##### 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, 2009
 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: 333-144396
 GENERAL NUTRITION CENTERS, INC.
  Delaware
    
    72-1575168(State or other jurisdiction of 
Incorporation or organization)
    
    (I.R.S. Employer
Identification No.)300 Sixth Avenue 
Pittsburgh, Pennsylvania
(Address of principal executive offices)
    
    15222
(Zip Code)
 (412) 288-4600
 o þ
 o o
  Large accelerated filer o
    
    Accelerated filer
o
    
    Non-accelerated filer
þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



TABLE OF CONTENTS
 PAGEPART I  FINANCIAL INFORMATIONExplanatory Note.Item 1. Financial Statements.Consolidated Balance Sheets as of March 31, 2009 (unaudited) and December 31, 2008
    
    
    1Unaudited Consolidated Statements of Operations and Comprehensive Income for the
three months ended March 31, 2009 and 2008.
    
    
    2Unaudited Consolidated Statement of Stockholders Equity for the three months ended March 31, 2009
    
    
    3Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2009 and 2008.
    
    
    4Summarized Notes to Unaudited Consolidated Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
    
    
    26Item 3. Quantitative and Qualitative Disclosures About Market Risk.
    
    
    37Item 4. Controls and Procedures.
    
    
    38PART II  OTHER INFORMATIONItem 1. Legal Proceedings.
    
    
    39Item 1A. Risk Factors.
    
    
    42Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
    
    
    51Item 3. Defaults Upon Senior Securities.
    
    
    51Item 4. Submission of Matters to a Vote of Security Holders.
    
    
    51Item 5. Other Information.
    
    
    51Item 6. Exhibits.
    
    
    51Signatures
    
    
    52EX-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 31,2009
    
    
    2008 *(unaudited)Current assets:Cash and cash equivalents
    
    $
    65,635
    
    
    $
    42,307Receivables, net
    
    
    90,913
    
    
    
    89,413Inventories, net (Note 3)
    
    
    377,674
    
    
    
    363,654Deferred tax assets, net
    
    
    11,455
    
    
    
    11,455Prepaids and other current assets
    
    
    35,112
    
    
    
    47,952Total current assets
    
    
    580,789
    
    
    
    554,781Long-term assets:Goodwill (Note 4)
    
    
    623,071
    
    
    
    622,909Brands (Note 4)
    
    
    720,000
    
    
    
    720,000Other intangible assets, net (Note 4)
    
    
    160,780
    
    
    
    163,176Property, plant and equipment, net
    
    
    202,718
    
    
    
    206,154Deferred financing fees, net
    
    
    21,469
    
    
    
    22,470Other long-term assets
    
    
    2,652
    
    
    
    2,518Total long-term assets
    
    
    1,730,690
    
    
    
    1,737,227Total assets
    
    $
    2,311,479
    
    
    $
    2,292,008Current liabilities:Accounts payable
    
    $
    140,010
    
    
    $
    123,577Accrued payroll and related liabilities
    
    
    20,137
    
    
    
    22,582Accrued income taxes
    
    
    80
    
    
    
    Accrued interest (Note 5)
    
    
    6,818
    
    
    
    15,745Current portion, long-term debt (Note 5)
    
    
    10,652
    
    
    
    13,509Deferred revenue and other current liabilities
    
    
    73,660
    
    
    
    74,309Total current liabilities
    
    
    251,357
    
    
    
    249,722Long-term liabilities:Long-term debt (Note 5)
    
    
    1,069,278
    
    
    
    1,071,237Deferred tax liabilities, net
    
    
    278,312
    
    
    
    278,003Other long-term liabilities
    
    
    40,724
    
    
    
    40,984Total long-term liabilities
    
    
    1,388,314
    
    
    
    1,390,224Total liabilities
    
    
    1,639,671
    
    
    
    1,639,946Stockholders equity:Common stock, $0.01 par value,
1,000 shares authorized, 100 shares issued and outstanding
    
    
    
    
    
    
    Paid-in-capital
    
    
    592,734
    
    
    
    592,355Retained earnings
    
    
    93,209
    
    
    
    73,764Accumulated other comprehensive loss
    
    
    (14,135
    )
    
    
    (14,057
    )Total stockholders equity
    
    
    671,808
    
    
    
    652,062Total liabilities and stockholders equity
    
    $
    2,311,479
    
    
    $
    2,292,008
 
 *
    
    Footnotes summarized from the Audited Financial Statements  1




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Operations and Comprehensive Income
 (unaudited)
(in thousands)
 Three months endedMarch 31,
    
    
    March 31,2009
    
    
    2008Revenue
    
    $
    439,897
    
    
    $
    428,133Cost of sales, including costs of warehousing,
distribution and occupancy
    
    
    285,729
    
    
    
    278,890Gross profit
    
    
    154,168
    
    
    
    149,243Compensation and related benefits
    
    
    65,325
    
    
    
    61,571Advertising and promotion
    
    
    14,739
    
    
    
    18,147Other selling, general and administrative
    
    
    23,853
    
    
    
    24,925Foreign currency loss
    
    
    97
    
    
    
    92Operating income
    
    
    50,154
    
    
    
    44,508Interest expense, net (Note 5)
    
    
    19,062
    
    
    
    23,071Income before income taxes
    
    
    31,092
    
    
    
    21,437Income tax expense (Note 10)
    
    
    11,647
    
    
    
    8,097Net income
    
    
    19,445
    
    
    
    13,340Other comprehensive loss
    
    
    (78
    )
    
    
    (4,564
    )Comprehensive income
    
    $
    19,367
    
    
    $
    8,776
  2




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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
    
    
    Loss
    
    
    EquityBalance at December 31, 2008
    
    
    100
    
    
    $
    
    
    
    $
    592,355
    
    
    $
    73,764
    
    
    $
    (14,057
    )
    
    $
    652,062Return of capital to GNC Corporation
    
    
    
    
    
    
    
    
    
    
    (278
    )
    
    
    
    
    
    
    
    
    
    
    (278
    )Non-cash stock-based compensation
    
    
    
    
    
    
    
    
    
    
    657
    
    
    
    
    
