<PAGE>   1
 
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                                   FORM 10-K
(MARK ONE)
 
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934
 
     FOR THE FISCAL YEAR ENDED JANUARY 31, 1998
 
                                         OR
 
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 [NO FEE REQUIRED]
 
     FOR THE TRANSITION PERIOD FROM ________________ TO ________________
 
                        COMMISSION FILE NUMBER: 0-19592
 
                       GENERAL NUTRITION COMPANIES, INC.
             (Exact name of Registrant as specified in its charter)
 
<TABLE>
<S>                                            <C>
                   DELAWARE                                      04-3056351
       (State or other jurisdiction of                        (I.R.S. Employer
        incorporation or organization)                      Identification No.)
  300 SIXTH AVENUE PITTSBURGH, PENNSYLVANIA                        15222
   (Address of Principal Executive Offices)                      (Zip Code)
</TABLE>
 
      Registrant's telephone number, including area code:  (412) 288-4600
 
       Securities Registered Pursuant to Section 12(b) of the Act:  None
 
          Securities Registered Pursuant to Section 12(g) of the Act:
 
                          COMMON STOCK-PAR VALUE $.01
                                (Title of Class)
 
     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13, or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2), has been subject to such filing
requirements for the past 90 days.
 
                            [ X ] Yes      [   ] No
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
                              [ ] Yes      [ ] No
 
     As of April 13, 1998, 82,577,225 shares of the Registrant's Common Stock
were outstanding. The aggregate market value of the voting stock held by
non-affiliates as of that date was $2,856,910,478 based on the last reported
sale price of the Common Stock on the NASDAQ Stock Market.
 
                      DOCUMENTS INCORPORATED BY REFERENCE:
 
<TABLE>
<CAPTION>
                                                                 INCORPORATED BY
                          DOCUMENT                            REFERENCE IN PART NO.
                          --------                            ---------------------
<S>                                                           <C>
Portions of General Nutrition Companies, Inc. Proxy
  Statement for its 1998 Annual Meeting of Stockholders.....           III
</TABLE>
 
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<PAGE>   2
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
PART I
  Item 1.  Business.........................................    1
  Item 2.  Properties.......................................   10
  Item 3.  Legal Proceedings................................   11
  Item 4.  Submission of Matters to a Vote of Security
     Holders................................................   11
 
PART II
  Item 5.  Market for the Registrant's Common Equity and
     Related Stockholder Matters............................   11
  Item 6.  Selected Consolidated Financial Information and
     Other Data.............................................   13
  Item 7.  Management's Discussion and Analysis of Results
     of Operations and Financial Condition..................   14
  Item 8.  Financial Statements and Supplementary Data......   19
  Item 9.  Changes in and Disagreements with Accountants on
     Accounting and Financial Disclosure....................   40
 
PART III
  Item 10. Directors and Executive Officers of the
     Registrant.............................................   41
  Item 11. Executive Compensation...........................   43
  Item 12. Security Ownership of Certain Beneficial Owners
     and Management.........................................   43
  Item 13. Certain Relationships and Related Transactions...   43
 
PART IV
  Item 14. Exhibits, Financial Statement Schedules and
     Reports on Form 8-K....................................   44
Signatures..................................................   47
</TABLE>
<PAGE>   3
 
                                     PART I
ITEM 1. BUSINESS
 
     General Nutrition Companies, Inc. (the "Company"), collectively with its
subsidiaries, is the only nationwide specialty retailer of vitamin and mineral
supplements, sports nutrition products and herbs, and is also a leading provider
of personal care, and other health-related products. Domestically, the Company's
products are sold through 3,160 General Nutrition Centers(TM) and GNC Live
Well(TM) stores ("GNC"), of which 2,086 are owned and operated by the Company
and 1,074 are franchised. Additionally, the Company generates retail revenue
from 50 stores operating under various names including Natures Food Centres(R),
Amphora(TM) and Nature's fresh(TM). Internationally, the Company operates 20
Health and Diet Centres(R) and 19 General Nutrition Centres(R) in the United
Kingdom, 34 General Nutrition Centres(R) in Canada and 1 store in New Zealand.
There are also 151 operating franchise stores in 15 international markets. The
Company's marketing emphasizes high-margin, value-added vitamin and mineral
supplements, sports nutrition products and herbs sold under the Company's GNC
proprietary brands and other nationally recognized third-party brand names.
 
     The Company's strategy is to increase its market share in the vitamin,
mineral and supplement market and to leverage this increase to maximize
profitability. The Company strives to achieve these goals through: (i) unit
growth, with the addition of company-owned and franchised stores both
domestically and internationally; (ii) enhanced performance at existing stores,
with comparable store sales gains driven by advertising, new product
introductions and updated store formats; and (iii) improved profitability
through increased introduction of GNC proprietary branded products, and
increased economies of scale.
 
     The success of the Company's strategy can be seen in its financial
information with revenue and operating earnings showing compound growth rates of
21.6% and 26.6%, respectively, since 1993. Set forth below is the Company's net
revenue, operating earnings, diluted earnings per common share and store
information for years 1993 through 1997.
 
                                 COMPANY GROWTH
 
<TABLE>
<CAPTION>
                                          1993       1994       1995       1996        1997
                                          ----       ----       ----       ----        ----
                                             (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S>                                     <C>        <C>        <C>        <C>        <C>
NET REVENUE..........................   $546,253   $672,945   $845,952   $990,845   $1,193,485
Operating earnings...................     75,766     97,750    137,116     60,347      191,171
Diluted earnings per share...........       0.30       0.44       0.78       0.05         1.24
OPERATING EARNINGS AS ADJUSTED*......     75,826     98,425    138,699    152,413      195,254
DILUTED EARNINGS PER SHARE AS
  ADJUSTED*..........................       0.37       0.54       0.79       0.95         1.27
NUMBER OF STORES.....................      1,553      2,115      2,543      3,047        3,435
COMPARABLE STORE SALES GROWTH (GNC
  STORES)............................      12.5%       5.8%      10.3%       0.3%         7.9%
</TABLE>
 
---------------
 
* Operating earnings and earnings per share have been adjusted for comparative
  purposes, excluding non-cash compensation expenses, extraordinary items,
  restructuring, and non-recurring charges in all years presented.
 
     Unit Growth.  Since 1992, the Company has opened or acquired in the United
States 2,031 new GNC stores, net of closings, of which 1,112 are company-owned
and 919 are franchised locations. The Company's initial growth was through
company-owned stores located primarily in regional malls. Beginning in late 1992
the Company broadened its location selections to include strip shopping centers
and secondary malls as well as regional malls. The Company's franchise program
has also enabled the Company's expansion into secondary locations as well as
into international markets. In 1997, the Company opened 371 new domestic GNC
stores, of which 152 are company-owned and 219 are franchised. In 1997, the
Company opened 24 General Nutrition Centres in Canada and 10 in the United
Kingdom. Additionally, 30 franchise stores opened in various international
markets. Additional store growth is expected in 1998 as the Company continues
its store expansion program for company-owned and franchised locations. In
Franchising, at January 31, 1998, there were awards and development agreements
to open an additional 422 domestic and 387 international franchise locations.
 
                                        1
<PAGE>   4
 
     Comparable Store Sales Gains.  The Company believes that it has achieved
gains in comparable store sales in both company-owned and franchised GNC
locations through the continued introduction, or reformulation, of value-added
specialty branded products as well as through refinements of its store format.
In 1997, the Company introduced more than 146 new or reformulated proprietary
branded products and plans to introduce more than 200 additional products in
1998. The Company continues to focus on creating updated store formats that
provide consumers with informational displays and signage in an attractive
shopping environment. Historically, when the store formats are updated,
comparable store sales gains in the first year after conversion are
significantly better than in those stores not converted.
 
     Set forth below for the periods presented, are comparable store sales gains
for company-owned and franchise stores in the United States.
 
                          COMPARABLE STORE SALES GAINS
 
<TABLE>
<CAPTION>
                   STORES                       1993    1994    1995    1996    1997
                   ------                       ----    ----    ----    ----    ----
<S>                                             <C>     <C>     <C>     <C>     <C>
Company-owned...............................    12.5%    5.8%   10.3%    0.3%    7.9%
Franchise...................................    20.3%   19.0%   15.5%    8.5%   16.4%
</TABLE>
 
     Enhanced Profitability.  The Company continues to focus on improving its
profitability by shifting its mix to proprietary branded products which
typically yield higher profit margins. In addition, as the Company continues to
grow, it expects to further leverage its investments in manufacturing,
distribution, purchasing and marketing and benefit from its vertical
integration.
 
     The Company operates in three distinct business segments; Retail,
Franchising and Manufacturing. For financial information concerning segments,
see Note 15 of Notes to Consolidated Financial Statements.
 
RETAIL
 
PRODUCTS
 
     The Company's products are sold under its various proprietary brand names,
including Ultra Mega(R), Solotron(R), GNC(R), Natural Brand(TM), Pro
Performance(R), Challenge(TM), Herbal Plus(R), Nature's Fingerprint(TM),
Preventive Nutrition(R), 24-Hour Diet(R), Quick Shot(TM), Optibolic(R),
Bio-Remedy(R), Harvest of Nature(TM), Vita Worth(R), Orchard Blends(TM), Food
for Thought(TM), and Opti-Body(R). In addition, the Company carries various
third-party brand name products including Weider(TM), Advanced Research
Products(R), Twin Lab(R), Nature's Herbs(R), Nature's Way(R), EAS(R) and
Met-Rx(R). The Company's product mix focuses on high-margin, GNC proprietary
branded, value-added products emphasizing vitamin and mineral supplements,
sports nutrition and herbal products.
 
     Vitamin and Mineral Supplements.  For over 62 years, vitamin and mineral
supplements have represented the core of the Company's product line. Vitamins
and minerals are sold in single vitamin and multi-vitamin form, and in different
potency levels. Products are produced in tablets, soft gelatin and hard-shell
capsules and powder forms. The Company has reformulated many of its existing
private label products and added new "consumer focused" special nutritional
formulas to its line of GNC proprietary branded products. These new GNC
proprietary branded products are designed to meet the customers' lifestyle
requirements. They have unique formulations based on the most recent science,
and therefore can command a premium for the high value added. The Company places
continued emphasis on these high-margin, value-added special nutritional
formulas for its vitamin and mineral products sold under its GNC proprietary
brand names.
 
     Sports Nutrition Products.  Sports nutrition products are food and dietary
supplements designed to be taken in conjunction with a fitness program.
Management believes that these products, which include various protein and
weight gain powders as well as high potency vitamin formulations, appeal to
consumers who are engaged in regular exercise, including athletes who are in
training to gain weight and develop their physique. Over 200 different sports
nutrition products, including the Company's GNC proprietary brands and national
brands, are stocked by the average GNC store.
 
     Herbs.  The herb category has been the fastest growing category of the
supplement market over the past four years. Herbal supplements are sold in
various hard-shell and soft gelatin capsules, tea and liquid forms. These
products are sold in both single herb and combination formulas. The Company
merchandises herbs under
 
                                        2
<PAGE>   5
 
its GNC proprietary brands Herbal Plus(R), Nature's Fingerprint(TM), Harvest of
Nature(TM) and Natural Brand(TM), along with products provided by third-parties,
including Nature's Way(R), Nature's Herbs(R), Kyolic(R) and Ginsana(R).
 
     Diet Products.  The diet category consists of various formulas designed to
supplement the diet of weight conscious consumers. These products are sold in
various pills, teas and meal replacement drinks. The Company provides GNC
proprietary brand products along with third-party products.
 
     Food Products.  The Company sells a selection of specialty food products in
its GNC stores. As commodity natural food products have become available through
more distribution channels, the Company has reduced its line of food products,
focusing more on proprietary branded sports drinks, sports bars, and health
related snack items that carry a higher gross margin. This category has been
de-emphasized as part of the Company's ongoing reallocation of shelf space to
higher-margin, specialty non-food products. Through the acquisition of Nature's
fresh Northwest, Inc. the Company has entered into the gourmet natural food
grocery business. These stores offer a broad assortment of natural produce as
well as meat, poultry, and seafood.
 
     Personal Care and Miscellaneous Health Care Products.  The Company sells
personal care products including hair care products, soaps, skin creams,
lotions, bath and massage products. These products are generally termed
"natural" because they contain few synthetic chemicals and additives. The
Company seeks to offer products within this category, which include vitamins,
herbs and other natural ingredients and avoids products which contain harsh
chemicals.
 
     Fitness and Apparel.  Certain of the Company's stores offer a variety of
sports accessories, including light-line fitness equipment, weight training
accessories and specialty workout apparel. In 1996, the Company discontinued
selling these products in most of the company-owned stores and will merchandise
selected third-party products in a limited number of stores in the future.
 
     Gold Card/Other.  This category primarily represents sales of the Company's
Gold Card. The card, for a $15 annual fee, provides customers with a 20%
discount on all products purchased, both on the date the card is purchased and
the first Tuesday of each month. At January 31, 1998, there were approximately
3.1 million active Gold Card members, with more than 11,500 new card holders
being added each week.
 
     The following table is a comparison, for the last three years, of
company-owned GNC retail sales in each of its major product categories and their
respective percentage of total GNC retail sales:
 
<TABLE>
<CAPTION>
                                                 1995                 1996                 1997
                                          ------------------   ------------------   ------------------
                                                  % OF TOTAL           % OF TOTAL           % OF TOTAL
                                          SALES     SALES      SALES     SALES      SALES     SALES
                                          -----     -----      -----     -----      -----     -----
                                                              (SALES IN MILLIONS)
<S>                                       <C>     <C>          <C>     <C>          <C>     <C>
Vitamins & Minerals.....................  $197        32%      $233        35%      $275        35%
Sports Nutrition........................   164        27        182        27        212        27
Herbs...................................   117        19        129        20        161        21
Diet Products...........................    46         8         39         6         55         7
Food Products...........................    21         4         18         3         17         2
Personal Care...........................    28         4         26         4         25         3
Fitness and Apparel.....................    11         2          8         1          2         1
Gold Card/Other.........................    25         4         27         4         33         4
                                          ----       ---       ----       ---       ----       ---
                                          $609       100%      $662       100%      $780       100%
                                          ====       ===       ====       ===       ====       ===
</TABLE>
 
     Sales of the Company's GNC proprietary brands represented approximately 52%
of the total retail sales in 1995 and 1997 and approximately 54% in 1996.
 
STORES
 
     At January 31, 1998, the Company operated a network of 2,210 retail stores,
of which 2,136 were located in the United States and Puerto Rico, 73 stores in
the United Kingdom and Canada, and 1 in New Zealand. The following table sets
forth the number of retail stores and the respective operating names at the end
of the fiscal years 1995, 1996 and 1997.
 
                                        3
<PAGE>   6
 
                    NUMBER OF COMPANY-OWNED STORES OPERATING
                                  AT YEAR END
 
<TABLE>
<CAPTION>
                      OPERATING NAME                        1995        1996        1997
                      --------------                        ----        ----        ----
<S>                                                         <C>         <C>         <C>
Domestic
  General Nutrition Centers...............................  1,462       1,760       2,086
  Natures Food Centres....................................    100          65          35
  Nature's fresh..........................................     --           6           6
  Amphora.................................................     --           2           9
                                                            -----       -----       -----
     Subtotal domestic stores.............................  1,562       1,833       2,136
International
  General Nutrition Centres...............................     --          20          54
  Health & Diet Centres...................................     22          20          20
                                                            -----       -----       -----
     Subtotal international stores........................     22          40          74
                                                            -----       -----       -----
     Total Company operated stores........................  1,584       1,873       2,210
                                                            =====       =====       =====
</TABLE>
 
     GENERAL NUTRITION CENTERS.  Most GNC stores contain between 1,200 and 1,800
square feet. Historically these GNC stores were constructed primarily in
regional shopping malls ("Traditional"). Beginning in late 1992, the Company, as
part of its store expansion strategy, focused its growth on strip centers and
secondary mall locations ("Expansion") rather than the Traditional mall sites.
While similar in sizes and profit margins, the strip center stores generate
fewer customer transactions and therefore have lower annual sales volume and
sales per square foot. The following table sets forth for the periods indicated,
the weighted average sales per store and sales per square foot for Traditional
and Expansion GNC stores.
 
           WEIGHTED AVERAGE SALES PER STORE AND SALES PER SQUARE FOOT
 
                              (SALES IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                         TRADITIONAL                 EXPANSION
                                      ------------------         ------------------
                                      1995   1996   1997         1995   1996   1997
                                      ----   ----   ----         ----   ----   ----
<S>                                   <C>    <C>    <C>          <C>    <C>    <C>
Number of Stores....................   851    836    826          618    878    910
Sales...............................  $536   $530   $560         $316   $300   $317
Sales per Square Foot...............  $327   $324   $342         $210   $199   $211
</TABLE>
 
     Updated Store Formats.  The Company's current store format has been
utilized since 1990 and emphasizes the products and information concerning the
products as a merchandising tool. The Company began the implementation of this
format by converting existing GNC stores and continues to convert additional
stores as their leases renew. Sales generated by updated stores have shown
significant increases when compared to sales prior to conversion.
 
     For the past four years, the Company has been developing a new concept
store with the goal of providing a unique shopping experience for GNC customers.
In 1997, the Company had 17 of the prototype stores called "GNC Live Well". The
GNC Live Well store offers a full line of supplements, sports nutrition, herbs,
and expanded product lines, including aromatherapy, bath and spa, and a broad
selection of self-care related products. These self-care products include both
customized personalized vitamin plans and health and body products. This new
format is designed to be a total health and self-care experience. The Company
continues to evaluate and modify its store formats to maximize productivity and
profitability.
 
     Store Management.  The Company's GNC stores are currently regionalized into
four divisions. Each division is led by a Vice President who, along with
managers responsible for merchandising and promotions, a Financial Analyst and a
network of Regional Sales Directors, manages company-owned store operations.
This decentralized organization has been in existence for over nine years,
allowing the Company's field management to customize stores to the demographics
of particular markets, and to have responsibility for merchandise assortment,
promotions, certain advertising and product pricing. In 1990, with the new
emphasis on franchising, a franchise management and field support group was
added to the divisional organization. This group is responsible for all aspects
of the franchise field operations.
 
                                        4
<PAGE>   7
 
     NATURE'S FRESH.  In 1996, the Company acquired Nature's fresh Northwest,
Inc., a 6 store gourmet grocery store chain located in the Portland, Oregon
area. These stores offer a broad assortment of natural produce, meat, poultry,
and seafood as well as vitamins and health and beauty aids. The stores range in
square footage from 4,500 to 31,000 square feet. The company anticipates the
opening of 1 additional Nature's fresh store in the fall of 1998.
 
     AMPHORA.  In 1996, the Company acquired Amphora, a 1 store retail concept
offering aromatherapy based bath, body, and relaxation products. The Company has
developed an Amphora line of products to be distributed through GNC stores and
continues the testing of the Amphora retail store concept. In 1997, 7 new
Amphora stores were built.
 
