##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2008
 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 AvenuePittsburgh, Pennsylvania
    
    15222(Address of principal executive offices)
    
    (Zip Code)
 (412) 288-4600
 þ o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ(Do not check if a smaller reporting company)
Smaller reporting company o o þ




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##### 



TABLE OF CONTENTS
 PAGEPART I  FINANCIAL INFORMATIONExplanatory Note.Item 1.
    
    Financial Statements.Consolidated Balance Sheets as of September 30, 2008 (unaudited) and December 31, 2007
    
    
    1Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2008, the three months ended September 30, 2007, the period from March 16, 2007 to September 30, 2007, and the period ended March 15, 2007
    
    
    2Unaudited Consolidated Statement of Stockholders Equity for the nine months ended September 30, 2008
    
    
    3Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2008, the period from March 16, 2007 to September 30, 2007, and the period ended March 15, 2007
    
    
    4Summarized Notes to Unaudited Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.
    
    
    29Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk.
    
    
    43Item 4T.
    
    Controls and Procedures.
    
    
    44PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings.
    
    
    45Item 1A.
    
    Risk Factors.
    
    
    47Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds.
    
    
    56Item 3.
    
    Defaults Upon Senior Securities.
    
    
    56Item 4.
    
    Submission of Matters to a Vote of Security Holders.
    
    
    56Item 5.
    
    Other Information.
    
    
    56Item 6.
    
    Exhibits.
    
    
    56Signatures
    
    
    57EX-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)
 September 30,
    
    
    December 31,2008
    
    
    2007 *(unaudited)Current assets:Cash and cash equivalents
    
    $
    39,902
    
    
    $
    28,854Receivables, net
    
    
    87,156
    
    
    
    84,666Inventories, net (Note 3)
    
    
    366,035
    
    
    
    334,149Deferred tax assets, net
    
    
    17,253
    
    
    
    17,029Prepaids and other current assets
    
    
    30,167
    
    
    
    33,474Total current assets
    
    
    540,513
    
    
    
    498,172Long-term assets:Goodwill (Note 4)
    
    
    626,407
    
    
    
    626,270Brands (Note 4)
    
    
    720,000
    
    
    
    720,000Other intangible assets, net (Note 4)
    
    
    164,642
    
    
    
    172,872Property, plant and equipment, net
    
    
    202,226
    
    
    
    190,848Deferred financing fees, net
    
    
    23,468
    
    
    
    26,377Other long-term assets
    
    
    4,570
    
    
    
    5,093Total long-term assets
    
    
    1,741,313
    
    
    
    1,741,460Total assets
    
    $
    2,281,826
    
    
    $
    2,239,632Current liabilities:Accounts payable, includes cash overdraft of
$2,520 and $4,124, respectively
    
    $
    121,989
    
    
    $
    101,953Accrued payroll and related liabilities
    
    
    23,584
    
    
    
    27,477Accrued income taxes
    
    
    17,614
    
    
    
    1,878Accrued interest (Note 5)
    
    
    7,074
    
    
    
    18,110Current portion, long-term debt (Note 5)
    
    
    8,065
    
    
    
    8,031Deferred revenue and other current liabilities
    
    
    66,074
    
    
    
    82,635Total current liabilities
    
    
    244,400
    
    
    
    240,084Long-term liabilities:Long-term debt (Note 5)
    
    
    1,073,236
    
    
    
    1,078,950Deferred tax liabilities, net
    
    
    268,959
    
    
    
    267,788Other long-term liabilities
    
    
    37,211
    
    
    
    44,085Total long-term liabilities
    
    
    1,379,406
    
    
    
    1,390,823Total liabilities
    
    
    1,623,806
    
    
    
    1,630,907Stockholders equity:Common stock, $0.01 par value,
1,000 shares authorized, 100 shares issued and outstanding
    
    
    
    
    
    
    Paid-in-capital
    
    
    591,943
    
    
    
    590,593Retained earnings
    
    
    65,648
    
    
    
    18,984Accumulated other comprehensive income (loss)
    
    
    429
    
    
    
    (852
    )Total stockholders equity
    
    
    658,020
    
    
    
    608,725Total liabilities and stockholders equity
    
    $
    2,281,826
    
    
    $
    2,239,632
 
 *
    
    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)
 Successor
    
    
    
    PredecessorThree months ended
    
    
    Nine months ended
    
    
    March 16-
    
    
    
    January 1-September 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,
    
    
    
    March 15,2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    
    2007Revenue
    
    $
    414,194
    
    
    $
    395,295
    
    
    $
    1,264,989
    
    
    $
    846,854
    
    
    
    $
    329,829Cost of sales, including costs of warehousing,
distribution and occupancy
    
    
    269,976
    
    
    
    264,560
    
    
    
    823,143
    
    
    
    567,791
    
    
    
    
    212,175Gross profit
    
    
    144,218
    
    
    
    130,735
    
    
    
    441,846
    
    
    
    279,063
    
    
    
    
    117,654Compensation and related benefits
    
    
    63,351
    
    
    
    61,802
    
    
    
    187,806
    
    
    
    132,283
    
    
    
    
    64,311Advertising and promotion
    
    
    13,565
    
    
    
    13,373
    
    
    
    45,352
    
    
    
    27,885
    
    
    
    
    20,473Other selling, general and administrative
    
    
    23,668
    
    
    
    21,339
    
    
    
    73,504
    
    
    
    47,691
    
    
    
    
    17,396Foreign currency loss (gain)
    
    
    76
    
    
    
    (202
    )
    
    
    139
    
    
    
    (332
    )
    
    
    
    (154
    )Merger-related costs (Note 1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,603Operating income (loss)
    
    
    43,558
    
    
    
    34,423
    
    
    
    135,045
    
    
    
    71,536
    
    
    
    
    (18,975
    )Interest expense, net (Note 5)
    
    
    19,714
    
    
    
    23,749
    
    
    
    62,218
    
    
    
    51,621
    
    
    
    
    43,036Income (loss) before income taxes
    
    
    23,844
    
    
    
    10,674
    
    
    
    72,827
    
    
    
    19,915
    
    
    
    
    (62,011
    )Income tax expense (benefit) (Note 10)
    
    
    7,528
    
    
    
    4,541
    
    
    
    26,163
    
    
    
    8,179
    
    
    
    
    (10,697
    )Net income (loss)
    
    
    16,316
    
    
    
    6,133
    
    
    
    46,664
    
    
    
    11,736
    
    
    
    
    (51,314
    )Other comprehensive income (loss)
    
    
    3,502
    
    
    
    347
    
    
    
    1,281
    
    
    
    3,264
    
    
    
    
    (283
    )Comprehensive income (loss)
    
    $
    19,818
    
    
    $
    6,480
    
    
    $
    47,945
    
    
    $
    15,000
    
    
    
    $
    (51,597
    )
  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
    
    
    Income/(Loss)
    
    
    EquityBalance at December 31, 2007
    
    
    100
    
    
    $
    
    
    
    $
    590,593
    
    
    $
    18,984
    
    
    $
    (852
    )
    
    $
    608,725Return of capital to GNC Corporation
    
    
    
    
    
    
    
    
    
    
    (832
    )
    
    
    
    
    
    
    
    
    
    
    (832
    )Non-cash stock-based compensation
    
    
    
    
    
    
    
    
    
    
    2,182
    
    
    
    
    
    
    
    
    
    
    
    2,182Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,664
    
    
    
    
    
    
    
    46,664Unrealized gain on derivatives designated and qualified
as cash flow hedges, net of tax of $1,598
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,791
    
    
    
    2,791Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,510
    )
    
    
    (1,510
    )Balance at September 30, 2008 (unaudited)
    
    
    100
    
    
    $
    
    
    
    $
    591,943
    
    
    $
    65,648
    
    
    $
    429
    
    
    $
    658,020
  3




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
 Successor
    
    
    
    PredecessorNine months
    
    
    Period
    
    
    
    Periodended
    
    
    March 16-
    
    
    
    January 1-September 30,
    
    
    September 30,
    
    
    