    
    
    
    
    
    
    657Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,445
    
    
    
    
    
    
    
    19,445Unrealized gain on derivatives designated and qualified
as cash flow hedges, net of tax of $309
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    540
    
    
    
    540Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (618
    )
    
    
    (618
    )Balance at March 31, 2009 (unaudited)
    
    
    100
    
    
    $
    
    
    
    $
    592,734
    
    
    $
    93,209
    
    
    $
    (14,135
    )
    
    $
    671,808
  3




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
 (unaudited)
(in thousands)
 Three months endedMarch 31,
    
    
    March 31,2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    19,445
    
    
    $
    13,340Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation expense
    
    
    8,862
    
    
    
    7,310Amortization of intangible assets
    
    
    2,597
    
    
    
    3,090Amortization of deferred financing fees
    
    
    1,002
    
    
    
    941Amortization of original issue discount
    
    
    89
    
    
    
    81Increase in provision for inventory losses
    
    
    3,808
    
    
    
    3,521Non-cash stock-based compensation
    
    
    657
    
    
    
    729(Decrease) increase in provision for losses on accounts receivable
    
    
    (1,284
    )
    
    
    921Changes in assets and liabilities:Increase in receivables
    
    
    (306
    )
    
    
    (433
    )Increase in inventory, net
    
    
    (18,422
    )
    
    
    (24,966
    )Decrease in franchise note receivables, net
    
    
    112
    
    
    
    471Decrease (increase) in other assets
    
    
    2,525
    
    
    
    (78
    )Increase in accounts payable
    
    
    16,507
    
    
    
    26,140Increase in accrued taxes
    
    
    10,333
    
    
    
    6,686Decrease in interest payable
    
    
    (8,927
    )
    
    
    (11,152
    )Decrease in accrued liabilities
    
    
    (2,656
    )
    
    
    (18,804
    )Net cash provided by operating activities
    
    
    34,342
    
    
    
    7,797CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (5,539
    )
    
    
    (6,248
    )Franchise store conversions
    
    
    
    
    
    
    34Store acquisition costs
    
    
    (300
    )
    
    
    (125
    )Net cash used in investing activities
    
    
    (5,839
    )
    
    
    (6,339
    )CASH FLOWS FROM FINANCING ACTIVITIES:Return of capital to Parent company
    
    
    (278
    )
    
    
    (494
    )Payments on long-term debt
    
    
    (4,906
    )
    
    
    (1,936
    )Net cash used in financing activities
    
    
    (5,184
    )
    
    
    (2,430
    )Effect of exchange rate on cash
    
    
    9
    
    
    
    80Net increase (decrease) in cash
    
    
    23,328
    
    
    
    (892
    )Beginning balance, cash
    
    
    42,307
    
    
    
    28,854Ending balance, cash
    
    $
    65,635
    
    
    $
    27,962
  4




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 1. NATURE OF BUSINESS
 General Nature of Business .
   Merger of the Company.
 5




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 2. BASIS OF PRESENTATION
    Principles of Consolidation.
  Use of Estimates .
 Cash and Cash Equivalents .
  6




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Financial Instruments and Derivatives .
   Balance Sheet
    
    March 31,
    
    
    December 31,Designated Cash Flow Hedges
    
    
    Classification
    
    2009
    
    
    2008(unaudited)(in thousands)Interest rate swap contracts
    
    Other long-term
liabilities
    
    $
    18,053
    
    
    $
    18,902
  7




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Amount of gain (loss)recognized in otherDerivative in SFAS 133 cash
    
    comprehensive incomeflow hedging relationships
    
    (Effective portion)(in thousands)Interest rate swap contracts
    
    $
    849
  Recently Issued Accounting Pronouncements
    8




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
   9




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 3. INVENTORIES, NET
  March 31, 2009Net CarryingGross cost
    
    
    Reserves
    
    
    Value(unaudited)(in thousands)Finished product ready for sale
    
    $
    322,035
    
    
    $
    (9,323
    )
    
    $
    312,712Work-in-process, bulk product and raw materials
    
    
    61,440
    
    
    
    (1,348
    )
    
    
    60,092Packaging supplies
    
    
    4,870
    
    
    
    
    
    
    
    4,870$
    388,345
    
    
    $
    (10,671
    )
    
    $
    377,674
 December 31, 2008Net CarryingGross cost
    
    
    Reserves
    
    
    Value(in thousands)Finished product ready for sale
    
    $
    311,218
    
    
    $
    (9,275
    )
    
    $
    301,943Work-in-process, bulk product and raw materials
    
    
    57,995
    
    
    
    (1,111
    )
    
    
    56,884Packaging supplies
    
    
    4,827
    
    
    
    
    
    
    
    4,827$
    374,040
    
    
    $
    (10,386
    )
    
    $
    363,654
 NOTE 4. GOODWILL AND INTANGIBLE ASSETS, NET
   10




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Manufacturing/Retail
    
    
    Franchising
    
    
    Wholesale
    
    
    Total(in thousands)Balance at December 31, 2008
    
    $
    302,765
    
    
    $
    117,303
    
    
    $
    202,841
    
    
    $
    622,909Acquired franchise stores
    
    
    162
    
    
    
    
    
    
    
    
    
    
    
    162Balance at March 31, 2009 (unaudited)
    
    $
    302,927
    
    
    $
    117,303
    
    
    $
    202,841
    
    
    $
    623,071
  Retail
    
    
    Franchise
    
    
    Operating
    
    
    FranchiseGold Card
    
    
    Brand
    
    
    Brand
    
    
    Agreements
    
    
    Rights
    
    
    Total(in thousands)Balance at December 31, 2008
    
    $
    2,456
    
    
    $
    500,000
    
    
    $
    220,000
    
    
    $
    160,019
    
    
    $
    701
    
    
    $
    883,176Acquired franchise stores
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    201
    
    
    
    201Amortization expense
    
    
    (731
    )
    
    
    
    
    
    
    
    
    
    
    (1,721
    )
    
    
    (145
    )
    
    
    (2,597
    )Balance at March 31, 2009
(unaudited)
    
