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• | We will exchange the new notes for all outstanding old notes that are validly tendered and not withdrawn pursuant to the exchange offer. | |
• | You may withdraw tenders of old notes at any time prior to the expiration of the exchange offer. | |
• | The terms of the new notes are substantially identical to those of the outstanding old notes, except that the transfer restrictions and registration rights relating to the old notes will not apply to the new notes. | |
• | The exchange of old notes for new notes will not be a taxable transaction for U.S. federal income tax purposes. You should see the discussion under the heading “Material United Stated Federal Income Tax Considerations” for more information. | |
• | We will not receive any cash proceeds from the exchange offer. | |
• | We issued the old notes in a transaction not requiring registration under the Securities Act of 1933, as amended, and as a result, transfer of the old notes is restricted. We are making the exchange offer to satisfy your registration rights, as a holder of the old notes. |
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Net Revenues By Segment | Net U.S. Retail Revenues By Product Category | |
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• | Unmatched Specialty Retail Footprint.Our retail footprint helps us attract industry-leading vendors and provides us with broad distribution capabilities in established territories. | |
• | Strong Brand Recognition and Customer Loyalty.According to the GNC 2004 Awareness Tracking Study Report by Parker Marketing Research Innovators (the “2004 Parker Awareness Study”), an estimated 87% of the U.S. population recognizes the GNC brand name as a source of health and wellness products. |
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• | Strong Cash Flow Generation.We believe that our business generates significant cash flows from operations and requires modest capital expenditures. For the three months ended March 31, 2005 and the year ended December 31, 2004, we generated $35.5 million and $83.5 million in cash from operating activities and incurred $4.4 million and $28.3 million in capital expenditures, respectively. | |
• | Extensive Product Selection.We offer an extensive mix of brands and products, which provides our customers with a wide selection of products to fit their specific needs. | |
• | New Product Development.We believe that new products are a key driver of customer traffic and purchases. We launched 25 new products during the three months ended March 31, 2005 and 73 new products during the year ended December 31, 2004. | |
• | Value-Added Customer Service.Our sales associates are trained to provide guidance to customers with respect to the broad selection of products sold in our stores that will address our customers’ specific requests. | |
• | Experienced Management Team.Our senior management team who have, on average, been employed with us for over 12 years, and our board of directors are comprised of experienced retail executives, including our Chairman of the Board, Robert J. DiNicola, who was appointed our interim Chief Executive Officer on December 2, 2004 and who has 32 years of experience in the retail industry. As of March 31, 2005, our senior management and our directors owned approximately 3.38% in the aggregate, and had options to purchase an additional 8.00%, in the aggregate, of the fully diluted common equity of our parent company. |
• | drive sales volume in our stores by competitively pricing, as well as actively merchandising and promoting, our core products and formulating new proprietary products; | |
• | continue to obtain third-party preferred distributor arrangements and position ourselves to be first-to-market with new and innovative products by partnering with our suppliers and leveraging our extensive specialty retail footprint; | |
• | encourage customer loyalty, facilitate direct marketing, and increase cross-selling and up-selling opportunities by using our extensive Gold Card customer database; | |
• | expand our on-line retail presence through new and existing on-line technology and fulfillment partners; | |
• | expand our international store network by growing our international franchise presence, which requires minimal capital expenditures by us; | |
• | produce products for sale to third-party retail and wholesale customers to better utilize our available manufacturing capacity; and | |
• | continue to reduce our debt by using excess cash flow not otherwise needed in our business or for the execution of our business strategies, as appropriate. |
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• | our failure to compete effectively could adversely affect our revenues and growth prospects; | |
• | unfavorable publicity or consumer perception of our products and any similar products distributed by other companies could cause fluctuations in our operating results and could have a material adverse effect on our reputation and revenues; | |
• | we may incur material product liability claims, which could increase our costs and adversely affect our reputation, revenues and operating income; | |
• | changes in our management team could affect our business strategy and adversely impact our performance and results of operations; | |
• | compliance with new and existing governmental regulations could increase our costs significantly and affect our operating income; | |
• | a substantial amount of our revenues are generated from our franchisees, and our revenues could decrease significantly if our franchisees do not conduct their operations profitably or we fail to attract new franchisees; | |
• | economic, political and other risks associated with our international operations could adversely affect our revenues and international growth prospects; | |
• | our failure to appropriately respond to changing consumer preferences and demand for new products and services, including as a result of diet trends, could significantly harm our customer relationships and product sales; and | |
• | we rely on our manufacturing operations to produce nearly all of the proprietary products we sell; disruptions in our manufacturing system or losses of manufacturing certifications could adversely affect our sales and customer relationships. |
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Old Notes | 85/8% Senior Notes due 2011, which we issued on January 18, 2005. | |
New Notes | 85/8% Senior Notes due 2011, the issuance of which has been registered under the Securities Act of 1933, as amended (the “Securities Act”). The form and the terms of the new notes are identical in all material respects to those of the old notes, except that the transfer restrictions and registration rights relating to the old notes do not apply to the new notes. | |
Exchange Offer | We are offering to issue up to $150,000,000 aggregate principal amount of the new notes in exchange for a like principal amount of the old notes to satisfy our obligations under the registration rights agreement that we entered into when the old notes were issued in a transaction consummated in reliance upon the exemption from registration provided by Rule 144A under the Securities Act. | |
Expiration Date; Tenders | The exchange offer will expire at 5:00 p.m., New York City time, on June 29, 2005, unless extended in our sole and absolute discretion. By tendering your old notes, you represent to us that: | |
• you are not our “affiliate,” as defined in Rule 405 under the Securities Act; | ||
• any new notes you receive in the exchange offer are being acquired by you in the ordinary course of your business; | ||
• at the time of the commencement of the exchange offer, neither you nor, to your knowledge, anyone receiving new notes from you, has any arrangement or understanding with any person to participate in the distribution, as defined in the Securities Act, of the new notes in violation of the Securities Act; | ||
• if you are a broker-dealer, you will receive the new notes for your own account in exchange for old notes that were acquired by you as a result of your market making or other trading activities and you will deliver a prospectus in connection with any resale of the new notes you receive. For further information regarding resales of the new notes by participating broker-dealers, see the discussion under the caption “Plan of Distribution”; and | ||
• if you are not a participating broker-dealer, you are not engaged in, and do not intend to engage in, the distribution of the new notes, as defined in the Securities Act. | ||
Withdrawal; Non-Acceptance | You may withdraw any old notes tendered in the exchange offer at any time prior to 5:00 p.m., New York City time, on June 29, 2005. If we decide for any reason not to accept any old notes tendered for exchange, the old notes will be returned to the registered holder at our expense promptly after the expiration or termination of the exchange offer. In the case of the old notes |
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tendered by book-entry transfer into the exchange agent’s account at The Depository Trust Company, which we sometimes refer to in this prospectus as DTC, any withdrawn or unaccepted old notes will be credited to the tendering holders’ account at DTC. For further information regarding the withdrawal of the tendered old notes, see “The Exchange Offer — Terms of the Exchange Offer; Period for Tendering Old Notes” and “The Exchange Offer — Withdrawal Rights.” | ||
Conditions to the Exchange Offer | We are not required to accept for exchange or to issue new notes in exchange for any old notes, and we may terminate or amend the exchange offer if any of the following events occur prior to our acceptance of the old notes: | |
• the exchange offer violates any applicable law or applicable interpretation of the staff of the Securities and Exchange Commission (the “SEC”); | ||
• an action or proceeding shall have been instituted or threatened in any court or by any governmental agency that might materially impair our or our guarantors’ ability to proceed with the exchange offer; | ||
• we do not receive all the governmental approvals that we believe are necessary to consummate the exchange offer; or | ||
• there has been proposed, adopted, or enacted any law, statute, rule or regulation that, in our reasonable judgment, would materially impair our ability to consummate the exchange offer. | ||
We may waive any of the above conditions in our reasonable discretion. See the discussion below under the caption “The Exchange Offer — Conditions to the Exchange Offer” for more information regarding the conditions to the exchange offer. | ||
Procedures for Tendering Old Notes | Unless you comply with the procedure described below under the caption “The Exchange Offer — Guaranteed Delivery Procedures,” you must do one of the following on or prior to the expiration or termination of the exchange offer to participate in the exchange offer: | |
• tender your old notes by sending the certificates for your old notes, in proper form for transfer, a properly completed and duly executed letter of transmittal and all other documents required by the letter of transmittal, to U.S. Bank National Association, as exchange agent, at one of the addresses listed below under the caption “The Exchange Offer — Exchange Agent”; or | ||
• tender your old notes by using the book-entry transfer procedures described below and transmitting a properly completed and duly executed letter of transmittal, or an agent’s message instead of the letter of transmittal, to the exchange agent. In order for a book-entry transfer to constitute a valid tender of your old notes in the exchange offer, U.S. Bank National |
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Association, as exchange agent, must receive a confirmation of book-entry transfer of your old notes into the exchange agent’s account at DTC prior to the expiration or termination of the exchange offer. For more information regarding the use of book-entry transfer procedures, including a description of the required agent’s message, see the discussion below under the caption “The Exchange Offer — Book-Entry Transfers.” | ||
Guaranteed Delivery Procedures | If you are a registered holder of old notes and wish to tender your old notes in the exchange offer, but | |
• the old notes are not immediately available; | ||
• time will not permit your old notes or other required documents to reach the exchange agent before the expiration or termination of the exchange offer; or | ||
• the procedure for book-entry transfer cannot be completed prior to the expiration or termination of the exchange offer; | ||
then you may tender old notes by following the procedures described below under the caption “The Exchange Offer — Guaranteed Delivery Procedures.” | ||
Special Procedures for Beneficial Owners | If you are a beneficial owner whose old notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your old notes in the exchange offer, you should promptly contact the person in whose name the old notes are registered and instruct that person to tender them on your behalf. If you wish to tender in the exchange offer on your own behalf, prior to completing and executing the letter of transmittal and delivering your old notes, you must either make appropriate arrangements to register ownership of the old notes in your name, or obtain a properly completed bond power from the person in whose name the old notes are registered. | |
Material United States Federal Income Tax Considerations | The exchange of the old notes for new notes in the exchange offer will not be a taxable transaction for United States federal income tax purposes. See the discussion below under the caption “Material United States Federal Income Tax Considerations,” for more information regarding the United States federal income tax consequences to you of the exchange offer. | |
Use of Proceeds | We will not receive any cash proceeds from the exchange offer. | |
Exchange Agent | U.S. Bank National Association is the exchange agent for the exchange offer. You can find the address and telephone number of the exchange agent below under the caption, “The Exchange Offer — Exchange Agent.” | |
Resales | Based on interpretations by the staff of the SEC, as set forth in no-action letters issued to third parties, we believe that the new notes issued in the exchange offer may be offered for resale, |
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resold or otherwise transferred by you without compliance with the registration and prospectus delivery requirements of the Securities Act as long as: | ||
• you are acquiring the new notes in the ordinary course of your business; | ||
• you are not participating, do not intend to participate and have no arrangement or understanding with any person to participate, in a distribution of the new notes; and | ||
• you are not an affiliate of ours. | ||
If you are an affiliate of ours, are engaged in or intend to engage in or have any arrangement or understanding with any person to participate in the distribution of the new notes: | ||
(1) you cannot rely on the applicable interpretations of the staff of the SEC; and | ||
(2) you must comply with the registration requirements of the Securities Act in connection with any resale transaction. | ||
Each broker or dealer that receives new notes for its own account in exchange for old notes that were acquired as a result of market-making or other trading activities must acknowledge that it will comply with the registration and prospectus delivery requirements of the Securities Act in connection with any offer, resale, or other transfer of the new notes issued in the exchange offer, including information with respect to any selling holder required by the Securities Act in connection with any resale of the new notes. | ||
Furthermore, any broker-dealer that acquired any of its old notes directly from us: | ||
• may not rely on the applicable interpretation of the staff of the SEC’s position contained inExxon Capital Holdings Corp., SEC no-action letter (April 13, 1988),Morgan, Stanley and Co., Inc., SEC no-action letter (June 5, 1991) andShearman & Sterling, SEC no-action letter (July 2, 1983); and | ||
• must also be named as a selling noteholder in connection with the registration and prospectus delivery requirements of the Securities Act relating to any resale transaction. | ||
Broker-Dealers | Each broker-dealer that receives new notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. The letter of transmittal states that by so acknowledging and delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new notes received in exchange for old notes which were received by the broker-dealer as a result of |
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market making or other trading activities. We have agreed that for a period of up to 180 days after the consummation of this exchange offer, we will make this prospectus available to any broker-dealer for use in connection with any such resale. See “Plan of Distribution” beginning on page 152 for more information. | ||
Registration Rights Agreement | When we issued the old notes in January 2005, we entered into a registration rights agreement with the initial purchasers of the old notes. Under the terms of the registration rights agreement, we agreed to: | |
• cause the exchange offer registration statement to be filed with the SEC on or prior to 150 days after the closing date of the offering of the old notes; | ||
• use all commercially reasonable efforts to have the exchange offer registration statement declared effective no later than 250 days after the closing date of the offering; | ||
• use all commercially reasonable efforts to consummate the exchange offer within 30 business days after the date on which the exchange offer registration statement is declared effective; | ||
• use all commercially reasonable efforts to file a shelf registration statement for the resale of the old notes if we cannot effect an exchange offer within the time periods listed above and in certain other circumstances; and | ||
• if we fail to meet our registration obligations, we will pay liquidated damages in an amount equal to 0.25% per annum of the principal amount of old notes held by a holder for each day that we default on our registration obligations, increasing by an additional 0.25% per annum of the principal amount of old notes for each subsequent 90-day period our registration obligations are not met, up to a maximum of liquidated damages equal to 1.00% per annum of the principal amount of old notes. |
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• | if the offer or sale is registered under the Securities Act and applicable state securities laws; | |
• | if they are offered or sold under an exemption from registration under the Securities Act and applicable state securities laws; or | |