     GENERAL NUTRITION CENTRES.  In 1996 the Company opened 10 stores in Canada,
9 stores in the United Kingdom and 1 store in New Zealand, to test the GNC
retail concept in these international markets. The United Kingdom and New
Zealand with 19 and 1 stores open, respectively, continue to be evaluated for
future growth, while the Company has begun expanding its store base in Canada.
At January 31, 1998 there were 34 operating Canadian stores. The Company
anticipates 100 operating locations in Canada by February 6, 1999.
 
     HEALTH AND DIET CENTRES.  The Company purchased United Kingdom based Health
and Diet Centres in 1995. The stores offer products similar to that of a GNC
store with a greater mix of health food products and fewer proprietary branded
products. The Company introduced certain of the Company's proprietary branded
products in Health and Diet Centres in 1996.
 
MARKETING
 
     Trends.  The Company's current marketing and store expansion efforts have
resulted in approximately a 14.2% share of the total retail supplement market,
including the vitamins, minerals, herbs, and sports nutrition categories,
compared with 9.7% in 1993.
 
     According to various sources, including Packaged Facts and Beyond Data, the
retail supplement market in which the Company competes is forecasted to grow at
an accelerating rate through the rest of this decade (12.7%, 13.6%, and 14.5% in
1998, 1999, and 2000, respectively), reaching $10.7 billion by 2000. This growth
is driven by a combination of an aging population and increased consumer
acceptance of supplements. For example, people over age 35, which account for
73% of vitamin users, will grow from 127 million in 1995 to 150 million people
in the U.S. alone by the year 2005. Meanwhile, between 1993 and 1997, usage of
vitamins grew from 36% of the population to 43%; usage of herbs grew from 14% of
the population to 32%, and usage of sports nutrition products grew from 4.3% of
the population to 7.0%. The overall alternative medicine category grew at an
average of 30% versus 8% for conventional medicine from 1989 to 1993, the last
year for which statistics are available.
 
     The Company markets its proprietary brands of specialty nutrition products
through an integrated marketing program whose executional elements include
television, print and radio media, storefront graphics, Gold Card member
communications, and point of purchase materials. The Company further benefits
from product advertising paid for entirely by third-party vendors, promoting
their products and identifying GNC stores as the place to purchase these
products. In 1997, the Company spent $47.6 million net on domestic retail
advertising and other marketing efforts, or approximately 5.5% of retail net
revenue, compared with $37.7 million, or approximately 5.2% of retail net
revenue in 1996.
 
     Additionally, the Company's franchisees currently are required to spend up
to 3% of sales on local advertising and may be required to contribute up to 3%
of their retail sales to a fund utilized for national advertising. In 1995, the
Company began setting up co-op advertising funds with participating franchisees
in major markets. These co-ops require franchisees to contribute 2.5% of sales
to the fund while the Company contributes the same percentage of sales for
company-owned stores in the market. This permits the Company to pool its own
funds with those of its franchisees to advertise in a more effective and
cohesive way. Total dollars spent in 1997 by the co-op was $17.0 million, up
from $6.1 million in 1996. There were 58 co-ops in place at January 31, 1998. An
additional 7 co-op formations are anticipated in 1998.
 
     Advertising.  The Company remains committed to positioning the GNC Brand as
the customer's inspirational partner in living his or her best life. This "Live
Well" positioning is communicated through a consistent
 
                                        5
<PAGE>   8
 
and integrated approach to television, radio and print creative, media
placement, in-store graphics, and other promotional materials. The Company has
made substantial gains in customer perception and credibility, which management
believes are a direct result of the "Live Well" market positioning and
executions.
 
     Training.  The Company has developed and tested an interactive touchscreen
kiosk, which disseminates consumer information via an independent service called
the BioNutritional Encyclopedia. The BioNutritional Encyclopedia allows
customers to easily search through a compilation of balanced research on over
150 nutritional substances. The kiosk also features interactive product
knowledge training for the store staff. Product training curriculum has been
developed in electronic format for 50% of the product line, with the balance
under development during 1998. Based on favorable in-market test results, the
kiosk will begin rolling out to the top 60% of company-owned stores in June with
completion by February 6, 1999.
 
     Gold Card Program.  The Company's Gold Card Program has developed into a
key component of the Company's marketing strategy, with membership as of January
31, 1998 of approximately 3.1 million customers. The Company believes that its
Gold Card Program builds customer loyalty and makes GNC a destination-oriented
retailer for customers that hold a Gold Card. Average sales per Gold Card
customer increases to $52 per transaction on "Super Tuesday," the first Tuesday
of every month and the day on which Gold Card holders receive a 20% discount on
all purchases. The average sale per customer on Super Tuesday is nearly three
times the Company's daily average. Gold Card members also receive complimentary
copies of Let's Live magazine. The magazine provides information on nutrition
and health and advertises special in-store promotions.
 
     The database marketing system for the Gold Card Program allows matching and
analysis of consumer information; including who they are and what and when they
buy. During 1998, the database system will be used to increase card usage and
member participation rate on Super Tuesdays and during special sales and events,
to sell more product to the most likely prospects based on proven buying
patterns, to reduce communications costs to non-participating members, and to
increase Gold Card renewal rates.
 
     Scientific Studies.  Scientific studies are bringing new credibility to the
supplement category. Consumers now list scientific research as the single most
compelling factor in their category participation and purchase decisions, and
well publicized new research drives massive swings in consumer demand for
clinically proven nutritionals. The Company's scientific affairs group is
staffed with highly qualified personnel, including Ph.D's. The group combines
high quality science with GNC product developments, research support,
information dissemination and regulatory affairs to enhance scientific
credibility for the Company and its product lines.
 
COMPETITION
 
     In the vitamin, mineral, and supplement line, the Company has no national
specialty retail competitor. However, the Company competes on a regional basis
directly with other specialty health retailers and also competes directly with
many drug stores, supermarkets, and mass merchandisers. Prior to 1986, the
Company's principal basis of competition was price. However, as the Company has
emphasized higher-margin specialty products, the Company has enhanced its
competitive position by offering proprietary branded formulations, a broad
product assortment and service provided by its retail sales force. The Company
believes that none of its competitors offers the same level of product selection
and customer service as the Company or benefits to the same extent from national
advertising. In the sports nutrition line, the Company competes principally with
health clubs, gyms and mail order companies. The Company believes that, as a
specialty retailer, the quality and selection of its products, marketing dollars
spent, store appearance, informative sales force, convenience, and consumer
confidence in the GNC name provides a distinct competitive advantage.
 
FRANCHISING
 
     As a means of enhancing the Company's operating performance and building
its store base, the Company, in mid 1988, opened it's first franchise location.
Since that time, the success of this program has been recognized numerous times
as one of the top franchise programs in the country including:
 
     1994:     Success magazine ranks GNC Franchising, Inc. the number one
               franchise opportunity in a survey of over 2,000 franchise
               operations.
 
     1995:     Franchise Buyer magazine ranks GNC Franchising, Inc. the number
               one non-food retail franchise
 
                                        6
<PAGE>   9
 
     1996:     Franchise Times magazine ranked GNC Franchising, Inc. the sixth
               Retail and Specialty Franchise in the United States.
 
     1997:     Franchise Times magazine ranks GNC Franchising, Inc. the number
               one franchise in a survey of the top 200 franchise businesses in
               the U.S.
 
     The Company generates revenue and income from Franchising through the
initial franchise fees, the sale of product at wholesale prices, a royalty on
retail sales and interest income on amounts financed by the Company for the
initial purchase of the store assets and store remodels. The Company selects
franchisees that will not only own but also operate the stores. The Company
believes that the consistency and customer service that an owner/ operator
provides is important given the specialized nature of the Company's product
line. These franchises have demonstrated that GNC stores can be operated
successfully in strip center locations and smaller malls that were previously
considered secondary real estate by the Company. To assist the franchisee in the
successful operation of the stores, the Company offers a three-part training
program which includes classroom instruction, training in a company-owned
location, and actual "field" training after the franchise store opens. The
primary concentration of the training is product education and store operations.
 
     The current franchise agreements are effective for a ten year period. At
the end of the franchise agreement the Company has the option to permit renewal
of the agreement for another ten year period at 50% of the franchisee fee that
is then in effect.
 
     The following table sets forth, for the years presented, the number of
operating franchise locations and the number of franchise stores that were
awarded, but were not yet open at the end of each year:
 
                    NUMBER OF OPERATING FRANCHISE LOCATIONS
 
<TABLE>
<CAPTION>
                                           1995                       1996                       1997
                                 ------------------------   ------------------------   ------------------------
      FRANCHISE LOCATIONS        DOMESTIC   INTERNATIONAL   DOMESTIC   INTERNATIONAL   DOMESTIC   INTERNATIONAL
      -------------------        --------   -------------   --------   -------------   --------   -------------
<S>                              <C>        <C>             <C>        <C>             <C>        <C>
At beginning of year...........    676            74           848          111         1,049          125
Added during year..............    257            37           272           22           252           30
Closed or converted............     85            --            71            8           227            4
                                   ---           ---         -----          ---         -----          ---
At end of year.................    848           111         1,049          125         1,074          151
                                   ===           ===         =====          ===         =====          ===
Stores awarded but not yet
  open.........................    267             4           218            1           352           --
Development agreements.........      6           161            41          373            70          387
</TABLE>
 
     Domestic.  The Company's current franchising program is directed primarily
toward existing franchisees and third-parties. New franchisees to the system in
1998 are required to pay an initial fee of $30,000 for a franchise license,
$25,000 if the applicant is an existing GNC franchise operator. The Company
offers limited financing to qualified franchisees at current fixed interest
rates of 13.75% per annum ordinarily for terms up to five years. In addition,
for franchisees that are relocating or remodeling their stores, the Company
offers special financing arrangements at interest rates between 9.25% and
11.25%. Once the store is established, franchisees are required to pay the
Company a continuing royalty of 6% of sales, to spend up to 3% of sales on local
advertising, and may be required to contribute up to 3% of sales toward a
national advertising fund. Reduced license fees of $7,500 and a lower initial
royalty fee of 4%, 5% and 6% for years 1, 2 and 3 with 6% for years thereafter,
respectively, are offered to independently owned health food/nutrition store
owners to encourage them to convert to GNC franchises.
 
     Franchises receive limited geographical exclusivity and are required to
carry all of the Company's own GNC proprietary brand name vitamins and mineral
supplements. GNC requires owners to operate the stores, and currently limits the
number of stores a franchisee can own to eight. Although franchise contracts
contain strict requirements for store operations, the Company cannot exercise
the same degree of control over franchisees as it does over its store managers;
however, the Company does retain the right to approve vendors, specific products
and requires franchisees to obtain legal approval of any franchise advertising.
If a franchisee does not meet specified performance and appearance criteria, the
Company is permitted to terminate the franchise agreement. In these situations,
the Company may take possession of the location, inventory, and equipment, and
continue to operate the store as a company-owned or franchise location.
 
                                        7
<PAGE>   10
 
     International.  A new participant in the Company's international franchise
program is required to pay an initial fee of $20,000 per store. Upon the store's
opening, the franchise is required to pay a continuing royalty of up to 5% of
sales. The Company's strategy for international franchising is to grant a
franchise for an entire country to an entity with extensive knowledge of that
country's business environment and adequate capital for market penetration.
International franchised stores generate sales per square foot comparable with
domestic store locations. However, the Company generates less revenue from these
franchises due to lower international royalty rates and a smaller percentage of
products purchased from the Company. In 1997, the Company opened a net 26
international franchise locations, increasing the number of locations to 151 in
international markets. At January 31, 1998, the Company had entered into
development agreements to open an additional 387 stores abroad.
 
MANUFACTURING
 
     The Company's main manufacturing plant, located in Greenville, South
Carolina, is one of the largest vitamin and mineral supplement manufacturing
facilities in the United States. The plant, which is owned by the Company, is
solely dedicated to the manufacture of vitamin, mineral, herbal and sports
nutrition supplements. The Company manufactures the majority of its products in
three forms: tablet, soft gelatin and hard shell capsules. The plant also
manufactures certain powder products. Revenue at the facility is generated
through sales to other segments of the Company and sales to various
third-parties. Revenue generated through sales to other segments of the Company
represented approximately 71% of total manufacturing revenue in 1997 and
approximately 72% in 1996. The Company will continue to invest in the expansion
of the manufacturing facility to ensure sufficient capacity to meet the demands
of the Retail and Franchise businesses. To allow for increased manufacturing
capacity requirements, in 1998 the Company plans to begin moving its packaging
lines and finished goods inventory to a new 280,000 square foot facility to be
constructed in a close proximity to the existing plant.
 
     The Company places added emphasis on quality control, and conducts testing
on all raw materials and finished products, weight testing and purity testing in
the Company's state of the art micro bacterial lab. The Company's product
development and quality control team currently consists of 65 individuals, who
work closely with the retail sales group and scientific affairs group to respond
to new science and consumer demands to reformulate existing and develop new
products. In 1997, Manufacturing developed a total of 146 new or reformulated
products with over 200 scheduled for 1998.
 
     The principal raw materials used in the manufacturing process are natural
and synthetic vitamins and gelatin. The Company maintains multiple sources for
all raw materials. Currently, one vendor supplies approximately 22% of the
manufacturing facility's raw materials. No other single vendor accounts for more
than 8% of its raw material purchases. The Company believes multiple sources
exist to meet its raw material requirements.
 
     In 1995, the Company acquired Health and Diet Food Company Limited, a
United Kingdom manufacturing facility specializing in the packaging of vitamin
supplements and manufacture of certain food and cosmetic products, sold
primarily to third-parties in the U.K. and Europe as well as to the General
Nutrition Centres and Health and Diet Centres stores. During 1996, the Company
acquired the manufacturing operation of DFC Thompson Australia Pty Limited
("DFC"), an Australian manufacturer. On a short-term basis, the acquisition is
designed to educate the Company in conducting business in that geographical
area. The Company's long-term objective is to convert DFC into a manufacturing
facility for GNC products, supplying needed inventory to GNC stores that the
Company intends to open in Australia, New Zealand and the Pacific Rim.
 
WAREHOUSING AND DISTRIBUTION
 
     The Company currently distributes its products through three leased
distribution centers with its own drivers and leased trucks as well as through
contract and common carriers. Substantially all the products sold at
company-owned stores, and approximately 90% of products sold by franchisees,
flow through one of the Company's distribution centers. It is the Company's
policy that all products be received in the Company's distribution centers to
assure that such products and their labels are reviewed for compliance with the
Company's Federal Trade Commission consent decrees prior to sale. Scheduled
deliveries are made directly to GNC stores on a one or two-week basis. The
Company's three distribution centers are located in Pittsburgh, Pennsylvania;
Atlanta, Georgia; and Phoenix, Arizona. Each of the distribution centers is
equipped with up-to-date automated
                                        8
<PAGE>   11
 
conveyor systems and quality computer systems to meet the requirements of the
continuing store expansion program.
 
GOVERNMENT REGULATIONS
 
     The processing, formulation, packaging, labeling and advertising of the
Company's products are subject to regulation by one or more federal agencies,
including the Food and Drug Administration ("FDA"), Federal Trade Commission
("FTC"), the Consumer Product Safety Commission, the United States Department of
Agriculture and the Environmental Protection Agency. These activities are also
regulated by various agencies of the states and localities in which the
Company's products are sold. The FDA, in particular, regulates the formulation,
manufacture, and labeling of dietary supplements.
 
     Final regulations issued on January 4, 1994 prohibit the use of any health
claim in labeling for a dietary supplement unless the health claim is supported
by significant scientific agreement and is pre-approved by the FDA. To date, the
FDA has approved the use of health claims for dietary supplements only in
connection with calcium and osteoporosis, and folic acid and neural tube
defects.
 
     Principally through the efforts of the dietary supplement industry, on
October 25, 1994, the Dietary Supplement Health and Education Act of 1994 was
signed into law. The law amends the Federal Food, Drug, and Cosmetic Act and, in
the judgment of the Company, is favorable to the dietary supplement industry.
First and foremost, the legislation creates a new statutory class of "dietary
supplements". This new class includes vitamins, minerals, herbs, amino acids and
other dietary substances for human use to supplement the diet. A dietary
supplement which contains a new dietary ingredient, one not on the market as of
October 15, 1994, will require evidence of a history of use or other evidence of
safety establishing that it will reasonably be expected to be safe, such
evidence to be provided by the manufacturer or distributor to the FDA before it
may be marketed. The legislation also recognizes the need for the dissemination
of information about the link between nutrition and health and provides that
publications, which are not false and misleading and present a balanced view of
available scientific information on a dietary supplement, may be used in
connection with the sale of dietary supplements to consumers. Among other
changes, the new law prevents the further regulation of dietary ingredients as
"food additives" and allows the use of statements of nutritional support on
product labels and in other labeling. The law also established a Commission to
study and provide recommendations for the regulation of label claims and
statements for dietary supplements. The Commission issued a final report on
November 24, 1997. That report includes a number of recommendations. Among other
things, the report "urges" the FDA and the industry to improve postmarketing
surveillance of dietary supplement products for assuring safety, "urges" the FDA
"to take swift enforcement action to address potential safety issues" with
respect to dietary supplements, and recommends that the FDA establish a new
"review panel" to evaluate "claims for botanical products that are proposed by
manufacturers for drug uses." It is not yet clear whether the recommendations of
the Commission will lead to any significant changes in the way that dietary
supplements are regulated by the FDA.
 
     On September 23, 1997, the FDA issued final new regulations to implement
the 1994 legislation. Among other things, these new regulations establish a
procedure for dietary supplement companies to notify FDA about the intended
marketing of a new dietary ingredient or about the use in labeling of statements
of nutritional support. The regulations also establish a new format for
nutrition labeling on dietary supplements. The new format will become mandatory
on March 23, 1999, and the Company is in the process of revising all of its
dietary supplements labels to be in compliance by that date.
 
     In 1984, the FTC instituted an investigation of GNI, a subsidiary of the
Company, alleging deceptive acts and practices in connection with the
advertising and marketing of certain of GNI's products. GNI accepted a proposed
consent order which was finalized in 1989, under which GNI agreed to refrain
from, among other things, making certain claims with respect to certain of its
products unless the claims are based on and substantiated by reliable and
competent scientific evidence. The Company had also entered into a consent order
in 1970 with the FTC, which generally addressed "iron deficiency anemia" type
products. As a result of routine monitoring by the FTC as to compliance with
these orders, disputes arose concerning GNI's compliance with these orders, and
with regard to advertising for certain hair care products. While GNI believes
that, at all times, it operated in material compliance with the orders, GNI
entered into a settlement in 1994 with the FTC to avoid protracted litigation.
As a part of this settlement, GNI entered into a consent decree and paid,
without admitting
 
                                        9
<PAGE>   12
 
liability, a civil penalty in the amount of $2.4 million. GNI agreed to adhere
to the terms of the 1970 and 1989 consent orders and to abide by the provisions
of the settlement document concerning hair care products. The Company does not
believe that future compliance with the outstanding consent decrees will
materially affect its business operations. GNI intends to petition the FTC for
clarification of what it believes is ambiguous and outmoded language contained
in the 1970 order and also to modify the 1989 order, to minimize future
conflicts over the meaning of the orders.
 