    $
    1,725
    
    
    $
    500,000
    
    
    $
    220,000
    
    
    $
    158,298
    
    
    $
    757
    
    
    $
    880,780
  Estimated

    
    
    March 31, 2009
    
    

    December 31, 2008Life
    
    
    
    
    
    
    Accumulated
    
    
    Carrying
    
    
    
    
    
    
    Accumulated
    
    
    Carryingin years
    
    
    Cost
    
    
    Amortization
    
    
    Amount
    
    
    Cost
    
    
    Amortization
    
    
    Amount(unaudited)
    
    
    (in thousands)Brands  retail
    
    
    
    
    
    $
    500,000
    
    
    $
    
    
    
    $
    500,000
    
    
    $
    500,000
    
    
    $
    
    
    
    $
    500,000Brands  franchise
    
    
    
    
    
    
    220,000
    
    
    
    
    
    
    
    220,000
    
    
    
    220,000
    
    
    
    
    
    
    
    220,000Gold card  retail
    
    
    3
    
    
    
    3,500
    
    
    
    (2,829
    )
    
    
    671
    
    
    
    3,500
    
    
    
    (2,545
    )
    
    
    955Gold card  franchise
    
    
    3
    
    
    
    5,500
    
    
    
    (4,446
    )
    
    
    1,054
    
    
    
    5,500
    
    
    
    (3,999
    )
    
    
    1,501Retail agreements
    
    
    25-35
    
    
    
    31,000
    
    
    
    (2,301
    )
    
    
    28,699
    
    
    
    31,000
    
    
    
    (2,038
    )
    
    
    28,962Franchise agreements
    
    
    25
    
    
    
    70,000
    
    
    
    (5,717
    )
    
    
    64,283
    
    
    
    70,000
    
    
    
    (5,016
    )
    
    
    64,984Manufacturing agreements
    
    
    25
    
    
    
    70,000
    
    
    
    (5,717
    )
    
    
    64,283
    
    
    
    70,000
    
    
    
    (5,017
    )
    
    
    64,983Other intangibles
    
    
    5
    
    
    
    1,150
    
    
    
    (117
    )
    
    
    1,033
    
    
    
    1,150
    
    
    
    (60
    )
    
    
    1,090Franchise rights
    
    
    1-5
    
    
    
    2,309
    
    
    
    (1,552
    )
    
    
    757
    
    
    
    2,108
    
    
    
    (1,407
    )
    
    
    701$
    903,459
    
    
    $
    (22,679
    )
    
    $
    880,780
    
    
    $
    903,258
    
    
    $
    (20,082
    )
    
    $
    883,176
  EstimatedamortizationYears ending December 31,
    
    expense(in thousands)2009
    
    $
    6,9252010
    
    
    7,5102011
    
    
    6,9572012
    
    
    6,8612013
    
    
    6,853Thereafter
    
    
    125,674Total
    
    $
    160,780
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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 5. LONG-TERM DEBT / INTEREST EXPENSE
  March 31,
    
    
    December 31,2009
    
    
    2008(unaudited)(in thousands)2007 Senior Credit Facility
    
    $
    663,994
    
    
    $
    668,563Senior Toggle Notes
    
    
    297,674
    
    
    
    297,58510.75% Senior Subordinated Notes
    
    
    110,000
    
    
    
    110,000Mortgage
    
    
    8,223
    
    
    
    8,557Capital leases
    
    
    39
    
    
    
    41Less: current maturities
    
    
    (10,652
    )
    
    
    (13,509
    )Total
    
    $
    1,069,278
    
    
    $
    1,071,237
  Three months endedMarch 31,
    
    
    March 31,2009
    
    
    2008(unaudited)(in thousands)2007 Senior Credit FacilityTerm Loan
    
    $
    9,205
    
    
    $
    11,896Revolver
    
    
    136
    
    
    
    111Senior Toggle Notes
    
    
    5,531
    
    
    
    7,13210.75% Senior Subordinated Notes
    
    
    2,956
    
    
    
    2,956OID amortization
    
    
    89
    
    
    
    81Deferred financing fees
    
    
    1,002
    
    
    
    941Mortgage
    
    
    147
    
    
    
    162Interest income-other
    
    
    (4
    )
    
    
    (208
    )Interest expense, net
    
    $
    19,062
    
    
    $
    23,071
  March 31,
    
    
    December 31,2009
    
    
    2008(unaudited)(in thousands)2007 Senior Credit Facility
    
    $
    5,439
    
    
    $
    5,564Senior Toggle Notes
    
    
    853
    
    
    
    6,70010.75% Senior Subordinated Notes
    
    
    526
    
    
    
    3,481Total
    
    $
    6,818
    
    
    $
    15,745
  12




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 6. COMMITMENTS AND CONTINGENCIES
 Litigation
   Pro-Hormone/Androstenedione Cases. Stephens and Pio
  Guzman v. General Nutrition Companies, Inc
  13




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Guzman
 Stephens and Pio v. General Nutrition
Companies, Inc. (Case No. 08 CH 37097, Circuit Court of Cook County, Illinois, County Department,
Chancery Division).
  Wage and Hour Claim.
 California Wage and Break Claim
 California Wage and Break Claim
 14




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Franchise Class Action.
 Creatine Claim
 Jackson Claim.
 DiMauro Claim.
 Ciavarra Claim
 Romero Claim
 Commitments
  15




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Environmental Compliance
   Contingencies
  NOTE 7. STOCK-BASED COMPENSATION PLANS
 Stock Options
  16




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  WeightedAverageTotal Options
    
    Exercise PriceOutstanding at December 31, 2008
    
    
    8,883,692
    
    
    $
    7.10Forfeited
    
    
    (237,667
    )
    
    
    6.25Outstanding at March 31, 2009
    
    
    8,646,025
    
    
    $
    7.13Exercisable at March 31, 2009
    
    
    3,063,950
    
    
    $
    6.53
     17




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 8. SEGMENTS
  Three months endedMarch 31,
    
    
    March 31,2009
    
    
    2008(unaudited)(in thousands)Revenue:Retail
    
    $
    333,712
    
    
    $
    321,295Franchise
    
    
    64,483
    
    
    