    March 15,2008
    
    
    2007
    
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    46,664
    
    
    $
    11,736
    
    
    
    $
    (51,314
    )Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:Depreciation expense
    
    
    23,029
    
    
    
    13,985
    
    
    
    
    6,510Deferred fee writedown  early debt extinguishment
    
    
    
    
    
    
    
    
    
    
    
    11,680Amortization of intangible assets
    
    
    8,330
    
    
    
    6,025
    
    
    
    
    866Amortization of deferred financing fees
    
    
    2,909
    
    
    
    1,988
    
    
    
    
    589Amortization of original issue discount
    
    
    250
    
    
    
    166
    
    
    
    
    Increase in provision for inventory losses
    
    
    10,345
    
    
    
    6,965
    
    
    
    
    2,247Non-cash stock-based compensation
    
    
    2,182
    
    
    
    1,357
    
    
    
    
    4,124(Decrease) increase in provision for losses on accounts receivable
    
    
    638
    
    
    
    (201
    )
    
    
    
    (39
    )Decrease in net deferred taxes
    
    
    (651
    )
    
    
    3,146
    
    
    
    
    (3,874
    )Changes in assets and liabilities:Decrease (increase) in receivables
    
    
    (3,374
    )
    
    
    (13,620
    )
    
    
    
    1,676(Increase) decrease in inventory, net
    
    
    (43,753
    )
    
    
    5,842
    
    
    
    
    (2,128
    )Decrease in franchise note receivables, net
    
    
    754
    
    
    
    1,792
    
    
    
    
    912Decrease (increase) in other assets
    
    
    1,876
    
    
    
    (765
    )
    
    
    
    3,394Increase (decrease) in accounts payable
    
    
    21,798
    
    
    
    (4,034
    )
    
    
    
    3,749Increase (decrease) in accrued taxes
    
    
    17,310
    
    
    
    
    
    
    
    
    (4,967
    )(Decrease) increase in interest payable
    
    
    (11,036
    )
    
    
    15,056
    
    
    
    
    (7,531
    )Decrease in accrued liabilities
    
    
    (11,911
    )
    
    
    (4,200
    )
    
    
    
    (12,682
    )Net cash provided by (used in) operating activities
    
    
    65,360
    
    
    
    45,238
    
    
    
    
    (46,788
    )CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (34,997
    )
    
    
    (19,162
    )
    
    
    
    (5,693
    )Acquisition of the Company
    
    
    (10,842
    )
    
    
    (1,624,732
    )
    
    
    
    Franchise store conversions
    
    
    163
    
    
    
    30
    
    
    
    
    Store acquisition costs
    
    
    (258
    )
    
    
    (294
    )
    
    
    
    (555
    )Net cash used in investing activities
    
    
    (45,934
    )
    
    
    (1,644,158
    )
    
    
    
    (6,248
    )CASH FLOWS FROM FINANCING ACTIVITIES:Issuance of new equity
    
    
    
    
    
    
    552,291
    
    
    
    
    Capital contribution from Parent
    
    
    
    
    
    
    1,690
    
    
    
    
    Contribution from selling shareholders
    
    
    
    
    
    
    
    
    
    
    
    463,393Return of capital to Parent company
    
    
    (832
    )
    
    
    
    
    
    
    
    Increase (decrease) in cash overdrafts
    
    
    (1,604
    )
    
    
    5,787
    
    
    
    
    (4,136
    )Borrowings from new revolving credit facility
    
    
    
    
    
    
    10,500
    
    
    
    
    Payments on new revolving credit facility
    
    
    
    
    
    
    (10,500
    )
    
    
    
    Borrowings from new senior credit facility
    
    
    
    
    
    
    675,000
    
    
    
    
    Proceeds from issuance of new senior sub notes
    
    
    
    
    
    
    110,000
    
    
    
    
    Proceeds from issuance of new senior notes
    
    
    
    
    
    
    297,000
    
    
    
    
    Redemption of 8 5/8% senior notes
    
    
    
    
    
    
    
    
    
    
    
    (150,000
    )Redemption of 8 1/2% senior notes
    
    
    
    
    
    
    
    
    
    
    
    (215,000
    )Payment of 2003 senior credit facility
    
    
    
    
    
    
    
    
    
    
    
    (55,290
    )Payments on long-term debt
    
    
    (5,956
    )
    
    
    (2,339
    )
    
    
    
    (334
    )Financing fees
    
    
    
    
    
    
    (28,944
    )
    
    
    
    Net cash (used in) provided by financing activities
    
    
    (8,392
    )
    
    
    1,610,485
    
    
    
    
    38,633Effect of exchange rate on cash
    
    
    14
    
    
    
    202
    
    
    
    
    (165
    )Net increase (decrease) in cash
    
    
    11,048
    
    
    
    11,767
    
    
    
    
    (14,568
    )Beginning balance, cash
    
    
    28,854
    
    
    
    9,512
    
    
    
    
    24,080Ending balance, cash
    
    $
    39,902
    
    
    $
    21,279
    
    
    
    $
    9,512
  4




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




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Recently Issued Accounting Pronouncements
  .
  7




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
      8




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 3. INVENTORIES, NET
  September 30, 2008Net CarryingGross cost
    
    
    Reserves
    
    
    Value(in thousands)(unaudited)Finished product ready for sale
    
    $
    313,059
    
    
    $
    (8,610
    )
    
    $
    304,449Work-in-process, bulk product and raw materials
    
    
    57,795
    
    
    
    (1,093
    )
    
    
    56,702Packaging supplies
    
    
    4,884
    
    
    
    
    
    
    
    4,884$
    375,738
    
    
    $
    (9,703
    )
    
    $
    366,035
 December 31, 2007Net CarryingGross cost
    
    
    Reserves
    
    
    Value(in thousands)Finished product ready for sale
    
    $
    287,430
    
    
    $
    (8,578
    )
    
    $
    278,852Work-in-process, bulk product and raw materials
    
    
    51,755
    
    
    
    (1,281
    )
    
    
    50,474Packaging supplies
    
    
    4,823
    
    
    
    
    
    
    
    4,823$
    344,008
    
    
    $
    (9,859
    )
    
    $
    334,149
 NOTE 4. GOODWILL AND INTANGIBLE ASSETS, NET
    9




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Manufacturing/Retail
    
    
    Franchising
    
    
    Wholesale
    
    
    Total(in thousands)Balance at December 31, 2007
    
    $
    306,126
    
    
    $
    117,303
    
    
    $
    202,841
    
    
    $
    626,270Acquired franchise stores
    
    
    137
    
    
    
    
    
    
    
    
    
    
    
    137Balance at September 30, 2008 (unaudited)
    
    $
    306,263
    
    
    $
    117,303
    
    
    $
    202,841
    
    
    $
    626,407
  Retail
    
    
    Franchise
    
    
    Operating
    
    
    FranchiseGold Card
    
    
    Brand
    
    
    Brand
    
    
    Agreements
    
    
    Rights
    
    
    Total(in thousands)Balance at December 31, 2007
    
    $
    6,041
    
    
    $
    500,000
    
    
    $
    220,000
    
    
    $
    165,702
    
    
    $
    1,129
    
    
    $
    892,872Acquired franchise stores
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    100Amortization expense
    
    
    (2,797
    )
    
    
    
    
    
    
    
    
    
    
    (5,012
    )
    
    
    (521
    )
    
    
    (8,330
    )Balance at September 30, 2008 (unaudited)
    
    $
    3,244
    
    
    $
    500,000
    
    
    $
    220,000
    
    
    $
    160,690
    
    
    $
    708
    
    
    $
    884,642
  Estimated
    
    September 30, 2008
    
    
    December 31, 2007Life
    
    
    
    
    
    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
    
    
    
    (2,239
    )
    
    
    1,261
    
    
    
    3,500
    
    
    
    (1,155
    )
    
    
    2,345Gold card  franchise
    
    3
    
    
    5,500
    
    
    
    (3,517
    )
    
    
    1,983
    
    
    