     The FTC continues to monitor the Company's advertising and, from time to
time, requests substantiation with respect to such advertising to assess
compliance with the various outstanding consent decrees and with the Federal
Trade Commission Act. The Company's policy is to use advertising that complies
with the consent decrees and applicable regulations. To better ensure
compliance, in 1993 the Company discontinued purchasing products at the store
and division levels and began to purchase centrally all third-party products for
company-owned stores and third-party products distributed by the Company to
franchise stores. It is also the Company's policy that all products be received
in the Company's distribution centers to assure that such products and their
labels are reviewed for compliance with the consent decrees prior to sale. The
Company also reviews the use of third-party point of purchase materials such as
store signs and promotional brochures. Nevertheless, there can be no assurance
that inadvertent failures to comply with the consent decrees and applicable
regulations will not occur. Approximately 90% of the products sold by franchise
stores flow through one of the Company's distribution centers. Although
franchise contracts contain strict requirements for store operations, including
compliance with federal, state, and local laws and regulations, the Company
cannot exercise the same degree of control over franchisees as it does over its
company-owned stores. As a result of the Company's efforts to comply with
applicable statutes and regulations, the Company has from time to time
reformulated, eliminated or relabeled certain of its products and revised
certain provisions of its sales and marketing program. The Company believes it
is in material compliance with the various consent decrees and with applicable
federal and state rules and regulations concerning its products and marketing
program. Compliance with the provisions of national, state and local
environmental laws and regulations has not had a material effect upon the
capital expenditures, earnings, financial position, liquidity or competitive
position of the Company.
 
     The Company cannot determine what effect additional governmental
regulations or administrative orders, when and if promulgated, would have on its
business in the future. New regulations could, however, require the
reformulation of certain products to meet new standards, require the recall or
discontinuance of certain products not capable of reformulation, or impose
additional record keeping, expanded documentation of the properties of certain
products, expanded or different labeling, and scientific substantiation. Any or
all of such requirements could adversely affect the Company's operations and its
financial condition.
 
EMPLOYEES
 
     At January 31, 1998, the Company employed 13,834 people, of whom
approximately 12,277 were employed in Retail; 1,101 were employed in
Manufacturing; 73 were employed in Franchising and 383 were employed in
corporate support functions. None of the Company's employees are covered by a
collective bargaining agreement.
 
ITEM 2. PROPERTIES
 
     The Company leases its stores, distribution centers, office facilities, and
its manufacturing facilities in the United Kingdom and Australia. The major
property items are leasehold improvements and furniture and fixtures found in
these locations. Leasehold improvements are depreciated over the shorter of 10
years or the term of the lease. Furniture and fixtures are amortized over the
estimated useful life of the assets. Of the approximately 2,136 domestic
company-owned stores operating at January 31, 1998, an estimated 60% of the
store leases are scheduled for renewal over the next five years.
 
     The Company owns its vitamin production facility in Greenville, South
Carolina. The Company has made annual capital investments in the facility for
expansion purposes to meet rising product demands. To allow for increased
manufacturing capacity requirements, in 1998 the Company plans to begin moving
its packaging lines and finished goods inventory to a new 280,000 square foot
facility to be constructed in a close proximity to the existing plant.
 
                                       10
<PAGE>   13
 
ITEM 3. LEGAL PROCEEDINGS
 
     For information concerning Legal Proceedings, see Note 13 of Notes to
Consolidated Financial Statements under Item 8 of this Report, which information
is herein incorporated by reference.
 
     The Company is presently engaged in various other legal actions and
governmental proceedings, and, although ultimate liability cannot be determined
at the present time, the Company is currently of the opinion that the amount of
any such liability from these other actions and proceedings when taking into
consideration the Company's product liability coverage, will not have a material
adverse impact on its financial position, results of operations or liquidity.
 
     The Company, like other retailers, distributors and manufacturers of
products that are ingested faces an inherent risk of exposure to product
liability claims in the event that, among other things, the use of its products
results in injury. With respect to product liability coverage the Company
currently has a $1 million self-insured retention per occurrence and aggregate,
followed by a primary products liability policy of $1 million per occurrence and
aggregate, followed by an additional $2 million self-insured retention per
occurrence and aggregate, and an additional $80 million of umbrella liability
insurance coverage. There can be no assurance that such insurance will continue
to be available at a reasonable cost, or if available, will be adequate to cover
liabilities.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     None.
 
                                    PART II
 
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS
 
CAPITAL STOCK INFORMATION
 
Stock Exchange Listing
 
     The Company's common stock is traded on the NASDAQ stock market under the
symbol GNCI. Options are traded on the Chicago Board Options Exchange.
 
COMMON STOCK PRICES:
 
<TABLE>
<CAPTION>
                                                                 1996             1997
                                                              -----------      -----------
                          QUARTER                             HIGH    LOW      HIGH    LOW
                          -------                             ----    ---      ----    ---
<S>                                                           <C>     <C>      <C>     <C>
First.......................................................  26      17 3/4   23 1/2  17 3/8
Second......................................................  21 1/4  13 1/2   28 5/8  20 1/8
Third.......................................................  19 1/2  13 1/4   30 1/2  25 1/4
Fourth......................................................  20      15 3/4   36 5/8  27 7/8
</TABLE>
 
REGISTRAR AND TRANSFER AGENT:
 
<TABLE>
<S>                                                <C>
THE BANK OF NEW YORK                               Send Certificates for Transfer and
  1-800-524-4458                                   Address Changes To:
Address Shareholder Inquires to:
Shareholder Relations Department-11E               Receive and Deliver Department-11W
P.O. Box 11258                                     P.O. Box 11002
Church Street Station                              Church Street Station
New York, NY 10286                                 New York, NY 10286
E-Mail Address:                                    The Bank of New York's Stock Transfer
Shareowner-svs@bankofny.com                        Website: http://stock.bankofny.com
</TABLE>
 
     On April 13, 1998, the Company had approximately 994 stockholders of record
and in excess of 26,000 beneficial shareholders. General Nutrition Companies,
Inc. has never paid dividends on its Common Stock, currently intends to reinvest
its earnings for use in the business and does not expect to pay cash dividends
in the
 
                                       11
<PAGE>   14
 
foreseeable future. The Company's credit agreement contains certain restrictions
on the Company's ability to pay dividends.
 
     During fiscal 1996, the Board of Directors authorized up to $160 million to
be available to purchase shares of the Company's common stock, from time to
time, in the open market or in privately negotiated transactions. During fiscal
1997, the Board of Directors authorized an additional $150 million to be
available for such purchases. At January 31, 1998 an aggregate of 11,665,000
million shares had been repurchased for $194.7 million. All repurchased shares
have been retired.
 
                                       12
<PAGE>   15
 
ITEM 6. SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
 
                 5-YEAR SUMMARY OF CONSOLIDATED FINANCIAL DATA
        (IN THOUSANDS, EXCEPT WEIGHTED AVERAGE SALES AND PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                             1993       1994       1995       1996        1997
                                             ----       ----       ----       ----        ----
<S>                                        <C>        <C>        <C>        <C>        <C>
OPERATING RESULTS:
Net revenue..............................  $546,253   $672,945   $845,952   $990,845   $1,193,485
Cost of sales, including costs of
  warehousing, distribution and
  occupancy..............................   340,686    419,136    519,420    614,875      726,016
Selling, general and administrative......   129,741    155,384    187,833    223,557      272,215
Restructuring charge.....................        --         --         --     80,243           --
Compensation expense--non-cash...........        60        675      1,583     11,823        4,083
                                           --------   --------   --------   --------   ----------
Earnings before interest and income taxes
  (operating earnings)...................    75,766     97,750    137,116     60,347      191,171
Interest expense.........................    23,327     19,669     20,076     17,341       22,926
Income taxes.............................    22,851     32,337     47,894     39,071       64,880
                                           --------   --------   --------   --------   ----------
Earnings before extraordinary items......  $ 29,588   $ 45,744   $ 69,146   $  3,935   $  103,365
                                           ========   ========   ========   ========   ==========
Basic earnings per share before
  extraordinary items....................  $   0.41   $   0.60   $   0.84   $   0.05   $     1.27
                                           ========   ========   ========   ========   ==========
Diluted earnings per share before
  extraordinary items....................  $   0.37   $   0.54   $   0.78   $   0.05   $     1.24
                                           ========   ========   ========   ========   ==========
OPERATING DATA:
Number of stores (at end of period)
  Company-owned domestic GNC stores......     1,044      1,181      1,462      1,760        2,086
  Company-owned other stores.............        --        184        122        113          124
  Franchised stores......................       509        750        959      1,174        1,225
                                           --------   --------   --------   --------   ----------
Total system-wide stores.................     1,553      2,115      2,543      3,047        3,435
Weighted average annual sales per square
  foot(company-owned domestic GNC
  stores)................................  $    271   $    267   $    283   $    262   $      267
Weighted average sale per customer
  (company-owned domestic GNC stores)....  $  16.08   $  17.75   $  19.60   $  21.48   $    23.74
Comparable store sales growth (company-
  owned domestic GNC stores).............     12.5%       5.8%      10.3%       0.3%         7.9%
</TABLE>
 
<TABLE>
<CAPTION>
                                       AT            AT            AT            AT            AT
                                   FEBRUARY 5,   FEBRUARY 4,   FEBRUARY 3,   FEBRUARY 1,   JANUARY 31,
                                      1994          1995          1996          1997          1998
                                      ----          ----          ----          ----          ----
<S>                                <C>           <C>           <C>           <C>           <C>
BALANCE SHEET DATA:
Working capital..................   $ 42,511      $ 74,274      $ 52,681      $133,688      $141,361
Total assets.....................    466,726       626,571       682,851       779,355       933,938
Total outstanding indebtedness...    221,207       316,501       218,472       378,869       358,348
Shareholders' equity.............    160,231       202,837       326,657       240,223       350,712
</TABLE>
 
                                       13
<PAGE>   16
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION AND
        FINANCIAL CONDITION
 
FORWARD-LOOKING STATEMENTS
 
     This annual report on Form 10-K contains statements relating to future
results of the Company (including certain projections and business trends) that
are "forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from those projected as
a result of certain risks and uncertainties, including but not limited to
changes in political and economic conditions; demand for and market acceptance
of new and existing products, as well as other risks and uncertainties detailed
from time to time in the filings of the Company with the Securities and Exchange
Commission.
 
RESULTS OF OPERATIONS
 
     The Company's revenue and earnings are generated primarily from its three
business segments, Retail, Franchising and Manufacturing. The following table
summarizes the results by segment for years 1995, 1996 and 1997. The following
information should be read in conjunction with Note 15 of Notes to the
Consolidated Financial Statements.
 
<TABLE>
<CAPTION>
                                                % OF TOTAL               % OF TOTAL                 % OF TOTAL
                                       1995      REVENUE        1996      REVENUE         1997       REVENUE
                                       ----      -------        ----      -------         ----       -------
                                                                  (IN THOUSANDS)
<S>                                  <C>        <C>           <C>        <C>           <C>          <C>
NET REVENUE:
  Retail...........................  $652,185      77.1%      $726,758      73.3%      $  868,794      72.8%
  Franchising......................   147,621      17.5        188,296      19.0          229,177      19.2
  Manufacturing....................    46,146       5.4         75,791       7.7           95,514       8.0
                                     --------     -----       --------     -----       ----------     -----
Consolidated.......................  $845,952     100.0%      $990,845     100.0%      $1,193,485     100.0%
                                     ========     =====       ========     =====       ==========     =====
OPERATING EARNINGS:
Operating earnings adjusted*
  Retail...........................  $104,495      16.0%      $ 98,282      13.5%      $  127,362      14.7%
  Franchising......................    28,281      19.2         40,714      21.6           49,546      21.6
  Manufacturing....................    28,062      60.8         38,213      50.4           48,403      50.7
  Corporate........................   (22,139)       --        (24,796)       --          (30,057)       --
                                     --------                 --------                 ----------
                                      138,699      16.4        152,413      15.4          195,254      16.4
Restructuring, non-cash
  compensation, and nonrecurring
  charges..........................     1,583       0.2         92,066       9.3            4,083       0.3
                                     --------                 --------                 ----------
Operating earnings.................   137,116      16.2         60,347       6.1          191,171      16.0
Interest expense, net..............    20,076       2.4         17,341       1.8           22,926       1.9
Income taxes.......................    47,894       5.7         39,071       3.9           64,880       5.4
                                     --------                 --------                 ----------
Net earnings.......................  $ 69,146       8.2%      $  3,935       0.4%      $  103,365       8.7%
                                     ========                 ========                 ==========
</TABLE>
 
---------------
 
* Operating earnings before non-cash compensation, restructuring and
  non-recurring charges.
 
1997 VERSUS 1996
 
     Consolidated.  Revenue for 1997 increased to $1.2 billion, an increase of
20.5% over 1996. The continuing success of the Company's store expansion program
as well as increased demand for the Company's products resulted in 1997 revenue
and earnings increases over 1996 in each of the Company's business segments;
Retail, Franchising and Manufacturing. At January 31, 1998, the Company sold its
products though a network of 3,435 stores, 2,210 of which are company-owned and
1,225 are franchised and are located primarily in the United States, Puerto
Rico, and in 19 international markets. Additionally, revenue is generated from
Manufacturing through sales to third parties. In 1997 system-wide retail sales
(company-owned and franchise) from domestic GNC stores increased to $1.2 billion
or 20.4% over 1996.
 
     Consolidated operating earnings, before restructuring, non-cash
compensation costs and non-recurring items, increased in 1997 to $195.3 million
or 28.1% when compared with 1996. The Company continued to leverage on its
vertical integration increasing the operating earnings return on sales in 1997
to 16.4%, up from 15.4% in 1996.
 
                                       14
<PAGE>   17
 
     Retail.  The Company sells its products at Retail primarily in GNC Stores.
The Company also recognizes retail revenue from non-GNC stores including
Nature's fresh, Health and Diet Centres, Amphora and Natures Food Centres. In
1997 total revenue from these non-GNC stores was $83.2 million or 9.6% of total
retail revenue. GNC stores are located primarily in the U.S. and Puerto Rico
("DOMESTIC"). At January 31, 1998 there were 2,086 domestic company-owned GNC
stores as well as 34 in Canada, 19 in the United Kingdom, and 1 store in New
Zealand.
 
     Revenue from domestic GNC stores was $780.3 million in 1997 compared with
$661.6 million in 1996. The revenue increase was generated through comparable
store sales increases of 7.9% generated through effective advertising and new
product offerings, and the net addition of 326 new stores which included 222
franchise stores that were converted to company-owned locations. As a result of
the increases to revenue from comparable store sale increases and franchise
store acquisitions, operating earnings increased to $131.2 million in 1997, a
29% increase over 1996.
 
     Franchising.  Revenue from Franchising increased to $229.2 million, a 21.7%
increase over 1996. Franchising revenue is generated primarily from product
sales at wholesale prices and royalties on franchise retail sales. These
categories represented 92.7% of total franchise revenue in 1997 versus 90.6% in
1996. Additionally, revenue is generated from the initial franchise license fee,
sales of store fixtures and graphics materials and interest income for the
financing of the purchase of the store.
 
     In 1997 retail sales from franchised locations increased to $408.2 million,
a 17.4% increase over 1996. Franchise stores which were open more than 1 year
reported comparable store sales increases of 16.4% in 1997 compared with 8.5% in
1996. Those franchises that were in their first year of reporting comparable
store sales had 1997 sales increases of 33.7% when compared with the sales in
their first year of operations.
 
     Operating earnings from Franchising improved to $49.5 million, a 21.7%
increase over 1996. The improvement in earnings was primarily the result of
increases in royalties and product sales caused by the 16.4% rise in comparable
store sales, as well as the net addition of 51 new franchise locations in 1997.
 
     The Company believes that the improvement in revenue and operating earnings
from store growth will continue in 1998 as a result of existing franchise
license awards where the store locations are not yet opened. At January 31, 1998
there were, through awards or development agreements, 422 domestic and 387
international license fees paid for store locations that were not yet open.
 
     Manufacturing.  Revenue from Manufacturing in 1997 increased to $95.5
million, a 26.0% increase over 1996. Total revenue, including intersegment sales
which are eliminated from consolidated revenue, increased to $298.6 million, a
24.5% over the previous year. Manufacturing revenue is generated primarily from
its supplement facility in Greenville, South Carolina. In 1997, the South
Carolina facility had sales to third parties of $80.6 million, a 25.3% increase
over 1996 sales. Intersegment sales, which represent the majority of the
facility's production, were $200.7 million, or 23.2% over last year. The
increases in revenue continue to be driven by the demand for commodity vitamins
from third parties as well as the success of the Company's store expansion
program which increased the internal demand. Revenue from the manufacturing
facilities in Australia and the United Kingdom was $14.9 million or 15.6% of
total manufacturing revenue. In addition these facilities generated $2.3 million
of the intersegment sales.
 
     The Company believes that both third-party and intersegment sales will
continue to increase in 1998 as the plant capacity grows with a new facility
scheduled to be operational in early 1999, as well as the continuance of the
Company's store expansion program.
 
     As a result of the increases in revenue, operating earnings in
Manufacturing increased to $48.4 million or 26.7% over 1996.
 
     Non-Operating Expenses.  Interest expense, including amortization of
deferred financing fees, increased to $22.9 million in 1997 compared with $17.3
million in 1996. The increase in interest expense for 1997 when compared with
1996 is primarily the result of additional borrowings on the Company's revolving
credit facility to repurchase 1,665,000 shares of the Company's common stock for
$35.1 million in the second quarter of 1997 and to fund the repurchase of 222
franchise locations completed primarily in the third and fourth quarters of
1997.
 
                                       15
<PAGE>   18
 
     Non-cash Compensation Expense.  In 1997, the Company recorded $4.1 million
of non-cash compensation expense associated with its Management Stock Purchase
and Option plans compared with $11.8 million in 1996.
 
1996 VERSUS 1995
 
     Consolidated.  During 1996, consolidated revenue increased to $990.8
million from $846.0 million in 1995. This 17.1% increase was generated through
growth in each of the Company's business segments as a result of the continuing
store expansion program that the Company began in the early 1990's. At February
1, 1997, the Company sold its products through 1,873 company-owned and 1,174
franchise stores located in all 50 states, Puerto Rico and 18 international
markets. Total system-wide domestic GNC retail sales, which includes franchise
retail sales, increased to $987.3 million in 1996 from $873.0 million in 1995,
an increase of 13.1%.
 