    64,904Manufacturing/Wholesale:Intersegment (1)
    
    
    47,751
    
    
    
    44,110Third Party
    
    
    41,702
    
    
    
    41,934Sub total Manufacturing/Wholesale
    
    
    89,453
    
    
    
    86,044Sub total segment revenues
    
    
    487,648
    
    
    
    472,243Intersegment elimination (1)
    
    
    (47,751
    )
    
    
    (44,110
    )Total revenue
    
    $
    439,897
    
    
    $
    428,133Operating income:Retail
    
    $
    44,443
    
    
    $
    36,818Franchise
    
    
    19,207
    
    
    
    19,783Manufacturing/Wholesale
    
    
    17,881
    
    
    
    15,738Unallocated corporate and other costs:Warehousing and distribution costs
    
    
    (13,317
    )
    
    
    (13,769
    )Corporate costs
    
    
    (18,060
    )
    
    
    (14,062
    )Sub total unallocated corporate and
other costs
    
    
    (31,377
    )
    
    
    (27,831
    )Total operating income
    
    $
    50,154
    
    
    $
    44,508
 
 (1)
    
    Intersegment revenues are eliminated from consolidated revenue. 18




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 9. SUPPLEMENTAL GUARANTOR INFORMATION
    19




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Supplemental Condensed Consolidating Balance Sheets
 Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorMarch 31, 2009
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(unaudited)
(in thousands)Current assetsCash and cash equivalents
    
    $
    51,657
    
    
    $
    7,704
    
    
    $
    6,274
    
    
    $
    
    
    
    $
    65,635Receivables, net
    
    
    454
    
    
    
    90,348
    
    
    
    111
    
    
    
    
    
    
    
    90,913Intercompany receivables
    
    
    207,837
    
    
    
    
    
    
    
    
    
    
    
    (207,837
    )
    
    
    Inventories, net
    
    
    
    
    
    
    355,683
    
    
    
    21,991
    
    
    
    
    
    
    
    377,674Prepaids and other current assets
    
    
    11,768
    
    
    
    31,472
    
    
    
    3,327
    
    
    
    
    
    
    
    46,567Total current assets
    
    
    271,716
    
    
    
    485,207
    
    
    
    31,703
    
    
    
    (207,837
    )
    
    
    580,789Goodwill
    
    
    
    
    
    
    622,603
    
    
    
    468
    
    
    
    
    
    
    
    623,071Brands
    
    
    
    
    
    
    720,000
    
    
    
    
    
    
    
    
    
    
    
    720,000Property, plant and equipment, net
    
    
    9,476
    
    
    
    167,587
    
    
    
    25,655
    
    
    
    
    
    
    
    202,718Investment in subsidiaries
    
    
    1,498,593
    
    
    
    11,312
    
    
    
    
    
    
    
    (1,509,905
    )
    
    
    Other assets
    
    
    31,762
    
    
    
    161,920
    
    
    
    
    
    
    
    (8,781
    )
    
    
    184,901Total assets
    
    $
    1,811,547
    
    
    $
    2,168,629
    
    
    $
    57,826
    
    
    $
    (1,726,523
    )
    
    $
    2,311,479Current liabilitiesCurrent liabilities
    
    $
    59,025
    
    
    $
    182,518
    
    
    $
    9,814
    
    
    $
    
    
    
    $
    251,357Intercompany payables
    
    
    
    
    
    
    187,020
    
    
    
    20,817
    
    
    
    (207,837
    )
    
    
    Total current liabilities
    
    
    59,025
    
    
    
    369,538
    
    
    
    30,631
    
    
    
    (207,837
    )
    
    
    251,357Long-term debt
    
    
    1,062,425
    
    
    
    28
    
    
    
    15,606
    
    
    
    (8,781
    )
    
    
    1,069,278Deferred tax liabilities
    
    
    (8,446
    )
    
    
    286,758
    
    
    
    
    
    
    
    
    
    
    
    278,312Other long-term liabilities
    
    
    26,735
    
    
    
    13,712
    
    
    
    277
    
    
    
    
    
    
    
    40,724Total liabilities
    
    
    1,139,739
    
    
    
    670,036
    
    
    
    46,514
    
    
    
    (216,618
    )
    
    
    1,639,671Total stockholders equity
(deficit)
    
    
    671,808
    
    
    
    1,498,593
    
    
    
    11,312
    
    
    
    (1,509,905
    )
    
    
    671,808Total liabilities and
stockholders
equity (deficit)
    
    $
    1,811,547
    
    
    $
    2,168,629
    
    
    $
    57,826
    
    
    $
    (1,726,523
    )
    
    $
    2,311,479
 20




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Supplemental Condensed Consolidating Balance Sheets
 Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorDecember 31, 2008
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Current assetsCash and cash equivalents
    
    $
    
    
    
    $
    40,077
    
    
    $
    2,230
    
    
    $
    
    
    
    $
    42,307Receivables, net
    
    
    369
    
    
    
    88,972
    
    
    
    72
    
    
    
    
    
    
    
    89,413Intercompany receivables
    
    
    
    
    
    
    87,554
    
    
    
    
    
    
    
    (87,554
    )
    
    
    Inventories, net
    
    
    
    
    
    
    342,085
    
    
    
    21,569
    
    
    
    
    
    
    
    363,654Prepaids and other current assets
    
    
    (82
    )
    
    
    55,520
    
    
    
    3,969
    
    
    
    
    
    
    
    59,407Total current assets
    
    
    287
    
    
    
    614,208
    
    
    
    27,840
    
    
    
    (87,554
    )
    
    
    554,781Goodwill
    
    
    
    
    
    
    622,441
    
    
    
    468
    
    
    
    
    
    
    
    622,909Brands
    
    
    
    
    
    
    720,000
    
    
    
    
    
    
    
    
    
    
    
    720,000Property, plant and equipment, net
    
    
    
    
    
    
    180,494
    
    
    
    25,660
    
    
    
    
    
    
    
    206,154Investment in subsidiaries
    
    
    1,797,306
    
    
    
    10,482
    
    
    
    
    
    
    
    (1,807,788
    )
    