    5,500
    
    
    
    (1,804
    )
    
    
    3,696Retail agreements
    
    25-35
    
    
    31,000
    
    
    
    (1,774
    )
    
    
    29,226
    
    
    
    31,000
    
    
    
    (985
    )
    
    
    30,015Franchise agreements
    
    25
    
    
    70,000
    
    
    
    (4,316
    )
    
    
    65,684
    
    
    
    70,000
    
    
    
    (2,217
    )
    
    
    67,783Manufacturing agreements
    
    25
    
    
    70,000
    
    
    
    (4,317
    )
    
    
    65,683
    
    
    
    70,000
    
    
    
    (2,216
    )
    
    
    67,784Other intangibles
    
    1-5
    
    
    150
    
    
    
    (53
    )
    
    
    97
    
    
    
    150
    
    
    
    (30
    )
    
    
    120Franchise rights
    
    1-5
    
    
    2,013
    
    
    
    (1,305
    )
    
    
    708
    
    
    
    1,913
    
    
    
    (784
    )
    
    
    1,129$
    902,163
    
    
    $
    (17,521
    )
    
    $
    884,642
    
    
    $
    902,063
    
    
    $
    (9,191
    )
    
    $
    892,872
  EstimatedamortizationYears ending December 31,
    
    expense(in thousands)2008
    
    
    2,5892009
    
    
    9,0902010
    
    
    7,2192011
    
    
    6,7482012
    
    
    6,671Thereafter
    
    
    132,325Total
    
    $
    164,642
 10




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 5. LONG-TERM DEBT / INTEREST EXPENSE
  September 30,
    
    
    December 31,2008
    
    
    2007(unaudited)(in thousands)2007 Senior Credit Facility
    
    $
    664,875
    
    
    $
    669,937Senior Toggle Notes
    
    
    297,497
    
    
    
    297,24710.75% Senior Subordinated Notes
    
    
    110,000
    
    
    
    110,000Mortgage
    
    
    8,886
    
    
    
    9,774Capital leases
    
    
    43
    
    
    
    23Less: current maturities
    
    
    (8,065
    )
    
    
    (8,031
    )Total
    
    $
    1,073,236
    
    
    $
    1,078,950
  Successor
    
    
    
    PredecessorThree months ended
    
    
    Nine months ended
    
    
    March 16-
    
    
    
    January 1-September 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,
    
    
    
    March 15,2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    
    2007(unaudited)(in thousands)2003 Senior Credit FacilityTerm Loan
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    $
    918Revolver
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1328 5/8% Senior Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,8078 1/2 % Senior Subordinated Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,695Call premiums
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,159Deferred financing fees
    
    
    986
    
    
    
    920
    
    
    
    2,909
    
    
    
    1,988
    
    
    
    
    589Deferred fee writedown- early
extinguishment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,6802007 Senior Credit FacilityTerm Loan
    
    
    10,251
    
    
    
    13,094
    
    
    
    32,193
    
    
    
    28,329
    
    
    
    
    Revolver
    
    
    104
    
    
    
    106
    
    
    
    321
    
    
    
    253
    
    
    
    
    Senior Toggle Notes
    
    
    5,451
    
    
    
    7,376
    
    
    
    17,983
    
    
    
    15,948
    
    
    
    
    10.75% Senior Subordinated Notes
    
    
    2,956
    
    
    
    2,956
    
    
    
    8,868
    
    
    
    6,405
    
    
    
    
    OID amortization
    
    
    85
    
    
    
    76
    
    
    
    250
    
    
    
    166
    
    
    
    
    Mortgage
    
    
    158
    
    
    
    180
    
    
    
    482
    
    
    
    338
    
    
    
    
    392Interest income-other
    
    
    (277
    )
    
    
    (959
    )
    
    
    (788
    )
    
    
    (1,806
    )
    
    
    
    (336
    )Interest expense, net
    
    $
    19,714
    
    
    $
    23,749
    
    
    $
    62,218
    
    
    $
    51,621
    
    
    
    $
    43,036
 11




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  September 30,
    
    
    December 31,2008
    
    
    2007(unaudited)(in thousands)2007 Senior Credit Facility
    
    $
    5,537
    
    
    $
    5,787Senior Toggle Notes
    
    
    1,011
    
    
    
    8,84110.75% Senior Subordinated Notes
    
    
    526
    
    
    
    3,482Total
    
    $
    7,074
    
    
    $
    18,110
  12




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 6. COMMITMENTS AND CONTINGENCIES
 Litigation
   Pro-Hormone/Androstenedione Cases. see Stephens and Pio
     13




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO 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). Pio and McDonald v. General Nutrition Companies, Inc. Case No. 02 CH
14122, Circuit Court of Cook County, Illinois, County Department, Chancery Division),
  Wage and Hour Claim.
 California Wage and Break Claim
 Franchise Class Action.
 Creatine Claim.
 14




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Contingencies
  NOTE 7. STOCK-BASED COMPENSATION PLANS
 Stock Options
   WeightedAverage
    
    
    AggregateTotal Options
    
    
    Exercise Price
    
    
    Intrinsic Value(in thousands)Outstanding at December 31, 2007
    
    
    6,714,492
    
    
    $
    6.25
    
    
    $
    6,479Granted
    
    
    1,805,000
    
    
    
    8.73Exercised
    
    
    (3,946
    )
    
    
    5.00Forfeited
    
    
    (176,854
    )
    
    
    6.25Outstanding at September 30, 2008
    
    
    8,338,692
    
    
    $
    6.79
    
    
    $
    5,946Exercisable at September 30, 2008
    
    
    1,388,025
    
    
    $
    6.25
    
    
    $
    1,263
   15




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  September 30,2008(unaudited)Dividend yield
    
    
    0.00%Expected option life
    
    7.5 yearsVolatility factor percentage of market price
    
    
    26.00%  28.40%Discount rate
    
    
    3.54%  3.64%
  Predecessor
   NOTE 8. SEGMENTS
  16




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Successor
    
    
    
    PredecessorNine months ended
    
    
    March 16 -
    
    
    
    January 1 -Three months ended September 30,
    
    
    September 30,
    
    
    September 30,
    
    
    
    March 15,2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    
    2007(in thousands)(unaudited)Revenue:Retail
    
    $
    298,823
    
    
    $
    289,479
    
    
    $
    934,624
    
    
    $
    630,719
    
    
    
    $
    259,313Franchise
    
    
    67,501
    
    
    
    65,707
    
    
    
    197,512
    
    
    
    137,224
    
    
    
    
    47,237Manufacturing/Wholesale:
    
    
    
    
    
    
    
    
    
    
    Intersegment (1)
    
    
    43,798
    
    
    
    40,321
    
    
    
    134,120
    
    
    
    88,220
    
    
    
    
    35,477Third Party
    
    
    47,870
    
    
    
    40,109
    
    
    
    132,853
    
    
    
    78,911
    
    
    
    
    23,279Sub total Manufacturing/Wholesale
    
    
    91,668
    
    
    
    80,430
    
    
    
    266,973
    
    
    
    167,131
    
    
    
    
    58,756Sub total segment revenues
    
    
    457,992
    
    
    
    435,616
    
    
    
    1,399,109
    
    
    
    935,074
    
    
    
    
    365,306Intersegment elimination (1)
    
    
    (43,798
    )
    
    
    (40,321
    )
    
    
    (134,120
    )
    
    
    (88,220
    )
    
    
    
    (35,477
    )Total revenue
    
    $
    414,194
    
    
    $
    395,295
    
    
    $
    1,264,989
    
    
    $
    846,854
    
    
    
    $
    329,829(1)    Intersegment revenues are
eliminated from consolidated revenue.Operating income (loss):Retail
    
    $
    32,618
    
    
    $
    32,145
    
    
    $
    111,668
    
    
    $
    70,974
    
    
    
    $
    28,249Franchise
    
    
    22,634
    
    
    
    20,290
    
    
    
    61,117
    
    
    
    38,724
    
    
    
    
    14,518Manufacturing/Wholesale
    
    
    18,926
    
    
    