     Consolidated operating earnings, before restructuring, compensation, and
non-recurring charges increased 9.9% to $152.4 million compared with $138.7
million in 1995. The increase was generated by the Company's Franchising and
Manufacturing segments which continued to leverage the store expansion program.
Consolidated operating earnings declined as a percentage of net revenue by 1% to
15.4% due primarily to three major factors: i) reduced sales in Retail's
Traditional stores coupled with increases in wages and certain occupancy costs
in those stores; ii) new stores operating earnings as a percentage of sales are
lower, on average, than existing locations until the new stores reach their
third year of operations and; iii) advertising expenditures were increased in
1996 to $42.1 million or 4.3% of net revenue compared with $33.4 million or 4.0%
in 1995.
 
     Retail.  Consolidated retail revenue was $726.8 million in 1996 versus
$652.2 million in 1995, an increase of 11.4%. The Company's retail revenue is
generated primarily from the operation of GNC stores, the Company's core retail
business. GNC stores contributed $661.6 million and $608.8 million in retail
revenue in 1996 and 1995, or 91.0% and 93.3% of consolidated retail revenues,
respectively. The percentage of retail revenue contributed by GNC stores
decreased during 1996 as a result of increased sales made by the Company's non-
GNC store retail businesses, Natures Food Centres, Health and Diet Centres,
Nature's fresh, and Amphora. Comparable store sales for GNC stores increased by
0.3% in 1996 and 10.3% in 1995. Comparable store sales were negatively affected
in 1996 as a result of a decline in diet and herb product sales, the world-wide
shortage of natural vitamin E, which the Company uses in many of its products
including most multiple vitamins, and negative publicity concerning ephedra
products.
 
     With comparable store sales at 0.3% in 1996, the increase in retail revenue
was generated primarily by new stores and a rising average sales per customer
transaction, much of which is attributed to the continued customer acceptance of
the Gold Card program and the Company's shift to higher margin proprietary
branded specialty products. In 1996, the number of Gold Card holders grew to
approximately 2.4 million, with more than 7,000 new card holders being added
each week. Additionally in 1996, 231 new proprietary branded product
introductions accounted for $14.3 million in retail sales in company-owned
stores.
 
     Operating earnings contributed by the Retail segment in 1996, before
restructuring, compensation and non-recurring charges decreased to $98.3 million
or 5.9% when compared with 1995. The decrease was due to lower sales in the GNC
Traditional stores, and lower initial sales volume in the new stores coupled
with increases in store wages, occupancy costs and advertising.
 
     Franchising.  Revenue contributed by the franchise segment increased to
$188.3 million in 1996 from $147.6 million in 1995, an increase of 27.6%.
Franchising revenues accounted for 19.0% and 17.5% of consolidated revenues in
1996 and 1995, respectively. Franchise revenue and profits are generated
primarily from the sale of products at wholesale prices to franchisees and the
royalties collected on the franchisees' retail sales. Retail sales in the
franchise stores increased to $347.8 million in 1996 versus $277.8 million in
1995. Royalties and wholesale sales represented 90.6% and 90.3% of revenue in
1996 and 1995, respectively. Franchisees reported comparable store sales
increases of 8.5% in 1996 compared with 15.5% in 1995. Those franchisees that
are in their first year of reporting comparable store sales reported a 21.1%
increase over their first year of operations.
 
     Operating earnings from the franchise segment increased 44.0% in 1996. The
increases in both franchising revenue and operating earnings is attributable to
the continued opening of franchised locations, 215 in 1996 net of
 
                                       16
<PAGE>   19
 
store closings, the continued retail product sales to existing franchisees, and
the continued leverage on the selling, general, and administrative expenses. At
February 1, 1997, 1,174 franchised GNC stores were in operation.
 
     Manufacturing.  Revenue contributed by the manufacturing segment increased
to $75.8 million in 1996 versus $46.1 million in 1995, an increase of 64.2%. The
Company's primary manufacturing operation, located in Greenville, South
Carolina, accounted for 84.7% of manufacturing revenue. Total manufacturing
revenue, including sales to other segments, which are eliminated from total
revenue, increased 35.8% to $239.7 million in 1996, compared with $176.5 million
in 1995.
 
     Third-party sales, at the Greenville, South Carolina facility increased by
44.6%, attributable primarily to the increase in demand for commodity vitamins
and the availability of additional plant capacity to service third-party
customers. Despite the favorable increase in third-party product sales during
1996, operating earnings in Manufacturing decreased as a percentage of
manufacturing revenue by 10.4%. Operating earnings in Manufacturing were 50.4%
of net manufacturing revenues in 1996 compared with 60.8% in 1995. The
percentage decrease reflects the operating earnings generated from both
third-party and intersegment sales as a ratio to third-party sales only. The
ratio of operating earnings to net third-party revenue will be effected at the
consolidated level as third-party sales increase or decrease when compared with
the previous year.
 
     The Company's manufacturing operations located in the United Kingdom,
Health and Diet Food, and DFC Thompson in Australia accounted for 5.2% of total
manufacturing revenue, including sales to other segments. Third-party sales at
Health and Diet Food and DFC Thompson were $11.6 million or 15.3% of
consolidated third-party revenues.
 
     Non-Operating Expenses.  Interest expense, including amortization of
deferred financing fees, declined to $17.3 million in 1996 compared with $20.1
million in 1995. The decline in interest expense for 1996 was primarily the
result of two events; i) in February 1996, the Company sold 1.6 million shares
of common stock and repaid $34.0 million on its bank term loan and; ii) in March
1996, the Company amended and restated the existing credit agreement providing
for a revolving credit facility with reduced interest rates which were based on
prime or Eurodollar rates plus an add on margin of .5%. The reduction in
interest expense as a result of these events was partially offset by the
increased borrowings required to finance the stock repurchases made during the
year.
 
     Restructuring and Compensation Expense Charges.  During 1996, the Company
recorded two non-cash charges which significantly impacted the statement of
operations. A restructuring charge of $80.2 million was recorded related to the
write-off of goodwill, property, and equipment, inventories, and other assets
associated with management's decision to discontinue the Natures Food Centres
concept and certain categories of products including fitness and apparel and the
Company's then current line of cosmetics. The Company also recorded a charge to
compensation expense of $11.8 million in connection with the 1996 Management
Stock Purchase and Option plans.
 
REVIEW OF FINANCIAL CONDITION
 
     Analysis of Liquidity and Capital Resources.  In the years presented, the
primary sources of cash have been the Company's operations, amounts available on
the revolving credit facility, and proceeds from the issuance of common stock.
The primary uses of cash in each of the years reported, have been to fund the
Company's store expansion program through the construction of new stores,
renovation of existing stores, the acquisition of independent and franchised
locations, and in 1996 and 1997 to repurchase the Company's common stock. The
average cost to build or renovate an average GNC store ranges from $63,000 to
$117,000, depending on type and size of the store. Additionally, the Company
continues to increase capacities at its distribution and manufacturing
facilities. The Company will continue its store, distribution and manufacturing
expansion programs in 1998 and will fund the requirements for these programs
primarily from operations and through borrowings on the revolving credit
facility. The Company has no material commitments to make capital expenditures
during 1998.
 
                                       17
<PAGE>   20
 
     The Company's cash flows from operating, investing, and financing
activities as reflected in the Consolidated Statements of Cash Flows (see Item
8) are summarized as follows:
 
<TABLE>
<CAPTION>
                                                                   YEAR ENDED
                                                 -----------------------------------------------
                                                 FEBRUARY 3,       FEBRUARY 1,       JANUARY 31,
                                                    1996              1997              1998
                                                    ----              ----              ----
                                                                 (IN THOUSANDS)
<S>                                              <C>               <C>               <C>
Cash provided by (used in)
  Operating activities.........................   $125,666          $  63,444         $ 141,642
  Investing activities.........................    (82,776)          (107,380)         (143,456)
  Financing activities.........................    (42,788)            43,351             2,615
  Effect of exchange rate changes on cash......       (102)               585              (801)
                                                  --------          ---------         ---------
Net change in cash.............................   $     --          $      --         $      --
                                                  ========          =========         =========
</TABLE>
 
     Operating Activities.  Increased earnings in each of the Company's three
business segments: Retail, Franchising and Manufacturing, coupled with favorable
balance sheet changes, pushed cash provided by operations to $141.6 million, a
123.3% and 12.7% increase over 1996 and 1995, respectively. Receivables and
inventory grew by $9.5 million and $37.2 million respectively, in 1997 as the
Company continued it's successful store expansion program though franchising and
new company-owned locations.
 
     Investing Activities.  The Company's primary use of funds in 1995 and 1996
was for capital expenditures, and in 1997 was to fund the repurchase, by the
Company, of 222 franchise locations for approximately $78.9 million.
 
     Capital expenditures were $57.2 million, $69.9 million and $57.9 million
for 1995, 1996, and 1997 respectively. The majority of the capital spending was
to build new stores, relocate or remodel existing locations and to expand the
Company's manufacturing and distribution capacity.
 
     In 1997, the Company advanced $8.4 million to a related party who, as a
partner with the Company, has refurbished an office building in Pittsburgh,
Pennsylvania to serve as the Company's headquarters. The Company is permitted to
lend up to $30.0 million under the terms of its existing revolving credit
facility.
 
     Financing Activities.  In 1997, the Company amended and restated its credit
agreement to increase the maximum borrowing availability on the revolving credit
facility from $400 million to $700 million. The Company incurred a cost of $1.8
million in connection with this transaction. At January 31, 1998 the Company,
after a letter of credit restriction of $2.9 million, had $341.4 million
available on its revolving credit facility.
 
     In 1996 and 1997 the Company's Board of Directors authorized the use of up
to $310 million for the repurchase of the Company's common stock. At January 31,
1998, the Company had utilized $194.7 million to purchase 11,665,000 shares of
common stock. All repurchased shares have been retired.
 
     Subsequent Event.  Subsequent to January 31, 1998, the Company sold options
to purchase 2.0 million shares of the Company's common stock on the open market
at various prices with an average price of approximately $35.76 per share. These
options expire in July 1998. The Company received $4.2 million in proceeds from
the sale of these options.
 
     Year 2000.  In 1996, the Company began the necessary modifications to
existing computer systems to meet the year 2000 requirements and expects to
complete these modifications early in 1999. Costs associated with system
modification are expensed as incurred and will not have a material impact on the
Company's results of operations nor its ability to provide the necessary
requirements for the Company's operations.
 
     Market Risk.  The Company is exposed to certain market risks from
transactions that are entered into during the normal course of business. The
Company's policies do not permit active trading of, or speculation in,
derivative financial instruments. The Company's primary market risk exposure
relates to interest rate risk. The Company manages its interest rate risk in
order to balance its exposure between fixed and variable rates while attempting
to minimize its interest costs.
 
                                       18
<PAGE>   21
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
INDEPENDENT AUDITORS' REPORT
 
BOARD OF DIRECTORS AND SHAREHOLDERS
GENERAL NUTRITION COMPANIES, INC.
 
     We have audited the accompanying consolidated balance sheets of General
Nutrition Companies, Inc. and subsidiaries (the "Company") as of January 31,
1998 and February 1, 1997 and the related consolidated statements of earnings,
shareholders' equity and cash flows for the years ended January 31, 1998,
February 1, 1997, and February 3, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of General Nutrition Companies,
Inc. and subsidiaries as of January 31, 1998 and February 1, 1997 and the
results of their operations and their cash flows for the years ended January 31,
1998, February 1, 1997, and February 3, 1996 in conformity with generally
accepted accounting principles.
 
Deloitte & Touche LLP
 
April 20, 1998
Pittsburgh, Pennsylvania
 
                                       19
<PAGE>   22
 
               GENERAL NUTRITION COMPANIES, INC. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                                              FEBRUARY 1,    JANUARY 31,
                                                                 1997           1998
                                                                 ----           ----
<S>                                                           <C>            <C>
ASSETS
Current Assets:
  Receivables, net..........................................   $ 58,711       $ 75,274
  Inventories...............................................    198,361        244,196
  Deferred taxes............................................     18,903         14,190
  Other current assets......................................     17,498         29,305
                                                               --------       --------
     Total current assets...................................    293,473        362,965
Note due from related party.................................     12,380         21,960
Property, plant and equipment, net..........................    175,352        207,975
Other assets................................................     32,024         33,895
Deferred financing fees, net of accumulated amortization of
  $1,538 and $2,646.........................................      3,066          3,710
Goodwill, net of accumulated amortization of $52,907 and
  $62,327...................................................    263,060        303,433
                                                               --------       --------
                                                               $779,355       $933,938
                                                               ========       ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Accounts payable..........................................   $ 79,958       $126,905
  Accrued salaries, wages, vacations and related taxes......     17,198         23,542
  Accrued income taxes......................................      7,008          4,825
  Other current liabilities.................................     54,637         65,392
  Long-term debt, current portion...........................        984            940
                                                               --------       --------
     Total current liabilities..............................    159,785        221,604
Long-term debt..............................................    377,885        357,408
Deferred taxes..............................................      1,462          4,214
Commitments and contingencies...............................         --             --
Shareholders' Equity:
Common stock, $.01 par value:
  Authorized 200,000,000 shares, issued and outstanding,
  including shares in treasury, 91,287,289 shares at
  February 1, 1997 and 81,930,801 shares at January 31,
  1998......................................................        913            819
Additional paid-in capital..................................    319,297        171,224
Stock options outstanding...................................     10,917          7,693
Subscriptions receivable....................................     (3,295)        (3,598)
Currency translation adjustment.............................        483           (318)
Accumulated earnings........................................     71,527        174,892
                                                               --------       --------
                                                                399,842        350,712
Treasury stock, at cost, 10,000,000 shares at February 1,
  1997......................................................   (159,619)            --
                                                               --------       --------
                                                                240,223        350,712
                                                               --------       --------
                                                               $779,355       $933,938
                                                               ========       ========
</TABLE>
 
Notes to Consolidated Financial Statements are an integral part of these
statements.
 
                                       20
<PAGE>   23
 
               GENERAL NUTRITION COMPANIES, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                         YEAR ENDED
                                                          -----------------------------------------
                                                          FEBRUARY 3,    FEBRUARY 1,    JANUARY 31,
                                                             1996           1997           1998
                                                           --------       --------      ----------
<S>                                                       <C>            <C>            <C>
Net revenue.............................................   $845,952       $990,845      $1,193,485
Cost of sales, including costs of warehousing,
  distribution and occupancy............................    519,420        614,875         726,016
                                                           --------       --------      ----------
                                                            326,532        375,970         467,469
 
Selling, general and administrative.....................    179,314        214,002         262,726
Compensation expense--non-cash..........................      1,583         11,823           4,083
Amortization of goodwill................................      8,519          9,555           9,489
Restructuring charge....................................         --         80,243              --
                                                           --------       --------      ----------
Operating earnings......................................    137,116         60,347         191,171
Interest expense, net...................................     20,076         17,341          22,926
                                                           --------       --------      ----------
Earnings before income taxes............................    117,040         43,006         168,245
Income taxes............................................     47,894         39,071          64,880
                                                           --------       --------      ----------
Net earnings............................................   $ 69,146       $  3,935      $  103,365
                                                           ========       ========      ==========
Basic earnings per share................................   $   0.84       $   0.05      $     1.27
                                                           ========       ========      ==========
Basic weighted average number of shares outstanding.....     82,406         84,907          81,140
                                                           ========       ========      ==========
Diluted earnings per share..............................   $   0.78       $   0.05      $     1.24
                                                           ========       ========      ==========
Diluted weighted average number of shares outstanding...     89,836         86,294          83,227
                                                           ========       ========      ==========
</TABLE>
 
Notes to Consolidated Financial Statements are an integral part of these
statements.
 
                                       21
<PAGE>   24
 
               GENERAL NUTRITION COMPANIES, INC. AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                         ADDITIONAL      STOCK                        CURRENCY     ACCUMULATED
                                COMMON    PAID-IN       OPTIONS     SUBSCRIPTIONS   TRANSLATION     EARNINGS/    TREASURY
                                STOCK     CAPITAL     OUTSTANDING    RECEIVABLE     ADJUSTMENTS     (DEFICIT)      STOCK
                                -----     -------     -----------    ----------     -----------     ---------      -----
<S>                             <C>      <C>          <C>           <C>             <C>            <C>           <C>
BALANCE, FEBRUARY 4, 1995.....  $ 768    $ 198,605      $ 4,966        $    --         $  --        $ (1,502)    $      --
Net earnings..................     --           --           --             --            --          69,146            --
Common stock issued...........     --          341           --             --            --              --            --
Stock options granted.........     --           --        1,583             --            --              --            --
Stock options exercised.......     10        9,725       (1,780)            --            --              (4)           --
Warrants exercised............     16        3,163           --             --            --              (8)           --
Conversion of junior
  subordinated notes..........     82       39,913           --             --            --             (40)           --
Business combination..........      1        1,774           --             --            --              --            --
Translation adjustments.......     --           --           --             --          (102)             --            --
                                -----    ---------      -------        -------         -----        --------     ---------
BALANCE, FEBRUARY 3, 1996.....    877      253,521        4,769             --          (102)         67,592            --
Net earnings..................     --           --           --             --            --           3,935            --
Common stock issued...........     23       44,064           --             --            --              --            --
Subscriptions receivable from
  stock sales.................     --           --           --         (3,295)           --              --            --
Stock options granted.........     --           --        7,492             --            --              --            --
Stock options exercised.......      7        9,645       (1,344)            --            --              --            --
Sale of put options...........     --        2,850           --             --            --              --            --
Treasury stock purchases......     --           --           --             --            --              --      (159,619)
Business combination..........      6        9,217           --             --            --              --            --
Translation adjustments.......     --           --           --             --           585              --            --
                                -----    ---------      -------        -------         -----        --------     ---------
BALANCE, FEBRUARY 1, 1997.....    913      319,297       10,917         (3,295)          483          71,527      (159,619)
Net earnings..................     --           --           --             --            --         103,365            --
Common stock issued...........      3        7,699           --             --            --              --            --
Subscriptions receivable from
  stock sales.................     --           --           --           (303)           --              --            --
Stock options exercised.......     20       33,362       (3,224)            --            --              --            --
Sale of put options...........     --        5,440           --             --            --              --            --
Treasury stock activity,
  net.........................   (117)    (194,574)          --             --            --              --       159,619
Translation adjustments.......     --           --           --             --          (801)             --            --
                                -----    ---------      -------        -------         -----        --------     ---------
BALANCE, JANUARY 31, 1998.....  $ 819    $ 171,224      $ 7,693        $(3,598)        $(318)       $174,892     $      --
                                =====    =========      =======        =======         =====        ========     =========
 
<CAPTION>
 
                                  TOTAL
                                  -----
<S>                             <C>
BALANCE, FEBRUARY 4, 1995.....  $ 202,837
Net earnings..................     69,146
Common stock issued...........        341
Stock options granted.........      1,583
Stock options exercised.......      7,951
Warrants exercised............      3,171
Conversion of junior
  subordinated notes..........     39,955
Business combination..........      1,775
Translation adjustments.......       (102)
                                ---------
BALANCE, FEBRUARY 3, 1996.....    326,657
Net earnings..................      3,935
Common stock issued...........     44,087
Subscriptions receivable from
  stock sales.................     (3,295)
Stock options granted.........      7,492
Stock options exercised.......      8,308
Sale of put options...........      2,850
Treasury stock purchases......   (159,619)
Business combination..........      9,223
Translation adjustments.......        585
                                ---------
BALANCE, FEBRUARY 1, 1997.....    240,223
Net earnings..................    103,365
Common stock issued...........      7,702
Subscriptions receivable from
  stock sales.................       (303)
Stock options exercised.......     30,158
Sale of put options...........      5,440
Treasury stock activity,
  net.........................    (35,072)
Translation adjustments.......       (801)
                                ---------
BALANCE, JANUARY 31, 1998.....  $ 350,712
                                =========
</TABLE>
 
Notes to Consolidated Financial Statements are an integral part of these
statements.
 