• | if they are offered or sold in a transaction not subject to the Securities Act and applicable state securities laws. |
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Issuer | General Nutrition Centers, Inc. | |
Securities Offered | $150,000,000 in aggregate principal amount of 85/8% Senior Notes due 2011. | |
Maturity Date | January 15, 2011. | |
Interest Payment Dates | Interest at an annual rate of 85/8% will be payable on January 15 and July 15 of each year, commencing July 15, 2005. | |
Guarantees | The new notes will be fully and unconditionally guaranteed on an unsecured senior basis by all of our existing and future material domestic subsidiaries. Our foreign subsidiaries and our immaterial domestic subsidiaries will not guarantee the new notes. Our non-guarantor subsidiaries accounted for less than 5.3% of our net revenues for the year ended March 31, 2005, and less than 4.8% of our total assets as of March 31, 2005. See “Description of New Notes — Guarantees.” | |
Ranking | The old notes and related guarantees are, and the new notes and the guarantees will be, unsecured senior obligations. | |
Accordingly, they will be: | ||
• senior in right of payment to our and the guarantors’ existing and future subordinated debt, including our 81/2% Senior Subordinated Notes due 2010 (the “Senior Subordinated Notes”); | ||
• equal in right of payment to all of our and the guarantors’ existing and future unsubordinated debt; and | ||
• structurally subordinated to all obligations of our non-guarantor subsidiaries. | ||
However, the new notes will be effectively subordinated to all of our and the guarantors’ secured indebtedness (including indebtedness under our credit facilities) to the extent of the value of the assets securing such indebtedness. As of March 31, 2005, we and our subsidiaries had an aggregate of $109.9 million of secured indebtedness outstanding (excluding $7.9 million of letters of credit) and an additional $67.1 million available for borrowing on a secured basis under our credit facilities. In the event that our secured creditors exercise their rights with respect to our pledged assets, the proceeds of the liquidation of those assets will first be applied to repay obligations secured by the first priority liens and then to repay other secured indebtedness before any unsecured indebtedness, including the new notes, is repaid. For more information on the ranking of the new notes, see “Description of New Notes — Ranking.” |
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Optional Redemption | On or after January 15, 2008, we may redeem some or all of the new notes at the redemption prices set forth under “Description of New Notes — Optional Redemption.” | |
Prior to January 15, 2008, we may redeem up to 35% of the aggregate principal amount of the new notes with the net proceeds of certain equity offerings at the redemption price set forth under “Description of New Notes — Optional Redemption.” | ||
Offer to Purchase | If we experience a change of control or we or any of our restricted subsidiaries sell certain assets, we may be required to offer to purchase the new notes at the prices set forth under “Description of New Notes — Certain Covenants — Change of Control” and “— Limitation on Sales of Assets.” | |
Covenants | The indenture limits our ability and the ability of our restricted subsidiaries to, among other things: | |
• incur additional indebtedness and issue preferred stock; | ||
• make restricted payments; | ||
• allow restrictions on the ability of certain subsidiaries to make distributions; | ||
• sell assets; | ||
• enter into certain transactions with affiliates; and | ||
• create liens. | ||
Each of the covenants is subject to a number of important exceptions and qualifications. See “Description of New Notes — Certain Covenants.” |
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• | certificates for old notes or a book-entry confirmation of a book-entry transfer of old notes into the exchange agent’s account at DTC, New York, New York as a depository, including an agent’s message if the tendering holder does not deliver a letter of transmittal; |
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• | a completed and signed letter of transmittal (or facsimile thereof), with any required signature guarantees, or, in the case of a book-entry transfer, an agent’s message in lieu of the letter of transmittal; and | |
• | any other documents required by the letter of transmittal. |
• | require us to use all or a large portion of our cash to pay principal and interest on our indebtedness, which could reduce the availability of our cash to fund working capital, capital expenditures and other business activities; | |
• | increase our vulnerability to general adverse economic and industry conditions; | |
• | limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; | |
• | restrict us from making strategic acquisitions or exploiting business opportunities; | |
• | make it more difficult for us to satisfy our obligations with respect to our indebtedness; | |
• | place us at a competitive disadvantage compared to our competitors that have less debt; and | |
• | limit our ability to borrow additional funds, dispose of assets or pay cash dividends. |
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• | incur additional indebtedness and issue preferred stock; | |
• | make restricted payments; | |
• | allow restrictions on the ability of certain subsidiaries to make distributions; | |
• | sell assets; | |
• | enter into certain transactions with affiliates; and | |
• | create liens. |
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• | political and economic instability of foreign markets; | |
• | foreign governments’ restrictive trade policies; |
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• | inconsistent product regulation or sudden policy changes by foreign agencies or governments; | |
• | the imposition of, or increase in, duties, taxes, government royalties or non-tariff trade barriers; | |
• | difficulty in collecting international accounts receivable and potentially longer payment cycles; | |
• | increased costs in maintaining international franchise and marketing efforts; | |
• | difficulty in operating our manufacturing facility abroad and procuring supplies from overseas suppliers; | |
• | exchange controls; | |
• | problems entering international markets with different cultural bases and consumer preferences; and | |
• | fluctuations in foreign currency exchange rates. |
• | accurately anticipate customer needs; | |
• | innovate and develop new products; | |
• | successfully commercialize new products in a timely manner; | |
• | price our products competitively; | |
• | manufacture and deliver our products in sufficient volumes and in a timely manner; and | |
• | differentiate our product offerings from those of our competitors. |
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• | significant competition in our industry; | |
• | unfavorable publicity or consumer perception of our products; | |
• | the incurrence of material products liability; | |
• | costs of compliance with governmental regulations; | |
• | the failure of our franchisees to conduct their operations profitably; | |
• | economic, political and other risks associated with our international operations; | |
• | our failure to keep pace with the demands of our customers for new products and services; | |
• | disruptions in our manufacturing system or losses of manufacturing certifications; and | |
• | increases in the frequency and severity of insurance claims, particularly for claims for which we are self-insured. |
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Pro Forma | ||||||||||||||||||||||||||||||||||||||
Period from | Three Months | |||||||||||||||||||||||||||||||||||||
January 1, | Ended | Three Months | ||||||||||||||||||||||||||||||||||||
Year Ended December 31, | 2003 to | 27 Days Ended | Year Ended | March 31, | Year Ended | Ended | ||||||||||||||||||||||||||||||||
December 4, | December 31, | December 31, | December 31, | March 31, | ||||||||||||||||||||||||||||||||||
2000 | 2001 | 2002 | 2003 | 2003 | 2004 | 2004 | 2005 | 2004 | 2005 | |||||||||||||||||||||||||||||
—(1 | ) | —(1 | ) | —(1 | ) | —(1 | ) | 1.11 | 1.94 | 2.43 | 1.19 | 1.84 | 1.10 |
(1) | Earnings were insufficient to cover fixed charges by $175.4 million, $70.0 million, $70.2 million and $759.4 million for the years ended December 31, 2000, 2001, 2002, and the period ended December 4, 2003, respectively. |
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As of | |||||||
March 31, 2005 | |||||||
(in millions) | |||||||
Cash and cash equivalents | $ | 77.8 | |||||
Debt: | |||||||
Credit facilities | |||||||
Revolving credit facility | $ | — | |||||
Term loan facility(1)(2) | 96.9 | ||||||
85/8% Senior Notes due 2011 | 150.0 | ||||||
Mortgage and capital leases | 13.0 | ||||||
Total senior debt | 259.9 | ||||||
81/2% Senior Subordinated Notes due 2010 | 215.0 | ||||||
Total debt | $ | 474.9 | |||||
Stockholder’s equity: | |||||||
Common stock, $0.01 par value, 1,000 shares authorized, 100 shares issued and outstanding | $ | — | |||||
Paid-in-capital | 277.8 | ||||||
Retained earnings | 45.8 | ||||||
Accumulated other comprehensive income | 0.9 | ||||||
Total stockholder’s equity | 324.5 | ||||||
Total capitalization | $ | 799.4 | |||||
(1) | Our $75.0 million revolving credit facility, which matures on December 5, 2008, currently bears an average annual interest rate of 0.79% and currently has $7.9 million drawn with respect to outstanding letters of credit. We also pay a commitment fee and letter of credit fee of 0.5% on the $67.1 million available under the revolving credit facility. |
(2) | The credit facilities include a term loan facility in an original aggregate principal amount of $285.0 million that matures on December 5, 2009. In January 2005, we used the net proceeds of $145.6 million from the issuance of our 85/8% Senior Notes due 2011, together with $39.4 million of cash on hand, to repay a portion of our indebtedness under the term loan facility, which currently bears an average annual interest rate of 5.86%. We are currently required to repay amounts under the term loan in nominal quarterly installments. |
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Predecessor | Successor | ||||||||||||||||||||||||||||||||
Period | |||||||||||||||||||||||||||||||||
from | |||||||||||||||||||||||||||||||||
January 1, | 27 Days | Three Months | |||||||||||||||||||||||||||||||
Year Ended December 31, | 2003 to | Ended | Year Ended | Ended March 31, | |||||||||||||||||||||||||||||
December 4, | December 31, | December 31, | |||||||||||||||||||||||||||||||
2000 | 2001 | 2002 | 2003 | 2003 | 2004 | 2004 | 2005 | ||||||||||||||||||||||||||
(dollars in millions) | |||||||||||||||||||||||||||||||||
Statement of Income Data: | |||||||||||||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||||||||||
Retail | $ | 1,075.7 | $ | 1,123.1 | $ | 1,068.6 | $ | 993.3 | $ | 66.2 | $ | 1,001.8 | $ | 279.6 | $ | 255.2 | |||||||||||||||||
Franchising | 273.4 | 273.1 | 256.1 | 241.3 | 14.2 | 226.5 | 64.2 | 52.6 | |||||||||||||||||||||||||
Manufacturing/ Wholesale | 96.3 | 112.9 | 100.3 | 105.6 | 8.9 | 116.4 | 28.8 | 28.6 | |||||||||||||||||||||||||
Total revenues | 1,445.4 | 1,509.1 | 1,425.0 | 1,340.2 | 89.3 | 1,344.7 | 372.6 | 336.4 | |||||||||||||||||||||||||
Cost of sales, including costs of warehousing, distribution and occupancy | 953.2 | 1,013.3 | 969.9 | 934.9 | 63.6 | 895.2 | 247.2 | 230.4 | |||||||||||||||||||||||||
Gross profit | 492.2 | 495.8 | 455.1 | 405.3 | 25.7 | 449.5 | 125.4 | 106.0 | |||||||||||||||||||||||||
Compensation and related benefits | 231.8 | 246.6 | 245.2 | 235.0 | 16.7 | 230.0 | 61.1 | 57.3 | |||||||||||||||||||||||||
Advertising and promotion | 47.2 | 41.9 | 52.1 | 38.4 | 0.5 | 44.0 | 12.6 | 14.6 | |||||||||||||||||||||||||
Other selling, general and administrative | 146.1 | 140.7 | 86.0 | 70.9 | 5.1 | 73.7 | 17.7 | 18.9 | |||||||||||||||||||||||||
Other expense (income)(1) | 99.9 | (3.4 | ) | (211.3 | ) | (10.1 | ) | — | (0.3 | ) | (0.2 | ) | (2.6 | ) | |||||||||||||||||||
Impairment of goodwill and intangible assets(2) | — | — | 222.0 | 709.4 | — | — | — | — | |||||||||||||||||||||||||
Operating (loss) income | (32.8 | ) | 70.0 | 61.1 | (638.3 | ) | 3.4 | 102.1 | 34.2 | 17.8 | |||||||||||||||||||||||
Interest expense, net | 142.6 | 140.0 | 136.3 | 121.1 | 2.8 | 34.4 | 8.7 | 13.4 | |||||||||||||||||||||||||
Gain on sale of marketable securities | — | — | (5.0 | ) | — | — | |||||||||||||||||||||||||||
(Loss) income before income taxes | (175.4 | ) | (70.0 | ) | (70.2 | ) | (759.4 | ) | 0.6 | 67.7 | 25.5 | 4.4 | |||||||||||||||||||||
Income tax (benefit) expense | (25.3 | ) | (14.1 | ) | 1.0 | (174.5 | ) | 0.2 | 25.1 | 9.3 | 1.6 | ||||||||||||||||||||||
Net (loss) income before cumulative effect of accounting change | (150.1 | ) | (55.9 | ) | (71.2 | ) | (584.9 | ) | 0.4 | 42.6 | 16.2 | 2.8 | |||||||||||||||||||||
Loss from cumulative effect of accounting change, net of tax(3) | — | — | (889.7 | ) | — | — | — | — | — | ||||||||||||||||||||||||
Net (loss) income | $ | (150.1 | ) | $ | (55.9 | ) | $ | (960.9 | ) | $ | (584.9 | ) | $ | 0.4 | $ | 42.6 | $ | 16.2 | $ | 2.8 | |||||||||||||
Balance Sheet Data: | |||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 10.5 | $ | 16.3 | $ | 38.8 | $ | 9.4 | $ | 33.2 | $ | 85.2 | $ | 68.1 | $ | 77.8 | |||||||||||||||||
Working capital(4) | 215.2 | 140.8 | 153.6 | 96.2 | 200.0 | 283.5 | 228.8 | 265.3 | |||||||||||||||||||||||||
Total assets | 3,216.5 | 3,071.8 | 1,878.3 | 1,038.1 | 1,018.9 | 1,032.6 | 1,072.0 | 1,032.6 | |||||||||||||||||||||||||
Total debt | 1,892.1 | 1,883.3 | 1,840.1 | 1,747.4 | 514.2 | 510.4 | 513.3 | 474.9 | |||||||||||||||||||||||||
Stockholder’s equity (deficit) | 523.1 | 469.0 | (493.8 | ) | (1,077.1 | ) | 278.2 | 322.4 | 191.6 | 324.5 | |||||||||||||||||||||||
Other Data: | |||||||||||||||||||||||||||||||||
Net cash provided by operating activities | $ | 100.0 | $ | 75.8 | $ | 111.0 | $ | 92.9 | $ | 4.7 | $ | 83.5 | $ | 48.4 | $ | 35.5 | |||||||||||||||||
Net cash used in investing activities | (42.0 | ) | (48.1 | ) | (44.5 | ) | (31.5 | ) | (740.0 | ) | (27.0 | ) | (13.3 | ) | (4.9 | ) | |||||||||||||||||
Net cash (used in) provided by financing activities | (66.9 | ) | (21.6 | ) | (44.3 | ) | (90.8 | ) | 759.2 | (4.5 | ) | (0.2 | ) | (37.9 | ) | ||||||||||||||||||
EBITDA(5) | 91.8 | 192.0 | (765.5 | ) | (579.2 | ) | 5.7 | 141.0 | 43.4 | 27.9 | |||||||||||||||||||||||
Capital expenditures(6) | 31.6 | 29.2 | 51.9 | 31.0 | 1.8 | 28.3 | 5.3 | 4.4 | |||||||||||||||||||||||||
Ratio of earnings to fixed charges(7) | — | — | — | — | 1.11 | 1.94 | 2.43 | 1.19 | |||||||||||||||||||||||||
Number of stores (at end of period): | |||||||||||||||||||||||||||||||||
Company-owned stores(8) | 2,842 | 2,960 | 2,898 | 2,757 | 2,748 | 2,642 | 2,684 | 2,644 | |||||||||||||||||||||||||
Franchised stores(8) | 1,718 | 1,821 | 1,909 | 1,978 | 2,009 | 2,036 | 2,008 | 2,034 | |||||||||||||||||||||||||
Store-within-a-store locations(8) | 544 | 780 | 900 | 988 | 988 | 1,027 | 987 | 1,043 |
• | Twelve months ended 2000, 2001, 2002 and the period January 1, 2003 to December 4, 2003 — General Nutrition Companies, Inc. (“GNCI”) was owned by Numico. |
• | 27 days ended December 31, 2003, the twelve months ended December 31, 2004 and the three months ended March 31, 2004 and 2005 — the periods subsequent to the Acquisition. |
(1) | Other expense for 2000 represents an expense associated with the reduction of the market value of certain equity investments. Other income for 2001, 2002 and the period ended December 4, 2003 primarily represents $3.6 million, $214.4 million, and $7.2 million respectively, received from legal settlement proceeds that we collected from a raw material pricing settlement. Other expense includes foreign currency (gain) loss for all of the periods presented. Other income for the three months ended March 31, 2005, included a $2.5 million transaction fee related to the transfer of our GNC Australian franchise rights to Global Active Limited. | |
(2) | On January 1, 2002, we adopted SFAS No. 142, which requires that goodwill and other intangible assets with indefinite lives no longer be subject to amortization, but instead are to be tested at least annually for impairment. For the periods ended December 31, 2002 and December 4, 2003, we recorded impairment charges of $222.0 million (pre-tax), and $709.4 million (pre-tax), respectively, for goodwill and other intangibles as a result of decreases in expectations regarding growth and profitability, and, in 2003, due to increased competition from the mass market, negative publicity by the media on certain supplements, and increasing pressure from the FDA on the industry as a whole, each of which were identified in connection with a valuation related to the Acquisition. | |
(3) | Upon adoption of SFAS No. 142, we recorded a one-time impairment charge in the first quarter of 2002 of $889.7 million, net of tax to reduce the carrying amount of goodwill and other intangibles to their implied fair value. A table outlining the impact of the |
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adoption of SFAS No. 142 on the reported net loss as a result of the non-amortization of goodwill beginning on January 1, 2002 is included in Note 7 to our December 31, 2004 consolidated financial statements included elsewhere in this prospectus. | ||
(4) | Working capital represents current assets less current liabilities. | |
(5) | EBITDA as used herein represents net income (loss) before interest expense (net), income tax (benefit) expense, depreciation and amortization. We present EBITDA because we consider it a useful analytical tool for measuring our ability to service our debt and generate cash for other purposes. The reconciliation of net cash provided by operating activities to EBITDA as presented below is different than that used for purposes of the covenants under the indenture governing the notes. |
• | EBITDA does not reflect the interest expense, or the cash requirement necessary to service interest or principal payments, on our debts; | |
• | Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements; and | |
• | Although EBITDA is frequently used by securities analysts, lenders and others in their evaluation of companies, our calculation of EBITDA may differ from other similarly titled measures of other companies, limiting its usefulness as a comparative measure. |
Predecessor | Successor | |||||||||||||||||||||||||||||||
Period from | ||||||||||||||||||||||||||||||||
January 1, | 27 Days | Three Months | ||||||||||||||||||||||||||||||
Year Ended December 31, | 2003 to | Ended | Year Ended | Ended March 31, | ||||||||||||||||||||||||||||
December 4, | December 31, | December 31, | ||||||||||||||||||||||||||||||