    10,561
    
    
    
    51,989
    
    
    
    23,677
    
    
    
    
    10,267Unallocated corporate and other (costs) income:
    
    
    
    
    
    
    
    
    
    
    Warehousing and distribution costs
    
    
    (13,538
    )
    
    
    (12,850
    )
    
    
    (41,145
    )
    
    
    (27,402
    )
    
    
    
    (10,667
    )Corporate costs
    
    
    (17,081
    )
    
    
    (15,723
    )
    
    
    (48,584
    )
    
    
    (34,437
    )
    
    
    
    (26,739
    )Merger-related costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34,603
    )Sub total unallocated corporate and
other (costs) income
    
    
    (30,619
    )
    
    
    (28,573
    )
    
    
    (89,729
    )
    
    
    (61,839
    )
    
    
    
    (72,009
    )Total operating income (loss)
    
    $
    43,559
    
    
    $
    34,423
    
    
    $
    135,045
    
    
    $
    71,536
    
    
    
    $
    (18,975
    )
 17




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 9. SUPPLEMENTAL GUARANTOR INFORMATION
   18




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Supplemental Condensed Consolidating Balance Sheets
 Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorSeptember 30, 2008
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(unaudited)(in thousands)Current assetsCash and cash equivalents
    
    $
    
    
    
    $
    36,485
    
    
    $
    3,417
    
    
    $
    
    
    
    $
    39,902Receivables, net
    
    
    343
    
    
    
    86,536
    
    
    
    277
    
    
    
    
    
    
    
    87,156Intercompany receivables
    
    
    
    
    
    
    98,342
    
    
    
    
    
    
    
    (98,342
    )
    
    
    Inventories, net
    
    
    
    
    
    
    342,471
    
    
    
    23,564
    
    
    
    
    
    
    
    366,035Prepaids and other current assets
    
    
    99
    
    
    
    41,595
    
    
    
    5,726
    
    
    
    
    
    
    
    47,420Total current assets
    
    
    442
    
    
    
    605,429
    
    
    
    32,984
    
    
    
    (98,342
    )
    
    
    540,513Goodwill
    
    
    
    
    
    
    626,006
    
    
    
    401
    
    
    
    
    
    
    
    626,407Brands
    
    
    
    
    
    
    720,000
    
    
    
    
    
    
    
    
    
    
    
    720,000Property, plant and equipment, net
    
    
    
    
    
    
    176,992
    
    
    
    25,234
    
    
    
    
    
    
    
    202,226Investment in subsidiaries
    
    
    1,791,242
    
    
    
    13,433
    
    
    
    
    
    
    
    (1,804,675
    )
    
    
    Other assets
    
    
    23,468
    
    
    
    177,993
    
    
    
    
    
    
    
    (8,781
    )
    
    
    192,680Total assets
    
    $
    1,815,152
    
    
    $
    2,319,853
    
    
    $
    58,619
    
    
    $
    (1,911,798
    )
    
    $
    2,281,826Current liabilitiesCurrent liabilities
    
    $
    7,001
    
    
    $
    225,538
    
    
    $
    11,861
    
    
    $
    
    
    
    $
    244,400Intercompany payables
    
    
    81,654
    
    
    
    
    
    
    
    16,688
    
    
    
    (98,342
    )
    
    
    Total current liabilities
    
    
    88,655
    
    
    
    225,538
    
    
    
    28,549
    
    
    
    (98,342
    )
    
    
    244,400Long-term debt
    
    
    1,065,622
    
    
    
    32
    
    
    
    16,363
    
    
    
    (8,781
    )
    
    
    1,073,236Deferred tax liabilities
    
    
    1,609
    
    
    
    267,350
    
    
    
    
    
    
    
    
    
    
    
    268,959Other long-term liabilities
    
    
    1,246
    
    
    
    35,691
    
    
    
    274
    
    
    
    
    
    
    
    37,211Total liabilities
    
    
    1,157,132
    
    
    
    528,611
    
    
    
    45,186
    
    
    
    (107,123
    )
    
    
    1,623,806Total stockholders equity (deficit)
    
    
    658,020
    
    
    
    1,791,242
    
    
    
    13,433
    
    
    
    (1,804,675
    )
    
    
    658,020Total liabilities and stockholders
equity (deficit)
    
    $
    1,815,152
    
    
    $
    2,319,853
    
    
    $
    58,619
    
    
    $
    (1,911,798
    )
    
    $
    2,281,826
 19




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Supplemental Condensed Consolidating Balance Sheets
 Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorDecember 31, 2007
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Current assetsCash and cash equivalents
    
    $
    
    
    
    $
    26,090
    
    
    $
    2,764
    
    
    $
    
    
    
    $
    28,854Receivables, net
    
    
    128
    
    
    
    84,253
    
    
    
    285
    
    
    
    
    
    
    
    84,666Intercompany receivables
    
    
    
    
    
    
    79,441
    
    
    
    
    
    
    
    (79,441
    )
    
    
    Inventories, net
    
    
    
    
    
    
    311,655
    
    
    
    22,494
    
    
    
    
    
    
    
    334,149Prepaids and other current assets
    
    
    251
    
    
    
    45,694
    
    
    
    4,558
    
    
    
    
    
    
    
    50,503Total current assets
    
    
    379
    
    
    
    547,133
    
    
    
    30,101
    
    
    
    (79,441
    )
    
    
    498,172Goodwill
    
    
    
    
    
    
    625,869
    
    
    
    401
    
    
    
    
    
    
    
    626,270Brands
    
    
    
    
    
    
    720,000
    
    
    
    
    
    
    
    
    
    
    
    720,000Property, plant and equipment, net
    
    
    
    
    
    
    166,440
    
    
    
    24,408
    
    
    
    
    
    
    
    190,848Investment in subsidiaries
    
    
    1,742,216
    
    
    
    9,684
    
    
    
    
    
    
    
    (1,751,900
    )
    
    
    Other assets
    
    
    26,378
    
    
    
    186,745
    
    
    
    
    
    
    
    (8,781
    )
    
    
    204,342Total assets
    
    $
    1,768,973
    
    
    $
    2,255,871
    
    
    $
    54,910
    
    
    $
    (1,840,122
    )
    
    $
    2,239,632Current liabilitiesCurrent liabilities
    
    $
    20,015
    
    
    $
    205,433
    
    
    $
    14,636
    
    
    $
    
    
    
    $
    240,084Intercompany payables
    
    
    66,359
    
    
    
    
    
    
    
    13,082
    
    
    
    (79,441
    )
    
    
    Total current liabilities
    
    
    86,374
    
    
    
    205,433
    
    
    
    27,718
    
    
    
    (79,441
    )
    
    
    240,084Long-term debt
    
    
    1,070,434
    
    
    
    23
    
    
    
    17,274
    
    
    
    (8,781
    )
    
    
    1,078,950Deferred tax liabilities
    
    
    (2,051
    )
    
    
    269,839
    
    
    
    
    
    
    
    
    
    
    
    267,788Other long-term liabilities
    
    
    5,491
    
    
    
    38,360
    
    
    
    234
    
    
    
    
    
    
    
    44,085Total liabilities
    
    
    1,160,248
    
    
    
    513,655
    
    
    
    45,226
    
    
    
    (88,222
    )
    
    
    1,630,907Total stockholders equity (deficit)
    
    
    608,725
    
    
    
    1,742,216
    
    
    
    9,684
    
    
    
    (1,751,900
    )
    
    
    608,725Total liabilities and stockholders
equity (deficit)
    
    $
    1,768,973
    
    
    $
    2,255,871
    
    
    $
    54,910
    
    
    $
    (1,840,122
    )
    
    $
    2,239,632
 20




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Supplemental Condensed Consolidating Statements of Operations
 Combined
    
    
    CombinedSuccessor
    
    Parent/
    
    
    Guarantor
    
    
    Non-GuarantorThree months ended September 30, 2008
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(unaudited)(in thousands)Revenue
    
    $
    
    
    