                                       22
<PAGE>   25
 
               GENERAL NUTRITION COMPANIES, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                             YEAR ENDED
                                                              -----------------------------------------
                                                              FEBRUARY 3,    FEBRUARY 1,    JANUARY 31,
                                                                 1996           1997           1998
                                                                 ----           ----           ----
<S>                                                           <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net earnings..............................................  $  69,146      $    3,935     $  103,365
                                                              ---------      ----------     ----------
  Adjustments to reconcile net earnings to net cash provided
    by operating activities:
    Restructuring charge....................................         --          80,243             --
    Compensation expense....................................      1,583          11,823          4,083
    Depreciation and amortization...........................     32,196          40,533         44,005
    Amortization of deferred financing fees.................        576             649          1,108
    Decrease (increase) in deferred taxes...................      1,322         (10,388)         7,465
    Other...................................................      2,859             392            257
    Change in operating assets and liabilities:
      Increase in receivables...............................     (1,316)        (18,129)        (9,506)
      Increase in inventories...............................     (3,956)        (54,590)       (37,208)
      Increase in other assets..............................     (2,143)         (2,672)          (585)
      Increase in accrued taxes.............................      6,931           6,353          9,188
      Increase in accounts payable and accrued
        liabilities.........................................     15,563          10,884         24,593
      (Decrease) increase in other working capital items....      2,905          (5,589)        (5,123)
                                                              ---------      ----------     ----------
        Total adjustments...................................     56,520          59,509         38,277
                                                              ---------      ----------     ----------
Net cash provided by operating activities...................    125,666          63,444        141,642
                                                              ---------      ----------     ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures......................................    (57,244)        (69,853)       (57,901)
  Decrease (increase) in franchisee notes receivable........     (7,521)         (8,024)         1,964
  Payments for store acquisitions...........................     (7,934)         (8,081)       (78,867)
  Payments made for acquisitions, net of cash acquired......     (5,168)        (14,287)          (256)
  Loan to related party.....................................     (4,725)         (7,135)        (8,396)
  Other.....................................................       (184)             --             --
                                                              ---------      ----------     ----------
Net cash used in investing activities.......................    (82,776)       (107,380)      (143,456)
                                                              ---------      ----------     ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net (payments) borrowings on revolving credit facility....    (39,900)        193,901        (19,500)
  Retirement of long-term debt..............................    (16,000)        (36,268)            --
  Book balance bank overdraft...............................      8,892           3,866         32,362
  Decrease in capital lease obligations.....................     (2,133)         (1,361)        (1,021)
  Redemption of redeemable preferred stock..................       (134)           (450)          (184)
  Net proceeds from issuance of common stock................      3,316          41,006         22,342
  Exercise of warrants to purchase common stock.............      3,171              --             --
  Net payments for treasury stock...........................         --        (159,619)       (35,072)
  Proceeds from sale of put options.........................         --           2,850          5,440
  Increase in deferred financing fees.......................         --            (574)        (1,752)
                                                              ---------      ----------     ----------
Net cash (used in) provided by financing activities.........    (42,788)         43,351          2,615
Effect of exchange rate changes on cash.....................       (102)            585           (801)
                                                              ---------      ----------     ----------
Net change in cash..........................................         --              --             --
                                                              ---------      ----------     ----------
Beginning and ending balance, cash..........................  $      --      $       --     $       --
                                                              =========      ==========     ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid during the period for:
    Interest................................................  $  20,159      $   17,121     $   22,940
    Income taxes............................................  $  39,769      $   41,556     $   51,807
</TABLE>
 
---------------
 
Non-cash transactions:
 
(a) The Company issued 595,000 shares with a value of approximately $9.2 million
    in 1996 as part of the acquisition of Nature's fresh Northwest, Inc.
 
(b) The Company extended net loans to executives of $3.3 million and $0.3
    million in 1996 and 1997 ,respectively, relating to the 1996 Management
    Stock Purchase Plan.
 
(c) The Company converted $40 million of its junior subordinated notes in 1995
    into approximately 8.2 million shares of common stock at a rate of $4.88 per
    share.
 
(d) The Company recorded a tax benefit of $4.9 million, $3.8 million, and $11.4
    million in 1995, 1996, and 1997, respectively, primarily as a result of
    stock option activity.
 
Notes to Consolidated Financial Statements are an integral part of these
statements.
 
                                       23
<PAGE>   26
 
                       GENERAL NUTRITION COMPANIES, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     Basis of Reporting.  The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries after elimination of
intercompany balances and transactions. The Company's fiscal year ends on the
Saturday closest but not prior to January 31 of each year. The fiscal year
consists of fifty-two or fifty-three weeks divided into four quarters; the first
three quarters contain twelve weeks, and the last quarter contains sixteen weeks
in a fifty-two week year and seventeen weeks in a fifty-three week year.
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
     Revenue Recognition.  The Company operates predominately as a retailer
through company-owned and franchised stores, a majority of which are located in
the 50 United States, Puerto Rico, and 19 international markets. The retail
stores offer a variety of vitamin and mineral supplements, sports nutrition
products and herbs. The retail stores are also a leading provider of personal
care, and other health-related products. The retail segment recognizes revenue
at the moment that a sale to a customer is recorded.
 
     The Company's franchise segment generates revenues through franchise fees,
product sales to franchisees, royalties, and interest income on the financing of
the franchise locations. The franchisees purchase a majority of the products
they sell from the Company at wholesale prices. Franchise fees are recognized by
the Company at the time of a franchise store opening. Revenue on product sales
to franchisees is recognized by the Company as product is shipped. Remaining
sources of income are recognized as earned.
 
     The manufacturing segment sells product primarily to the other Company
segments and to a lesser degree to third-party customers. Revenue is recognized
as product is shipped. All intercompany transactions are eliminated in
consolidation.
 
     Reclassifications.  Certain amounts in previously issued financial
statements have been reclassified to conform to the 1997 presentation.
 
     Capital Structure.  On October 10, 1995, the shareholders approved an
increase in the authorized number of shares of all classes of common stock from
100.0 million to 200.0 million shares and eliminated the previously authorized
5.0 million shares of Class B Common Stock. On August 21, 1995 the Company's
Board of Directors authorized a two-for-one stock split effected in the form of
a 100 percent stock dividend distributed on October 17, 1995 to shareholders of
record on September 8, 1995. Shareholders' equity has been restated to give
retroactive recognition to the stock split in prior periods by reclassifying
from retained earnings to common stock the par value of the additional shares
arising from the split.
 
     Cash.  The Company utilizes a cash management system under which a book
balance cash overdraft exists for the Company's primary disbursement accounts.
This overdraft represents uncleared checks in excess of cash balances in bank
accounts. The Company's funds are borrowed on an as needed basis to pay for
clearing checks. At February 1, 1997, and January 31, 1998, cash overdrafts of
$3.9 million and $32.6 million, respectively, were included in accounts payable.
 
     Inventories.  Inventories are stated at the lower of cost or market on a
FIFO (first in, first out) basis.
 
     Depreciation and Amortization.  Property, plant and equipment are recorded
at cost. Depreciation and amortization are provided using the straight-line
method over the estimated useful life of the property.
 
     Amortization of improvements to leased premises is also provided using the
straight-line method over the estimated useful life of the improvements or over
the life of the related leases if such periods are shorter. The Company provides
tax depreciation in conformity with the provisions of applicable tax law.
 
                                       24
<PAGE>   27
                       GENERAL NUTRITION COMPANIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
 
     Amortization of goodwill is provided on a straight-line basis over 40
years, except for goodwill associated with the purchase of existing franchise
stores, acquisitions of independent stores, and certain business combinations,
for which the amortization periods range from 15 to 25 years.
 
     Depreciation and amortization of property, plant and equipment was $23.7
million, $30.9 million and $34.4 million for the years ended February 3, 1996,
February 1, 1997, and January 31, 1998, respectively.
 
     Amortization of deferred financing fees is provided using the straight-line
method, which approximates the effective interest rate method, over the term of
the related debt.
 
     The Company periodically evaluates its long-lived assets to determine that
the carrying values have not been impaired.
 
     Advertising Expenditures.  The Company recognizes advertising expense as it
is incurred. Advertising expense was $33.4 million, $42.1 million and $53.5
million, respectively, for the years ended February 3, 1996, February 1, 1997,
and January 31, 1998.
 
     Pre-Opening Expenditures.  The Company recognizes the cost associated with
the opening of new stores as incurred.
 
     Income Taxes.  The Company utilizes the asset and liability method of
accounting for income taxes. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be recovered or
settled.
 
     Foreign Currency Translation.  For all non-U.S. operations, the functional
currency is the local currency. Assets and liabilities of those operations are
translated into U.S. dollars using year-end exchange rates; income and expenses
are translated using the average exchange rates for the reporting period.
Translation adjustments are recorded as a separate component of shareholders'
equity.
 
     Treasury Stock.  In 1996 and 1997, the Company's Board of Directors
authorized the use of up to $310 million to repurchase the Company's common
stock in the open market. In 1997 the Company retired 11.7 million shares it had
purchased at an average cost of $16.69 per share during 1996 and 1997 and held
in treasury. The Company's revolving credit facility limits the amount of common
stock that can be repurchased.
 
     Note Due From Related Party.  The Company is a limited partner in a
partnership that purchased and operates a building in Pittsburgh, Pennsylvania,
which serves as the Company's headquarters. The related party note associated
with this relationship is a demand note which includes the option to borrow up
to $30 million, with interest rates based on the Company's borrowing rate plus a
margin percentage. The Company does not anticipate the amount due under the note
will be repaid prior to February 7, 1999.
 
     Stock-Based Compensation.  The Company accounts for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion ("APBO") No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, compensation cost is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of grant over the amount an employee must pay to acquire the
stock.
 
                                       25
<PAGE>   28
                       GENERAL NUTRITION COMPANIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
 
NOTE 2. RECEIVABLES
 
     Receivables at period end consisted of the following:
 
<TABLE>
<CAPTION>
                                                              FEBRUARY 1,    JANUARY 31,
                                                                 1997           1998
                                                                 ----           ----
                                                                    (IN THOUSANDS)
<S>                                                           <C>            <C>
Franchise...................................................    $26,880        $31,380
Manufacturing trade.........................................     20,373         26,573
Current portion of franchise notes..........................      9,394          9,954
Other.......................................................      3,947          9,183
Allowance for uncollectible accounts........................     (1,883)        (1,816)
                                                                -------        -------
                                                                $58,711        $75,274
                                                                =======        =======
</TABLE>
 
NOTE 3. INVENTORIES
 
     Inventories at period end consisted of the following:
 
<TABLE>
<CAPTION>
                                                              FEBRUARY 1,    JANUARY 31,
                                                                 1997           1998
                                                                 ----           ----
                                                                    (IN THOUSANDS)
<S>                                                           <C>            <C>
Product ready for sale......................................   $158,539       $201,155
Unpackaged bulk product and raw materials...................     36,382         39,203
Packaging supplies..........................................      3,440          3,838
                                                               --------       --------
                                                               $198,361       $244,196
                                                               ========       ========
</TABLE>
 
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
 
     Property, plant and equipment at period end consisted of the following:
 
<TABLE>
<CAPTION>
                                                              FEBRUARY 1,    JANUARY 31,
                                                                 1997           1998
                                                                 ----           ----
                                                                    (IN THOUSANDS)
<S>                                                           <C>            <C>
Land, buildings and improvements............................   $ 16,920       $ 19,686
Machinery and equipment.....................................     60,209         82,039
Leasehold improvements......................................     73,839         87,830
Furniture and fixtures......................................     88,310        114,500
Capital leases..............................................      4,554          4,554
Construction in progress....................................     10,757          6,013
                                                               --------       --------
                                                                254,589        314,622
Less accumulated depreciation...............................     79,237        106,647
                                                               --------       --------
                                                               $175,352       $207,975
                                                               ========       ========
</TABLE>
 
                                       26
<PAGE>   29
                       GENERAL NUTRITION COMPANIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
 
NOTE 5. OTHER ASSETS
 
     Other assets at period end consisted of the following:
 
<TABLE>
<CAPTION>
                                                              FEBRUARY 1,    JANUARY 31,
                                                                 1997           1998
                                                                 ----           ----
                                                                    (IN THOUSANDS)
<S>                                                           <C>            <C>
Franchise notes, less current portion.......................    $29,429        $32,107
Other.......................................................      2,595          1,788
                                                                -------        -------
                                                                $32,024        $33,895
                                                                =======        =======
</TABLE>
 
     The notes from the Company's franchisees are demand notes, payable
primarily over five years. Interest accrues principally at the rate of 13.75%
per annum and is payable monthly.
 
NOTE 6. LONG-TERM DEBT AND LINES OF CREDIT
 
     Long-term debt at period end consisted of the following:
 
<TABLE>
<CAPTION>
                                                  INTEREST      FEBRUARY 1,    JANUARY 31,
                                                    RATE           1997           1998
                                                    ----           ----           ----
                                                               (IN THOUSANDS)
<S>                                               <C>           <C>            <C>
Bank revolving credit facility..................  5.63-8.50%     $375,200       $355,700
Capital leases..................................                    3,669          2,648
                                                                 --------       --------
                                                                  378,869        358,348
Current maturities..............................                      984            940
                                                                 --------       --------
                                                                 $377,885       $357,408
                                                                 ========       ========
</TABLE>
 
     During fiscal 1997, the Company amended and restated its existing credit
agreement. The amended and restated agreement provides for a $700 million
revolving credit facility due March 31, 2002 and subjects the Company to certain
restrictions and covenants, including the restriction to pay dividends. Interest
on the facility is variable based on certain published prime and/or Eurodollar
borrowing rates, plus or minus applicable margin adjustments. Prime advances are
subject to margin adjustments ranging from -.75% to 0%, based on term and dollar
limitations, with Eurodollar advances being subject to margin adjustments
ranging from 0.5% to 1.5% based upon financial performance covenants. At January
31, 1998, the average rates for prime and Eurodollar borrowings were 8.50% and
5.40%, respectively. The revolving credit facility is guaranteed by the Company,
which guaranty is secured by the capital stock of General Nutrition,
Incorporated ("GNI") and also by its domestic subsidiaries. At January 31, 1998
the Company had $341.4 million available on its revolving credit facility after
excluding $2.9 million restricted for letters of credit.
 
     Prior to the amendment, the agreement provided for a revolving credit
facility of $400 million. Interest on the facility was variable based on prime
and/or Eurodollar rates plus add on margins of 0.5%.
 
     At January 31, 1998, the Company's total long-term debt maturities are as
follows:
 
<TABLE>
<CAPTION>
                                                         (IN THOUSANDS)
                                                         --------------
<S>                                                      <C>
1998...................................................     $    940
1999...................................................          814
2000...................................................          268
2001...................................................          264
2002...................................................      356,005
Thereafter.............................................           57
                                                            --------
                                                            $358,348
                                                            ========
</TABLE>
 
                                       27
<PAGE>   30
                       GENERAL NUTRITION COMPANIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
 
     The Company's net interest expense for all periods is as follows:
 
<TABLE>
<CAPTION>
                                                                  YEAR ENDED
                                                   -----------------------------------------
                                                   FEBRUARY 3,    FEBRUARY 1,    JANUARY 31,
                                                      1996           1997           1998
                                                      ----           ----           ----
                                                                (IN THOUSANDS)
<S>                                                <C>            <C>            <C>
Composition of interest expense:
  Interest on debt...............................    $19,754        $17,336        $23,422
  Amortization of deferred financing fees........        576            649          1,108
  Interest income................................       (254)          (644)        (1,604)
                                                     -------        -------        -------
                                                     $20,076        $17,341        $22,926
                                                     =======        =======        =======
</TABLE>
 
NOTE 7. RESTRUCTURING CHARGE
 
     During the year ended February 1, 1997, the Company recorded a
restructuring charge of $80.2 million. The charge recorded by the Company
related to the write-off of goodwill, property and equipment, inventories, and
other assets associated with management's decision to discontinue the Nature
Food Centres ("NFC") retail concept. The charge for NFC of $66.7 million
included $52.7 million of goodwill. The remaining $13.5 million of the recorded
charge related to unproductive assets, primarily inventory relating to Natural
Solutions cosmetics and fitness and apparel products, all of which have been
discontinued, as well as the excess costs resulting from retrofitting the Alive
prototype store.
 
NOTE 8. RETIREMENT PLANS
 
     The Company sponsors a 401(k) defined contribution savings plan covering
substantially all employees with more than three months of service. The plan
provides for employee contributions of 1% to 15% of individual compensation into
deferred savings and provides for Company contributions of 25-45% of the first
5% of participant's contributions. The Company may make additional contributions
based upon the achievement of performance goals established by the Board of
Directors. The Company made cash contributions of $1.1 million in 1995 and 1996
and $1.0 million in 1997.
 
NOTE 9. FRANCHISE FEE REVENUE
 
     The Company charges franchisees a flat fee, payable prior to the franchise
store opening, as consideration for the franchise rights and initial services
performed by the Company. Once the franchised store is open, the Company has no
further obligations under this fee to the franchisee. Therefore, all franchise
fee revenue is recognized in the period in which a franchise store is opened.
 