2000 | 2001 | 2002 | 2003 | 2003 | 2004 | 2004 | 2005 | |||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||
Net cash provided by operating activities | $ | 100.0 | $ | 75.8 | $ | 111.0 | $ | 92.9 | $ | 4.7 | $ | 83.5 | $ | 48.4 | $ | 35.5 | ||||||||||||||||
Cash paid for interest (excluding deferred financing fees) | 139.9 | 145.6 | 138.0 | 122.5 | 0.7 | 32.7 | 3.4 | 2.2 | ||||||||||||||||||||||||
Cash paid for taxes | 21.0 | 15.2 | 30.7 | 2.5 | — | 5.1 | — | 0.3 | ||||||||||||||||||||||||
Changes in accounts receivable | (26.7 | ) | 1.1 | 127.3 | (59.9 | ) | (2.9 | ) | (3.4 | ) | 0.7 | 0.5 | ||||||||||||||||||||
Changes in inventory | 44.8 | (71.5 | ) | (22.2 | ) | (29.0 | ) | (3.8 | ) | 15.1 | 27.2 | 20.9 | ||||||||||||||||||||
Changes in accounts payable | (44.2 | ) | 48.2 | (18.8 | ) | 3.3 | 5.3 | (3.9 | ) | (36.8 | ) | (26.2 | ) | |||||||||||||||||||
Changes in other assets and liabilities | (42.8 | ) | (22.4 | ) | (24.9 | ) | (2.1 | ) | 1.7 | 11.9 | 0.5 | (5.3 | ) | |||||||||||||||||||
Loss from cumulative effect of accounting change, net of tax | — | — | (889.7 | ) | — | — | — | — | — | |||||||||||||||||||||||
Impairment of goodwill and intangible assets | — | — | (222.0 | ) | (709.4 | ) | — | — | — | — | ||||||||||||||||||||||
(Loss on impairment) gain on sale of marketable securities | (100.2 | ) | — | 5.1 | — | — | — | — | — | |||||||||||||||||||||||
EBITDA(a) | $ | 91.8 | $ | 192.0 | $ | (765.5 | ) | $ | (579.2 | ) | $ | 5.7 | $ | 141.0 | $ | 43.4 | $ | 27.9 | ||||||||||||||
(a) | Included in EBITDA are (1) non-cash goodwill and other intangible impairment losses of $222.0 million (pre-tax) and $709.4 million (pre-tax) incurred in the year ended December 31, 2002 and the period from January 1, 2003 to December 4, 2003, respectively, and (2) a loss from the cumulative effect of an accounting change of $889.7 million, net of tax, for the year ended December 31, 2002. The impairment charges were incurred upon the testing of goodwill and other intangibles, in accordance with SFAS No. 142. Impairment resulted from decreased in expectations regarding growth and profitability due to increased competition from the mass market, negative publicity by the media on certain supplements, and increasing pressure from the FDA on the industry as a whole. |
(6) | Capital expenditures for 2002 included approximately $13.9 million incurred in connection with our store reset and upgrade program. For the full year ended December 31, 2003, capital expenditures were $32.8 million. | |
(7) | We have calculated the ratio of earnings to fixed charges by dividing earnings by fixed charges. For the purpose of computing the ratio of earnings to fixed charges, “earnings” is defined as (loss) income before income taxes and fixed charges. “Fixed charges” |
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consist of interest cost whether expensed or capitalized, amortization of debt expense and the portion of rental expense (approximately one- third) that we believe to be representative of the interest factor in those rentals. Earnings were insufficient to cover fixed charges by $175.4 million, $70.0 million, $70.2 million, $759.4 million for the years ended December 31, 2000, 2001, 2002 and the period ended December 4, 2003, respectively. | ||
(8) | The following table summarizes our stores for the periods indicated: |
Predecessor | Successor | |||||||||||||||||||||||||||||||
Period from | Three Months | |||||||||||||||||||||||||||||||
Year Ended | January 1, | 27 Days | Ended | |||||||||||||||||||||||||||||
December 31, | 2003 to | Ended | Year Ended | March 31, | ||||||||||||||||||||||||||||
December 4, | December 31, | December 31, | ||||||||||||||||||||||||||||||
2000 | 2001 | 2002 | 2003 | 2004 | 2004 | 2004 | 2005 | |||||||||||||||||||||||||
Company-owned stores | ||||||||||||||||||||||||||||||||
Beginning of period balance | 2,793 | 2,842 | 2,960 | 2,898 | 2,757 | 2,748 | 2,748 | 2,642 | ||||||||||||||||||||||||
Store openings | 160 | 220 | 117 | 80 | 4 | 82 | 23 | 32 | ||||||||||||||||||||||||
Store closings | (111 | ) | (102 | ) | (179 | ) | (221 | ) | (13 | ) | (188 | ) | (87 | ) | (30 | ) | ||||||||||||||||
End of period balance | 2,842 | 2,960 | 2,898 | 2,757 | 2,748 | 2,642 | 2,684 | 2,644 | ||||||||||||||||||||||||
Franchised Stores | ||||||||||||||||||||||||||||||||
Beginning of period balance | 1,584 | 1,718 | 1,821 | 1,909 | 1,978 | 2,009 | 2,009 | 2,036 | ||||||||||||||||||||||||
Store openings | 257 | 291 | 182 | 186 | 33 | 146 | 33 | 37 | ||||||||||||||||||||||||
Store closings | (123 | ) | (188 | ) | (94 | ) | (117 | ) | (2 | ) | (119 | ) | (34 | ) | (39 | ) | ||||||||||||||||
End of period balance | 1,718 | 1,821 | 1,909 | 1,978 | 2,009 | 2,036 | 2,008 | 2,034 | ||||||||||||||||||||||||
Store-within-a-Store | ||||||||||||||||||||||||||||||||
Beginning of period balance | 311 | 544 | 780 | 900 | 988 | 988 | 988 | 1,027 | ||||||||||||||||||||||||
Store openings | 233 | 237 | 131 | 93 | — | 44 | 1 | 17 | ||||||||||||||||||||||||
Store closings | — | (1 | ) | (11 | ) | (5 | ) | — | (5 | ) | (2 | ) | (1 | ) | ||||||||||||||||||
End of period balance | 544 | 780 | 900 | 988 | 988 | 1,027 | 987 | 1,043 | ||||||||||||||||||||||||
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Offering | Pro Forma | |||||||||||
Historical | Adjustments | As Adjusted | ||||||||||
Statement of Income Data | 2004 | 2004(1) | 2004 | |||||||||
Revenues | $ | 1,344,742 | $ | 1,344,742 | ||||||||
Cost of sales, including costs of warehousing, distribution and occupancy | 895,235 | 895,235 | ||||||||||
Gross profit | 449,507 | — | 449,507 | |||||||||
Compensation and related benefits | 229,957 | 229,957 | ||||||||||
Advertising and promotion | 43,955 | 43,955 | ||||||||||
Other selling, general and administrative | 73,728 | 73,728 | ||||||||||
Other income | (290 | ) | (290 | ) | ||||||||
Operating income | 102,157 | — | 102,157 | |||||||||
Interest expense, net | 34,432 | 3,993 | (a) | 38,425 | ||||||||
Income (loss) before income taxes | 67,725 | 3,993 | 63,732 | |||||||||
Income tax expense (benefit) | 25,078 | (1,478 | )(b) | 23,600 | ||||||||
Net income (loss) | $ | 42,647 | $ | (2,515 | ) | $ | 40,132 | |||||
(1) | Reflects adjustments attributable to the Offering. |
(a) | Reflects a net increase in interest expense and deferred financing fees amortization expense as a result of the extinguishment of $185.0 million of the senior credit facility. The interest rate under the senior credit facilities is based on a variable interest rate as set forth in the related loan agreement. Please refer to the Long-Term Debt note of our consolidated financial statements included elsewhere in this prospectus for a further discussion of the rate on the senior credit facilities. A 1/8% change in interest rates would increase or decrease our annual interest costs of our senior credit facilities by approximately $0.1 million. |
Historical | Pro Forma | Offering | ||||||||||
Amount | Amount | Adjustment | ||||||||||
Interest expense related to the senior credit facilities | $ | 13,485 | $ | 4,643 | $ | (8,842 | ) | |||||
Interest expense related to the Offering | — | 12,938 | 12,938 | |||||||||
Interest expense related to term loan facility deferred financing fees(i) | 1,236 | 1,133 | (103 | ) | ||||||||
$ | 14,721 | $ | 18,714 | $ | 3,993 | |||||||
(i) | Deferred financing fees related to the Offering are being amortized over six years. |
(b) | Reflects the pro forma tax effect of above adjustment at an estimated combined statutory rate of 37.0%. |
Total Offering adjustments | $ | 3,993 | ||
Tax rate | 37.0 | % | ||
Pro forma tax effect | $ | 1,478 | ||
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Offering | Pro Forma | |||||||||||
Historical | Adjustments | As Adjusted | ||||||||||
Statement of Income Data | 2005 | 2005(1) | 2005 | |||||||||
Revenues | $ | 336,435 | — | $ | 336,435 | |||||||
Cost of sales, including costs of warehousing, distribution and occupancy | 230,456 | — | 230,456 | |||||||||
Gross profit | 105,979 | — | 105,979 | |||||||||
Compensation and related benefits | 57,314 | — | 57,314 | |||||||||
Advertising and promotion | 14,601 | — | 14,601 | |||||||||
Other selling, general and administrative | 18,822 | — | 18,822 | |||||||||
Other income | (2,605 | ) | — | (2,605 | ) | |||||||
Operating income | 17,847 | — | 17,847 | |||||||||
Interest expense, net | 13,471 | 1,908 | (a) | 15,379 | ||||||||
Income (loss) before income taxes | 4,376 | (1,908 | ) | 2,468 | ||||||||
Income tax expense (benefit) | 1,581 | (687 | )(b) | 894 | ||||||||
Net income (loss) | $ | 2,795 | $ | (1,221 | ) | $ | 1,574 | |||||
(1) | Reflects adjustments attributable to the Offering |
(a) | Reflects a net increase in interest expense and deferred financing fees amortization expense as a result of the extinguishment of $185.0 million of the senior credit facility. The interest rate under the senior credit facilities is based on a variable interest rate as set forth in the related loan agreement. Please refer to the Long-term Debt note of our consolidated financial statements included elsewhere in this prospectus for a further discussion of the rate on the senior credit facilities. A 1/8% change in interest rates would increase or decrease our annual interest costs of our senior credit facilities by approximately $0.1 million. |
Historical | Pro Forma | Offering | ||||||||||
Amount | Amount | Adjustment | ||||||||||
Interest expense related to the senior credit facilities | $ | 1,983 | $ | 683 | $ | (1,300 | ) | |||||
Interest expense related to the Offering | — | 3,234 | 3,234 | |||||||||
Interest expense related to term loan facility deferred financing fees (i) | 309 | 283 | (26 | ) | ||||||||
$ | 2,292 | $ | 4,200 | $ | 1,908 | |||||||
(i) | Deferred financing fees related to the Offering are being amortized over six years. |
(b) | Reflects the pro forma tax effect of above adjustment at an estimated combined statutory rate of 36.0%. |
Total Offering adjustments | $ | 1,908 | ||
Tax rate | 36.0 | % | ||
Pro forma tax effect | $ | 687 | ||
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Revenues from Business Segments |
• | Retail revenues are generated by sales to consumers at our company-owned stores. | |
• | Franchise revenues are generated primarily from: |
(1) | product sales to our franchisees; |
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(2) | royalties on franchise retail sales; and | |
(3) | franchise fees, which are charged for initial franchise awards, renewals and transfers of franchises. |
• | Manufacturing/ Wholesale revenues are generated through sales of manufactured products to third parties, generally for third-party private label brands, and the sale of our proprietary and third-party products to and through Rite Aid and drugstore.com. |
• | Historically, our primary product sales have been in the sports nutrition and VMHS categories. Sales of sports nutrition products have been driven largely by the increasing focus on fitness and the introduction of new products. Sales of VMHS products have been driven largely by the aging population and rising healthcare costs. Within this category, herbal supplement sales tend to be more significantly impacted by publicity and changes in consumer trends. | |
• | Sales of diet products are generally more sensitive to consumer trends, resulting in higher volatility than our other products. In 1999, our diet category began to grow more rapidly with the introduction of ephedra products, which reached a high point in 2001 and began to decline in the second half of 2002. Although our locations ceased sales of ephedra beginning in early 2003, our introduction of low carbohydrate and other ephedra substitute products in 2003 partially offset these declines in the first half of 2003, and resulted in increased sales in the diet product category in the second half of 2003. However, in the second quarter of 2004, we experienced a sharp decline in sales in our diet category, we believe in large part because of the availability of low carbohydrate products expanding in the marketplace. Even though we launched new diet products in 2004, sales in the diet category remained below our prior year levels throughout 2004 and we expect this trend to continue through at least the second quarter of 2005. Since the most significant portion of the decline in sales did not occur until the third quarter of 2004, our comparable store sales will continue to be compared to strong historical periods through the second quarter of 2005. | |
• | When diets featuring products low in carbohydrates (“low carb”) became popular in the first quarter of 2003, we purchased most of the available inventory of certain specialty low carb products, primarily snacks and bars, and we became a destination for many new customers. As the popularity of low carb diet programs increased, manufacturers increased their production levels and product offerings and food manufacturers followed the low carb dieting trend by offering low carb diet products, including staple foods such as pastas, ketchup and sauces. These products became widely distributed into the food, drug and mass channels of distribution, which led to lower levels of sales of low carb specialty products in our stores starting in the latter half of the second quarter of 2004. Additionally, programs based on a low carb dietary approach typically do not require diet supplements as a component of the program. As a larger percentage of the dieting population pursued a low carb program, sales of our diet supplements declined. | |
• | As part of our annual planning process and as part of a renewed focus on improving store productivity, we recently reviewed our strategy related to the stores. Through this review, we adopted a strategy that was developed, in part, as a result of consumer perception in the marketplace that our products are overpriced unless purchased during the “gold card” week promotion. In 2005, we are investing in a new strategy through more competitive pricing on the most highly recognizable products, and through increased national advertising, that will highlight certain GNC brand and third-party products in television and print advertising campaigns. In addition we will review our operations |
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and overhead cost structures in an effort to eliminate excess costs and to streamline operations where applicable. We do not anticipate this new strategy will offset the impact from the strong historical periods of low-carb diet sales that occurred in the first two quarters of 2004. |
• | Changes to Store Base. During the 1990s, we embarked on a plan to significantly increase our store base, including expansion from suburban shopping malls into secondary malls and strip mall locations and by adding international franchise locations. Additionally, in 1999, we entered into a strategic alliance with Rite Aid to open our store-within-a-store locations. In 2003, in addition to our normal store closings, we identified 117 underperforming stores to be closed in the near future. We subsequently reduced this number to 98 stores, primarily as the others became cash flow positive. As of December 31, 2004, we had closed all of these stores. We expect to continue to look for real estate opportunities in the United States to expand our store base; however, we believe the primary store expansion opportunity in the near term will be through international franchising. Costs to us related to any international franchising expansion would be immaterial, as the international franchisee bears the majority of the responsibility and costs for doing business in each country. | |
• | Changes to Pricing. In the fourth quarter of 2002, we thoroughly reviewed our proprietary product pricing and determined that our single unit pricing was not competitive with other market participants. A primary reason for higher single unit pricing was the creation of artificially high single unit prices to compensate for our overall BOGO (Buy One Get One half price) pricing strategy. As a result of the review, we repriced most of our proprietary products and eliminated the strategy of BOGO pricing substantially all of our products in December of 2002. After the elimination of BOGO, we found that, although customers bought single units instead of two units, the shorter cycle time between customer visits led to a corresponding increase in transaction counts and an increase in product sales, particularly in our VMHS product category. We believe that our repricing strategy was one of the key drivers of our profitability during the second half of 2003. We continually review our pricing to ensure that we are competitive in key items in the marketplace, in particular items that are readily comparable by the consumer, and will continue to utilize what we believe is the most effective pricing strategy to increase revenue at favorable margins. |
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(dollars in millions and percentages expressed as a percentage of net revenues)
Predecessor | Successor | Successor | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended March | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Period from | 27 days | Combined | 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year Ended | January 1, 2003 | Ended | Year Ended | Year Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
December 31, | to December 4, | December 31, | December 31, | December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
2002 | 2003 | 2003 | 2003 | 2004 | 2004 | 2005 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Retail | $ | 1,068.6 | 75.0 | % | $ | 993.3 | 74.1 | % | $ | 66.2 | 74.1 | % | $ | 1,059.5 | 74.1 | % | $ | 1,001.8 | 74.5 | % | $ | 279.6 | 75.1 | % | $ | 255.2 | 75.9 | % | ||||||||||||||||||||||||||||||
Franchise | 256.1 | 18.0 | % | 241.3 | 18.0 | % | 14.2 | 15.9 | % | 255.5 | 17.9 | % | 226.5 | 16.8 | % | 64.2 | 17.2 | % | 52.6 | 15.6 | % | |||||||||||||||||||||||||||||||||||||
Manufacturing/ Wholesale | 100.3 | 7.0 | % | 105.6 | 7.9 | % | 8.9 | 10.0 | % | 114.5 | 8.0 | % | 116.4 | 8.7 | % | 28.8 | 7.7 | % | 28.6 | 8.5 | % | |||||||||||||||||||||||||||||||||||||
Total net revenues | 1,425.0 | 100.0 | % | 1,340.2 | 100.0 | % | 89.3 | 100.0 | % | 1,429.5 | 100.0 | % | 1,344.7 | 100.0 | % | 372.6 | 100.0 | % | 336.4 | 100.0 | % | |||||||||||||||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of sales, including costs of warehousing, distribution and occupancy | 969.9 | 68.0 | % | 934.9 | 69.7 | % | 63.6 | 71.2 | % | 998.5 | 69.9 | % | 895.2 | 66.5 | % | 247.2 | 66.3 | % | 230.4 | 68.5 | % | |||||||||||||||||||||||||||||||||||||
Compensation and related benefits | 245.2 | 17.2 | % | 235.0 | 17.5 | % | 16.7 | 18.7 | % | 251.7 | 17.6 | % | 230.0 | 17.1 | % | 61.1 | 16.4 | % | 57.3 | 17.0 | % | |||||||||||||||||||||||||||||||||||||