    $
    391,058
    
    
    $
    25,766
    
    
    $
    (2,630
    )
    
    $
    414,194Cost of sales, including costs of warehousing,
distribution and occupancy
    
    
    
    
    
    
    254,369
    
    
    
    18,237
    
    
    
    (2,630
    )
    
    
    269,976Gross profit
    
    
    
    
    
    
    136,689
    
    
    
    7,529
    
    
    
    
    
    
    
    144,218Compensation and related benefits
    
    
    
    
    
    
    59,297
    
    
    
    4,054
    
    
    
    
    
    
    
    63,351Advertising and promotion
    
    
    
    
    
    
    13,356
    
    
    
    209
    
    
    
    
    
    
    
    13,565Other selling, general and administrative
    
    
    695
    
    
    
    22,152
    
    
    
    821
    
    
    
    
    
    
    
    23,668Subsidiary income
    
    
    (17,411
    )
    
    
    (2,983
    )
    
    
    
    
    
    
    20,394
    
    
    
    Other (income) expense
    
    
    
    
    
    
    82
    
    
    
    (6
    )
    
    
    
    
    
    
    76Operating income
    
    
    16,716
    
    
    
    44,785
    
    
    
    2,451
    
    
    
    (20,394
    )
    
    
    43,558Interest expense, net
    
    
    1,070
    
    
    
    18,351
    
    
    
    293
    
    
    
    
    
    
    
    19,714Income before income taxes
    
    
    15,646
    
    
    
    26,434
    
    
    
    2,158
    
    
    
    (20,394
    )
    
    
    23,844Income tax (benefit) expense
    
    
    (670
    )
    
    
    9,023
    
    
    
    (825
    )
    
    
    
    
    
    
    7,528Net income
    
    $
    16,316
    
    
    $
    17,411
    
    
    $
    2,983
    
    
    $
    (20,394
    )
    
    $
    16,316
 Supplemental Condensed Consolidating Statements of Operations
 Combined
    
    
    CombinedSuccessor
    
    Parent/
    
    
    Guarantor
    
    
    Non-GuarantorNine months ended September 30, 2008
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(unaudited)(in thousands)Revenue
    
    $
    
    
    
    $
    1,194,061
    
    
    $
    79,290
    
    
    $
    (8,362
    )
    
    $
    1,264,989Cost of sales, including costs of warehousing,
distribution and occupancy
    
    
    
    
    
    
    774,317
    
    
    
    57,188
    
    
    
    (8,362
    )
    
    
    823,143Gross profit
    
    
    
    
    
    
    419,744
    
    
    
    22,102
    
    
    
    
    
    
    
    441,846Compensation and related benefits
    
    
    
    
    
    
    175,963
    
    
    
    11,843
    
    
    
    
    
    
    
    187,806Advertising and promotion
    
    
    
    
    
    
    44,842
    
    
    
    510
    
    
    
    
    
    
    
    45,352Other selling, general and administrative
    
    
    1,709
    
    
    
    69,243
    
    
    
    2,552
    
    
    
    
    
    
    
    73,504Subsidiary (income) expense
    
    
    (49,694
    )
    
    
    (5,258
    )
    
    
    
    
    
    
    54,952
    
    
    
    Other (income) expense
    
    
    
    
    
    
    44
    
    
    
    95
    
    
    
    
    
    
    
    139Operating income (loss)
    
    
    47,985
    
    
    
    134,910
    
    
    
    7,102
    
    
    
    (54,952
    )
    
    
    135,045Interest expense, net
    
    
    3,156
    
    
    
    58,177
    
    
    
    885
    
    
    
    
    
    
    
    62,218Income (loss) before income taxes
    
    
    44,829
    
    
    
    76,733
    
    
    
    6,217
    
    
    
    (54,952
    )
    
    
    72,827Income tax (benefit) expense
    
    
    (1,835
    )
    
    
    27,039
    
    
    
    959
    
    
    
    
    
    
    
    26,163Net income (loss)
    
    $
    46,664
    
    
    $
    49,694
    
    
    $
    5,258
    
    
    $
    (54,952
    )
    
    $
    46,664
 21




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Supplemental Condensed Consolidating Statements of Operations
 Combined
    
    
    CombinedSuccessor
    
    Parent/
    
    
    Guarantor
    
    
    Non-GuarantorThree months ended September 30, 2007
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(unaudited)(in thousands)Revenue
    
    $
    
    
    
    $
    374,788
    
    
    $
    23,434
    
    
    $
    (2,927
    )
    
    $
    395,295Cost of sales, including costs of warehousing,
distribution and occupancy
    
    
    
    
    
    
    250,564
    
    
    
    16,923
    
    
    
    (2,927
    )
    
    
    264,560Gross profit
    
    
    
    
    
    
    124,224
    
    
    
    6,511
    
    
    
    
    
    
    
    130,735Compensation and related benefits
    
    
    
    
    
    
    58,144
    
    
    
    3,658
    
    
    
    
    
    
    
    61,802Advertising and promotion
    
    
    
    
    
    
    13,242
    
    
    
    131
    
    
    
    
    
    
    
    13,373Other selling, general and administrative
    
    
    467
    
    
    
    20,899
    
    
    
    (27
    )
    
    
    
    
    
    
    21,339Subsidiary (income) expense
    
    
    (6,799
    )
    
    
    (1,728
    )
    
    
    
    
    
    
    8,527
    
    
    
    Other (income) expense
    
    
    
    
    
    
    
    
    
    
    (202
    )
    
    
    
    
    
    
    (202
    )Operating income (loss)
    
    
    6,332
    
    
    
    33,667
    
    
    
    2,951
    
    
    
    (8,527
    )
    
    
    34,423Interest expense, net
    
    
    996
    
    
    
    22,459
    
    
    
    294
    
    
    
    
    
    
    
    23,749Income (loss) before income taxes
    
    
    5,336
    
    
    
    11,208
    
    
    
    2,657
    
    
    
    (8,527
    )
    
    
    10,674Income tax (benefit) expense
    
    
    (797
    )
    
    
    4,409
    
    
    
    929
    
    
    
    
    
    
    
    4,541Net income (loss)
    
    $
    6,133
    
    
    $
    6,799
    
    
    $
    1,728
    
    
    $
    (8,527
    )
    
    $
    6,133
 Supplemental Condensed Consolidating Statements of Operations
 Combined
    
    
    CombinedSuccessor
    
    Parent/
    
    
    Guarantor
    
    
    Non-GuarantorPeriod from March 16, 2007 to September 30, 2007
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(unaudited)(in thousands)Revenue
    
    $
    
    
    
    $
    803,725
    
    
    $
    49,938
    
    
    $
    (6,809
    )
    
    $
    846,854Cost of sales, including costs of warehousing,
distribution and occupancy
    
    
    
    
    
    
    538,584
    
    
    
    36,016
    
    
    
    (6,809
    )
    
    
    567,791Gross profit
    
    
    
    
    
    
    265,141
    
    
    
    13,922
    
    
    
    
    
    
    
    279,063Compensation and related benefits
    
    
    
    
    
    
    124,577
    
    
    
    7,706
    
    
    
    
    
    
    
    132,283Advertising and promotion
    
    
    
    
    
    
    27,535
    
    
    
    350
    
    
    
    
    
    
    
    27,885Other selling, general and administrative
    
    
    854
    
    
    
    46,072
    
    
    
    765
    
    
    
    
    
    
    
    47,691Subsidiary (income) expense
    
    
    (16,030
    )
    
    
    (3,069
    )
    
    
    
    
    
    
    19,099
    
    
    
    Other (income) expense
    
    
    
    
    
    
    
    
    
    
    (332
    )
    
    
    
    
    
    
    (332
    )Operating income (loss)
    
    
    15,176
    
    
    
    70,026
    
    
    
    5,433
    
    
    
    (19,099
    )
    
    
    71,536Interest expense, net
    
    
    6,160
    
    
    
    44,947
    
    
    
    514
    
    
    
    
    
    
    