     Franchise revenue related to this initial fee is as follows:
 
<TABLE>
<CAPTION>
                                                                  YEAR ENDED
                                                   -----------------------------------------
                                                   FEBRUARY 3,    FEBRUARY 1,    JANUARY 31,
                                                      1996           1997           1998
                                                      ----           ----           ----
                                                            (DOLLARS IN THOUSANDS)
<S>                                                <C>            <C>            <C>
Initial franchise fee............................    $5,550         $6,680         $6,512
                                                     ======         ======         ======
Number of operating franchised stores:
  Beginning of period............................       750            959          1,174
  Sales to franchisees...........................       294            294            282
  Stores acquired/closed.........................       (85)           (79)          (231)
                                                     ------         ------         ------
End of period....................................       959          1,174          1,225
                                                     ======         ======         ======
</TABLE>
 
                                       28
<PAGE>   31
                       GENERAL NUTRITION COMPANIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
 
NOTE 10. FINANCIAL INSTRUMENTS
 
     At January 31, 1998 and February 1, 1997, the Company's fair values of
financial instruments approximates their carrying values. The values of the
financial instruments at January 31, 1998, and February 1, 1997, respectively,
were as follows: Long-term receivables, $54.1 million and $41.8 million; Bank
revolving credit facility, $355.7 million and $375.2 million.
 
     The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
 
     Long-term receivables:  The carrying amounts approximate fair value as the
rate reflects the risk of the debt carried.
 
     Bank debt:  The bank loans carrying value approximate fair value as the
rates of borrowing are variable based on current market rates.
 
NOTE 11. LONG-TERM LEASE OBLIGATIONS
 
     The Company has operating leases covering its retail store locations. The
leases generally provide for an initial term of between five and ten years, and
some include renewal options for varying terms thereafter. The leases require
minimum monthly rental payments and a pro rata share of common operating
expenses, and most require additional rentals based on a percentage of sales in
excess of specified levels ("Percent Rent"). Real estate taxes, insurance and
other executory costs may be included in the rental payment or charged in
addition to rent. In either case, they have been included in common operating
expense. Other leases cover transportation equipment, data processing equipment,
distribution facilities and corporate headquarters.
 
     The composition of the Company's rental expense for all periods presented
included the following components:
 
<TABLE>
<CAPTION>
                                                                  YEAR ENDED
                                                   -----------------------------------------
                                                   FEBRUARY 3,    FEBRUARY 1,    JANUARY 31,
                                                      1996           1997           1998
                                                      ----           ----           ----
                                                                (IN THOUSANDS)
<S>                                                <C>            <C>            <C>
Retail Stores:
Rent on long-term operating leases, net of
  sublease income................................    $55,713       $ 70,234       $ 74,777
Common operating expense.........................     17,765         19,191         20,960
Percent rent.....................................      3,708          3,166          5,270
                                                     -------       --------       --------
                                                      77,186         92,591        101,007
Other............................................      5,421          9,598         11,522
                                                     -------       --------       --------
                                                     $82,607       $102,189       $112,529
                                                     =======       ========       ========
</TABLE>
 
                                       29
<PAGE>   32
                       GENERAL NUTRITION COMPANIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
 
     Minimum future obligations for noncancellable operating leases with initial
or remaining terms of at least one year in effect at January 31, 1998 are as
follows:
 
<TABLE>
<CAPTION>
                             COMPANY     FRANCHISE
                              RETAIL       RETAIL                    SUBLEASE
                              STORES       STORES      OTHER (A)      INCOME      CONSOLIDATED
                              ------       ------      ---------      ------      ------------
                                                       (IN THOUSANDS)
<S>                          <C>         <C>           <C>           <C>          <C>
1998.......................  $ 73,269     $18,259       $ 8,794      $(18,259)      $ 82,063
1999.......................    68,230      16,930         8,070       (16,930)        76,300
2000.......................    62,839      15,306         6,813       (15,306)        69,652
2001.......................    55,744      11,886         5,862       (11,886)        61,606
2002.......................    46,958       7,037         4,874        (7,037)        51,832
Thereafter.................   109,440       9,200        25,109        (9,200)       134,549
                             --------     -------       -------      --------       --------
                             $416,480     $78,618       $59,522      $(78,618)      $476,002
                             ========     =======       =======      ========       ========
</TABLE>
 
---------------
 
(a) Includes $37.0 million for a lease with the related party discussed in Note
    1.
 
NOTE 12. INCOME TAXES (TAX BENEFITS)
 
     Significant components of the Company's deferred tax assets and liabilities
at period end consisted of the following:
 
<TABLE>
<CAPTION>
                                                              FEBRUARY 1,    JANUARY 31,
                                                                 1997           1998
                                                                 ----           ----
                                                                    (IN THOUSANDS)
<S>                                                           <C>            <C>
Deferred Tax:
  Current assets:
     Operating reserves.....................................    $12,240        $ 5,921
     Inventory capitalization...............................      3,113          3,281
     Deferred revenue.......................................      2,663          3,866
     Deferred compensation..................................        702            903
     Other..................................................        185            219
                                                                -------        -------
  Total current assets......................................     18,903         14,190
                                                                -------        -------
  Non-current liabilities:
     Option compensation....................................     (3,821)        (2,692)
     Fixed assets...........................................      6,664          8,249
     Other..................................................     (1,381)        (1,343)
                                                                -------        -------
  Total non-current liabilities.............................      1,462          4,214
                                                                -------        -------
  Total net deferred taxes..................................    $17,441        $ 9,976
                                                                =======        =======
</TABLE>
 
                                       30
<PAGE>   33
                       GENERAL NUTRITION COMPANIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
 
     Income taxes (tax benefits) for all periods consisted of the following
components:
 
<TABLE>
<CAPTION>
                                                                  YEAR ENDED
                                                   -----------------------------------------
                                                   FEBRUARY 3,    FEBRUARY 1,    JANUARY 31,
                                                      1996           1997           1998
                                                      ----           ----           ----
                                                                (IN THOUSANDS)
<S>                                                <C>            <C>            <C>
Current:
  Federal........................................    $41,615       $ 45,992        $56,301
  State..........................................      5,082          3,890          4,553
  Foreign........................................         49           (218)             0
                                                     -------       --------        -------
                                                      46,746         49,664         60,854
                                                     -------       --------        -------
Deferred:
  Federal........................................        765        (10,346)         3,398
  State..........................................        383           (247)           628
                                                     -------       --------        -------
                                                       1,148        (10,593)         4,026
                                                     -------       --------        -------
Total............................................    $47,894       $ 39,071        $64,880
                                                     =======       ========        =======
</TABLE>
 
     The Company's effective tax rate differed from the statutory tax rate for
the following reasons:
 
<TABLE>
<CAPTION>
                                                                  YEAR ENDED
                                                   -----------------------------------------
                                                   FEBRUARY 3,    FEBRUARY 1,    JANUARY 1,
                                                      1996           1997           1998
                                                      ----           ----           ----
<S>                                                <C>            <C>            <C>
Percent of pretax earnings:
  Statutory federal tax rate.....................     35.0%          35.0%          35.0%
Increase:
  Goodwill amortization..........................      2.4%          49.0%           1.5%
  State income tax, net of federal tax benefit...      3.1%           5.5%           2.0%
Other............................................      0.4%           1.3%           0.1%
                                                      ----           ----           ----
Effective income tax rate........................     40.9%          90.8%          38.6%
                                                      ====           ====           ====
</TABLE>
 
     The increase in the Company's effective tax rate for the year ended
February 1, 1997 was due to the effect of the restructuring charge as discussed
in Note 7. The effective rate for the year ended February 1, 1997, excluding the
restructuring charge, would have been 39.5%.
 
NOTE 13. LEGAL PROCEEDINGS AND SETTLEMENTS
 
     The Company and/or one of its subsidiaries (the "GNC Companies") are
currently named as defendants in approximately 10 lawsuits in state and federal
courts alleging damages arising from the ingestion of products containing
manufactured L-Tryptophan that were processed and distributed by the GNC
companies and other non-related companies prior to 1990. These lawsuits are all
that remain of over 400 such actions against the GNC companies and the Company
believes that like all that were resolved previously, the remaining cases will
be resolved at no cost to the Company. The cases are being vigorously defended
pursuant to a joint defense agreement (the "Agreement") among Showa Denko
America ("SDA") and numerous parties in the nutritional supplement industry who
manufactured, processed, sold, distributed or bottled L-Tryptophan. SDA's
parent, SHOWA Denko ("SDK"), was the manufacturer of the L-Tryptophan that
plaintiffs allege caused their injuries. Pursuant to the Agreement, SDA has
agreed to pay all legal fees incurred by the GNC companies in the defense of
these claims and to indemnify the GNC companies against liability.
 
     By separate agreement, SDK has unconditionally and irrevocably guaranteed
all obligations of SDA under the Agreement. In addition, the GNC companies, with
the other signatories to the Agreement, are beneficiaries of a $20 million
letter of credit delivered to secure SDA's performance of its obligations.
 
                                       31
<PAGE>   34
                       GENERAL NUTRITION COMPANIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
 
     The Agreement does not indemnify the GNC Companies against injuries
proximately caused by them or against punitive, exemplary or other damages
attributable to their intentional misconduct. Several of the pending actions
seek such damages. The GNC Companies believe they have reasonable defenses to
such claims. The GNC Companies also believe that they are entitled to
indemnification or contribution from other parties to the pending actions but,
pursuant to the Agreement, are not pursuing those claims at this time.
 
     In the unlikely event that the benefit of the Agreement, the guaranty by
SDK and letter of credit were to be unavailable, the GNC Companies have product
liability insurance which they believe provides coverage for the L-Tryptophan
product claims. The damages sought by the pending actions could exceed such
coverage in the unlikely event that damages were to be awarded solely against
the GNC Companies and no indemnification or contribution by other parties was
awarded or available. Although the outcome of litigation is uncertain,
management of the Company, upon consultation with counsel, believes that the
Company will not be required to make any material payments in connection with
the remaining actions, and no provisions have been made in the consolidated
financial statement for any such possible loss.
 
     On June 24, 1996, a putative class action, Lavalla v. Lee et al, C.A. No.
15080, was commenced against the Company and two directors and shareholders in
the Court of Chancery of the State of Delaware, Newcastle County, alleging
violations of the federal securities laws arising out of the Prospectus and
Registration Statement (the "Prospectus") for a public offering of common stock
of the Company which took place on February 7, 1996 (the "Public Offering"). The
action was dismissed without prejudice on December 29, 1997 pursuant to the
parties' stipulation. The named plaintiff, Gaetan Lavalla, subsequently became a
named plaintiff in Klein et al v. General Nutrition Companies, Inc. et al, Civil
Action No. 96-1455, another putative class action filed on August 2, 1996, in
the United States District Court for the Western District of Pennsylvania. In
Klein, plaintiffs asserted that the Company is liable for violations of Sections
11 and 12(a) of the Securities Act of 1933 and Section 1-501(a) of the
Pennsylvania Securities Act, arising out of allegedly false and misleading
statements in the Prospectus, and for violations of Section 10(b) of the
Securities Exchange Act of 1934 and for negligent misrepresentation arising out
of allegedly false and misleading public statements during the period from the
Public Offering through May 28, 1996. Plaintiffs also alleged that certain
officers, directors and shareholders of the Company, as well as the underwriters
for the Public Offering, are liable for other violations of the federal and
state securities laws and for negligent misrepresentation.
 
     Defendants moved to dismiss the Complaint on December 2, 1996 and
plaintiffs subsequently filed an Amended Complaint dated March 21, 1997, which
among other things, added Gaetan Lavalla as a named plaintiff. On March 30,
1998, the Court granted the motions of all defendants to dismiss the Amended
Complaint with prejudice. On April 20, 1998, the plaintiffs filed a Notice of
Appeal with the United States Court of Appeals for the Third Circuit. The
Company disputes the allegations contained in the complaint and intends to
defend the action vigorously.
 
     The Company is presently engaged in various other legal actions and
governmental proceedings, and, although ultimate liability cannot be determined
at the present time, the Company is currently of the opinion that the amount of
any such liability from these other actions and proceedings when taking into
consideration the Company's product liability coverage, will not have a material
adverse impact on its financial position, results of operations or liquidity.
 
     The Company, like other retailers, distributors and manufacturers of
products that are ingested, faces an inherent risk of exposure to product
liability claims in the event that, among other things, the use of its products
results in injury. With respect to product liability coverage the Company
currently has a $1 million self-insured retention per occurrence and aggregate,
followed by a primary products liability policy of $1 million per occurrence and
aggregate, followed by an additional $2 million self-insured retention per
occurrence and aggregate, and an additional $80 million of umbrella liability
insurance coverage. There can be no assurance that such insurance will continue
to be available at a reasonable cost, or if available will be adequate to cover
liabilities.
                                       32
<PAGE>   35
                       GENERAL NUTRITION COMPANIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
 
NOTE 14. BUSINESS COMBINATIONS
 
     On August 17, 1996, the Company and its subsidiaries, General Nutrition,
Incorporated and NF Acquisition Corporation entered into an Agreement and Plan
of Merger with Nature's fresh Northwest, Inc., a 6 store natural gourmet food
grocery chain located in the Portland, Oregon area. The Company purchased 100%
of the outstanding common stock of Nature's fresh Northwest, Inc. for a
combination of cash and the Company's common stock totaling $17 million. The
Company acquired $7.2 million in assets and assumed $7.0 million in liabilities
in connection with the merger. The Company has accounted for this acquisition
utilizing the purchase method of accounting, resulting in the recognition of
$16.8 million of goodwill.
 
     On November 6, 1995, the Company and its subsidiaries, General Nutrition
Investment Company and GNC (U.K.) Holding Company, entered into an agreement
with the United Kingdom based Health and Diet Group Limited, pursuant to which
the Acquisition Subsidiary purchased 100% of the outstanding common stock of
Health and Diet Group Limited for a combination of cash and the Company's common
stock totaling $7.1 million. The Company has accounted for this acquisition
utilizing the purchase method of accounting, resulting in the recognition of
$5.0 million of goodwill.
 
     Additionally, in 1995, 1996 and 1997 the Company acquired 81, 68 and 222
stores, respectively, through purchases from independent store owners and
Company franchisees. These acquisitions are accounted for utilizing the purchase
accounting method. As a result of these transactions, goodwill of $7.9 million,
$8.1 million and $49.5 million in 1995, 1996 and 1997, respectively, was
recognized in the consolidated financial statements.
 
                                       33
<PAGE>   36
                       GENERAL NUTRITION COMPANIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
 
NOTE 15. SEGMENT INFORMATION
 
     The following table represents key financial information of the Company's
business segments; Retail, Franchising, and Manufacturing and should be read in
conjunction with Part I, Item 1, Business.
 
<TABLE>
<CAPTION>
                                                                1995       1996        1997
                                                                ----       ----        ----
                                                                       (IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
RETAIL
Net revenue.................................................  $652,185   $726,758   $  868,794
Operating earnings..........................................   104,495     18,816      127,362
Depreciation/amortization...................................    28,417     33,924       37,649
Identifiable assets.........................................   538,847    584,979      656,207
Capital expenditures........................................    46,215     59,699       44,017
MANUFACTURING
Net revenue
  Intersegment sales........................................   130,375    163,924      203,041
  Third-party sales.........................................    46,146     75,791       95,514
Operating earnings..........................................    28,062     37,716       48,403
Depreciation/amortization...................................     2,782      3,631        4,587
Identifiable assets.........................................    66,037     89,154      113,941
Capital expenditures........................................    11,618     13,058       13,048
FRANCHISING
Net revenue.................................................   147,621    188,296      229,177
Operating earnings..........................................    28,281     40,714       49,546
Depreciation................................................       177        201          275
Identifiable assets.........................................    63,767     86,674      103,937
Capital expenditures........................................        90        561          248
CORPORATE/OTHER
Operating expense...........................................   (23,722)   (36,899)     (34,140)
Depreciation/amortization...................................       820      2,777        1,494
Identifiable assets.........................................    14,200     18,548       59,853
Capital expenditures........................................     1,385      1,942        9,664
CONSOLIDATED
Net revenue.................................................   845,952    990,845    1,193,485
Operating earnings..........................................   137,116     60,347      191,171
Interest expense, net.......................................    20,076     17,341       22,926
Earnings before income taxes................................   117,040     43,006      168,245
Income taxes................................................    47,894     39,071       64,880
Net earnings................................................    69,146      3,935      103,365
Identifiable assets.........................................   682,851    779,355      933,938
Depreciation/amortization...................................    32,196     40,533       44,005
Capital expenditures........................................    59,308     75,260       66,977
</TABLE>
 
---------------
 
(a) Retail operating earnings includes expenses for amortization of goodwill of
    $8.5 million in 1995, $9.6 million in 1996 and $9.5 million in 1997. Retail
    identifiable assets includes goodwill, net of accumulated amortization, of
    $290.5 million in 1995, $258.9 million in 1996 and $297.4 million in 1997.
 
(b) Intersegment sales are made at established transfer prices.
 
(c) 1996 operating earnings include $80.2 million of restructuring charges, of
    which $79.5 million is recorded in Retail, $497,000 in Manufacturing, and
    $280,000 in Corporate/Other.
 
(d) Included in Corporate/Other operating expenses in 1995, 1996 and 1997 is
    $1.6 million, $11.8 million and $4.1 million, respectively, of non-cash
    compensation expense charges.
 
                                       34
<PAGE>   37
                       GENERAL NUTRITION COMPANIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
 
NOTE 16. QUARTERLY FINANCIAL DATA
 
     Unaudited quarterly financial information is as follows:
 
<TABLE>
<CAPTION>
                                              QUARTER ENDED
                             ------------------------------------------------   YEAR ENDED
                             APRIL 26,   JULY 19,   OCTOBER 11,   JANUARY 31,   JANUARY 31,
                               1997        1997        1997          1998          1998
          1997(A)              ----        ----        ----          ----          ----
                                         (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                          <C>         <C>        <C>           <C>           <C>
Net revenue................  $273,059    $265,604    $277,970      $376,852     $1,193,485
Gross profit...............   106,679     104,109     107,345       149,336        467,469
Net earnings...............    23,859      23,054      23,932        32,520        103,365
Basic earnings per share...  $   0.29    $   0.29    $   0.29      $   0.40     $     1.27
Diluted earnings per
  share....................  $   0.29    $   0.28    $   0.29      $   0.39     $     1.24
</TABLE>
 
<TABLE>
<CAPTION>
                                              QUARTER ENDED
                             ------------------------------------------------   YEAR ENDED
                             APRIL 27,   JULY 20,   OCTOBER 12,   FEBRUARY 1,   FEBRUARY 1,
                               1996        1996        1996          1997          1997
                               ----        ----        ----          ----          ----
          1996(A)                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                          <C>         <C>        <C>           <C>           <C>
Net revenue................  $230,167    $217,750    $226,622      $316,306      $990,845
Gross profit...............    88,835      81,098      86,899       119,138       375,970
Net earnings...............    20,178     (51,879)     17,870        17,766         3,935
Basic earnings per share...  $   0.23    $  (0.60)   $   0.22      $   0.22      $   0.05
Diluted earnings per
  share....................  $   0.22    $  (0.60)   $   0.21      $   0.21      $   0.05
</TABLE>
 
---------------
 
(a) Each of the Company's first 3 quarters consists of 12 week operating
    results. The fourth quarter consists of 16 weeks.
 