Advertising and promotion | 52.1 | 3.7 | % | 38.4 | 2.9 | % | 0.5 | 0.6 | % | 38.9 | 2.7 | % | 44.0 | 3.3 | % | 12.6 | 3.4 | % | 14.6 | 4.3 | % | |||||||||||||||||||||||||||||||||||||
Other selling, general and administrative expenses | 75.9 | 5.3 | % | 64.1 | 4.8 | % | 4.8 | 5.4 | % | 68.9 | 4.8 | % | 69.7 | 5.2 | % | 16.7 | 4.5 | % | 17.9 | 5.3 | % | |||||||||||||||||||||||||||||||||||||
Amortization expense | 10.1 | 0.7 | % | 6.8 | 0.5 | % | 0.3 | 0.3 | % | 7.1 | 0.5 | % | 4.0 | 0.3 | % | 1.0 | 0.3 | % | 1.0 | 0.3 | % | |||||||||||||||||||||||||||||||||||||
Income from legal settlement | (214.4 | ) | (15.0 | )% | (7.2 | ) | (0.5 | )% | — | 0.0 | % | (7.2 | ) | (0.5 | )% | — | 0.0 | % | — | 0.0 | % | — | 0.0 | % | ||||||||||||||||||||||||||||||||||
Foreign currency (gain) loss | 3.1 | 0.2 | % | (2.9 | ) | (0.2 | )% | — | 0.0 | % | (2.9 | ) | (0.2 | )% | (0.3 | ) | 0.0 | % | (0.2 | ) | (0.1 | )% | (0.1 | ) | 0.0 | % | ||||||||||||||||||||||||||||||||
Impairment of goodwill and intangible assets | 222.0 | 15.6 | % | 709.4 | 52.9 | % | — | 0.0 | % | 709.4 | 49.6 | % | — | 0.0 | % | — | 0.0 | % | — | 0.0 | % | |||||||||||||||||||||||||||||||||||||
Other income | — | 0.0 | % | — | 0.0 | % | — | 0.0 | % | — | 0.0 | % | — | 0.0 | % | — | 0.0 | % | (2.5 | ) | (0.7 | )% | ||||||||||||||||||||||||||||||||||||
Total operating expenses | 1,363.9 | 95.7 | % | 1,978.5 | 147.6 | % | 85.9 | 96.2 | % | 2,064.4 | 144.4 | % | 1,242.6 | 92.4 | % | 338.4 | 90.8 | % | 318.6 | 94.7 | % | |||||||||||||||||||||||||||||||||||||
Operating Income | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Retail | 86.8 | 6.1 | % | 79.1 | 5.9 | % | 6.6 | 7.3 | % | 85.7 | 6.0 | % | 107.7 | 8.0 | % | 35.4 | 9.5 | % | 17.9 | 5.3 | % | |||||||||||||||||||||||||||||||||||||
Franchise | 65.4 | 4.6 | % | 63.7 | 4.8 | % | 2.4 | 2.7 | % | 66.1 | 4.6 | % | 62.4 | 4.6 | % | 17.1 | 4.6 | % | 10.8 | 3.2 | % | |||||||||||||||||||||||||||||||||||||
Manufacturing/ Wholesale | 25.8 | 1.8 | % | 24.3 | 1.8 | % | 1.4 | 1.6 | % | 25.7 | 1.8 | % | 38.6 | 2.9 | % | 8.2 | 2.2 | % | 12.1 | 3.6 | % | |||||||||||||||||||||||||||||||||||||
Unallocated corporate and other costs: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Warehousing & distribution costs | (40.3 | ) | (2.8 | )% | (40.7 | ) | (3.0 | )% | (3.4 | ) | (3.8 | )% | (44.1 | ) | (3.1 | )% | (49.3 | ) | (3.7 | )% | (12.7 | ) | (3.4 | )% | (12.7 | ) | (3.7 | )% | ||||||||||||||||||||||||||||||
Corporate costs | (69.0 | ) | (4.8 | )% | (62.5 | ) | (4.7 | )% | (3.6 | ) | (4.0 | )% | (66.1 | ) | (4.6 | )% | (57.3 | ) | (4.2 | )% | (13.8 | ) | (3.7 | )% | (12.8 | ) | (3.8 | )% | ||||||||||||||||||||||||||||||
Income from legal settlement | 214.4 | 15.0 | % | 7.2 | 0.5 | % | — | 0.0 | % | 7.2 | 0.5 | % | — | 0.0 | % | — | 0.0 | % | — | 0.0 | % | |||||||||||||||||||||||||||||||||||||
Impairment of goodwill and intangible assets | (222.0 | ) | (15.6 | )% | (709.4 | ) | (52.9 | )% | — | 0.0 | % | (709.4 | ) | (49.6 | )% | — | 0.0 | % | — | 0.0 | % | — | 0.0 | % | ||||||||||||||||||||||||||||||||||
Other income | — | 0.0 | % | — | 0.0 | % | — | 0.0 | % | — | 0.0 | % | — | 0.0 | % | — | 0.0 | % | 2.5 | 0.7 | % | |||||||||||||||||||||||||||||||||||||
Sub total unallocated corporate and other costs | (116.9 | ) | (8.2 | )% | (805.4 | ) | (60.1 | )% | (7.0 | ) | (7.8 | )% | (812.4 | ) | (56.8 | )% | (106.6 | ) | (7.9 | )% | (26.5 | ) | (7.1 | )% | (23.0 | ) | (6.8 | )% | ||||||||||||||||||||||||||||||
Total operating income (loss) | 61.1 | 4.3 | % | (638.3 | ) | (47.6 | )% | 3.4 | 3.8 | % | (634.9 | ) | (44.4 | )% | 102.1 | 7.6 | % | 34.2 | 9.2 | % | 17.8 | 5.3 | % | |||||||||||||||||||||||||||||||||||
Interest expense, net | 136.3 | 121.1 | 2.8 | 123.9 | 34.4 | 8.7 | 13.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Gain on sale of marketable securities | (5.0 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
(Loss) income before income taxes | (70.2 | ) | (759.4 | ) | 0.6 | (758.8 | ) | 67.7 | 25.5 | 4.4 | ||||||||||||||||||||||||||||||||||||||||||||||||
Income tax expense (benefit) | 1.0 | (174.5 | ) | 0.2 | (174.3 | ) | 25.1 | 9.3 | 1.6 | |||||||||||||||||||||||||||||||||||||||||||||||||
Net (loss) income before cumulative effect of accounting change | (71.2 | ) | (584.9 | ) | 0.4 | (584.5 | ) | 42.6 | 16.2 | 2.8 | ||||||||||||||||||||||||||||||||||||||||||||||||
Loss from cumulative effect of accounting change | (889.7 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net (loss) income | (960.9 | ) | (584.9 | ) | 0.4 | (584.5 | ) | 42.6 | 16.2 | 2.8 | ||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive (loss) income | (1.8 | ) | 1.6 | 0.3 | 1.9 | 0.9 | (0.4 | ) | (0.3 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive (loss) income | $ | (962.7 | ) | $ | (583.3 | ) | $ | 0.7 | $ | (582.6 | ) | $ | 43.5 | $ | 15.8 | $ | 2.5 | |||||||||||||||||||||||||||||||||||||||||
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Comparison of Three Months Ended March 31, 2005 and March 31, 2004 |
Cost of Sales |
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Selling, General and Administrative Expenses |
Foreign Currency Gain |
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Other Income |
Operating Income |
Interest Expense |
Income Tax Expense |
Net Income |
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Other Comprehensive Loss |
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Payments due by period | ||||||||||||||||||||
Less than | 1-3 | 4-5 | After | |||||||||||||||||
Total | 1 year | years | years | 5 years | ||||||||||||||||
(In millions) | ||||||||||||||||||||
Long-term debt obligations(1) | $ | 474.9 | $ | 2.0 | $ | 4.3 | $ | 96.7 | $ | 371.9 | ||||||||||
Scheduled interest payments(2) | 210.1 | 38.4 | 76.4 | 71.9 | 23.4 | |||||||||||||||
Operating lease obligations(3) | 373.2 | 100.3 | 144.9 | 75.2 | 52.8 | |||||||||||||||
Purchase obligations(4) | 43.9 | 9.8 | 15.9 | 12.6 | 5.6 | |||||||||||||||
$ | 1,102.1 | $ | 150.5 | $ | 241.5 | $ | 256.4 | $ | 453.7 | |||||||||||
(1) | These balances consist of the following debt obligations: (a) $96.9 million for our senior credit facility, (b) $150.0 million for our Senior Notes, (c) $215.0 million for our Senior Subordinated Notes, (d) $12.9 million for our mortgage, and (e) less than $0.1 million for capital leases. See the “Long-Term Debt” Note of the condensed consolidated financial statements included elsewhere in this Prospectus. |
(2) | These balances represent the interest that will accrue on the long-term obligations, which includes some variable debt interest payments, which are estimated using current interest rates. See the “Long-Term Debt” Note of the consolidated financial statements included elsewhere in this Prospectus. |
(3) | These balances consist of the following operating leases: (a) $350.3 million for company-owned retail stores, (b) $119.3 million for franchise retail stores, which is offset by $119.3 million of sublease income from franchisees, and (c) $22.9 million relates to various leases for tractor/trailers, warehouses and various equipment at our facilities. |
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(4) | These balances consist of $26.4 million of advertising and $3.8 million inventory commitments, and $13.7 million management services agreement and bank fees. The management service agreement was made between us and Apollo Management V, L.P. In consideration of Apollo management services, we are obligated to pay an annual fee of $1.5 million for ten years commencing on December 5, 2003. |
• | the estimate requires management to make assumptions about matters that were uncertain at the time the estimate was made; | |
• | different estimates reasonably could have been used; or | |
• | changes in the estimate that would have a material impact on our financial condition or our results of operations are likely to occur from period to period. |
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Net Revenue by Segment | Retail Revenue by Product Categories | |
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• | drive sales volume in our stores by competitively pricing, as well as actively merchandising and promoting, our core products and formulating new proprietary products. | |
• | continue to obtain third-party preferred distributor arrangements and position ourselves to be first-to-market with new and innovative products by partnering with our suppliers and leveraging our extensive specialty retail footprint. We intend to offer distributors additional opportunities to place preferred products in highly visible merchandising locations within the store, as well as including these products in our monthly direct marketing communications to our Gold Card customers as a means of expanding our preferred distributor arrangements. | |
• | encourage customer loyalty, facilitate direct marketing, and increase cross-selling and up-selling opportunities by using our extensive Gold Card customer database. Our database of Gold Card members allows us to execute extensive direct marketing activities. We are focused on increasing cross-selling and up-selling opportunities by analyzing customer buying patterns in greater detail and |
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using this data to distribute targeted direct marketing materials to specific customer groups. We intend to develop additional loyalty programs focused on building strong, long-term, value added relationships with our best customers to further strengthen their loyalty to the GNC brand. | ||
• | expand our on-line retail presence through new and existing on-line technology and fulfillment partners. We intend to work with established technology companies to improve the product sales capabilities of our website, to enhance our customers’ on-line experience and to provide our customers with easier access to our products. | |
• | expand our international store network by growing our international franchise presence, which requires minimal capital expenditures by us. We intend to continue our policy of awarding franchising rights within a country to well-capitalized franchisees that will, together with us, determine future year commitments for stores and product distribution in that country and annually review the potential for new locations. As of March 31, 2005, we had 397 international stores scheduled to be opened through December 31, 2007 under existing development agreements. | |
• | produce products for sale to third-party retail and wholesale customers to better utilize our available manufacturing capacity. We intend to continue to actively pursue these customers with competitive pricing that will enhance our sales and better utilize our current excess manufacturing capacity. | |
• | continue to reduce our debt by using excess cash flow not otherwise needed in our business or for the execution of our business strategies, as appropriate. |
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Predecessor | Successor | |||||||||||||||||||||||||||||||||||||||||||||||
Twelve Months | Period from | Twelve Months | Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||||||||
Ended | January 1, 2003 to | 27 Days Ended | Ended | |||||||||||||||||||||||||||||||||||||||||||||
December 31, | December 4, | December 31, | December 31, | |||||||||||||||||||||||||||||||||||||||||||||
(dollars in millions) | 2002 | 2003 | 2003 | 2004 | 2004 | 2005 | ||||||||||||||||||||||||||||||||||||||||||
Retail | $ | 1,068.6 | 75.0 | % | $ | 993.3 | 74.1 | % | $ | 66.2 | 74.1 | % | $ | 1,001.8 | 74.5 | % | $ | 279.6 | 75.1 | % | $ | 255.2 | 75.9 | % | ||||||||||||||||||||||||
Franchise | 256.1 | 18.0 | % | 241.3 | 18.0 | % | 14.2 | 15.9 | % | 226.5 | 16.8 | % | 64.2 | 17.2 | % | 52.6 | 15.6 | % | ||||||||||||||||||||||||||||||
Manufacturing/ Wholesale (Third Party) | 100.3 | 7.0 | % | 105.6 | 7.9 | % | 8.9 | 10.0 | % | 116.4 | 8.7 | % | 28.8 | 7.7 | % | 28.6 | 8.5 | % | ||||||||||||||||||||||||||||||
Total | $ | 1,425.0 | 100.0 | % | $ | 1,340.2 | 100.0 | % | $ | 89.3 | 100.0 | % | $ | 1,344.7 | 100.0 | % | $ | 372.6 | 100.0 | % | $ | 336.4 | 100.0 | % | ||||||||||||||||||||||||
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For the Three Months Ended | ||||||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, | March 31, | |||||||||||||||||||||||||||||||||||||||
Category | 2002 | 2003(1) | 2004 | 2004 | 2005 | |||||||||||||||||||||||||||||||||||
(dollars in millions) | ||||||||||||||||||||||||||||||||||||||||
Sports Nutrition Products | $ | 288.6 | 28.1 | % | $ | 300.3 | 29.7 | % | $ | 293.1 | 31.0 | % | $ | 81.5 | 30.6 | % | $ | 80.3 | 33.2 | % | ||||||||||||||||||||
Diet and Weight Management Products | 267.2 | 26.0 | % | 265.7 | 26.3 | % | 193.1 | 20.5 | % | 61.7 | 23.2 | % | 39.7 | 16.4 | % | |||||||||||||||||||||||||
VMHS | 252.8 | 24.7 | % | 237.9 | 23.6 | % | 242.9 | 25.7 | % | 63.7 | 23.9 | % | 67.9 | 28.0 | % | |||||||||||||||||||||||||
Specialty Supplements | 139.8 | 13.6 | % | 126.6 | 12.5 | % | 119.6 | 12.7 | % | 33.3 | 12.5 | % | 31.3 | 12.9 | % | |||||||||||||||||||||||||
Other | 77.8 | 7.6 | % | 79.4 | 7.9 | % | 95.3 | 10.1 | % | 26.0 | 9.8 | % | 22.8 | 9.5 | % | |||||||||||||||||||||||||
Total | $ | 1,026.2 | 100.0 | % | $ | 1,009.9 | 100.0 | % | $ | 944.0 | 100.0 | % | $ | 266.2 | 100.0 | % | $ | 242.0 | 100.0 | % | ||||||||||||||||||||
(1) | This data is shown on a combined basis for comparability purposes and represents the sum of the period from January 1, 2003 through December 4, 2003 and the 27 days ended December 31, 2003. |
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Company- | |||||||||||||||
Owned | |||||||||||||||
United States and Canada | Retail | Franchise | Other International | Franchise | |||||||||||
Alabama | 32 | 13 | Aruba | 2 | |||||||||||
Alaska | 6 | 5 | Australia | 37 | |||||||||||
Arizona | 44 | 13 | Bahamas | 3 | |||||||||||
Arkansas | 18 | 6 | Brazil | 15 | |||||||||||
California | 198 | 178 | Brunei | 2 | |||||||||||
Colorado | 46 | 30 | Cayman Islands | 1 | |||||||||||
Connecticut | 38 | 7 | Chile | 55 | |||||||||||
Delaware | 8 | 10 | China | 1 | |||||||||||
District of Columbia | 5 | 2 | Colombia | 1 | |||||||||||
Florida | 213 | 115 | Costa Rica | 6 | |||||||||||
Georgia | 90 | 58 | Dominican Republic | 12 | |||||||||||
Hawaii | 20 | 1 | Ecuador | 17 | |||||||||||
Idaho | 9 | 5 | El Salvador | 8 | |||||||||||
Illinois | 86 | 70 | Guam | 5 | |||||||||||
Indiana | 46 | 35 | Guatemala | 13 | |||||||||||
Iowa | 23 | 11 | Honduras | 1 | |||||||||||
Kansas | 18 | 15 | Hong Kong | 15 | |||||||||||
Kentucky | 36 | 10 | Indonesia | 24 | |||||||||||
Louisiana | 39 | 8 | Israel | 16 | |||||||||||
Maine | 9 | — | Japan | 8 | |||||||||||
Maryland | 54 | 28 | Kuwait | 4 | |||||||||||
Massachusetts | 54 | 11 | Lebanon | 5 | |||||||||||
Michigan | 76 | 49 | Malaysia | 29 | |||||||||||
Minnesota | 60 | 15 | Mexico | 176 | |||||||||||
Mississippi | 20 | 9 | Pakistan | 1 | |||||||||||
Missouri | 43 | 22 | Panama | 5 | |||||||||||
Montana | 4 | 3 | Peru | 19 | |||||||||||
Nebraska | 6 | 16 | Philippines | 44 | |||||||||||
Nevada | 12 | 10 | Saudi Arabia | 39 | |||||||||||
New Hampshire | 17 | 5 | Singapore | 64 | |||||||||||
New Jersey | 69 | 55 | South Africa | 1 | |||||||||||
New Mexico | 21 | 2 | South Korea | 35 | |||||||||||
New York | 150 | 54 | Taiwan | 15 | |||||||||||
North Carolina | 91 | 38 | Thailand | 29 | |||||||||||
North Dakota | 6 | — | Turkey | 26 | |||||||||||
Ohio | 101 | 66 | U.S. Virgin Islands | 2 | |||||||||||
Oklahoma | 31 | 8 | Venezuela | 31 | |||||||||||
Oregon | 21 | 11 | |||||||||||||
Pennsylvania | 135 | 49 | |||||||||||||
Puerto Rico | 23 | — | |||||||||||||
Rhode Island | 13 | 1 | |||||||||||||
South Carolina | 27 | 26 | |||||||||||||
South Dakota | 5 | — | |||||||||||||
Tennessee | 41 | 36 | |||||||||||||
Texas | 212 | 83 | |||||||||||||
Utah | 23 | 7 | |||||||||||||
Vermont | 5 | — | |||||||||||||
Virginia | 82 | 28 | |||||||||||||
Washington | 47 | 22 | |||||||||||||
West Virginia | 25 | 3 | |||||||||||||
Wisconsin | 47 | 11 | |||||||||||||
Wyoming | 4 | 1 | |||||||||||||
Canada | 135 | 6 | |||||||||||||
Total | 2,644 | 1,267 | Total | 767 | |||||||||||
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• | Brown v. General Nutrition Companies, Inc.,Case No. 02-14221-AB, Florida Circuit Court for the 15th Judicial Circuit Court, Palm Beach County; | |
• | Rodriguez v. General Nutrition Companies, Inc.,Index No. 02/126277, New York Supreme Court, County of New York, Commercial Division; | |
• | Abrams v. General Nutrition Companies, Inc., Docket No. L-3789-02, New Jersey Superior Court, Mercer County; | |
• | Toth v. Bodyonics, Ltd.,Case No. 003886, Pennsylvania Court of Common Pleas, Philadelphia County; and | |
• | Pio v. General Nutrition Companies, Inc.,Case No. 2-CH-14122, Illinois Circuit Court, Cook County. |
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• | terminate or not renew a franchise without good cause; | |
• | interfere with the right of free association among franchisees; | |
• | disapprove the transfer of a franchise; | |
• | discriminate among franchisees with regard to charges, royalties and other fees; and | |
• | place new stores near existing franchises. |
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Name | Age | Position | ||||
Robert J. DiNicola | 57 | Chairman of the Board of Directors and interim Chief Executive Officer — General Nutrition Centers, Inc.(2) | ||||
Joseph Fortunato | 52 | Executive Vice President and Chief Operating Officer — General Nutrition Centers, Inc.(1) | ||||
Robert Homler | 59 | Executive Vice President and Chief Merchandising Officer — General Nutrition Centers, Inc.(1) | ||||
Curtis J. Larrimer | 49 | Executive Vice President and Chief Financial Officer — General Nutrition Centers, Inc.(2) | ||||
Tom Dowd | 42 | Senior Vice President of Stores — General Nutrition Corporation | ||||
Lee Karayusuf | 54 | Senior Vice President of Distribution and Transportation — General Nutrition Distribution, L.P. | ||||
Michael Locke | 59 | Senior Vice President of Manufacturing — Nutra Manufacturing, Inc. | ||||
James M. Sander | 48 | Senior Vice President of Law, Chief Legal Officer and Secretary — General Nutrition Centers, Inc.(2) | ||||
Eileen D. Scott | 51 | Senior Vice President of Human Resources and Customer Service — General Nutrition Centers, Inc.(1) | ||||
J.J. Sorrenti | 39 | Senior Vice President and General Manager of Franchising — GNC Franchising, LLC | ||||
Reginald N. Steele | 59 | Senior Vice President of International Franchising — General Nutrition International, Inc. | ||||
Susan Trimbo | 49 | Senior Vice President of Scientific Affairs — General Nutrition Corporation | ||||
Mary Elizabeth Burton | 53 | Director(1)(4) | ||||
Peter P. Copses | 46 | Director(1)(3) | ||||
George G. Golleher | 57 | Director(1)(3) | ||||
Joseph W. Harch | 51 | Director(1)(4) | ||||
Joshua J. Harris | 40 | Director(1) | ||||
Andrew S. Jhawar | 33 | Director(1)(3) | ||||