    
    Other assets
    
    
    22,470
    
    
    
    174,475
    
    
    
    
    
    
    
    (8,781
    )
    
    
    188,164Total assets
    
    $
    1,820,063
    
    
    $
    2,322,100
    
    
    $
    53,968
    
    
    $
    (1,904,123
    )
    
    $
    2,292,008Current liabilitiesCurrent liabilities
    
    $
    20,644
    
    
    $
    220,120
    
    
    $
    8,958
    
    
    $
    
    
    
    $
    249,722Intercompany payables
    
    
    69,244
    
    
    
    
    
    
    
    18,310
    
    
    
    (87,554
    )
    
    
    Total current liabilities
    
    
    89,888
    
    
    
    220,120
    
    
    
    27,268
    
    
    
    (87,554
    )
    
    
    249,722Long-term debt
    
    
    1,064,024
    
    
    
    30
    
    
    
    15,964
    
    
    
    (8,781
    )
    
    
    1,071,237Deferred tax liabilities
    
    
    (4,813
    )
    
    
    282,816
    
    
    
    
    
    
    
    
    
    
    
    278,003Other long-term liabilities
    
    
    18,902
    
    
    
    21,828
    
    
    
    254
    
    
    
    
    
    
    
    40,984Total liabilities
    
    
    1,168,001
    
    
    
    524,794
    
    
    
    43,486
    
    
    
    (96,335
    )
    
    
    1,639,946Total stockholders equity
(deficit)
    
    
    652,062
    
    
    
    1,797,306
    
    
    
    10,482
    
    
    
    (1,807,788
    )
    
    
    652,062Total liabilities and
stockholders
equity (deficit)
    
    $
    1,820,063
    
    
    $
    2,322,100
    
    
    $
    53,968
    
    
    $
    (1,904,123
    )
    
    $
    2,292,008
 21




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Supplemental Condensed Consolidating Statements of Operations
 Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorThree months ended March 31, 2009
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(unaudited)(in thousands)Revenue
    
    $
    
    
    
    $
    418,582
    
    
    $
    24,412
    
    
    $
    (3,097
    )
    
    $
    439,897Cost of sales, including costs of warehousing,
distribution and occupancy
    
    
    
    
    
    
    272,177
    
    
    
    16,649
    
    
    
    (3,097
    )
    
    
    285,729Gross profit
    
    
    
    
    
    
    146,405
    
    
    
    7,763
    
    
    
    
    
    
    
    154,168Compensation and related benefits
    
    
    10,084
    
    
    
    51,535
    
    
    
    3,706
    
    
    
    
    
    
    
    65,325Advertising and promotion
    
    
    
    
    
    
    14,473
    
    
    
    266
    
    
    
    
    
    
    
    14,739Other selling, general and administrative
    
    
    8,224
    
    
    
    15,411
    
    
    
    218
    
    
    
    
    
    
    
    23,853Subsidiary (income) expense
    
    
    (31,829
    )
    
    
    (1,445
    )
    
    
    
    
    
    
    33,274
    
    
    
    Other (income) expense
    
    
    (17,592
    )
    
    
    16,707
    
    
    
    982
    
    
    
    
    
    
    
    97Operating income (loss)
    
    
    31,113
    
    
    
    49,724
    
    
    
    2,591
    
    
    
    (33,274
    )
    
    
    50,154Interest expense, net
    
    
    875
    
    
    
    17,895
    
    
    
    292
    
    
    
    
    
    
    
    19,062Income (loss) before income taxes
    
    
    30,238
    
    
    
    31,829
    
    
    
    2,299
    
    
    
    (33,274
    )
    
    
    31,092Income tax expense
    
    
    10,793
    
    
    
    
    
    
    
    854
    
    
    
    
    
    
    
    11,647Net income (loss)
    
    $
    19,445
    
    
    $
    31,829
    
    
    $
    1,445
    
    
    $
    (33,274
    )
    
    $
    19,445
 Supplemental Condensed Consolidating Statements of Operations
 Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorThree months ended March 31, 2008
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(unaudited)(in thousands)Revenue
    
    $
    
    
    
    $
    404,521
    
    
    $
    26,558
    
    
    $
    (2,946
    )
    
    $
    428,133Cost of sales, including costs of warehousing,
distribution and occupancy
    
    
    
    
    
    
    262,705
    
    
    
    19,131
    
    
    
    (2,946
    )
    
    
    278,890Gross profit
    
    
    
    
    
    
    141,816
    
    
    
    7,427
    
    
    
    
    
    
    
    149,243Compensation and related benefits
    
    
    
    
    
    
    57,730
    
    
    
    3,841
    
    
    
    
    
    
    
    61,571Advertising and promotion
    
    
    
    
    
    
    18,034
    
    
    
    113
    
    
    
    
    
    
    
    18,147Other selling, general and administrative
    
    
    521
    
    
    
    23,535
    
    
    
    869
    
    
    
    
    
    
    
    24,925Subsidiary (income) expense
    
    
    (14,298
    )
    
    
    (923
    )
    
    
    
    
    
    
    15,221
    
    
    
    Other (income) expense
    
    
    
    
    
    
    (15
    )
    
    
    107
    
    
    
    
    
    
    
    92Operating income (loss)
    
    
    13,777
    
    
    
    43,455
    
    
    
    2,497
    
    
    
    (15,221
    )
    
    
    44,508Interest expense, net
    
    
    1,019
    
    
    
    21,780
    
    
    
    272
    
    
    
    
    
    
    
    23,071Income (loss) before income taxes
    
    
    12,758
    
    
    
    21,675
    
    
    
    2,225
    
    
    
    (15,221
    )
    
    
    21,437Income tax (benefit) expense
    
    
    (582
    )
    
    
    7,377
    
    
    
    1,302
    
    
    
    
    
    
    
    8,097Net income (loss)
    
    $
    13,340
    
    
    $
    14,298
    
    
    $
    923
    
    
    $
    (15,221
    )
    
    $
    13,340
 22




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Supplemental Condensed Consolidating Statements of Cash Flows
 Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorThree months ended March 31, 2009
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Consolidated(unaudited)(in thousands)NET CASH PROVIDED BY OPERATING ACTIVITIES:
    
    $
    
    
    
    $
    29,259
    
    
    $
    5,083
    
    
    $
    34,342CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (754
    )
    
    
    (4,071
    )
    
    
    (714
    )
    
    
    (5,539
    )Investment/distribution
    
    
    57,258
    
    
    
    (57,258
    )
    
    
    
    
    
    
    Other investing
    
    
    
    
    
    
    (300
    )
    
    
    
    
    
    
    (300
    )Net cash provided by (used in) investing activities
    
    
    56,504
    
    
    
    (61,629
    )
    
    
    (714
    )
    
    
    (5,839
    )CASH FLOWS FROM FINANCING ACTIVITIES:GNC Corporation investment in
General Nutrition Centers, Inc.
    