NOTE 17. STOCK-BASED COMPENSATION PLANS
 
     The Company sponsors multiple stock-based compensation plans including both
stock option and stock purchase plans. Had compensation cost for the Company's
plans been determined based on the fair value at the grant date instead of the
intrinsic value method described in Note 1 for awards in 1995, 1996 and 1997 the
Company's net earnings and earnings per share would have been reduced to the pro
forma amounts indicated below:
 
<TABLE>
<CAPTION>
                                                                       YEAR ENDED
                                                     -----------------------------------------------
                                                     FEBRUARY 3,       FEBRUARY 1,       JANUARY 31,
                                                        1996              1997              1997
                                                        ----              ----              ----
                                                          (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                <C>               <C>               <C>               <C>
Net Income.......................  As reported         $69,146          $  3,935          $103,365
                                   Pro forma            65,700           (11,528)           92,043
Basic earnings per share.........  As reported         $   .84          $   0.05          $   1.27
                                   Pro forma               .80             (0.14)             1.13
Diluted earnings per share.......  As reported         $   .78          $   0.05          $   1.24
                                   Pro forma               .74             (0.14)             1.11
</TABLE>
 
     The fair value of each option has been estimated on the date of grant using
the Black-Scholes options pricing model with the following weighted average
assumptions for the fiscal years ended February 3, 1996, February 1, 1997 and
January 31, 1998: expected volatility of 52% in 1995, 53% in 1996 and 52% in
1997; no dividend yield in any of the years; expected life in years from 1 to 5
years in 1995, 1 to 6 years in 1996 and 1 to 5 years in 1997; and risk-free
interest rates of 5.5% in 1995, 6% in 1996 and 5.5% in 1997.
 
                                       35
<PAGE>   38
                       GENERAL NUTRITION COMPANIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
 
     The Company recorded compensation expense of $1.6 million and $7.5 million,
related to its fixed and performance-based stock option plans for the years
ended February 3, 1996, and February 1, 1997, respectively.
 
     All of the Company's Stock Option Plans are administered by the
Compensation Committee of the Company's Board of Directors.
 
STOCK OPTION PLANS
 
FIXED STOCK OPTION PLANS
 
     The Company has seven fixed stock option plans covering officers and key
employees, and non-employee directors. A summary of each plan at January 31,
1998 is as follows:
 
<TABLE>
<CAPTION>
                              SHARES       MAXIMUM   RANGE OF EXERCISE       SHARES
                            AUTHORIZED      LIFE          PRICES          OUTSTANDING      VESTING PROVISIONS
                            ----------      ----          ------          -----------      ------------------
                                             (IN
                          (IN THOUSANDS)   YEARS)                        (IN THOUSANDS)
<S>                       <C>              <C>       <C>                 <C>              <C>
EMPLOYEE PLANS:
1989....................      2,173          10       1$.25 - $ 2.50            45        100% at grant
1991....................      1,600          10           1.25                 169        100% at grant
                                                                                          5 years, 20% per
1992....................        400          10       6.53 -  34.63            274        year
1993....................      1,600          10      10.84 -  34.63            642        4 years, daily basis
1995....................      2,000          10      11.88 -  34.63          1,227        100% at grant date
1996....................      2,500          10      15.50 -  34.63          2,375        4 years, daily basis
NON-EMPLOYEE PLANS:
                                                                                          4 years, 25% per
1994-directors..........        100          10      11.47 -  22.75             80        year
</TABLE>
 
     A summary of the status of the Company's fixed stock option plans for the
years ended February 3, 1996, February 1, 1997, and January 31, 1998 is as
follows:
 
<TABLE>
<CAPTION>
                                                1995                                1996                       1997
                                  ---------------------------------   ---------------------------------   --------------
                                                   WEIGHTED AVERAGE                    WEIGHTED AVERAGE
                                                    EXERCISE PRICE                      EXERCISE PRICE
       FIXED STOCK OPTIONS            SHARES          PER SHARE           SHARES          PER SHARE           SHARES
       -------------------            ------          ---------           ------          ---------           ------
                                  (IN THOUSANDS)                      (IN THOUSANDS)                      (IN THOUSANDS)
<S>                               <C>              <C>                <C>              <C>                <C>
Outstanding at beginning of
  year...........................      3,952            $6.15              4,774            $ 9.30             5,745
Granted..........................      1,898            12.73              1,715             16.36             1,050
Exercised........................     (1,032)            2.88               (743)             6.05            (1,921)
Forfeited........................        (44)            6.70                 (1)             2.50               (62)
                                     -------                             -------                             -------
Outstanding at end of year.......      4,774            $9.30              5,745            $11.71             4,812
                                     =======            =====            =======            ======           =======
Options exercisable at year
  end............................      3,957                               3,840            $ 9.99             2,718
                                     =======                             =======            ======           =======
Weighted average fair value of
  options granted during the
  year:
  Exercise price = Grant date
    fair value...................    $  3.09                             $  8.17                             $ 27.55
  Exercise price < Grant date
    fair value...................    $ 19.97                             $ 10.42                                  --
  Exercise price > Grant date
    fair value...................    $    --                             $  8.81                                  --
 
<CAPTION>
                                         1997
                                   ----------------
                                   WEIGHTED AVERAGE
                                    EXERCISE PRICE
       FIXED STOCK OPTIONS            PER SHARE
       -------------------            ---------
<S>                                <C>
Outstanding at beginning of
  year...........................       $11.71
Granted..........................        27.89
Exercised........................         8.79
Forfeited........................       $14.27
Outstanding at end of year.......       $16.39
                                        ======
Options exercisable at year
  end............................       $12.54
                                        ======
Weighted average fair value of
  options granted during the
  year:
  Exercise price = Grant date
    fair value...................
  Exercise price < Grant date
    fair value...................
  Exercise price > Grant date
    fair value...................
</TABLE>
 
                                       36
<PAGE>   39
                       GENERAL NUTRITION COMPANIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
 
     The following table summarizes information regarding the Company's fixed
stock options outstanding at January 31, 1998:
 
<TABLE>
<CAPTION>
                                 OUTSTANDING OPTIONS                             OPTIONS EXERCISABLE
                  --------------------------------------------------       -------------------------------
                                       WEIGHTED          WEIGHTED                              WEIGHTED
                                       AVERAGE           AVERAGE                               AVERAGE
    RANGE OF          NUMBER          REMAINING       EXERCISE PRICE           NUMBER       EXERCISE PRICE
 EXERCISE PRICE    OUTSTANDING     CONTRACTUAL LIFE     PER SHARE           EXERCISABLE       PER SHARE
 --------------    -----------     ----------------     ---------           -----------       ---------
                  (IN THOUSANDS)      (IN YEARS)                           (IN THOUSANDS)
<S>       <C>     <C>              <C>                <C>                  <C>              <C>
$ 1.25 -  $ 2.50        214              4.53             $ 1.28                 214            $ 1.28
  6.53 -   10.84        790              5.59              10.67                 716             10.73
 11.44 -   13.62      1,088              7.01              11.96               1,067             11.95
 15.00 -   16.88      1,178              8.57              15.55                 379             15.54
 18.60 -   19.50        416              8.63              18.79                 161             18.97
 21.16 -   25.38        389              8.94              22.38                 118             22.51
 26.78 -   34.63        737              9.66              30.35                  63             28.17
                      -----                                                    -----
  1.25 -   34.63      4,812              7.75             $16.39               2,718            $12.54
                      =====                                                    =====
</TABLE>
 
PERFORMANCE-BASED STOCK OPTION PLANS
 
     The Company currently has two performance-based plans covering both
employees and non-employees.
 
     Under the 1996 Stock Option Plan, the Company is authorized to grant stock
options to selected officers and key employees. Options vest at the rate of 25%
per year over a four year period commencing on the date of grant, provided that
the market price per share of the Company's common stock achieves specified
levels of appreciation during such four year period. Under the plan, such
appreciation must equal or exceed 20% in each year commencing with the date of
grant of each option. No more than 25% of the shares available for issuance can
vest in any one year. If, in a given year, the market price per share of the
Company's common stock fails to achieve the specified level, the shares which
fail to vest in that year may vest in a subsequent year within such four year
period commencing on the date of grant, assuming that the market price per share
of common stock achieves in such subsequent year the level which was not met in
a previous year. If an option whose vesting is dependent upon the achievement of
specified levels of stock price appreciation has not been fully vested by the
close of the four year period commencing on the date of grant, such option shall
be exercisable for a thirty day period commencing with the close of such four
year period and thereafter shall terminate to the extent not exercised.
 
     A summary of the Company's performance-based stock option plans is as
follows:
 
<TABLE>
<CAPTION>
                                 SHARES         MAXIMUM        RANGE OF           SHARES
                               AUTHORIZED     OPTION LIFE   EXERCISE PRICES    OUTSTANDING
                               ----------     -----------   ---------------    -----------
                             (IN THOUSANDS)   (IN YEARS)                      (IN THOUSANDS)
<S>                          <C>              <C>           <C>               <C>
Plans:
1996.......................      2,500            10        $15.50 - $34.63       2,332
</TABLE>
 
                                       37
<PAGE>   40
                       GENERAL NUTRITION COMPANIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
 
     A summary of the status of the Company's performance stock option plans as
of January 31, 1998 is presented below:
<TABLE>
<CAPTION>
                                                            1996                              1997
                                               -------------------------------   -------------------------------
<S>                                            <C>              <C>              <C>              <C>
                                                                   WEIGHTED                          WEIGHTED
                                                                   AVERAGE                           AVERAGE
       PERFORMANCE-BASED STOCK OPTIONS             SHARES       EXERCISE PRICE       SHARES       EXERCISE PRICE
---------------------------------------------      ------           ------           ------           ------
 
<CAPTION>
                                               (IN THOUSANDS)                    (IN THOUSANDS)
<S>                                            <C>              <C>              <C>              <C>
Outstanding at beginning of year.............          --           $   --            1,616           $16.28
Granted......................................       1,616            16.28              957            27.24
Exercised....................................          --               --             (116)           16.17
Forfeited....................................          --               --             (125)           16.81
                                                   ------                            ------
Outstanding at end of year...................       1,616            16.28            2,332            20.75
                                                   ======                            ======
Weighted average fair value of options
  granted during the year:
  Exercise price < Grant date fair value.....      $10.74                            $32.14
  Exercise price > Grant date fair value.....      $ 9.84                            $   --
</TABLE>
 
<TABLE>
<CAPTION>
                                   OUTSTANDING OPTIONS                            OPTIONS EXERCISABLE
                    --------------------------------------------------       -----------------------------
                                         WEIGHTED
                                         AVERAGE           WEIGHTED                            WEIGHTED
                        NUMBER          REMAINING          AVERAGE              NUMBER         AVERAGE
RANGE OF EXERCISE    OUTSTANDING     CONTRACTUAL LIFE   EXERCISE PRICE       EXERCISABLE    EXERCISE PRICE
PRICES ----------    -----------     ----------------   --------------       -----------    --------------
                                                                                 (IN
                    (IN THOUSANDS)      (IN YEARS)                            THOUSANDS)
<S>        <C>      <C>              <C>                <C>                  <C>            <C>
$15.50 -   $16.88       1,070              8.58             $15.57               491            $15.57
 18.13 -    22.32         618              9.02              20.47               220             19.90
 26.78 -    34.63         644              9.61              29.62                78             26.78
                        -----                                                    ---
 15.50 -    34.63       2,332              8.98             $20.75               789            $17.89
                        =====                                                    ===
</TABLE>
 
     The Company has awarded, subject to shareholder approval, 1.0 million
options pursuant to a new 1998 Management and Director Stock Option Plan (the
"1998 Plan"), under which 2.5 million options have been reserved. The terms of
the 1998 Plan are essentially the same as the 1996 Stock Option Plan. There are
a total of 2.5 million options reserved for issuance. The remaining 1.5 million
options can only be granted if the Company's future share price exceeds certain
minimum targets. The 1.0 million options granted in January 1998 are excluded
from the outstanding option disclosures and are also excluded from the 1997
weighted shares outstanding calculations as they are subject to shareholder
approval. These 1.0 million options were granted with an exercise price of
$34.625 per share which equaled the fair market value on the date of grant. If
at the date of shareholder approval the market value of the Company's stock is
greater than $34.625, the Company will be required to record a charge against
earnings for the amount of the difference.
 
STOCK PURCHASE PLANS
 
EMPLOYEE STOCK PURCHASE PLAN
 
     The Company sponsors an Employee Stock Purchase Plan (ESPP) under which it
is authorized to issue up to 2.0 million shares of common stock to all employees
with a minimum of three months of service. The ESPP allows eligible employees to
contribute through payroll deductions up to 10% of their annual salary toward
stock purchases. Stock purchases are made monthly on the first day of each month
at 90% of the closing price from the previous day.
 
                                       38
<PAGE>   41
                       GENERAL NUTRITION COMPANIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
 
1996 MANAGEMENT AND DIRECTOR STOCK PURCHASE PLAN
 
     On October 25, 1996, the Company's shareholders approved the adoption of
the Company's 1996 Long Term Incentive Program which included the 1996
Management and Director Stock Purchase Plan (the "Stock Purchase Plan"). Under
the Stock Purchase Plan, the Company has established a minimum stockholding
requirement for members of senior management. In order to participate in the
Stock Purchase Plan, all officers of the Company must own Company stock with a
market value equal to at least one times their annual salary, or 50% for other
non-officer participants.
 
     Participants are permitted to purchase shares of the Company's common stock
at a price equal to 80% of the average market price of the common stock during
certain specified periods. The Company recognizes compensation expense in the
periods in which shares are purchased under the Stock Purchase Plan in the
amount by which the fair market value per share of the Company's common stock at
the time of such purchase exceeds the exercise price per share under the plan.
The maximum number of shares which participants are permitted to purchase under
the Plan is 2.5 times their annual compensation or director fees. Non-officer
participants may participate to 1.25 times their annual compensation. The
Company may extend loans to participants for up to 50% of the amount necessary
to purchase the shares under the Plan and the applicable withholding tax,
provided that no participant shall borrow more than an amount equal to 1.25x
such participant's annual base salary. Any such loans bear interest at 6% per
annum and are secured by the common stock purchased by the participant. The
Company will forgive the loan in the event the market price of the Company's
common stock appreciates by at least 25% or more over the base market price of
the common stock in each of the four years commencing from the date of grant of
such loan. The Company will record compensation expense for the amount of loans
forgiven in each fiscal year in which stock appreciation hurdles are attained.
To the extent that such loans are not forgiven, they are required to be repaid
at the earlier of termination of employment or expiration of the four year
period.
 
     Under the Stock Purchase Plan, a total of 1.0 million shares have been
reserved for issuance. As of January 31, 1998, 788,981 shares were purchased
under the Stock Purchase Plan for approximately $11.5 million, 80% of the
average market price of the common stock. At January 31, 1998, outstanding
Company loans made in connection with the plan were $3.76 million. The Company
recorded $4.1 million in compensation expense for the year ended January 31,
1998 in connection with the discount from the market price of the common stock
and with the forgiveness of loans.
 
NOTE 18. EARNINGS PER SHARE
 
     During 1997, The Company adopted Statement of Financial Accounting
Standards No. 128 "Earnings per Share." This standard requires the Company to
present basic and diluted earnings per share. Basic earnings per share is
computed by dividing net income by the average number of common shares
outstanding during the period. The diluted earnings per share calculation
assumes the conversion of dilutive stock options into common
 
                                       39
<PAGE>   42
                       GENERAL NUTRITION COMPANIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
 
shares. Previously reported earnings per share information have been restated as
a result of the adoption. The earnings per share calculations for all periods
are as follows:
 
<TABLE>
<CAPTION>
                                                                         YEAR ENDED
                                                           ---------------------------------------
                                                           FEBRUARY 3,   FEBRUARY 1,   JANUARY 31,
                BASIC EARNINGS PER SHARE                      1996          1997          1998
                ------------------------                      ----          ----          ----
                                                            (IN THOUSANDS EXCEPT PER SHARE DATA)
<S>                                                        <C>           <C>           <C>
Net earnings available for common shares.................    $69,146       $ 3,935      $103,365
                                                             =======       =======      ========
Basic weighted average common shares outstanding.........     82,406        84,907        81,140
Basic earnings per share.................................    $  0.84       $  0.05      $   1.27
                                                             =======       =======      ========
DILUTED EARNINGS PER SHARE
Net earnings available for common shares.................    $69,146       $ 3,935      $103,365
Elimination of tax effected interest expense on
  convertible debt.......................................        872            --            --
                                                             -------       -------      --------
Adjusted net earnings available for common shares........     70,018         3,935       103,365
                                                             -------       -------      --------
Basic Weighted average common shares outstanding.........     82,406        84,907        81,140
Outstanding options......................................      3,454         1,387         2,087
Conversion of junior subordinated debt...................      3,976            --            --
                                                             -------       -------      --------
Diluted weighted average common shares...................     89,836        86,294        83,227
                                                             -------       -------      --------
Diluted earnings per share...............................    $  0.78       $  0.05      $   1.24
                                                             =======       =======      ========
</TABLE>
 
     There were no options or other equity instruments outstanding during the
years ended February 3, 1996, February 1, 1997 and January 31, 1998, that were
excluded from the diluted earnings per share calculations.
 
NOTE 19. SUBSEQUENT EVENT
 
     On April 13, 1998, the Company sold put options to purchase 2.0 million
shares of the Company's common stock on the open market at various prices with
an average price of approximately $35.76 per share. These options expire in July
1998. The Company received $4.2 million in proceeds for the sale of these
options.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE
 
     None
 
                                       40
<PAGE>   43
 
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The information required by this Item concerning directors is incorporated
by reference to the section entitled "Election of Directors" in the Company's
definitive Proxy statement for its Annual Meeting of Stockholders to be held
June 25, 1998 and by reference to Part I of this Annual Report on Form 10-K.
 
     There is incorporated herein by reference to the Company's definitive Proxy
Statement for its Annual Meeting of Stockholders to be held June 25, 1998, the
information with the respect to compliance with Section 16(a) of the Securities
and Exchange Act of 1934.
 
