
    
    
    
    94.7
    %Operating income:Retail
    
    
    35.3
    
    
    
    9.1
    %
    
    
    17.9
    
    
    
    5.3
    %Franchise
    
    
    16.1
    
    
    
    4.2
    %
    
    
    10.8
    
    
    
    3.2
    %Manufacturing / Wholesale
    
    
    11.2
    
    
    
    2.9
    %
    
    
    12.1
    
    
    
    3.6
    %Unallocated corporate and other
(costs) income:Warehousing and distribution costs
    
    
    (12.8
    )
    
    
    -3.3
    %
    
    
    (12.7
    )
    
    
    -3.7
    %Corporate costs
    
    
    (21.9
    )
    
    
    -5.7
    %
    
    
    (12.8
    )
    
    
    -3.8
    %Other income
    
    
    
    
    
    
    0.0
    %
    
    
    2.5
    
    
    
    0.7
    %Subtotal unallocated corporate and
other costs net
    
    
    (34.7
    )
    
    
    -9.0
    %
    
    
    (23.0
    )
    
    
    -6.8
    %Total operating income
    
    
    27.9
    
    
    
    7.2
    %
    
    
    17.8
    
    
    
    5.3
    %Interest expense, net
    
    
    9.7
    
    
    
    
    
    
    
    13.4Income before income taxes
    
    
    18.2
    
    
    
    
    
    
    
    4.4Income tax expense
    
    
    6.7
    
    
    
    
    
    
    
    1.6Net income
    
    $
    11.5
    
    
    
    
    
    
    $
    2.8
 Note:
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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 Comparison of the Three months ended March 31, 2006 and 2005
 Revenues
  Retail.
  Franchise.
 Manufacturing/Wholesale.
 Cost of Sales
  Product costs.
 Warehousing and distribution costs.
 Occupancy costs.
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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 Selling, General and Administrative (SG&A) Expenses
  Compensation and related benefits.
 Advertising and promotion.
 Other SG&A.
 Foreign Currency Gain
  Other Income and Expense
  Operating Income
  Retail.
 Franchise.
 Manufacturing/Wholesale.
 Warehousing & Distribution Costs.
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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 Corporate Costs.
 Other.
 Interest Expense
  Income Tax Expense
  Net Income
  25




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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
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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 Off Balance Sheet Arrangements
   Effect of Inflation
  Critical
Accounting Estimates
   Recently Issued Accounting Pronouncements
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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk.
  
 Item 4. Controls and Procedures.
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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 
 PART II OTHER INFORMATION
 
 Item 1. Legal Proceedings.
   Ephedra (Ephedrine Alkaloids).
 Pro-Hormone/Androstenedione Cases.
 Harry Rodriguez v. General Nutrition Companies, Inc. (previously pending in the
Supreme Court of the State of New York, New York County, New York, Index No. 02/126277).
 Everett Abrams v. General Nutrition Companies, Inc. (previously pending in the
Superior Court of New Jersey, Mercer County, New Jersey, Docket No. L-3789-02).
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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 Shawn Brown, Ozan Cirak, Thomas Hannon, and Luke Smith v. General Nutrition Companies,
Inc. (previously pending in the 15 th Judicial Circuit Court, Palm Beach
County, Florida, Index. No. CA-02-14221AB).
 Abrams, et al. v. General Nutrition Companies, Inc., et al., previously pending in
the Common Pleas Court of Philadelphia County, Philadelphia, Class Action No. 02-703886).
 David Pio and Ty Stephens, individually and on behalf of all others similarly situated
v. General Nutrition Companies, Inc. , previously pending in the Circuit Court of Cook
County, Illinois, County Department, Chancery Division, Case No. 02-CH-14122).
 Santiago Guzman, individually, on behalf of all others similarly situated, and on behalf
of the general public v. General Nutrition Companies, Inc., previously pending on the
California Judicial Counsel Coordination Proceeding No. 4363, Los Angeles County Superior
Court).
 Companies Creditors
Arrangement Act In re MuscleTech Research and Development, Inc., et al.
  Class Action Settlement.
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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 Franklin Publications.
 Visa/MasterCard antitrust litigation.
 Pennsylvania Claim
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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 
 Item 1A. Risk Factors.
  Risks Relating to Our Business and Industry
 We operate in a highly competitive industry. Our failure to compete effectively could adversely
affect our market share, revenues and growth prospects.
  Unfavorable publicity or consumer perception of our products and any similar products distributed
by other companies could cause fluctuations in our operating results and could have a material
adverse effect on our reputation, the demand for our products and our ability to generate revenues.
  We may incur material product liability claims, which could increase our costs and adversely affect
our reputation, revenues and operating income.
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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
  Changes in our management team could affect our business strategy and adversely impact our
performance and results of operations.
  Compliance with new and existing governmental regulations could increase our costs significantly
and adversely affect our results of operations.
   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.
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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
  Economic, political and other risks associated with our international operations could adversely
affect our revenues and international growth prospects.
  