    
    (278
    )
    
    
    
    
    
    
    
    
    
    
    (278
    )Other financing
    
    
    (4,569
    )
    
    
    (3
    )
    
    
    (334
    )
    
    
    (4,906
    )Net cash used in financing activities
    
    
    (4,847
    )
    
    
    (3
    )
    
    
    (334
    )
    
    
    (5,184
    )Effect of exchange rate on cash
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    9Net increase (decrease) in cash
    
    
    51,657
    
    
    
    (32,373
    )
    
    
    4,044
    
    
    
    23,328Beginning balance, cash
    
    
    
    
    
    
    40,077
    
    
    
    2,230
    
    
    
    42,307Ending balance, cash
    
    $
    51,657
    
    
    $
    7,704
    
    
    $
    6,274
    
    
    $
    65,635
 Supplemental Condensed Consolidating Statements of Cash Flows
 Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorThree months ended March 31, 2008
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Consolidated(unaudited)(in thousands)NET CASH PROVIDED BY OPERATING ACTIVITIES:
    
    $
    
    
    
    $
    7,626
    
    
    $
    171
    
    
    $
    7,797CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    
    
    
    
    (5,366
    )
    
    
    (882
    )
    
    
    (6,248
    )Investment/distribution
    
    
    2,182
    
    
    
    (2,182
    )
    
    
    
    
    
    
    Other investing
    
    
    
    
    
    
    (91
    )
    
    
    
    
    
    
    (91
    )Net cash provided by (used in) investing activities
    
    
    2,182
    
    
    
    (7,639
    )
    
    
    (882
    )
    
    
    (6,339
    )CASH FLOWS FROM FINANCING ACTIVITIES:GNC Corporation investment in
General Nutrition Centers, Inc.
    
    
    (494
    )
    
    
    
    
    
    
    
    
    
    
    (494
    )Other financing
    
    
    (1,688
    )
    
    
    
    
    
    
    (248
    )
    
    
    (1,936
    )Net cash used in financing activities
    
    
    (2,182
    )
    
    
    
    
    
    
    (248
    )
    
    
    (2,430
    )Effect of exchange rate on cash
    
    
    
    
    
    
    
    
    
    
    80
    
    
    
    80Net decrease in cash
    
    
    
    
    
    
    (13
    )
    
    
    (879
    )
    
    
    (892
    )Beginning balance, cash
    
    
    
    
    
    
    26,090
    
    
    
    2,764
    
    
    
    28,854Ending balance, cash
    
    $
    
    
    
    $
    26,077
    
    
    $
    1,885
    
    
    $
    27,962
 23




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 10. INCOME TAXES
   NOTE 11. FAIR VALUE MEASUREMENT
  Level 1 
    
    observable inputs such as quoted prices in active markets for identical
assets and liabilities;Level 2 
    
    observable inputs such as quoted prices for similar assets or liabilities
in active markets, quoted prices for identical or similar assets or liabilities in
markets that are not active, other inputs that are observable, or can be corroborated
by observable market data; andLevel 3 
    
    unobservable inputs for which there are little or no market data, which
require the reporting entity to develop its own assumptions.
  Fair Value Measurements UsingLevel 1
    
    Level 2
    
    Level 3(in thousands)Other long-term liabilities
    
    $
    1,496
    
    
    $
    18,053
    
    
    $
    
 24




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Fair Value Measurements UsingLevel 1
    
    Level 2
    
    Level 3(in thousands)Other long-term liabilities
    
    $
    1,496
    
    
    $
    18,902
    
    
    $
    
  Other long-term liabilities
  NOTE 12. RELATED PARTY TRANSACTIONS
 Management Services Agreement.
 Credit Facility.
 Lease Agreements.
 25




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Forward-Looking Statements
   
    
    uncertainty of continuing weakening of the economy and its impact on us and our partners;
    
    significant competition in our industry;
    
    unfavorable publicity or consumer perception of our products;
    
    the incurrence of material product liability and product recall costs;
    
    costs of compliance and our failure to comply with new and existing governmental regulations;
    
    the failure of our franchisees to conduct their operations profitably and limitations on our ability to
terminate or replace under-performing franchisees;
    
    economic, political, and other risks associated with our international operations;
    
    our failure to keep pace with the demands of our customers for new products and services;
    
    disruptions in our manufacturing system or losses of manufacturing certifications;
    
    the lack of long-term experience with human consumption of ingredients in some of our products;
    
    increases in the frequency and severity of insurance claims, particularly claims for which we are self-insured;
    
    loss or retirement of key members of management;
    
    increases in the cost of borrowings and limitations on availability of additional debt or equity capital;
    
    the impact of our substantial debt on our operating income and our ability to grow;
    
    the failure to adequately protect or enforce our intellectual property rights against competitors;
    
    changes in applicable laws relating to our franchise operations; and
    
    our inability to expand our franchise operations or attract new franchisees.
  26




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Business Overview
  Revenues and Operating Performance from our Business Segments
  
    
    Retail revenues are generated by sales to consumers at our company-owned stores and
online through www.gnc.com. Although we believe that our retail and franchise businesses
are not seasonal in nature, historically we have experienced, and expect to continue to
experience, a substantial variation in our net sales and operating results from quarter
to quarter, with the first half of the year being stronger than the second half of the
year. According to Nutrition Business Journals Supplement Business Report 2008, our
industry is projected to grow at an average annual rate of 6% for the next five years due
in part to favorable demographics, including an aging U.S. population, rising healthcare
costs, and the desire by many to live longer, healthier lives. As a leader in our
industry, we expect our retail revenue growth to be consistent with the projected
industry growth rate as a result of our disproportionate market share, scale economies in
purchasing and advertising, strong brand awareness, and vertical integration.
    