    51,621Income (loss) before income taxes
    
    
    9,016
    
    
    
    25,079
    
    
    
    4,919
    
    
    
    (19,099
    )
    
    
    19,915Income tax (benefit) expense
    
    
    (2,720
    )
    
    
    9,049
    
    
    
    1,850
    
    
    
    
    
    
    
    8,179Net income (loss)
    
    $
    11,736
    
    
    $
    16,030
    
    
    $
    3,069
    
    
    $
    (19,099
    )
    
    $
    11,736
 22




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Supplemental Condensed Consolidating Statements of Operations
 Combined
    
    
    CombinedPredecessor
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorPeriod ended March 15, 2007
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(unaudited)(in thousands)Revenue
    
    $
    
    
    
    $
    314,632
    
    
    $
    17,489
    
    
    $
    (2,292
    )
    
    $
    329,829Cost of sales, including costs of warehousing,
distribution and occupancy
    
    
    
    
    
    
    201,973
    
    
    
    12,494
    
    
    
    (2,292
    )
    
    
    212,175Gross profit
    
    
    
    
    
    
    112,659
    
    
    
    4,995
    
    
    
    
    
    
    
    117,654Compensation and related benefits
    
    
    
    
    
    
    61,615
    
    
    
    2,696
    
    
    
    
    
    
    
    64,311Advertising and promotion
    
    
    
    
    
    
    20,435
    
    
    
    38
    
    
    
    
    
    
    
    20,473Other selling, general and administrative
    
    
    86
    
    
    
    17,514
    
    
    
    (204
    )
    
    
    
    
    
    
    17,396Subsidiary (income) expense
    
    
    (12,958
    )
    
    
    (1,581
    )
    
    
    
    
    
    
    14,539
    
    
    
    Other (income) expense
    
    
    34,603
    
    
    
    
    
    
    
    (154
    )
    
    
    
    
    
    
    34,449Operating income (loss)
    
    
    (21,731
    )
    
    
    14,676
    
    
    
    2,619
    
    
    
    (14,539
    )
    
    
    (18,975
    )Interest expense, net
    
    
    42,981
    
    
    
    (539
    )
    
    
    594
    
    
    
    
    
    
    
    43,036Income (loss) before income taxes
    
    
    (64,712
    )
    
    
    15,215
    
    
    
    2,025
    
    
    
    (14,539
    )
    
    
    (62,011
    )Income tax (benefit) expense
    
    
    (13,398
    )
    
    
    2,257
    
    
    
    444
    
    
    
    
    
    
    
    (10,697
    )Net income (loss)
    
    $
    (51,314
    )
    
    $
    12,958
    
    
    $
    1,581
    
    
    $
    (14,539
    )
    
    $
    (51,314
    )
 Supplemental Condensed Consolidating Statements of Cash Flows
 Combined
    
    
    CombinedSuccessor
    
    Parent/
    
    
    Guarantor
    
    
    Non-GuarantorNine months ended September 30, 2008
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Consolidated(unaudited)(in thousands)NET CASH PROVIDED BY OPERATING ACTIVITIES:
    
    $
    
    
    
    $
    60,897
    
    
    $
    4,463
    
    
    $
    65,360CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    
    
    
    
    (32,061
    )
    
    
    (2,936
    )
    
    
    (34,997
    )Investment/distribution
    
    
    16,742
    
    
    
    (16,742
    )
    
    
    
    
    
    
    Acquisition of the Company
    
    
    (10,842
    )
    
    
    
    
    
    
    
    
    
    
    (10,842
    )Other investing
    
    
    
    
    
    
    (95
    )
    
    
    
    
    
    
    (95
    )Net cash provided by (used in) investing activities
    
    
    5,900
    
    
    
    (48,898
    )
    
    
    (2,936
    )
    
    
    (45,934
    )CASH FLOWS FROM FINANCING ACTIVITIES:GNC Corporation investment in
General Nutrition Centers, Inc
    
    
    (832
    )
    
    
    
    
    
    
    
    
    
    
    (832
    )Other financing
    
    
    (5,068
    )
    
    
    (1,604
    )
    
    
    (888
    )
    
    
    (7,560
    )Net cash provided by (used in) financing activities
    
    
    (5,900
    )
    
    
    (1,604
    )
    
    
    (888
    )
    
    
    (8,392
    )Effect of exchange rate on cash
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    14Net increase (decrease) in cash
    
    
    
    
    
    
    10,395
    
    
    
    653
    
    
    
    11,048Beginning balance, cash
    
    
    
    
    
    
    26,090
    
    
    
    2,764
    
    
    
    28,854Ending balance, cash
    
    $
    
    
    
    $
    36,485
    
    
    $
    3,417
    
    
    $
    39,902
 23




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Supplemental Condensed Consolidating Statements of Cash Flows
 Combined
    
    
    CombinedSuccessor
    
    Parent/
    
    
    Guarantor
    
    
    Non-GuarantorPeriod from March 16, 2007 to September 30, 2007
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Consolidated(unaudited)(in thousands)NET CASH USED IN OPERATING ACTIVITIES:
    
    $
    (730
    )
    
    $
    42,665
    
    
    $
    3,303
    
    
    $
    45,238CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    
    
    
    
    (16,851
    )
    
    
    (2,311
    )
    
    
    (19,162
    )Investment/distribution
    
    
    20,113
    
    
    
    (20,113
    )
    
    
    
    
    
    
    Acquisition of the Company
    
    
    (1,624,732
    )
    
    
    
    
    
    
    
    
    
    
    (1,624,732
    )Other investing
    
    
    
    
    
    
    (264
    )
    
    
    
    
    
    
    (264
    )Net cash provided by (used in) investing activities
    
    
    (1,604,619
    )
    
    
    (37,228
    )
    
    
    (2,311
    )
    
    
    (1,644,158
    )CASH FLOWS FROM FINANCING ACTIVITIES:GNC Corporation investment in
General Nutrition Centers, Inc
    
    
    1,690
    
    
    
    
    
    
    
    
    
    
    
    1,690Issuance of new equity
    
    
    552,291
    
    
    
    
    
    
    
    
    
    
    
    552,291Borrowings from new senior credit facility
    
    
    675,000
    
    
    
    
    
    
    
    
    
    
    
    675,000Proceeds from issuance of new senior sub notes
    
    
    110,000
    
    
    
    
    
    
    
    
    
    
    
    110,000Proceeds from issuance of new senior notes
    
    
    297,000
    
    
    
    
    
    
    
    
    
    
    
    297,000Financing fees
    
    
    (28,944
    )
    
    
    
    
    
    
    
    
    
    
    (28,944
    )Other financing
    
    
    (1,688
    )
    
    
    5,787
    
    
    
    (651
    )
    
    
    3,448Net cash provided by (used in) financing activities
    
    
    1,605,349
    
    
    
    5,787
    
    
    
    (651
    )
    
    
    1,610,485Effect of exchange rate on cash
    
    
    
    
    
    
    
    
    
    
    202
    
    
    
    202Net increase in cash
    
    
    
    
    
    
    11,224
    
    
    
    543
    
    
    
    11,767Beginning balance, cash
    
    
    
    
    
    
    7,559
    
    
    
    1,953
    
    
    
    9,512Ending balance, cash
    
    $
    
    
    
    $
    18,783
    
    
    $
    2,496
    
    
    $
    21,279
 24




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Supplemental Condensed Consolidating Statements of Cash Flows
 Combined
    
    
    CombinedPredecessor
    
    Parent/
    
    
    Guarantor
    
    
    Non-GuarantorPeriod ended March 15, 2007
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Consolidated(unaudited)(in thousands)NET CASH USED IN OPERATING ACTIVITIES:
    
    $
    (43,103
    )
    
    $
    (3,102
    )
    
    $
    (583
    )
    
    $
    (46,788
    )CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    
    
    
    
    (5,117
    )
    
    
    (576
    )
    
    
    (5,693
    )Investment/distribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other investing
    
    
    
    
    
    
    (555
    )
    
    
    
    
    