Edgardo A. Mercadante | 49 | Director(1)(4) |
(1) | Holds same position with our parent company, GNC Corporation. |
(2) | Holds same position(s) with GNC Corporation and the following subsidiaries: General Nutrition Companies, Inc., General Nutrition Corporation, General Nutrition Distribution Company, General Nutrition Distribution, L.P., General Nutrition Government Services, Inc., General Nutrition, Incorporated, General Nutrition Investment Company, General Nutrition International, Inc., General Nutrition Sales Corporation, General Nutrition Systems, Inc., GNC (Canada) Holding Company, GNC Franchising, LLC, GNC Canada Limited, GNC US Delaware, Inc., GN Investment, Inc., Informed Nutrition, Inc. and Nutra Manufacturing, Inc. |
(3) | Member of Compensation Committee of GNC Corporation and General Nutrition Centers, Inc. |
(4) | Member of Audit Committee of GNC Corporation and General Nutrition Centers, Inc. |
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Long-Term Compensation | ||||||||||||||||||||||||
Annual Compensation | Securities | |||||||||||||||||||||||
Underlying | ||||||||||||||||||||||||
Other Annual | Options/SARs | All Other | ||||||||||||||||||||||
Name and Principal Position | Year | Salary ($) | Bonus | Compensation(1) | (#)(2) | Compensation(3) | ||||||||||||||||||
Louis Mancini | 2004 | $ | 525,000 | $ | 64,711 | — | $ | 300,000 | ||||||||||||||||
Former President and Chief Executive Officer and Director(4) | ||||||||||||||||||||||||
Robert J. DiNicola | 2004 | $ | 26,750 | 350,000 | $ | 58,500 | ||||||||||||||||||
Interim Chief Executive Officer and Chairman(4) | ||||||||||||||||||||||||
Joseph Fortunato | 2004 | $ | 350,000 | $ | 58,834 | — | $ | 349,746 | ||||||||||||||||
Executive Vice President and Chief Operating Officer | ||||||||||||||||||||||||
David Heilman | 2004 | $ | 350,000 | $ | 58,834 | — | $ | 331,511 | ||||||||||||||||
Former Executive Vice President and Chief Administrative Officer(4) | ||||||||||||||||||||||||
Margaret Peet | 2004 | $ | 243,516 | $ | 120,621 | — | — | |||||||||||||||||
Former Senior Vice President - Product Development(4) | ||||||||||||||||||||||||
Susan Trimbo | 2004 | $ | 221,140 | $ | 42,924 | — | $ | 223,601 | ||||||||||||||||
Senior Vice President of Scientific Affairs |
(1) | Includes cash amounts received by the persons listed in this table for (a) supplemental retirement purposes in the following amounts: Mr. Mancini $13,236; Mr. Fortunato $13,236; Mr. Heilman $13,236; Ms. Peet $11,597; and Ms. Trimbo $8,117; (b) professional assistance and personal life and disability insurance in the following amounts: Mr. Mancini $14,917; Mr. Fortunato $14,917; Mr. Heilman $14,917; Ms. Peet $4,558; and Ms. Trimbo $4,759; and (c) housing allowance for Ms. Peet $85,990. |
(2) | The 350,000 options granted to Mr. DiNicola have an exercise price of $6.00 per share as determined by the Board of Directors. |
(3) | Includes payments received by the individuals listed in this table in connection with the sale of GNCI in 2003 for (a) change in control bonuses in the following amounts: Mr. Mancini $300,000; Mr. Heilman $302,500; Mr. Fortunato $330,000; and Ms. Trimbo $208,000; (b) cash bonus paid by Numico on the Numico Management Stock Purchase Plan in the following amounts: Mr. Heilman $29,011; Mr. Fortunato $19,746; and Ms. Trimbo $15,601; (c) imputed value for life insurance premiums in the following amounts: Mr. Mancini $1,012; Mr Fortunato $541; Mr. Heilman $541; Ms. Peet $155 and Ms. Trimbo $302; and (d) annual retainer and board meeting attendance fees for Mr. DiNicola in his role as a Director $58,500. |
(4) | Mr. Mancini served as President and Chief Executive Officer and Director through December 1, 2004. Mr. DiNicola became Interim Chief Executive Officer on December 1, 2004. Mr Heilman served as |
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Executive Vice President and Chief Administrative Officer through March 8, 2005. Ms. Peet served as Senior Vice President — National Sales Director and Product Development through March 30, 2005. |
Number of | ||||||||||||||||
Securities | Value of | |||||||||||||||
Underlying | Unexercised | |||||||||||||||
Unexercised | In-The-Money | |||||||||||||||
Options/SARs | Options/SAR’s | |||||||||||||||
Shares | at Fiscal | at Fiscal | ||||||||||||||
Acquired | Value | Year-End (#) | Year-End ($) | |||||||||||||
on Exercise | Realized | Exercisable/ | Exercisable/ | |||||||||||||
Name | (#) | ($) | Unexercisable(1) | Unexercisable | ||||||||||||
Louis Mancini | 15,000 | $ | 217,438 | — | — | |||||||||||
Joseph Fortunato | 15,000 | $ | 211,232 | 15,000 | $ | 16,200 | ||||||||||
David Heilman | 15,000 | $ | 211,232 | 15,000 | $ | 16,200 | ||||||||||
Susan Trimbo | 10,000 | $ | 143,340 | 10,000 | $ | 10,800 |
(1) | Stock Appreciation Rights granted by Numico; all of which are fully vested and exercisable. |
Number of | ||||||||||||||||
Securities | Value of | |||||||||||||||
Underlying | Unexercised | |||||||||||||||
Unexercised | In-The-Money | |||||||||||||||
Options/SAR’S | Options/SAR’s | |||||||||||||||
Shares | at Fiscal | at Fiscal | ||||||||||||||
Acquired | Value | Year-End (#) | Year-End ($) | |||||||||||||
on Exercise | Realized | Exercisable/ | Exercisable/ | |||||||||||||
Name | (#) | ($) | Unexercisable | Unexercisable(1) | ||||||||||||
Louis Mancini | 0 | 0 | 0/ 0 | 0 | ||||||||||||
Robert DiNicola | 0 | 0 | 200,000/ 150,000 | 0 | ||||||||||||
Joseph Fortunato | 0 | 0 | 73,833/ 221,500 | 0 | ||||||||||||
David Heilman | 0 | 0 | 73,833/ 221,500 | 0 | ||||||||||||
Margaret Peet | 0 | 0 | 11,075/ 33,225 | 0 | ||||||||||||
Susan Trimbo | 0 | 0 | 13,290/ 39,870 | 0 |
(1) | Based upon the fair market value of our Parent’s Common Stock as of December 31, 2004, as determined by our Parent, less the exercise price per share. |
Individual Grants | ||||||||||||||||||||||||
Percent of | ||||||||||||||||||||||||
Total | ||||||||||||||||||||||||
Number of | Options/ | Potential Realizable Value | ||||||||||||||||||||||
Securities | SARS | at Assumed Rates of | ||||||||||||||||||||||
Underlying | Granted to | Exercise | Stock Price Appreciation | |||||||||||||||||||||
Options/ | Employees | of Base | for Option Term(3) | |||||||||||||||||||||
SARS | in Fiscal | Price | Expiration | |||||||||||||||||||||
Name | Granted | Year | ($/share) | Date | 5% | 10% | ||||||||||||||||||
Robert J. DiNicola | 50,000 | 15% (1 | ) | $ | 6.00 | 2/11/2011 | $ | 122,130 | $ | 284,615 | ||||||||||||||
Robert J. DiNicola | 300,000 | 73% (2 | ) | $ | 6.00 | 12/11/2011 | $ | 732,781 | $ | 1,707,691 |
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(1) | Based on the 325,000 options granted to non-employee directors under the GNC Corporation 2003 Omnibus Stock Incentive Plan. This immediately-vested grant was for Mr. DiNicola in his role as a then non-employee director of our parent. |
(2) | Based on 406,320 options granted as of December 31, 2004 to employees under the GNC Corporation 2003 Omnibus Stock Incentive Plan. Under the terms of the option agreements, options granted to employees vest 25% annually. Of the options granted to Mr. DiNicola, 150,000 were vested immediately and the remaining 150,000 will vest on December 1, 2005, the one year anniversary from the date of grant. None of the options were exercised in 2004. |
(3) | The 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by the rules of the SEC. Our actual stock price appreciation over the 7 year option term will likely differ from these assumed rates. |
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Shares of Common Stock | ||||||||
Beneficially Owned | ||||||||
Name of Officer or Director | Number | Percentage | ||||||
GNC Investors, LLC(1) | 28,743,333 | (3)(4) | 96.28% | |||||
Mary Elizabeth Burton(1) | 158,333 | (4)(5) | * | |||||
Peter P. Copses(1) | 28,768,333 | (3)(4)(6) | 96.28% | |||||
Robert J. DiNicola(1) | 241,667 | (4)(7) | * | |||||
Joseph Fortunato(2) | 136,333 | (4)(8) | * | |||||
George G. Golleher(1) | 105,000 | (4)(9) | * | |||||
Joshua J. Harris(1) | 28,768,333 | (3)(4)(10) | 96.28% | |||||
Andrew S. Jhawar(1) | 28,813,333 | (3)(4)(12) | 96.29% | |||||
Edgardo A. Mercadante(2) | 78,333 | (4)(13) | * | |||||
Joseph W. Harch(2) | 25,000 | (14) | * | |||||
Susan Trimbo(2) | 24,540 | (4)(16) | * | |||||
All officers and directors as a group(3)(17) | 29,632,539 | 97.46% |
* | Less than 1% of the outstanding shares. |
(1) | c/o Apollo Management, L.P., 9 West 57th Street, 43rd Floor, New York, New York 10019. |
(2) | c/o General Nutrition Centers, Inc., 300 Sixth Avenue, Pittsburgh, Pennsylvania 15222. |
(3) | Represents shares held by GNC Investors, LLC, our equity sponsor and our parent’s principal stockholder, which is a special purpose entity that was created in connection with the Acquisition. Apollo Advisors V, L.P. (“Apollo Advisors V”), through its affiliates, owns approximately 76% of our equity sponsor. Apollo Management V is the manager of our equity sponsor. Apollo Management V has sole dispositive power over 100% of all of our outstanding common stock. Pursuant to a stockholders’ agreement, Apollo Investment V has sole voting power over the shares. Apollo Advisors V is the general partner, and Apollo Management V is the manager of Apollo Investment V. Messrs. Leon Black and John Hannan are the principal executive officers and directors of the general partners of Apollo Management V, L.P. and Apollo Advisors V, L.P. and each of Messrs. Black and Hannan, except to the extent of his direct pecuniary interest expressly disclaims beneficial ownership of the indicated shares. Apollo Advisors V has no pecuniary interest in the remaining interests of our Parent’s principal stockholder. |
(4) | On December 5, 2003, in connection with the Acquisition, our parent entered into a stockholders’ agreement with each of its stockholders. Pursuant to the stockholders’ agreement, each stockholder agreed to give Apollo Investment Fund V, L.P. a voting proxy to vote with respect to certain matters as set forth in the stockholders’ agreement. As a result, Apollo Investment Fund V, L.P. may be deemed to be the beneficial owner of the shares of common stock held by the parties to the stockholders’ agreement. Apollo Investment Fund V, L.P. expressly disclaims beneficial ownership of such shares of common stock held by each of the parties to the stockholders’ agreement, except to the extent of its pecuniary interest in our Parent’s principal stockholder. |
(5) | Includes options to purchase 75,000 shares of common stock. |
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(6) | Includes options to purchase 25,000 shares of common stock and 28,743,333 shares of common stock beneficially owned by Apollo Advisors V, L.P., as to which Mr. Copses, a director of the company and partner of Apollo Advisors V, L.P., expressly disclaims beneficial ownership, except to the extent of his direct pecuniary interest. |
(7) | Includes options to purchase 200,000 shares of common stock. |
(8) | Includes options to purchase 73,833 shares of common stock. |
(9) | Includes options to purchase 55,000 shares of common stock. |
(10) | Includes options to purchase 25,000 shares of common stock and 28,743,333 shares of common stock beneficially owned by Apollo Advisors V, L.P., as to which Mr. Harris, a director of the company and partner of Apollo Advisors V, L.P., expressly disclaims beneficial ownership, except to the extent of his direct pecuniary interest. |
(12) | Includes options to purchase 25,000 shares of common stock and 28,743,333 shares of common stock beneficially owned by Apollo Advisors V, as to which Mr. Jhawar, a director of the company and partner of Apollo Advisors V, expressly disclaims beneficial ownership, except to the extent of his direct pecuniary interest. |
(13) | Includes options to purchase 45,000 shares of common stock. |
(14) | Includes options to purchase 25,000 shares of common stock. |
(16) | Includes options to purchase 13,290 shares of common stock. |
(17) | Includes 28,743,333 shares held by GNC Investors, LLC, our parent’s principal stockholder. |
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Compensation | ||||||||
Shares Purchased in | Received in | |||||||
Connection with | Connection with | |||||||
Acquisition | Acquisition | |||||||
Mary Elizabeth Burton | 83,333 shares | — | ||||||
Robert J. DiNicola | 41,667 shares | — | ||||||
Tom Dowd | 28,125 shares | $ | 195,000 | |||||
Joseph Fortunato | 62,500 shares | $ | 825,000 | |||||
George G. Golleher | 50,000 shares | — | ||||||
David R. Heilman(3) | 62,500 shares | $ | 756,250 | |||||
Lee Karayusuf | 37,500 shares | $ | 259,875 | |||||
Curtis J. Larrimer | 22,500 shares | $ | 371,603 | |||||
Michael Locke | 16,875 shares | $ | 450,000 | |||||
Louis Mancini(1) | 100,000 shares | $ | 750,000 | |||||
Edgardo A. Mercadante | 33,333 shares | — | ||||||
Michael Meyers(2) | — | $ | 3,150,000 | |||||
James M. Sander | 41,875 shares | $ | 375,920 | |||||
Eileen D. Scott | 37,500 shares | $ | 262,500 | |||||
J.J. Sorrenti | 16,875 shares | $ | 292,500 | |||||
Reginald N. Steele | 18,750 shares | $ | 403,072 | |||||
Susan Trimbo | 11,250 shares | $ | 416,000 | |||||
Other employees | 158,750 shares | — |
(1) | Mr. Mancini resigned as President, Chief Executive Officer and Director of GNC Corporation and GNC on December 2, 2004. On December 17, 2004, GNC repurchased 100,000 shares from Mr. Mancini for an aggregate purchase price of $600,000 pursuant to a separation agreement. |
(2) | Mr. Meyers served as President, Chief Executive Officer and Director of General Nutrition Companies, Inc., the predecessor company to GNC prior to the consummation of the Acquisition. Concurrently with the consummation of the Acquisition, Mr. Meyers resigned as Chief Executive Officer and Director of General Nutrition Companies, Inc. and its affiliates. |
(3) | Mr. Heilman resigned as Executive Vice President and Chief Administrative Officer of GNC Corporation and GNC on March 8, 2005. On March 30, 2005, GNC repurchased 62,500 shares from Mr. Heilman for an aggregate purchase price of $375,000 pursuant to a separation agreement. |
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Separation Agreement with Dave Heilman |
Supply Agreements |
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Purchasing Agreements |
Transportation Agreement |
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• | we are not permitted to file the exchange offer registration statement or permitted to consummate the exchange offer because the exchange offer is not permitted by applicable law or SEC policy; or | |
• | any holder of the old notes notifies us prior to the 20th business day following consummation of the exchange offer that: (1) it was prohibited by law or SEC policy from participating in the Exchange Offer; (2) it may not resell the new notes acquired by it in the exchange offer to the public without delivering a prospectus and the prospectus contained in the exchange offer registration statement is not appropriate or available for such resales; or (3) it is a broker-dealer and owns old notes acquired directly from us or our affiliate. |
• | we fail to file any of the registration statements required by the registration rights agreement on or before the date specified for such filing; or | |
• | any of such registration statements is not declared effective by the SEC on or prior to the date specified for such effectiveness; or | |
• | once the applicable registration statement is declared effective by the SEC, we fail to consummate the exchange offer within 30 business days of the date specified for such effectiveness with respect to the exchange offer registration statement; or | |
• | the applicable registration statement is declared effective but thereafter ceases to be effective or usable in connection with resales of old notes during the periods specified in the registration rights agreement. |
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• | certificates for old notes must be received by the exchange agent along with the letter of transmittal, or | |
• | a timely confirmation of a book-entry transfer, which we refer to in this prospectus as a book-entry confirmation, of old notes, if this procedure is available, into the exchange agent’s account at DTC pursuant to the procedure for book-entry transfer described beginning on page 97 must be received by the exchange agent prior to the expiration date, with the letter of transmittal or an agent’s message in place of the letter of transmittal, or the holder must comply with the guaranteed delivery procedures described below. |
• | by a holder of the old notes who has not completed the box entitled “Special Issuance Instructions” or “Special Delivery Instructions” on the letter of transmittal, or | |
• | for the account of an Eligible Institution (as defined below). |
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• | the new notes acquired pursuant to the exchange offer are being obtained in the ordinary course of business of the person receiving such new notes, whether or not such person is the holder; and | |
• | neither the holder nor such other person has any arrangement or understanding with any person, to participate in the distribution of the new notes. |
• | could not rely on the applicable interpretations of the staff of the SEC; and | |
• | must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. |
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• | certificates for such old notes or a timely book-entry confirmation of such old notes into the exchange agent’s account at DTC, | |
• | a properly completed and duly executed letter of transmittal or an agent’s message in lieu thereof, and | |
• | all other required documents. |
• | prior to the expiration date, the exchange agent received from such Eligible Institution a notice of guaranteed delivery, substantially in the form we provide, by telegram, telex, facsimile transmission, mail or hand delivery, setting forth your name and address, the amount of old notes tendered, stating that the tender is being made thereby and guaranteeing that within three New York Stock Exchange (“NYSE”) trading days after the date of execution of the notice of guaranteed delivery, the certificates for all physically tendered old notes, in proper form for transfer, or a book-entry confirmation, as the case may be, together with a properly completed and duly executed appropriate letter of transmittal or facsimile thereof or agent’s message in lieu thereof, with any required signature guarantees and any other documents required by the letter of transmittal will be deposited by such Eligible Institution with the exchange agent, and | |