    Franchise revenues are generated primarily from:
 (1)
    
    product sales to our franchisees;(2)
    
    royalties on franchise retail sales; and(3)
    
    franchise fees, which are charged for initial franchise awards, renewals, and
transfers of franchises.
  
    
    Manufacturing/wholesale revenues are generated through sales of manufactured
products to third parties, generally for third-party private label brands, and the sale
of our proprietary and third-party products to and through Rite Aid and
www.drugstore.com. Our revenues generated by our manufacturing and wholesale operations
are subject to our available manufacturing capacity, and we anticipate that these
revenues will remain stable over the next five years.
    
    A significant portion of our business infrastructure is comprised of fixed
operating costs. Our vertically integrated distribution network and manufacturing
capacity can support higher sales volume without adding significant incremental costs. We
therefore expect our operating expenses to grow at a lesser rate than our revenues,
resulting in significant operating leverage in our business.
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
    
    broader consumer awareness of health and wellness issues and rising healthcare
costs;
    
    interest in, and demand for, condition-specific products based on scientific
research;
    
    significant effects of favorable and unfavorable publicity on consumer demand;
    
    lack of a single product or group of products dominating any one product
category;
    
    volatility in the diet category;
    
    rapidly evolving consumer preferences and demand for new products;
    
    costs associated with complying with new and existing governmental regulation;
and
    
    a change in disposable income available to consumers, as a result of current
economic conditions.
 Executive Overview
      28




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
    
    retail sales at our company stores could decline;
    
    demand for our branded products produced at our manufacturing plant could
decline;
    
    demand for products produced for distributors and other retailers / wholesalers
could diminish;
    
    our domestic franchisees may opt not to renew their franchise licenses, which
in turn would lower our franchise product revenue; and
    
    our international franchisees may experience decreased revenue resulting in
lower royalties and product revenue to us.
    
    
    Driving top-line performance in each of our business segments by attracting new
customers through product innovation, improved assortment, effective marketing and
price competitiveness,
    
    Investing in key infrastructure areas for future growth, including e-commerce,
international development, and manufacturing, and
    
    Generating efficiencies and cost savings in the everyday operations of the
business that will allow us to leverage profit margins on modest revenue growth.
  Related Parties
  Results of Operations
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Results
of Operations
 Three Months EndedMarch 31,2009
    
    
    2008(unaudited)Revenues:Retail
    
    $
    333.7
    
    
    
    75.8
    %
    
    $
    321.3
    
    
    
    75.0
    %Franchise
    
    
    64.5
    
    
    
    14.7
    %
    
    
    64.9
    
    
    
    15.2
    %Manufacturing / Wholesale
    
    
    41.7
    
    
    
    9.5
    %
    
    
    41.9
    
    
    
    9.8
    %Total net revenues
    
    
    439.9
    
    
    
    100.0
    %
    
    
    428.1
    
    
    
    100.0
    %Operating expenses:Cost of sales, including warehousing,
distribution and occupancy costs
    
    
    285.7
    
    
    
    64.9
    %
    
    
    278.9
    
    
    
    65.1
    %Compensation and related benefits
    
    
    65.3
    
    
    
    14.9
    %
    
    
    61.6
    
    
    
    14.5
    %Advertising and promotion
    
    
    14.7
    
    
    
    3.4
    %
    
    
    18.1
    
    
    
    4.2
    %Other selling, general and administrative
expenses
    
    
    21.3
    
    
    
    4.8
    %
    
    
    21.8
    
    
    
    5.1
    %Amortization expense
    
    
    2.6
    
    
    
    0.6
    %
    
    
    3.1
    
    
    
    0.7
    %Foreign currency loss
    
    
    0.1
    
    
    
    0.0
    %
    
    
    0.1
    
    
    
    0.0
    %Total operating expenses
    
    
    389.7
    
    
    
    88.6
    %
    
    
    383.6
    
    
    
    89.6
    %Operating income:Retail
    
    
    44.4
    
    
    
    10.1
    %
    
    
    36.8
    
    
    
    8.6
    %Franchise
    
    
    19.2
    
    
    
    4.4
    %
    
    
    19.8
    
    
    
    4.6
    %Manufacturing / Wholesale
    
    
    17.9
    
    
    
    4.0
    %
    
    
    15.8
    
    
    
    3.7
    %Unallocated corporate and other
costs:Warehousing and distribution costs
    
    
    (13.3
    )
    
    
    -3.0
    %
    
    
    (13.8
    )
    
    
    -3.2
    %Corporate costs
    
    
    (18.0
    )
    
    
    -4.1
    %
    
    
    (14.1
    )
    
    
    -3.3
    %Subtotal unallocated corporate and
other costs, net
    
    
    (31.3
    )
    
    
    -7.1
    %
    
    
    (27.9
    )
    
    
    -6.5
    %Total operating income
    
    
    50.2
    
    
    
    11.4
    %
    
    
    44.5
    
    
    
    10.4
    %Interest expense, net
    
    
    19.1
    
    
    
    
    
    
    
    23.1Income before income taxes
    
    
    31.1
    
    
    
    
    
    
    
    21.4Income tax expense
    
    
    11.7
    
    
    
    
    
    
    
    8.1Net income
    
    $
    19.4
    
    
    
    
    
    
    $
    13.3
 Note:
 30




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##### Table of Contents



Comparison of the Three Months Ended March 31, 2009 and 2008
 Revenues
  Retail.
 Franchise.
 Manufacturing/Wholesale.
 Cost of Sales
  Product costs.
 Warehousing and distribution costs.
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Occupancy costs.
 Selling, General and Administrative (SG&A) Expenses
  Compensation and related benefits.
 Advertising and promotion.
 Other SG&A.
 Foreign Currency (Loss) Gain
  Operating Income
  Retail.
 Franchise.
 32