    
    (555
    )Net cash used in investing activities
    
    
    
    
    
    
    (5,672
    )
    
    
    (576
    )
    
    
    (6,248
    )CASH FLOWS FROM FINANCING ACTIVITIES:Contribution from selling shareholders
    
    
    463,393
    
    
    
    
    
    
    
    
    
    
    
    463,393Redemption of 8 5/8% senior notes
    
    
    (150,000
    )
    
    
    
    
    
    
    
    
    
    
    (150,000
    )Redemption of 8 1/2% senior notes
    
    
    (215,000
    )
    
    
    
    
    
    
    
    
    
    
    (215,000
    )Payment of 2003 senior credit facility
    
    
    (55,290
    )
    
    
    
    
    
    
    
    
    
    
    (55,290
    )Other financing
    
    
    
    
    
    
    (4,136
    )
    
    
    (334
    )
    
    
    (4,470
    )Net cash provided by (used in) financing activities
    
    
    43,103
    
    
    
    (4,136
    )
    
    
    (334
    )
    
    
    38,633Effect of exchange rate on cash
    
    
    
    
    
    
    
    
    
    
    (165
    )
    
    
    (165
    )Net decrease in cash
    
    
    
    
    
    
    (12,910
    )
    
    
    (1,658
    )
    
    
    (14,568
    )Beginning balance, cash
    
    
    
    
    
    
    20,469
    
    
    
    3,611
    
    
    
    24,080Ending balance, cash
    
    $
    
    
    
    $
    7,559
    
    
    $
    1,953
    
    
    $
    9,512
 25




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO 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
    
    $
    1,820
    
    
    $
    1,246
    
    
    $
    
 26




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Other long-term liabilities
  NOTE 12. RELATED PARTY TRANSACTIONS
 Successor:
 Management Services Agreement.
 Credit Facility.
 Stock Purchase.
 27




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Predecessor:
 Management Service Fees.
 28




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
   Forward-Looking Statements
   
    
    general economic conditions, including continued weakening of the economy and its effect on consumer purchases;
    
    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 for our franchise operations; and
    
    our inability to expand our franchise operations or attract new franchisees.
 
 29




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##### Table of Contents



Business Overview
   
    
    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 2007, our
industry is projected to grow at an average annual rate of 4% 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 revenues to grow at or above 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. While revenues generated through our strategic alliance with Rite Aid
do not represent a substantial component of our business, we believe that sales of our
products to and through Rite Aid will continue to grow in accordance with our projected
retail revenue growth. 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.
 30




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##### Table of Contents




    
    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.
  
    
    volatility in the diet category;
    
    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;
    
    rapidly evolving consumer preferences and demand for new products; and
    
    costs associated with complying with new and existing governmental regulation.
 Executive Overview
       31




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Related Parties
  Results of Operations
     32




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##### Table of Contents



Successor
    
    
    Combined
    
    
    Predecessor
    
    
    SuccessorNine Months Ended
    
    
    Nine Months Ended
    
    
    
    
    
    
    
    
    
    
    March 16 -Three Months Ended September 30,
    
    
    September 30,
    
    
    September 30,
    
    
    January 1 - March 15,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2007
    
    
    2007(unaudited)Revenues:Retail
    
    $
    298.8
    
    
    
    72.1
    %
    
    $
    289.4
    
    
    
    73.2
    %
    
    $
    934.6
    
    
    
    73.9
    %
    
    $
    890.0
    
    
    
    75.6
    %
    
    $
    259.3
    
    
    
    78.6
    %
    
    $
    630.7
    
    
    
    74.5
    %Franchise
    
    
    67.5
    
    
    
    16.3
    %
    
    
    65.8
    
    
    
    16.7
    %
    
    
    197.5
    
    
    
    15.6
    %
    
    
    184.5
    
    
    
    15.7
    %
    
    
    47.2
    
    
    
    14.3
    %
    
    
    137.3
    
    
    
    16.2
    %Manufacturing / Wholesale
    
    
    47.9
    
    
    
    11.6
    %
    
    
    40.1
    
    
    
    10.1
    %
    
    
    132.9
    
    
    
    10.5
    %
    
    
    102.2
    
    
    
    8.7
    %
    
    
    23.3
    
    
    
    7.1
    %
    
    
    78.9
    
    
    
    9.3
    %Total net revenues
    
    
    414.2
    
    
    
    100.0
    %
    
    
    395.3
    
    
    
    100.0
    %
    
    
    1,265.0
    
    
    
    100.0
    %
    
    
    1,176.7
    
    
    
    100.0
    %
    
    
    329.8
    
    
    
    100.0
    %
    
    
    846.9
    
    
    
    100.0
    %Operating expenses:Cost of sales, including warehousing,
distribution and occupancy costs
    
    
    270.0
    
    
    
    65.2
    %
    
    
    264.6
    
    
    
    67.0
    %
    
    
    823.1
    
    
    
    65.1
    %
    
    
    780.0
    
    
    
    66.3
    %
    
    
    212.2
    
    
    
    64.4
    %
    
    
    567.8
    
    
    
    67.0
    %Compensation and related benefits
    
    
    63.3
    
    
    
    15.3
    %
    
    
    61.8
    
    
    
    15.6
    %
    
    
    187.8
    
    
    
    14.8
    %
    
    
    196.6
    
    
    
    16.7
    %
    
    
    64.3
    
    
    
    19.5
    %
    
    
    132.3
    
    
    
    15.6
    %Advertising and promotion
    
    
    13.6
    
    
    
    3.3
    %
    
    
    13.4
    
    
    
    3.4
    %
    
    
    45.4
    
    
    
    3.6
    %
    
    
    48.4
    
    
    
    4.1
    %
    
    
    20.5
    
    
    
    6.2
    %
    
    
    27.9
    
    
    
    3.3
    %Other selling, general and administrative
expenses
    
    
    21.1
    
    
    
    5.1
    %
    
    
    18.1
    
    
    
    4.6
    %
    
    
    65.2
    
    
    
    5.1
    %
    
    
    58.2
    
    
    
    4.9
    %
    
    
    16.5
    
    
    
    5.0
    %
    
    
    41.7
    
    
    
    4.9
    %Amortization expense
    
    
    2.6
    
    
    
    0.6
    %
    
    
    3.3
    
    
    
    0.8
    %
    
    
    8.3
    
    
    
    0.7
    %
    
    
    6.9
    
    
    
    0.6
    %
    
    
    0.8
    
    
    
    0.2
    %
    
    
    6.1
    
    
    
    0.7
    %Foreign currency loss (gain)
    
    
    0.1
    
    
    
    0.0
    %
    
    
    (0.2
    )
    
    
    -0.1
    %
    
    
    0.2
    
    
    
    0.0
    %
    
    
    (0.5
    )
    
    
    0.0
    %
    
    
    (0.1
    )
    
    
    0.0
    %
    
    
    (0.4
    )
    
    
    0.0
    %Transaction related costs
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    34.6
    
    
    
    2.9
    %
    
    
    34.6
    
    
    
    10.5
    %
    
    
    
    
    
    
    0.0
    %Total operating expenses
    
    
    370.7
    
    
    
    89.5
    %
    
    
    361.0
    
    
    
    91.3
    %
    
    
    1,130.0
    
    
    
    89.3
    %
    
    
    1,124.2
    
    
    
    95.5
    %
    
    
    348.8
    
    
    
    105.8
    %
    
    
    775.4
    
    
    
    91.6
    %Operating income:Retail
    
    
    32.6
    
    
    
    7.9
    %
    
    
    32.1
    
    
    
    8.1
    %
    
    
    111.6
    
    
    
    8.8
    %
    
    
    99.2
    
    
    
    8.5
    %
    
    
    28.2
    
    
    
    8.6
    %
    
    
    71.0
    
    
    
    8.4
    %Franchise
    
    
    22.6
    
    
    
    5.4
    %
    
    
    20.3
    
    
    
    5.1
    %
    
    
    61.1
    
    
    
    4.9
    %
    
    
    53.3
    
    
    