• | the certificates for all physically tendered old notes, in proper form for transfer, or a book-entry confirmation, as the case may be, together with a properly completed and duly executed appropriate letter of transmittal or facsimile thereof or agent’s message in lieu thereof, with any required signature guarantees and all other documents required by the letter of transmittal, are received by the exchange agent within three NYSE trading days after the date of execution of the notice of guaranteed delivery. |
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• | the name of the person having tendered the old notes to be withdrawn, | |
• | the old notes to be withdrawn, including the principal amount of such old notes, and | |
• | where certificates for old notes have been transmitted, the name in which such old notes are registered, if different from that of the withdrawing holder. |
• | the exchange offer violates any applicable law or applicable interpretation of the staff of the SEC; | |
• | an action or proceeding shall have been instituted or threatened in any court or by any governmental agency that might materially impair our ability to proceed with the exchange offer; | |
• | we shall not have received all governmental approvals that we deem necessary to consummate the exchange offer; or | |
• | there has been proposed, adopted, or enacted any law, statute, rule or regulation that, in our reasonable judgment, would materially impair our ability to consummate the exchange offer. |
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• | if the offer or sale is registered under the Securities Act and applicable state securities laws; | |
• | if they are offered or sold under an exemption from registration under the Securities Act and applicable state securities laws; or | |
• | if they are offered or sold in a transaction not subject to the Securities Act and applicable state securities laws. |
• | will not be able to rely on the interpretation of the SEC’s staff; | |
• | will not be able to tender its old notes in the exchange offer; and | |
• | must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the new notes unless such sale or transfer is made pursuant to an exemption from such requirements. |
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New Notes Versus Old Notes |
The New Notes |
• | will be general unsecured obligations of GNC; | |
• | will be senior in right of payment to all existing and future Subordinated Obligations of GNC, including GNC’s Senior Subordinated Notes; | |
• | will bepari passuin right of payment with all existing and future unsubordinated Indebtedness of GNC; | |
• | will be structurally subordinated to all obligations of our non-guarantor Subsidiaries; and | |
• | will be unconditionally guaranteed by the Guarantors. |
The New Note Guarantees |
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• | will be a general unsecured obligation of that Guarantor; | |
• | will be senior in right of payment to all existing and future Subordinated Obligations of that Guarantor; and | |
• | will bepari passuin right of payment with any existing and future unsubordinated Indebtedness of that Guarantor. |
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(1) at least 65% of the aggregate principal amount of notes originally issued under the indenture remains outstanding immediately after the occurrence of such redemption (excluding notes held by GNC and its Subsidiaries); and | |
(2) the redemption occurs within 60 days after the date of the closing of such Equity Offering. |
Redemption | ||||
Period | Price | |||
2008 | 104.313 | % | ||
2009 | 102.156 | % | ||
2010 and thereafter | 100.000 | % |
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(1) all other contingent and fixed liabilities of the Guarantor, including any Guarantees under the Credit Facilities; and | |
(2) any collections from or payments made by or on behalf of any other Guarantor with respect to the other Guarantor’s obligations under its Note Guarantee pursuant to its contribution obligations under the indenture. |
(1) the provisions under the indenture, including the covenant described under “— Certain Covenants — Limitations on Sales of Assets,” are complied with; and | |
(2) such Guarantor is released from all of its obligations under the indenture and its Note Guarantee;providedthat termination of the Note Guarantee will only occur to the extent that the Guarantor’s obligations under the Credit Facilities and all of its Guarantees of any other Indebtedness of GNC also terminate. |
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(1) that a Change of Control has occurred or will occur and that such holder has, or upon such occurrence will have, the right to require GNC to purchase such holder’s new notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the date of purchase, and Liquidated Damages, if any, subject to the right of noteholders of record on a record date to receive interest on the relevant interest payment date; | |
(2) the circumstances and relevant facts and financial information regarding such Change of Control; | |
(3) the date of purchase, which will be no earlier than 30 days nor later than 90 days from the date such notice is mailed; | |
(4) the instructions determined by GNC, consistent with this covenant, that a holder must follow in order to have its new notes purchased; and | |
(5) that, if such offer is made prior to such Change of Control, payment is conditioned on the occurrence of such Change of Control. |
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Limitation on Indebtedness |
(1) the Incurrence by GNC and any Guarantor of additional Indebtedness and letters of credit under one or more Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (1) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of GNC and its Subsidiaries thereunder) not to exceed the greater of (a) $275 millionlessthe aggregate amount of all Net Cash Proceeds of Asset Dispositions applied by GNC or any of its Restricted Subsidiaries since the date of the indenture to permanently repay any term Indebtedness under a Credit Facility or to permanently repay any revolving credit Indebtedness under a Credit Facility and effect a corresponding commitment reduction thereunder pursuant to the covenant described below under the caption “— Certain Covenants — Limitation on Sales of Assets” and (b) the amount of the Borrowing Base as of the date of such Incurrence, in each caselessthe aggregate amount of all commitment reductions with respect to any revolving credit borrowings under a Credit Facility that have been made by GNC or any of its Restricted Subsidiaries resulting from or relating to the formation of any Receivables Subsidiary or the consummation of any Qualified Receivables Transaction; | |
(2) the Guarantee by GNC or any Guarantor of Indebtedness of GNC or a Restricted Subsidiary that was permitted to be Incurred by another provision of this covenant; | |
(3) the Incurrence by GNC or any of its Restricted Subsidiaries of intercompany Indebtedness between or among GNC and any of its Restricted Subsidiaries;provided, however, that: |
(a) if GNC or any Guarantor is the obligor on such Indebtedness, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all obligations with respect to the notes, in the case of GNC, or the applicable Note Guarantee, in the case of a Guarantor; and | |
(b) (i) any subsequent issuance or transfer of Capital Stock that results in any such Indebtedness being held by a Person other than GNC or a Restricted Subsidiary and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either GNC or a Restricted Subsidiary, will be deemed, in each case, to constitute an Incurrence of such Indebtedness by GNC or such Restricted Subsidiary, as the case may be, that was not permitted by this clause; |
(4) the Incurrence by GNC and the Guarantors of Indebtedness represented by the notes and the related Note Guarantees; | |
(5) the Incurrence by GNC and any Restricted Subsidiary of Indebtedness existing on the date of the indenture (other than the debt incurred under the Credit Agreement); |
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(6) the Incurrence by GNC or any of its Restricted Subsidiaries of Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was permitted by the indenture to be Incurred under the first paragraph of this covenant or clauses (2), (4), (5), (6), (7) or (14) of this paragraph; | |
(7) the Incurrence by GNC or any Restricted Subsidiary of Indebtedness represented by Capitalized Lease Obligations, mortgage financings or purchase money obligations, in each case, Incurred for the purpose of financing all or any part of the purchase price or cost of design, construction or improvement of property, plant or equipment used in the business of GNC or a Restricted Subsidiary, in an aggregate principal amount, including all Refinancing Indebtedness Incurred to refund, refinance or replace any Indebtedness Incurred pursuant to this clause (7), not to exceed 2.5% of Consolidated Tangible Assets at any time outstanding measured at the time of Incurrence; | |
(8) the Incurrence by GNC or any Restricted Subsidiary of Hedging Obligations that are Incurred in the ordinary course of business and not for speculative purposes; | |
(9) the Incurrence by GNC or any Restricted Subsidiary of Indebtedness evidenced by letters of credit issued in the ordinary course of business of GNC to secure workers’ compensation and other insurance coverage; | |
(10) the Incurrence by the Foreign Subsidiaries of Indebtedness if, at the time of Incurrence of such Indebtedness, and after giving effect thereto, the aggregate principal amount of all Indebtedness of the Foreign Subsidiaries Incurred pursuant to this clause (10) and then outstanding does not exceed the greater of (x) $30 million and (y) an amount equal to 50% of the consolidated book value of the inventories of the Foreign Subsidiaries measured at the time of Incurrence; | |
(11) the Incurrence by a Receivables Subsidiary of Indebtedness in a Qualified Receivables Transaction that is without recourse to GNC or to any other Restricted Subsidiary of GNC or their assets (other than such Receivables Subsidiary and its assets and, as to GNC or any Restricted Subsidiary of GNC, other than pursuant to representations, warranties, covenants and indemnities customary for such transactions) and is not Guaranteed by any such Person; | |
(12) the Incurrence by GNC or any of its Restricted Subsidiaries of Indebtedness in respect of workers’ compensation claims, self-insurance obligations, letters of credit (not supporting Indebtedness for borrowed money), bankers’ acceptances, performance and surety bonds in the ordinary course of business; | |
(13) Indebtedness arising from agreements of GNC or a Restricted Subsidiary providing for indemnification, contribution, adjustment of purchase price, earn out or similar obligations, in each case, incurred or assumed in connection with the disposition of any business or assets of GNC or any Restricted Subsidiary or Capital Stock of a Restricted Subsidiary;providedthat the maximum aggregate liability in respect of all such Indebtedness Incurred pursuant to this clause (13) shall at no time exceed the gross proceeds actually received by GNC and its Restricted Subsidiaries in connection with such dispositions; and | |
(14) the Incurrence by GNC or any Restricted Subsidiary of Indebtedness, which may include Bank Indebtedness, in an aggregate principal amount not to exceed $35 million outstanding at any one time. |
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Limitation on Restricted Payments |
(1) declare or pay any dividend or make any other payment or distribution on account of GNC’s or any of its Restricted Subsidiaries’ Capital Stock (including, without limitation, any payment in connection with any merger or consolidation involving GNC or any of its Restricted Subsidiaries) or to the direct or indirect holders of GNC’s or any of its Restricted Subsidiaries’ Capital Stock in their capacity as such (other than dividends or distributions payable in Capital Stock (other than Disqualified Stock) of GNC or to GNC or a Restricted Subsidiary of GNC and other than payments of dividends on, and mandatory repurchases at Stated Maturity of, Disqualified Stock outstanding on the date of the indenture or issued thereafter in compliance with the covenant described under “— Limitation on Indebtedness”); | |
(2) purchase, redeem, retire or otherwise acquire for value (including, without limitation, in connection with any merger or consolidation involving GNC) any Capital Stock of GNC, of any direct or indirect parent of GNC or of any Restricted Subsidiary held by Persons other than GNC or another Restricted Subsidiary; | |
(3) purchase, repurchase, redeem, defease or otherwise acquire or retire for value any Subordinated Obligation before scheduled maturity, scheduled repayment or scheduled sinking fund payment;providedthat this restriction does not apply to a purchase, repurchase, redemption or other acquisition made in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of such purchase, repurchase, redemption or acquisition; or | |
(4) make any Restricted Investment (all such payments and other actions set forth in these clauses (1) through (4) above being collectively referred to as“Restricted Payments”), |
(1) a Default occurs and continues to occur or would result therefrom; | |
(2) GNC could not Incur at least $1.00 of additional Indebtedness under the first paragraph of the covenant described under “— Limitation on Indebtedness;” or |
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(3) the aggregate amount of such Restricted Payment and all other Restricted Payments declared or made after December 5, 2003 (excluding Restricted Payments permitted by clauses (1), (2), (3), (5), and (6) of paragraph (B) below) would exceed, without duplication, the sum of: |
(a) 50% of the Consolidated Net Income of GNC accrued during the period, treated as one accounting period, from the beginning of the first fiscal quarter commencing after December 5, 2003 to the end of the most recent fiscal quarter ending before the date of such Restricted Payment for which consolidated financial statements of GNC are available, or, if such Consolidated Net Income is a deficit, then minus 100% of such deficit; | |
(b) 100% of the aggregate Net Cash Proceeds received by GNC since December 5, 2003 as a contribution to its common equity capital or from the issue or sale of Capital Stock of GNC (other than Disqualified Stock) or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of GNC that have been converted into or exchanged for such Capital Stock (other than Capital Stock (or Disqualified Stock or debt securities) sold to a Restricted Subsidiary of GNC),lessthe amount of any such Net Cash Proceeds that are utilized for an Investment pursuant to clause (13) of the definition of “Permitted Investments;” | |
(c) in the case of the disposition or repayment of any Investment constituting a Restricted Investment, without duplication of any amount deducted in calculating the amount of Investments at any time outstanding included in the amount of Restricted Payments, an amount equal to the lesser of the return of capital or similar repayment with respect to such Investment, or the initial amount of such Investment, in either case, less the cost of the disposition of such Investment; | |
(d) to the extent that any Unrestricted Subsidiary of GNC designated as such after December 5, 2003, is redesignated as a Restricted Subsidiary after December 5, 2003, the lesser of (i) the fair market value of GNC’s Investment in such Subsidiary as of the date of such redesignation or (ii) such fair market value as of the date on which such Subsidiary was originally designated as an Unrestricted Subsidiary after December 5, 2003; and | |
(e) 50% of any dividends received by GNC or a Guarantor after December 5, 2003 from an Unrestricted Subsidiary of GNC, to the extent that such dividends were not otherwise included in the Consolidated Net Income of GNC for such period. |
(1) any purchase, redemption, repurchase, defeasance, retirement or other acquisition of Capital Stock of GNC or Subordinated Obligations made by exchange, including any such exchange pursuant to the exercise of a conversion right or privilege in connection with which cash is paid in lieu of the issuance of fractional shares, for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of GNC, other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary or an employee stock ownership plan or other trust established by GNC or any of its Subsidiaries;providedthat the Net Cash Proceeds or reduction of Indebtedness from such sale or exchange will be excluded in subsequent calculations of the amount of Restricted Payments; | |
(2) any purchase, redemption, repurchase, defeasance, retirement or other acquisition of Subordinated Obligations made by exchange for, or out of the proceeds of the substantially concurrent sale of, Subordinated Obligations of GNC that is permitted to be Incurred by the covenant described under “— Limitation on Indebtedness;” | |
(3) any purchase, redemption, repurchase, defeasance, retirement or other acquisition of Subordinated Obligations from Net Available Cash to the extent permitted by the covenant described under “— Limitation on Sales of Assets;” |
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(4) payment of dividends within 60 days after the date of declaration of such dividends, if at the date of declaration such dividend would have complied with paragraph (A) above; | |
(5) any purchase or redemption of any shares of Capital Stock of GNC from employees or former employees of GNC and its Restricted Subsidiaries pursuant to the repurchase provisions under employee stock option or stock purchase agreements or other agreements to compensate management or in connection with the termination of employment in an aggregate amount after December 5, 2003 not in excess of $5 million in any fiscal year, plus any unused amounts under this clause from prior fiscal years; | |
(6) the payment of any dividend by a Restricted Subsidiary to the holders of all of its common equity interests on a pro rata basis; | |
(7) any payments to the Permitted Holder made in connection with, and substantially concurrent with the closing of, the Acquisition by GNC and its Restricted Subsidiaries; | |
(8) any Permitted Payments to Parent; | |
(9) Restricted Payments not to exceed $50 million in the aggregate since December 5, 2003;providedthat no more than $25 million of such Restricted Payments are made in any calendar year;provided furtherthat, after giving pro forma effect to any such Restricted Payment, GNC would have had a Leverage Ratio of less than 2.5 to 1.00; | |
(10) Restricted Payments not to exceed $35 million in the aggregate since December 5, 2003; and | |