    
    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.
  Our failure to appropriately respond to changing consumer preferences and demand for new products
and services could significantly harm our customer relationships and product sales.
   
    
    accurately anticipate customer needs;
    
    innovate and develop new products;
    
    successfully commercialize new products in a timely manner;
    
    price our products competitively;
    
    manufacture and deliver our products in sufficient volumes and in a timely manner; and
    
    differentiate our product offerings from those of our competitors.
 
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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
  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 failure to comply with FTC regulations and existing consent decrees imposed on us by the FTC
could result in substantial monetary penalties and could adversely affect our operating results.
  If we fail to protect our brand name, competitors may adopt trade names that dilute the value of
our brand name.
  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 not insured for a significant portion of our claims exposure, which could materially and
adversely affect our operating income and profitability.
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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
  Franchise regulations could limit our ability to terminate or replace under-performing franchises,
which could adversely impact franchise revenues.
  Our Parents controlling stockholder may take actions that conflict with other stockholders and
investors interests. This control may have the effect of delaying or preventing changes of control
or changes in management, or limiting the ability of other stockholders to approve transactions
they may deem to be in their best interest.
  Risks Related to Our Substantial Indebtedness
 Our substantial indebtedness could adversely affect our financial condition and otherwise adversely
impact our operating income and growth prospects.
   
    
    require us to use all or a large portion of our cash to pay principal and
interest on our indebtedness, which could reduce the availability of our cash to fund
working capital, capital expenditures and other business activities;
    
    increase our vulnerability to general adverse economic and industry conditions;
    
    limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
    
    restrict us from making strategic acquisitions or exploiting business opportunities;
    
    make it more difficult for us to satisfy our obligations with respect to our indebtedness;
    
    place us at a competitive disadvantage compared to our competitors that have less debt; and
    
    limit our ability to borrow additional funds, dispose of assets or pay cash dividends.
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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
  We will require a significant amount of cash to service our indebtedness. Our ability to generate
cash depends on many factors beyond our control and, as a result, we may not be able to make
payments on our debt obligations.
   Despite our and our subsidiaries current significant level of indebtedness, we may still be able
to incur more indebtedness, which would increase the risks described above.
 1 2
 Our indebtedness imposes restrictions on us that may affect our ability to successfully operate our
business and our ability to make payments on our indebtedness.
  
    
    incur additional indebtedness and issue preferred stock;
    
    make restricted payments;
    
    waive restrictions on the ability of certain subsidiaries to make distributions;
    
    sell assets;
    
    enter into certain transactions with affiliates; and
    
    create liens.
  We are a holding company and therefore depend on our subsidiaries to service our debt. Earnings
from our operating subsidiaries may not be sufficient to fund our operations and we may be unable
to make payments on our debt obligations.
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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
  
 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.
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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 
 SIGNATURES
  GENERAL NUTRITION CENTERS, INC.
(Registrant)May 5, 2006
    
    /s/ Joseph M. FortunatoJoseph M. FortunatoPresident and Chief Executive Officer(principal executive officer)May 5, 2006
    
    /s/ Curtis J. LarrimerCurtis J. LarrimerExecutive Vice President and
Chief Financial Officer(principal financial and accounting officer)
 39