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Manufacturing/Wholesale.
 Warehousing and Distribution Costs.
 Corporate Costs.
 Interest Expense
  Income Tax Expense
  Net Income
  Liquidity and Capital Resources
    33




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##### Table of Contents



Three months
    
    Three monthsended March 31,
    
    ended March 31,(Dollars in millions)
    
    2009
    
    2008Cash provided by operating activities
    
    $
    34.3
    
    
    $
    7.8Cash used in investing activities
    
    
    (5.8
    )
    
    
    (6.3
    )Cash used in financing activities
    
    
    (5.2
    )
    
    
    (2.4
    )
 Cash Provided by Operating Activities
   Cash Used in Investing Activities
   Cash Used in Financing Activities
  34




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##### Table of Contents



$735.0 Million 2007 Senior Credit Facility
 Senior Toggle Notes
 10.75% Senior Subordinated Notes
 Contractual Obligations
  Off Balance Sheet Arrangements
   Effect of Inflation
  35




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Critical Accounting Estimates
  Recently Issued Accounting Pronouncements
     36




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Item 3. Quantitative and Qualitative Disclosures about Market Risk.
    Derivative
    

Total
Notional Amount
    
    Term
    
    Counterparty Pays
    
    Company PaysInterest Rate Swap
    
    $150.0 million
    
    April 2007-April 2010
    
    LIBOR
    
    
    4.90
    %Interest Rate Swap
    
    $150.0 million
    
    April 2007-April 2009
    
    LIBOR
    
    
    4.94
    %Forward Interest Rate Swap
    
    $150.0 million
    
    April 2009-April 2011
    
    LIBOR
    
    
    3.07
    %Forward Interest Rate Swap
    
    $150.0 million
    
    April 2010-April 2011
    
    LIBOR
    
    
    3.41
    %Interest Rate Swap
    
    $100.0 million
    
    September 2008-September 2011
    
    LIBOR
    
    
    3.31
    %
  37




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Item 4. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  38




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##### Table of Contents



Part II - OTHER INFORMATION
 
 Item 1. Legal Proceedings.
   Pro-Hormone/Androstenedione Cases. Stephens and Pio
  Guzman v. General Nutrition Companies,
Inc
   39




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##### Table of Contents



Guzman
 Stephens and Pio v. General Nutrition
Companies, Inc. (Case No. 08 CH 37097, Circuit Court of Cook County, Illinois, County Department,
Chancery Division).
  Wage and Hour Claim.
 California Wage and Break Claim
 California Wage and Break Claim
 Franchise Class Action.
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Creatine Claim
 Jackson Claim.
 DiMauro Claim.
 Ciavarra Claim
 Romero Claim
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##### Table of Contents



Item 1A. Risk Factors.
  Risks Relating to Our Business and Industry
 General economic conditions, including continued weakening of the economy, may affect consumer
purchases, which could adversely affect our sales and the sales of our business partners.
  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.
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Our failure to appropriately respond to changing consumer preferences and demand for new products
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.
  We depend on the services of key executives and 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.
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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.
  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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Compliance with the Iovate Hydroxycut recall may reduce our sales and margin and adversely affect
our results of operations.
  Our operations are subject to environmental and health and safety laws and regulations that may
increase our cost of operations or expose us to environmental liabilities.
  Because 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.
  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.
  45




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##### Table of Contents



A substantial amount of our revenues are generated from our franchisees, and our revenues could
decrease significantly if our franchisees do not conduct their operations profitably or if we fail
to attract new franchisees.
   Our operating results and financial condition could be adversely affected by the financial and
operational performance of Rite Aid.
  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.
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##### Table of Contents



Franchise regulations could limit our ability to terminate or replace under-performing franchises,
which could adversely impact franchise revenues.
  We are not insured for a significant portion of our claims exposure, which could materially and
adversely affect our operating income and profitability.
  The controlling stockholders of our Parent may take actions that conflict with the interests of
other stockholders and investors. This control may have the effect of delaying or preventing
changes of control or changes in management.
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Risks Related to Our Substantial Debt
 Our substantial debt could adversely affect our results of operations and financial condition and
otherwise adversely impact our operating income and growth prospects.
     
    
    make it more difficult for us to satisfy our obligations with respect to the Senior
Toggle Notes and the 10.75% Senior Subordinated Notes;
    
    increase our vulnerability to general adverse economic and industry conditions;
    
    require us to use all or a large portion of our cash flow from operations to pay
principal and interest on our debt, thereby reducing the availability of our cash flow to
fund working capital, research and development efforts, 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;
    
    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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Despite our current significant level of debt, we may still be able to incur additional debt, which
could increase the risks described above, adversely affect our financial health, or prevent us from
fulfilling our obligations under the Senior Toggle Notes and the 10.75% Senior Subordinated Notes.
  We require a significant amount of cash to service our debt. 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.
   We may not have the ability to raise the funds necessary to finance the change of control offer
required by the indentures, which could cause us to default on our debt obligations, including the
Senior Toggle Notes and the 10.75% Senior Subordinated Notes.
  Restrictions in the agreements governing our existing indebtedness may prevent us from taking
actions that we believe would be in the best interest of our business.
  
    
    incurring additional indebtedness and issuing preferred stock;
    
    granting liens on our assets;
    
    making investments;
    
    consolidating or merging with, or acquiring, another business;
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##### Table of Contents




    
    selling or otherwise disposing our assets;
    
    paying dividends and making other distributions to our parent entities;
    
    entering into transactions with our affiliates; and
    
    incurring capital expenditures in excess of limitations set within the agreement.
   50




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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  
 Item 6. Exhibits.
 ExhibitNo.
    
    Description31.1
    
    Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 
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SIGNATURES
  GENERAL NUTRITION CENTERS, INC.
(Registrant)May 7, 2009
    /s/ Joseph M. FortunatoJoseph M. FortunatoChief Executive Officer
(Principal Executive Officer)May 7, 2009
    /s/ Michael M. NuzzoMichael M. NuzzoChief Financial Officer
(Principal Financial Officer) 52