(11) the repurchase, redemption or other acquisition or retirement for value of Subordinated Obligations (a) with any Remaining Excess Proceeds or (b) within 90 days following the completion of an offer to purchase the notes following a Change of Control made in accordance with “— Change of Control” above (including the purchase of the notes tendered),provided that such repurchase, redemption or other acquisition or retirement for value of Subordinated Obligations is required pursuant to the terms thereof as a result of such Change of Control, at a price not to exceed 101% of the outstanding principal amount thereof, plus any accrued and unpaid interest. |
Designation of Unrestricted Subsidiaries |
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Limitation on Restrictions on Distributions from Restricted Subsidiaries |
(1) pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness or other obligations owed to GNC or any of its Restricted Subsidiaries; | |
(2) make any loans or advances to GNC or any of its Restricted Subsidiaries; or | |
(3) transfer any of its property or assets to GNC or any of its Restricted Subsidiaries. |
(1) the Credit Facilities and any agreements governing Indebtedness existing on the date of the indenture, in each case, as in effect on the date of the indenture and any amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings of those agreements;providedthat the amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in those agreements on the date of the indenture; | |
(2) the indenture, the notes and the Note Guarantees; | |
(3) any restriction with respect to a Restricted Subsidiary that is either: |
(a) pursuant to an agreement relating to any Indebtedness (i) Incurred by a Restricted Subsidiary before the date on which such Restricted Subsidiary was acquired by GNC, or (ii) of another Person that is assumed by GNC or a Restricted Subsidiary in connection with the acquisition of assets from, or merger or consolidation with, such Person and is outstanding on the date of such acquisition, merger or consolidation;providedthat any restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to Indebtedness Incurred either as consideration in, or for the provision of any portion of the funds or credit support used to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by GNC, or such acquisition of assets, merger or consolidation shall not be permitted pursuant to this clause (a); or | |
(b) pursuant to any agreement, not relating to any Indebtedness, existing when a Person becomes a Subsidiary of GNC or acquired by GNC or any of its Subsidiaries, that, in each case, is not created in contemplation of such Person becoming such a Subsidiary or such acquisition (it being understood for purposes of this clause (b) that if another Person is the Successor Company, |
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any Subsidiary or agreement thereof shall be deemed acquired or assumed by GNC when such Person becomes the Successor Company), and, in the case of clause (a) and (b), which restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the properties or assets of the Person, so acquired; |
(4) any restriction with respect to a Restricted Subsidiary pursuant to an agreement (a“Refinancing Agreement”) that effects a refinancing, extension, renewal or replacement of Indebtedness under an agreement referred to in this covenant (an“Initial Agreement”) or contained in any amendment to an Initial Agreement;providedthat the restrictions contained in any such Refinancing Agreement or amendment are not materially more restrictive, taken as a whole, than the restrictions contained in the Initial Agreement or Agreements to which such Refinancing Agreement or amendment relates; | |
(5) any restriction that is a customary restriction on subletting, assignment or transfer of any property or asset that is subject to a lease, license or similar contract, or on the assignment or transfer of any lease, license or other contract; | |
(6) any restriction by virtue of a transfer, agreement to transfer, option, right, or Lien with respect to any property or assets of GNC or any Restricted Subsidiary not otherwise prohibited by the indenture; | |
(7) any restriction contained in mortgages, pledges or other agreements securing Indebtedness of GNC or a Restricted Subsidiary to the extent such restriction restricts the transfer of the property subject to such mortgages, pledges or other security agreements; | |
(8) any restriction with respect to a Restricted Subsidiary, or any of its property or assets, imposed pursuant to an agreement for the sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary, or the property or assets that are subject to such restriction, pending the closing of such sale or disposition; | |
(9) any restriction existing by reason of applicable law, rule, regulation or order; | |
(10) provisions limiting the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, sale-leaseback agreements, stock sale agreements and other similar agreements entered into with the approval of GNC’s Board of Directors, which limitation is applicable only to the assets that are the subject of such agreements; | |
(11) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business; | |
(12) restrictions existing under Indebtedness or other contractual requirements of a Receivables Subsidiary in connection with a Qualified Receivables Transaction;providedthat such restrictions apply only to such Receivables Subsidiary; or | |
(13) restrictions contained in Indebtedness incurred by a Foreign Subsidiary pursuant to clause (10) of the second paragraph of the covenant entitled “— Limitation on Indebtedness;”providedthat such restrictions relate only to one or more Foreign Subsidiaries. |
Limitation on Sales of Assets |
(1) GNC or such Restricted Subsidiary receives consideration, including relief from, or the assumption of another Person for, any liabilities, contingent or otherwise, at the time of such Asset Disposition at least equal to the fair market value of the shares and assets subject to such Asset Disposition. The Board of Directors shall determine the fair market value, and their determination shall be conclusive, including as to the value of all non-cash consideration; |
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(2) at least 75% of the consideration for any Asset Disposition received by GNC or such Restricted Subsidiary is in the form of cash. For the purposes of this covenant, the following are deemed to be cash: |
(a) Cash Equivalents; | |
(b) the assumption of Indebtedness of GNC, other than Disqualified Stock of GNC, or any Restricted Subsidiary and the release of GNC or such Restricted Subsidiary from all liability on such Indebtedness in connection with such Asset Disposition; | |
(c) Indebtedness of any Restricted Subsidiary that is no longer a Restricted Subsidiary as a result of such Asset Disposition, to the extent that GNC and each other Restricted Subsidiary is released from any Guarantee, or is the beneficiary of any indemnity with respect to such Indebtedness which is secured by any letter of credit or Cash Equivalents, of such Indebtedness in connection with such Asset Disposition; | |
(d) securities received by GNC or any Restricted Subsidiary from the transferee that are converted by GNC or such Restricted Subsidiary into cash within 60 days after the Asset Disposition; | |
(e) an amount equal to the fair market value of Indebtedness of GNC or any Restricted Subsidiary received by GNC or a Restricted Subsidiary as consideration for any Asset Disposition, determined at the time of receipt of such Indebtedness by GNC or such Restricted Subsidiary; and | |
(f) consideration consisting of Additional Assets; |
(3) GNC or such Restricted Subsidiary applies an amount equal to 100% of the Net Available Cash from such Asset Disposition in the following manner: |
(a) to the extent GNC elects, or is required by the terms of any secured Indebtedness, other than Preferred Stock, to prepay, repay or purchase secured Indebtedness, in each case other than Indebtedness owed to GNC or a Restricted Subsidiary, within 365 days after the date of such Asset Disposition; | |
(b) to the extent of the balance of Net Available Cash, to the extent GNC or such Restricted Subsidiary elects, to reinvest in Additional Assets (including by means of an Investment in Additional Assets by a Restricted Subsidiary with Net Available Cash received by GNC or another Restricted Subsidiary) within 365 days from the date of such Asset Disposition, or, if such reinvestment in Additional Assets is a project that is authorized by the Board of Directors within such 365-day period, within 455 days from the date of such Asset Disposition; | |
(c) to the extent of the balance of such Net Available Cash remaining after application pursuant to clauses (a) or (b) above (the“Excess Proceeds”), to make an offer to purchase notes at a price in cash equal to 100% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the purchase date, and, to the extent required by the terms thereof, any other Indebtedness that ispari passu with the notes subject to the agreements governing such other Indebtedness at a purchase price of 100% of the principal amount thereof plus accrued and unpaid interest to the purchase date and liquidated damages, if any; and | |
(d) to the extent of the balance of such Excess Proceeds after application pursuant to clauses (a), (b) or (c) above (“Remaining Excess Proceeds”) for any purpose not prohibited by the indenture. |
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Limitation on Transactions with Affiliates |
(1) taken as a whole are less favorable to GNC or such Restricted Subsidiary than the terms that could be obtained at the time of such transaction in arm’s-length dealings with a nonaffiliate; and | |
(2) in the event such Affiliate Transaction involves an aggregate amount in excess of $15 million, is not in writing and has not been approved by a majority of the members of the Board of Directors having no material personal financial interest in such Affiliate Transaction. If there are no such Board members, then GNC must obtain a Fairness Opinion. A Fairness Opinion means an opinion from an independent investment banking firm, accounting firm or appraiser of national standing which indicates that the terms of such transaction are fair to GNC or such Restricted Subsidiary from a financial point of view. |
(1) any Restricted Payment permitted by the covenant described under “— Limitation on Restricted Payments” or any Permitted Investment; | |
(2) the performance of the obligations of GNC or a Restricted Subsidiary under any employment contract, collective bargaining agreement, service agreement, employee benefit plan, related trust |
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agreement, severance agreement or any other similar arrangement entered into in the ordinary course of business; | |
(3) payment of compensation, performance of indemnification or contribution obligations in the ordinary course of business; | |
(4) any issuance, grant or award of stock, options or other securities, to employees, officers or directors; | |
(5) any transaction between GNC and a Restricted Subsidiary or between Restricted Subsidiaries or any transaction between a Receivables Subsidiary and any Person in which the Receivables Subsidiary has an Investment; | |
(6) any other transaction arising out of agreements existing on the date of the indenture and described in the “Certain Relationships and Related Party Transactions” section of this prospectus; | |
(7) transactions with suppliers or other purchasers or sellers of goods or services, in each case in the ordinary course of business and on terms no less favorable to GNC or the Restricted Subsidiary than those that could be obtained at such time in arm’s-length dealings with a nonaffiliate; | |
(8) the payment of rent due under the Master Lease, dated as of March 23, 1999, between Gustine Sixth Avenue Associates, Ltd. and General Nutrition, Incorporated, as in effect on the date of the indenture or as amended in compliance with the provisions of this covenant; and | |
(9) so long as no Default has occurred and is continuing, (a) payment of annual management fees to the Permitted Holder in an aggregate amount not to exceed, during any consecutive 12-month period, $1.5 million, (b) the payment of fees to the Permitted Holder for financial advisory and investment banking services rendered to GNC and its Restricted Subsidiaries in connection with acquisitions, securities offerings and other financings and similar significant corporate transactions in customary and reasonable amounts for such transactions, and (c) reimbursement of reasonable out-of-pocket expenses incurred by the Permitted Holder in connection with the services described in clauses (a) and (b) above;providedthat the foregoing payments and reimbursements are subordinated to the notes;provided furtherthat if any such Default prevents the payment of any such fees, GNC may pay such deferred fees at the time such Default is cured or waived. |
Limitation on the Sale or Issuance of Preferred Stock of Restricted Subsidiaries |
Limitation on Liens |
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(1) the release and discharge of the Initial Lien to which it relates; or | |
(2) any sale, exchange or transfer to a non-affiliate of GNC of the property or assets secured by such Initial Lien, or of all of the Capital Stock held by GNC or any Restricted Subsidiary, or all or substantially all of the assets of any Restricted Subsidiary creating such Lien. |
Reporting Requirements |
(1) all quarterly and annual reports that would be required to be filed with the SEC on Forms 10-Q and 10-K if GNC were required to file such reports; and | |
(2) all current reports that would be required to be filed with the SEC on Form 8-K if GNC were required to file such reports. |
Future Guarantors |
No Amendment to Subordination Provisions |
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Merger and Consolidation |
(1) the resulting, surviving or transferee Person (the“Successor Company”) will be a Person organized and existing under the laws of the United States of America, any State thereof or the District of Columbia; | |
(2) the Successor Company, if not GNC, will expressly assume, by a supplemental indenture, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of GNC under the notes, the indenture and the registration rights agreement; | |
(3) immediately after giving effect to such transaction or series of transactions no Default or Event of Default exists; | |
(4) GNC or the Successor Company, if GNC is not the continuing obligor under the indenture, will, at the time of such transaction or series of transactions and after giving pro forma effect thereto as if such transaction or series of transactions had occurred at the beginning of the applicable four-quarter period, be permitted to Incur at least an additional $1.00 of Indebtedness pursuant to the first paragraph of “— Limitation on Indebtedness;” and | |
(5) GNC will have delivered to the Trustee an Officer’s Certificate and an Opinion of Counsel, each to the effect that such consolidation, merger or transfer and such supplemental indenture, if any, comply with the indenture;providedthat: |
(a) in giving such opinion such counsel may rely on such Officer’s Certificate as to any matters of fact, including without limitation as to compliance with the foregoing clauses; and | |
(b) no Opinion of Counsel will be required for a consolidation, merger or transfer described in the last paragraph of this covenant. |
(1) a default in any payment of interest on, or Liquidated Damages, if any, with respect to, any note when due, continued for 30 days; | |
(2) a default in the payment of principal of, or premium, if any, on any note when due at its Stated Maturity, upon optional redemption, upon required repurchase, upon declaration or otherwise; | |
(3) the failure by GNC or any of its Restricted Subsidiaries to comply with its obligations under the covenant described under “— Certain Covenants — Merger and Consolidation” above; |
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(4) the failure by GNC or any of its Restricted Subsidiaries to comply for 30 days after written notice from the Trustee or the holders of at least 25% in principal amount of the outstanding notes with any of its obligations under the covenants described under “— Change of Control” or “— Certain Covenants — Limitation on Indebtedness,” “— Certain Covenants — Limitation on Restricted Payments,” or “— Certain Covenants — Limitation on Sales of Assets” above, in each case, other than a failure to purchase notes; | |
(5) the failure by GNC or any of its Restricted Subsidiaries to comply with its other agreements contained in the notes or the indenture for 60 days after written notice from the Trustee or the holders of at least 25% in principal amount of the outstanding notes; | |
(6) the failure by GNC or any Significant Subsidiary to pay any Indebtedness within any applicable grace period after final maturity or the acceleration of any such Indebtedness by the holders thereof because of a default if the total amount of such Indebtedness unpaid or accelerated exceeds $20 million (the“Cross Acceleration Provision”); | |
(7) events of bankruptcy, insolvency or reorganization of GNC or a Significant Subsidiary (the“Bankruptcy Provisions”); | |
(8) the rendering of any judgment or decree for the payment of money in an amount, net of any insurance or indemnity payments actually received in respect thereof prior to or within 90 days from the entry thereof, or to be received in respect thereof in the event any appeal thereof shall be unsuccessful, in excess of $20 million against GNC or a Significant Subsidiary that is not discharged, bonded or insured by a third Person if either an enforcement proceeding thereon is commenced, or such judgment or decree remains outstanding for a period of 90 days and is not discharged, waived or stayed (the“Judgment Default Provision”); or | |
(9) the failure of any Guarantee of the notes by a Guarantor that is a Significant Subsidiary to be in full force, except as contemplated by the terms thereof or of the indenture, or the denial in writing by any such Guarantor of its obligations under the indenture or any such Guarantee if such Default continues for 10 days. |
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(1) such holder has previously given the Trustee notice that an Event of Default is continuing; | |
(2) holders of at least 25% in principal amount of the outstanding notes have requested the Trustee to pursue the remedy; | |
(3) such holders have offered the Trustee reasonable security or indemnity against any loss, liability or expense; | |
(4) the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity; and | |
(5) the holders of a majority in principal amount of the applicable notes have not given the Trustee a direction inconsistent with such request within such 60-day period. |
(1) conflicts with law or the indenture; | |