     Information concerning the executive officers of the Company, who are
elected by the board of directors and serve at their discretion, is as follows:
 
<TABLE>
<CAPTION>
            NAME                   AGE                                TITLE
            ----                   ---                                -----
<S>                                <C>       <C>
Jerry D. Horn                      60        Chairman of the Board and Director
William E. Watts                   45        President, Chief Executive Officer, and Director
Louis Mancini                      52        President of General Nutrition Corporation
Edwin J. Kozlowski                 49        Executive Vice President, Chief Financial Officer &
                                             Principal Accounting Officer
Gregory T. Horn                    32        Chief Marketing Officer of GNCI, Senior Vice President
                                             of General Nutrition Corporation
John A. DiCecco                    45        Senior Vice President Logistics/Manufacturing of GNI
James M. Sander                    41        Vice President--Law, Chief Legal Officer and Secretary
David R. Heilman                   45        Vice President--Strategic Planning & Corp. Development
Curtis J. Larrimer                 42        Vice President--Controller
Eileen D. Scott                    45        Vice President--Human Resources
Joseph Fortunato                   45        Vice President--Financial Operations
J. Kenneth Fox                     47        Vice President--Treasurer
Thomas R. Shepherd                 68        Director
W. Harrison Wellford               58        Director
Ronald L. Rossetti                 54        Director
David Lucas                        50        Director
</TABLE>
 
     Mr. Jerry Horn has served as Chairman of the Board of GNCI since October
1991, and as Chairman of the Board of GNI since November 1985. Mr. Horn served
as Chief Executive Officer of GNI from May 1985 to December 1990 and also served
as President of GNI from May 1985 to September 1988. From April 1983, Mr. Horn
was President and from April 1994 to May 1995, he was Chief Executive Officer of
Thousand Trails, Inc. From September 1979 to April 1983, he was President and
Chief Executive Officer of Recreational Equipment, Inc. Mr. Horn is also a
director of CT Farm & Country, Inc., Cinnabon Inc., Universal Hospital Services,
Inc. and Chevys Inc.
 
     Mr. Watts has served as a director of GNCI since October 1991, and as a
director of GNI since January 1986. Mr. Watts has served as President and Chief
Executive Officer of GNCI since October 1991, as President of GNI since
September 1988 and as Chief Executive Officer of GNI since December 1990. He
served as Senior Vice President of GNI from January 1988 to September 1988 and
previously he served as Senior Vice President-Retailing of GNI between August
1985 and January 1988. Mr. Watts was Vice President-Retail Operations of GNC
from February 1984 to August 1985 and prior thereto served as Director of Retail
Operations. Mr. Watts is also a director of C T Farm & Country, Inc.
 
     Mr. Mancini has served as President of GNC since February 1996. He served
as Senior Vice President and General Manager of GNC from September 1988 to
February 1996. He served as Divisional Vice President of GNC from October 1986
to September 1988, as Division Manager of GNC from June 1985 to October 1986,
and
 
                                       41
<PAGE>   44
 
as Regional Sales Manager of GNC from July 1984 to June 1985. Prior to July
1984, Mr. Mancini had served in various positions with GNC.
 
     Mr. Kozlowski became Executive Vice President of GNCI and GNI in February
1996 and he served as Chief Financial Officer and Treasurer since October 1991.
He became Chief Financial Officer of both Companies in February 1990 and has
served as Senior Vice President of both Companies since August 1991 and served
as Controller of GNI from February 1987 until February 1993 and as Treasurer of
GNI since October 1989 and as Vice President since June 1989. He served as
Assistant Controller from April 1985 to February 1987. Prior to April 1985, Mr.
Kozlowski was Director of Accounting, Budgets and Taxes of GNI.
 
     Mr. Gregory Horn became Chief Marketing Officer in January 1997 and has
served as Senior Vice President-Retail Sales and Marketing of GNC since February
1996. He served as Vice President-Retail Sales of GNC from February 1995 to
February 1996 and was previously Divisional Vice President of GNC from April
1994 to February 1995. Mr. Horn joined GNC in June 1991 and served in various
positions with GNC. Mr. Horn is also a director of Jillian's Entertainment,
Sweetwater Flatbread Co., Inc., Beyond Massage, Inc. and Sewickley Development,
Inc.
 
     Mr. DiCecco became Senior Vice President of Logistics/Manufacturing of GNI
in October 1990. He served as Vice President of Distribution and Procurement of
GNC from February 1988 to September 1990, and as Director of Distribution of GNI
from July 1985 to January 1988, and as Manager of Distribution from July 1981 to
June 1985. Mr. DiCecco joined GNI in October 1978 as an Industrial Engineer.
 
     Mr. Sander became Vice President-Law, Chief Legal Officer and Secretary of
GNCI and its subsidiaries in February 1993. Mr. Sander began his employment with
GNI in October 1988 as Assistant General Counsel and became Assistant Secretary
in June 1989. From December 1985 to October 1988, Mr. Sander was Assistant Vice
President and Counsel of Equimark Corporation, a bank holding company. From
October 1983 until December 1985, Mr. Sander was an attorney with the law firm
Meyer Unkovic & Scott.
 
     Mr. Heilman joined the Company in December 1994 and became the Vice
President of Strategic Planning and Corporate Development of the Company in
February 1995. Prior to joining the Company, Mr. Heilman was a consultant with
the Meridian Group, a private investment banking concern. From January 1990 to
December 1993, Mr. Heilman served as the President of First Westinghouse Capital
Corporation, a subsidiary of Westinghouse Financial Services. Prior to 1990 he
served as a Vice President for Westinghouse in a variety of capacities.
 
     Mr. Larrimer became Vice President-Controller of the Company in February
1995. Mr. Larrimer began his employment with GNI in the Budgets and Tax
Department in 1980 and has held various positions of increasing responsibility
within the Company including Controller of the Manufacturing and Retail
divisions and Assistant Corporate Controller.
 
     Mrs. Scott became Vice President of Human Resources in May, 1996. Mrs.
Scott began her employment in August 1988 and has held various positions of
increasing responsibility within the Company, including Assistant Director and
Director of Human Resources.
 
     Mr. Fortunato became Vice President-Financial Operations in November 1997.
Mr. Fortunato began his employment with GNI in October, 1990 and has held
various positions of increasing responsibility within the Company, including
Director of Financial Operations and Manager of the Credit Department. Prior to
1990, Mr. Fortunato served as the Controller for Motor Coils Manufacturing
Company.
 
     Mr. Fox became Vice President-Treasurer of the Company in June 1997. Mr.
Fox began his employment with GNI as Manager of Corporate Accounting in July
1985, and has served in various Accounting and Finance positions including
Manager Accounting/Budgets, Assistant Corporate Controller and Assistant
Treasurer. Prior to 1985 Mr. Fox was employed by Wheeling Pittsburgh Steel
Corporation, holding various accounting and budgeting positions.
 
     Mr. Shepherd has served as a director of the Company since October 1991,
and as a director of GNI since October 1989. He has been engaged as a consultant
to Thomas H. Lee Company since 1986 and is currently a Managing Director. He is
also a Director of Duro-Test Corporation, Health o meter Products, Inc., Anchor
Advanced Products, Inc., Sneaker Stadium, Inc., Computer Assisted Marketing,
Inc., and PNC New England. He
 
                                       42
<PAGE>   45
 
is Executive Vice President of Thomas H. Lee Advisors I and T.H. Lee Mezzanine
II. Previously Mr. Shepherd was Chairman of Amerace Corporation from 1986 to
1988. He was Executive Vice President of GTE (Sylvania) Lighting Products Group
from 1983 to 1986, President of North American Phillips Commercial Electronics
Corporation from 1981 to 1983 and Senior Vice President and General Manager of
GTE (Sylvania) Entertainment Products Group from 1979 to 1981.
 
     Mr. Wellford has served as a director of the Company and GNI since January
1994. Since November 1991, Mr. Wellford has been a partner in the Washington,
D.C. office of the law firm of Latham & Watkins where he is the firm's
International Chairman. He is a Director of Sithe Energies, (one of the world's
leading independent power companies), and is a Founder of the National
Independent Energy Producers. He is director and treasurer of the Friends of Art
in Embassies. Mr. Wellford was a partner at the law firm of Olwine, Chase,
O'Donnell & Weyher, and a director of APBI Interactive Systems from 1989 through
1991; and prior to that time period, he was a partner at the law firm of
Wellford, Wegman and Hoff from 1981 through 1988. In addition, Mr. Wellford was
Executive Director of the President's Reorganization Project and Executive
Associate Director of the Office of Management and Budget in the Executive
Offices of the President from 1977 to 1981. Mr. Wellford also served as a White
House transition advisor to Presidents-elect Carter (1992) and Clinton (1992)
and Executive Branch transition director in the Carter-Reagan Presidential
transition (1980-1981).
 
     Mr. Rossetti has served as a director of the Company and of GNI since
September 1994. He is currently President of Riverside Capital Partners, Inc.,
Director of Tier Corporation, Inc., Director of City Sports, Inc., and Director
of the Hamilton Companies, Inc. From 1976 through September 1994, Mr. Rossetti
was President, Chief Executive Officer and a director of Natures Food Centres,
Inc., which was acquired by the Company in 1994.
 
     Mr. Lucas has served as a director of the Company and GNI since July 1996.
Mr. Lucas received a B.S. in Industrial Management at Purdue University in 1969.
He also received an MBA in Marketing from Harvard Business School in 1971. In
1983 to 1984 he was employed as President for Margos in Dallas, TX. Mr. Lucas
has been employed by Bonita Bay Properties, Inc., since 1984 and currently holds
a position as Chairman.
 
ITEM 11. EXECUTIVE COMPENSATION
 
     The information required by this Item is incorporated by reference to the
Section entitled "Executive Compensation" in the Company's definitive Proxy
Statement for its Annual Meeting of Stockholders to be held June 25, 1998.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     The information required by this Item is incorporated by reference to the
Sections entitled "Ownership of Stock by Directors, Nominees for Directors,
Executive Officers and Certain Beneficial Owners" in the Company's definitive
Proxy Statement for its Annual Meeting of Stockholders to be held June 25, 1998.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     The information required by this item is incorporated by reference to the
Section entitled "Certain Relationships and Related Transactions" in the
Company's definitive Proxy Statement for its Annual Meeting of Stockholders to
be held June 25, 1998.
 
                                       43
<PAGE>   46
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
(a) Documents filed as part of this report:
      Independent Auditors' Report
      Consolidated Balance Sheets for the years ended February 1, 1997 and
        January 31, 1998
      Consolidated Statements of Earnings for fiscal years ended February 3,
        1996, February 1, 1997 and January 31, 1998
      Consolidated Statements of Shareholders' Equity for years ended February
        3, 1996, February 1, 1997 and January 31, 1998
      Consolidated Statements of Cash Flows for years ended February 3, 1996,
        February 1, 1997 and January 31, 1998
      Notes to Consolidated Financial Statements
 
      Supplementary Financial Data:
      Selected Quarterly Financial Data (unaudited) for the fiscal years ended
        February 1, 1997 and January 31, 1998.
 
      All Schedules are omitted because they are not applicable or the required
information is included herein.
 
(b) There have been no reports filed on Form 8-K during the last quarter of the
period covered by this report.
 
(c) Listing of Exhibits
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
------
<C>       <S>
   3.1    Articles of Incorporation of General Nutrition,
          Incorporated, as amended. (Incorporated herein by reference
          to Exhibit 3.1 to the Annual Report on Form 10-K of General
          Nutrition, Incorporated for the fiscal year ended February
          1, 1992, File No. 1-8055.)
   3.2    By-laws of General Nutrition, Incorporated, as amended.
          (Incorporated herein by reference to Exhibit 3.2 to the
          Annual Report on Form 10-K of General Nutrition,
          Incorporated for the fiscal year ended February 3, 1990,
          File No. 1-8055.)
   3.3    Articles of Incorporation of General Nutrition Corporation,
          as amended. (Incorporated herein by reference to Exhibit 3.5
          to the General Nutrition, Incorporated, General Nutrition
          Companies, Inc. (f/k/a Lee-GN Holding Corp.) and
          subsidiaries of General Nutrition, Incorporated Registration
          Statement on Form S-1, Registration No. 33-31892.)
   3.4    By-laws of General Nutrition Corporation, as amended.
          (Incorporated herein by reference to Exhibit 3.6 to the
          General Nutrition, Incorporated, General Nutrition
          Companies, Inc. (f/k/a Lee-GN Holding Corp.) and
          subsidiaries of General Nutrition, Incorporated Registration
          Statement on Form S-1, Registration No. 33-31892.)
   3.5    Restated Certificate of Incorporation of General Nutrition
          Companies, Inc. (f/k/a Lee-GN Holding Corp.), filed with the
          Secretary of the State of Delaware on October 12, 1995.
          (Incorporated herein by reference to Exhibit 3.1 to the
          General Nutrition Companies, Inc. Registration Statement on
          Form S-3, Registration Statement 333-534.)
   3.6    By-laws of General Nutrition Companies, Inc. (f/k/a Lee-GN
          Holding Corp.), (Incorporated herein by reference to Exhibit
          3.13 to the General Nutrition Companies, Inc. Registration
          Statement on Form S-1, Registration No. 33-43218.)
   4.1    Specimen certificate for shares of common stock.
          (Incorporated herein by reference to Exhibit 4.1 to the
          Annual Report on Form 10-K of General Nutrition,
          Incorporated for the fiscal year ended February 6, 1993.)
 *10.1    Amended and Restated Employment Agreement between General
          Nutrition, Incorporated and Jerry D. Horn.
</TABLE>
 
                                       44
<PAGE>   47
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
------
<C>       <S>
 *10.2    Amended and Restated Employment Agreement between General
          Nutrition, Incorporated and William E. Watts.
  10.3    Fourth Amended and Restated Credit Agreement dated as of
          March 31, 1997 among General Nutrition, Incorporated and
          General Nutrition Corporation, as Borrowers, Banque
          Nationale de Paris, New York Branch as Administrative Agent
          and Documentation Agent, PNC Bank, National Association and
          ABNAMRO Bank N.V., as Syndication Agents, and the Banks
          named therein. (Incorporated herein by reference to Exhibit
          10.18 to the Annual Report on Form 10-K of General Nutrition
          Companies, Inc. for the fiscal year ended February 1, 1997.)
  10.4    Amended and Restated Standard Indemnity Agreement dated
          September 24, 1992 between General Nutrition, Inc. and all
          its subsidiaries and Showa Denko America, Inc. (Incorporated
          herein by reference to Exhibit 10.13 to the Annual Report on
          Form 10-K of General Nutrition, Incorporated for the fiscal
          year ended February 6, 1993.)
  10.5    Stockholders Agreement Amendment, Consent and Waiver,
          effective November 25, 1991, to the General Nutrition
          Companies, Inc. (f/k/a Lee-GN Holding Corp.) Stockholders
          Agreement, as amended. (Incorporated herein by reference to
          Exhibit 10.45 to the General Nutrition Companies, Inc.
          Registration Statement on Form S-1, Registration No.
          33-43218.)
  10.6    Form of General Nutrition Companies, Inc. 1989 Stock Option
          Plan. (Incorporated by reference to Exhibit 4A to the
          General Nutrition Companies, Inc. Registration Statement on
          Form S-8, Registration No. 33-58096.)
  10.7    Form of General Nutrition Companies, Inc. (f/k/a Lee-GN
          Holding Corp.) 1991 Stock Option Plan. (Incorporated herein
          by reference to Exhibit 10.47 to the General Nutrition
          Companies, Inc. Registration Statement on Form S-1,
          Registration No. 33-43218.)
  10.8    General Nutrition Companies, Inc. (f/k/a Lee-GN Holding
          Corp.) Amended and Restated 1992 Stock Option Plan.
          (Incorporated herein by reference to Exhibit 10.17 to the
          Annual Report and Form 10-K of General Nutrition Companies,
          Inc. for the fiscal year ended February 5, 1994.)
  10.9    Form of General Nutrition Companies, Inc. 1993 Stock Option
          Plan. (Incorporated herein by reference to Exhibit 10.24 to
          the Annual Report and Form 10-K of General Nutrition
          Companies, Inc. for the fiscal year ended February 5, 1994.)
 10.10    Form of General Nutrition Companies, Inc. 1993 Employee
          Stock Purchase Plan. (Incorporated herein by reference to
          Exhibit 10.25 to the Annual Report on Form 10-K of General
          Nutrition Companies, Inc. for the fiscal year ended February
          5, 1994.)
 10.11    Form of General Nutrition Companies, Inc. 1994 Stock Option
          Plan for Non-employee Directors. (Incorporated herein by
          reference to Exhibit 10.26 to the Annual Report and Form
          10-K of General Nutrition Companies, Inc. for the fiscal
          year ended February 4, 1994.)
 10.12    Form of General Nutrition Companies, Inc. 1995 Stock Option
          Plan. (Incorporated herein by reference to Exhibit 10.28 to
          the Annual Report on Form 10-K of General Nutrition
          Companies, Inc. for the fiscal year ended February 4, 1995.)
 10.13    Form of General Nutrition Companies, Inc. 1996 Management
          and Director Stock Option Plan (Incorporated herein by
          reference to Exhibit 4B to the General Nutrition Companies,
          Inc. Registration Statement of Form S-8, Registration No.
          333-21397.)
 10.14    Form of General Nutrition Companies, Inc. 1996 Management
          and Director Stock Purchase Plan (Incorporated herein by
          reference to Exhibit 4A to the General Nutrition Companies,
          Inc. Registration Statement on Form S-8, Registration No.
          333-21397.)
*10.15    Amendment Number 1 to the Amended and Restated Employment
          Agreement between General Nutrition, Incorporated and Jerry
          D. Horn.
</TABLE>
 
                                       45
<PAGE>   48
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
------
<C>       <S>
*10.16    Amendment Number 1 to the Amended and Restated Employment
          Agreement between General Nutrition, Incorporated and
          William E. Watts.
 *21.1    Subsidiaries of General Nutrition Companies, Inc.
   *23    Consent of Deloitte & Touche LLP.
   *27    Financial Data Schedule.
</TABLE>
 
---------------
 
* Filed herewith.
 
                                       46
<PAGE>   49
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
                                            GENERAL NUTRITION COMPANIES, INC.
                                                        (Registrant)
 
April 27, 1998                                
                                            By:  /s/ WILLIAM E. WATTS
                                            ------------------------------------
                                                        William E. Watts
                                                President and Chief Executive
                                                            Officer
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
                NAME                                         TITLE                              DATE
                ----                                         -----                              ----
<S>                                         <C>                                            <C>
 
/s/ JERRY D. HORN                           Chairman of the Board                           April 27, 1998
------------------------------------
Jerry D. Horn
 
/s/ WILLIAM E. WATTS                        Director, President and Chief Executive         April 27, 1998
------------------------------------        Officer
William E. Watts
 
/s/ DAVID LUCAS                             Director                                        April 27, 1998
------------------------------------
David Lucas
 
/s/ RONALD L. ROSSETTI                      Director                                        April 27, 1998
------------------------------------
Ronald L. Rossetti
 
/s/ THOMAS R. SHEPHERD                      Director                                        April 27, 1998
------------------------------------
Thomas R. Shepherd
 
/s/ W. HARRISON WELLFORD                    Director                                        April 27, 1998
------------------------------------
W. Harrison Wellford
 
/s/ EDWIN J. KOZLOWSKI                      Executive Vice President, Chief                 April 27, 1998
------------------------------------        Financial Officer, and Principal
Edwin J. Kozlowski                          Accounting Officer
</TABLE>
 
                                       47