    4.5
    %
    
    
    14.5
    
    
    
    4.4
    %
    
    
    38.8
    
    
    
    4.6
    %Manufacturing / Wholesale
    
    
    18.9
    
    
    
    4.6
    %
    
    
    10.6
    
    
    
    2.7
    %
    
    
    52.0
    
    
    
    4.1
    %
    
    
    34.0
    
    
    
    2.9
    %
    
    
    10.3
    
    
    
    3.1
    %
    
    
    23.7
    
    
    
    2.8
    %Unallocated
corporate and other costs:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Warehousing and distribution costs
    
    
    (13.5
    )
    
    
    -3.3
    %
    
    
    (12.9
    )
    
    
    -3.2
    %
    
    
    (41.1
    )
    
    
    -3.3
    %
    
    
    (38.1
    )
    
    
    -3.3
    %
    
    
    (10.7
    )
    
    
    -3.2
    %
    
    
    (27.4
    )
    
    
    -3.2
    %Corporate costs
    
    
    (17.1
    )
    
    
    -4.1
    %
    
    
    (15.7
    )
    
    
    -4.0
    %
    
    
    (48.6
    )
    
    
    -3.8
    %
    
    
    (61.2
    )
    
    
    -5.2
    %
    
    
    (26.7
    )
    
    
    -8.2
    %
    
    
    (34.5
    )
    
    
    -4.1
    %Merger related costs
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    (34.6
    )
    
    
    -2.9
    %
    
    
    (34.6
    )
    
    
    -10.5
    %
    
    
    
    
    
    
    0.0
    %Subtotal unallocated corporate and
other costs, net
    
    
    (30.6
    )
    
    
    -7.4
    %
    
    
    (28.6
    )
    
    
    -7.2
    %
    
    
    (89.7
    )
    
    
    -7.1
    %
    
    
    (133.9
    )
    
    
    -11.4
    %
    
    
    (72.0
    )
    
    
    -21.9
    %
    
    
    (61.9
    )
    
    
    -7.3
    %Total operating income (loss)
    
    
    43.5
    
    
    
    10.5
    %
    
    
    34.4
    
    
    
    8.7
    %
    
    
    135.0
    
    
    
    10.7
    %
    
    
    52.6
    
    
    
    4.5
    %
    
    
    (19.0
    )
    
    
    -5.8
    %
    
    
    71.6
    
    
    
    8.5
    %Interest expense, net
    
    
    19.7
    
    
    
    
    
    
    
    23.8
    
    
    
    
    
    
    
    62.2
    
    
    
    
    
    
    
    94.7
    
    
    
    
    
    
    
    43.0
    
    
    
    
    
    
    
    51.7Income (loss) before income taxes
    
    
    23.8
    
    
    
    
    
    
    
    10.6
    
    
    
    
    
    
    
    72.8
    
    
    
    
    
    
    
    (42.1
    )
    
    
    
    
    
    
    (62.0
    )
    
    
    
    
    
    
    19.9Income tax expense (benefit)
    
    
    7.5
    
    
    
    
    
    
    
    4.5
    
    
    
    
    
    
    
    26.1
    
    
    
    
    
    
    
    (2.5
    )
    
    
    
    
    
    
    (10.7
    )
    
    
    
    
    
    
    8.1Net income (loss)
    
    $
    16.3
    
    
    
    
    
    
    $
    6.1
    
    
    
    
    
    
    $
    46.7
    
    
    
    
    
    
    $
    (39.6
    )
    
    
    
    
    
    $
    (51.3
    )
    
    
    
    
    
    $
    11.8
 Note:
 33




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##### Table of Contents



Comparison of the Three Months Ended September 30, 2008 and 2007
 Revenues
  Retail.
 Franchise.
 Manufacturing/Wholesale.
 Cost of Sales
  Product costs.
 Warehousing and distribution costs.
 34




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##### Table of Contents



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.
 35




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##### Table of Contents



Franchise.
 Manufacturing/Wholesale.
 Warehousing and Distribution Costs.
 Corporate Costs.
 Interest Expense
  Income Tax Expense
  Net Income
  Comparison of the Nine Months Ended September 30, 2008 and 2007
 Revenues
  Retail.
 36




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##### Table of Contents



Franchise.
 Manufacturing/Wholesale.
 Cost of Sales
  Product costs.
 Warehousing and distribution costs.
 Occupancy costs.
 Selling, General and Administrative (SG&A) Expenses
  37




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##### Table of Contents



Compensation and related benefits.
 Advertising and promotion.
 Other SG&A.
 Merger-related Costs
  Foreign Currency (Loss) Gain
  Operating Income
   Retail.
 38




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##### Table of Contents



Franchise.
 Manufacturing/Wholesale.
 Warehousing and Distribution Costs.
 Corporate Costs.
 Interest Expense
  Income Tax Expense
  Net Income
  Liquidity and Capital Resources
  39




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##### Table of Contents



Successor
    
    Combined
    
    Predecessor
    
    SuccessorNine months
    
    Nine months
    
    Period
    
    Period fromended September 30,
    
    ended September 30,
    
    ended March 15,
    
    March 16 to September 30,(Dollars in millions)
    
    2008
    
    2007
    
    2007
    
    2007Cash provided by (used in) operating activities
    
    $
    65.4
    
    
    $
    (1.6
    )
    
    $
    (46.8
    )
    
    $
    45.2Cash used in investing activities
    
    
    (45.9
    )
    
    
    (1,650.2
    )
    
    
    (6.2
    )
    
    
    (1,644.0
    )Cash (used in) provided by financing activities
    
    
    (8.4
    )
    
    
    1,649.1
    
    
    
    38.6
    
    
    
    1,610.5
 Cash Provided by Operating Activities
   40




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##### Table of Contents



Cash Used in Investing Activities
   Cash Used in Financing Activities
  $735.0 Million 2007 Senior Credit Facility
 Senior Toggle Notes
 10.75% Senior Subordinated Notes
 Contractual Obligations
  Off Balance Sheet Arrangements
   41




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##### Table of Contents



Effect of Inflation
  Critical Accounting Estimates
  Recently Issued Accounting Pronouncements
  .
  42




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk.
  43




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##### Table of Contents



Derivative
    
    Total Notional Amount
    
    Term
    
    Counterparty Pays
    
    Company PaysInterest Rate Swap
    
    $150.0 million
    
    April 2007-April 2010
    
    LIBOR
    
    
    4.8965
    %Interest Rate Swap
    
    $150.0 million
    
    April 2007-April 2009
    
    LIBOR
    
    
    4.9430
    %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
    %
  
 Item 4T. Controls and Procedures.
   44




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
   Pro-Hormone/Androstenedione Cases. see Stephens and Pio
     45




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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). Pio and McDonald v. General Nutrition Companies, Inc. Case No. 02 CH 14122,
Circuit Court of Cook County, Illinois, County Department, Chancery Division),
  Wage and Hour Claim.
 California Wage and Break Claim
 Franchise Class Action.
 Creatine Claim.
 46




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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.
  47




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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.
   48




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##### Table of Contents



Compliance with new and existing governmental regulations could increase our costs significantly
and adversely affect our results of operations.
   49




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##### Table of Contents



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.
  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.
  50




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##### Table of Contents



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.
  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.
   51




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##### Table of Contents



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.
  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.
  52




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##### Table of Contents



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.
  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;
 53




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##### Table of Contents




    
    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.
  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.
   54




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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;
    
    selling or otherwise disposing our assets;
    
    paying dividends and making other distributions to GNC Parent LLC or GNC
Corporation; and
    
    entering into transactions with our affiliates.
   55




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##### Table of Contents



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.
 56




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SIGNATURES
  GENERAL NUTRITION CENTERS, INC.
(Registrant)November 12, 2008
    /s/ Joseph M. FortunatoJoseph M. FortunatoChief Executive Officer
(Principal Executive Officer)November 12, 2008
    /s/ Michael M. NuzzoMichael M. NuzzoChief Financial Officer
(Principal Financial Officer) 57