(2) the Trustee determines is unduly prejudicial to the rights of any other holder; or | |
(3) would involve the Trustee in personal liability. |
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(1) reduce the principal amount of notes whose holders must consent to an amendment, supplement or waiver; | |
(2) reduce the rate of or extend the time for payment of interest on any note; | |
(3) reduce the principal amount of or extend the Stated Maturity of any note; | |
�� (4) reduce the premium payable upon the redemption or repurchase of any note or change the time at which any note may be redeemed as described under “— Optional Redemption” above; | |
(5) make any note payable in money other than that stated in the note; | |
(6) make any change in the provisions of the indenture relating to the rights of holders of notes to receive payment of principal of, and interest, premium or Liquidated Damages on, the notes on or after the respective due dates expressed in the notes or impair the rights of any holder of notes to sue for the enforcement of any payment of principal of, or interest, premium or Liquidated Damages on, such holder’s notes on or after the respective due dates; | |
(7) release any Guarantor from any of its obligations under its Note Guarantee or the indenture, except in accordance with the terms of the indenture; or | |
(8) make any change in the amendment provisions that require each holder’s consent or in the waiver provisions. |
(1) to cure any ambiguity, omission, defect or inconsistency; | |
(2) to provide for the assumption by a successor corporation of the obligations of GNC under the indenture; | |
(3) to provide for uncertificated notes in addition to or in place of certificated notes;provided, however, that the uncertificated notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated notes are described in Section 163 (f) (2) (B) of the Code; | |
(4) to add Guarantees with respect to the notes, to secure the notes, to add to the covenants of GNC for the benefit of the noteholders or to surrender any right or power conferred upon GNC; | |
(5) to make any change that does not adversely affect the rights of any holder; | |
(6) to comply with any requirement of the SEC in connection with the qualification of the indenture under the TIA; or | |
(7) to conform the text of the indenture, the Note Guarantees or the notes to any provision of this Description of Notes to the extent that such provision in this Description of Notes was intended to be a verbatim recitation of a provision of the indenture, the Note Guarantees or the notes. |
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(1) upon deposit of the Global Notes, DTC will credit the accounts of the Participants designated by the initial purchasers with portions of the principal amount of the Global Notes; and | |
(2) ownership of these interests in the Global Notes will be shown on, and the transfer of ownership of these interests will be effected only through, records maintained by DTC (with respect to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interest in the Global Notes). |
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(1) any aspect of DTC’s records or any Participant’s or Indirect Participant’s records relating to or payments made on account of beneficial ownership interest in the Global Notes or for maintaining, supervising or reviewing any of DTC’s records or any Participant’s or Indirect Participant’s records relating to the beneficial ownership interests in the Global Notes; or | |
(2) any other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants. |
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(1) DTC (a) notifies GNC that it is unwilling or unable to continue as depositary for the Global Notes or (b) has ceased to be a clearing agency registered under the Exchange Act and, in either case, GNC fails to appoint a successor depositary; | |
(2) GNC, at its option, notifies the Trustee in writing that it elects to cause the issuance of the Certificated Notes; or | |
(3) there has occurred and is continuing a Default or Event of Default with respect to the notes. |
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(l) any property or assets (other than Indebtedness and Capital Stock) to be used by GNC or a Restricted Subsidiary in a Related Business; | |
(2) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by GNC or another Restricted Subsidiary;providedthat such Restricted Subsidiary is primarily engaged in a Related Business; | |
(3) Capital Stock of any Person that at such time is a Restricted Subsidiary, acquired from a third party;providedthat such Restricted Subsidiary is primarily engaged in a Related Business; and | |
(4) Capital Stock or Indebtedness of any Person which is primarily engaged in a Related Business;provided, however, for purposes of the covenant described under “— Certain Covenants — Limitation on Sales of Assets,” the aggregate amount of Net Available Cash permitted to be invested pursuant to this clause (4) shall not exceed at any one time outstanding 2.5% of Consolidated Tangible Assets. |
(1) a disposition by a Restricted Subsidiary to GNC or by GNC or a Restricted Subsidiary to a Restricted Subsidiary; | |
(2) a disposition of inventory, equipment, obsolete assets or surplus personal property in the ordinary course of business; | |
(3) the sale of Cash Equivalents in the ordinary course of business; | |
(4) a transaction or a series of related transactions in which the fair market value of the assets disposed of, in the aggregate, does not exceed $2 million; |
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(5) the sale or discount, with or without recourse, and on commercially reasonable terms, of accounts receivable or notes receivable arising in the ordinary course of business, or the conversion or exchange of accounts receivable for notes receivable; | |
(6) the licensing of intellectual property in the ordinary course of business; | |
(7) for purposes of the covenant described under “— Certain Covenants — Limitation on Sales of Assets” only, a disposition subject to the covenant described under “— Certain Covenants — Limitation on Restricted Payments;” | |
(8) a disposition of property or assets that is governed by the provisions described under “— Merger and Consolidation;” | |
(9) the sale of franchisee accounts receivable and related assets of the type specified in the definition of “Qualified Receivables Transaction” to a Receivables Subsidiary for the fair market value thereof, including cash in an amount at least equal to 75% of the book value thereof as determined in accordance with GAAP, it being understood that, for the purposes of this clause (9), notes received in exchange for the transfer of franchisee accounts receivable and related assets will be deemed cash if the Receivables Subsidiary or other payor is required to repay said notes as soon as practicable from available cash collections less amounts required to be established as reserves pursuant to contractual agreements with entities that are not Affiliates of GNC entered into as part of a Qualified Receivables Transaction; | |
(10) the transfer of franchise accounts receivable and related assets of the type specified in the definition of “Qualified Receivables Transaction” (or a fractional undivided interest therein) by a Receivables Subsidiary in a Qualified Receivables Transaction; | |
(11) any surrender or waiver of contract rights or the settlement release or surrender of contract, tort or other litigation claims in the ordinary course of business; | |
(12) the granting of Liens (and foreclosure thereon) not prohibited by the indenture; | |
(13) the closure and disposition of retail stores or distribution centers and any sales of a store owned by GNC to a franchisee, in each case in the ordinary course of business; and | |
(14) any sublease of real property by GNC or any Restricted Subsidiary to a franchisee in the ordinary course of business. |
(1) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Indebtedness or Preferred Stock multiplied by the amount of such payment by | |
(2) the sum of all such payments. |
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(1) 75% of the face amount of all accounts receivable owned by GNC and its Restricted Subsidiaries as of the end of the most recent fiscal quarter preceding such date that were not more than 60 days past due;provided, however, that any franchise accounts receivable owned by a Receivables Subsidiary, or that GNC or any of its Subsidiaries has agreed to transfer to a Receivables Subsidiary, shall be excluded for purposes of determining such amount;plus | |
(2) 50% of the book value of all inventory, net of reserves, owned by GNC and its Restricted Subsidiaries as of the end of the most recent fiscal quarter preceding such date. |
(1) United States dollars; | |
(2) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality of the United States government (providedthat the full faith and credit of the United States is pledged in support of those securities) having maturities of not more than one year from the date of acquisition; | |
(3) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers’ acceptances with maturities not exceeding one year and overnight bank deposits, in each case, with any lender party to the Credit Agreement or with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thomson Bank Watch Rating of “B” or better; | |
(4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above; | |
(5) commercial paper having one of the two highest ratings obtainable from Moody’s or S&P and, in each case, maturing within one year after the date of acquisition; and | |
(6) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition. |
(1) any event occurs the result of which is that any “Person,” as such term is used in Sections 13(d) and 14(d) of the Exchange Act, other than any Permitted Holder or its Related Parties, becomes the beneficial owner, as defined in Rules l3d-3 and l3d-5 under the Exchange Act (except that a Person shall be deemed to have “beneficial ownership” of all shares that any such Person has the right |
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to acquire within one year) directly or indirectly, of more than 50% of the Voting Stock of GNC or a Successor Company, as defined below, including, without limitation, through a merger or consolidation or purchase of Voting Stock of GNC;providedthat the Permitted Holders or their Related Parties do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors;provided furtherthat the transfer of 100% of the Voting Stock of GNC to a Person that has an ownership structure identical to that of GNC prior to such transfer, such that GNC becomes a Wholly Owned Subsidiary of such Person, shall not be treated as a Change of Control for purposes of the indenture; | |
(2) after an Equity Offering that is an initial public offering of Capital Stock of GNC, during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors, together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders of GNC was approved by a vote of a majority of the directors of GNC then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board of Directors then in office; | |
(3) the sale, lease, transfer, conveyance or other disposition, in one or a series of related transactions other than a merger or consolidation, of all or substantially all of the assets of GNC and its Restricted Subsidiaries taken as a whole to any Person or group of related Persons other than a Permitted Holder or a Related Party of a Permitted Holder; or | |
(4) the adoption of a plan relating to the liquidation or dissolution of GNC. |
(1) the aggregate amount of EBITDA of GNC and its Restricted Subsidiaries for the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination for which consolidated financial statements of GNC are available, to | |
(2) Consolidated Interest Expense of GNC for such four fiscal quarters;provided, however, that: |
(a) if GNC or any Restricted Subsidiary: |
(i) has Incurred any Indebtedness since the beginning of such period that remains outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such period, except that in making such computation, the amount of Indebtedness under any revolving credit facility outstanding on the date of such calculation shall be computed based on: |
(A) the average daily balance of such Indebtedness during such four fiscal quarters or such shorter period for which such facility was outstanding or | |
(B) if such facility was created after the end of such four fiscal quarters, the average daily balance of such Indebtedness during the period from the date of creation of such facility to the date of such calculation, and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period, or |
(ii) has repaid, repurchased, defeased or otherwise discharged any Indebtedness since the beginning of the period that is no longer outstanding on such date of determination, or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio involves a |
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discharge of Indebtedness, in each case other than Indebtedness Incurred under any revolving credit facility unless such Indebtedness has been permanently repaid, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such discharge of such Indebtedness, including with the proceeds of such new Indebtedness, as if such discharge had occurred on the first day of such period; |
(b) if since the beginning of such period GNC or any Restricted Subsidiary has made any Asset Disposition of any company or any business or any business segment, the EBITDA for such period shall be reduced by an amount equal to the EBITDA, if positive, directly attributable to the company, business or business segment that are the subject of such Asset Disposition for such period or increased by an amount equal to the EBITDA, if negative, directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of GNC or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to GNC and its continuing Restricted Subsidiaries in connection with such Asset Disposition for such period, and, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent GNC and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale; | |
(c) if since the beginning of such period GNC or any Restricted Subsidiary, by merger or otherwise, has made an Investment in any Person that thereby becomes a Restricted Subsidiary, or otherwise acquired any company or any business or any group of assets, including any such acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto, including the Incurrence of any Indebtedness and including the pro forma expenses and cost reductions calculated on a basis consistent with Regulation S-X of the Securities Act, as if such Investment or acquisition occurred on the first day of such period; and | |
(d) if since the beginning of such period any Person that subsequently became a Restricted Subsidiary or was merged with or into GNC or any Restricted Subsidiary since the beginning of such period, has made any Asset Disposition or any Investment or acquisition of assets that would have required an adjustment pursuant to clause (b) or (c) above if made by GNC or a Restricted Subsidiary during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto, including the Incurrence of any Indebtedness and including the pro forma expenses and cost reductions calculated on a basis consistent with Regulation S-X of the Securities Act, as if such Asset Disposition, Investment or acquisition of assets occurred on the first day of such period. |
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(1) interest expense attributable to Capitalized Lease Obligations determined as if such lease were a capitalized lease, in accordance with GAAP; | |
(2) amortization of debt discount; | |
(3) interest in respect of Indebtedness of any other Person that has been Guaranteed by such Person or any Restricted Subsidiary, but only to the extent that such interest is actually paid by such Person or any Restricted Subsidiary; | |
(4) non-cash interest expense; | |
(5) net costs associated with Hedging Obligations; | |
(6) the product of: |
(a) mandatory Preferred Stock cash dividends in respect of all Preferred Stock of Restricted Subsidiaries of such Person and Disqualified Stock of such Person held by Persons other than such Person or a Restricted Subsidiary, multiplied by | |
(b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, determined on a consolidated basis in accordance with GAAP; and |
(7) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest to any Person, other than the referent Person or any Subsidiary thereof, in connection with Indebtedness Incurred by such plan or trust;provided, however, that as to GNC, there shall be excluded therefrom any such interest expense of any Unrestricted Subsidiary to the extent the related Indebtedness is not Guaranteed or paid by GNC or any Restricted Subsidiary. |
(1) any net income (loss) of any Person if such Person is not (as to GNC) a Restricted Subsidiary and, as to any other Person, an unconsolidated Person, except that: |
(a) the referent Person’s equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the referent Person or a Subsidiary as a dividend or other distribution, subject, in the case of a dividend or other distribution to a Subsidiary, to the limitations contained in clause (3) below, and | |
(b) the net loss of such Person shall be included to the extent of the aggregate Investment of the referent Person or any of its Restricted Subsidiaries in such Person; |
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(2) any net income (loss) of any Restricted Subsidiary, as to GNC, or of any Subsidiary, as to any other Person, if in either case such Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Subsidiary, directly or indirectly, to GNC, except that: |
(a) such Person’s equity in the net income of any such Subsidiary for such period shall be included in Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Subsidiary during such period to such Person or another Subsidiary as a dividend, subject, in the case of a dividend that could have been made to another Restricted Subsidiary, to the limitation contained in this clause, and | |
(b) the net loss of such Subsidiary shall be included in determining Consolidated Net Income; |
(3) any extraordinary gain or loss (together with any provision for taxes related thereto); | |
(4) the cumulative effect of a change in accounting principles; | |
(5) any reduction to the Consolidated Net Income of any Person caused by the amount, if any, of (a) non-cash charges relating to the exercise of options and (b) non-cash losses (or minus non-cash gains) from foreign currency translation; | |
(6) any decrease in net income caused by the increase in the book value of assets as a result of the Acquisition as reflected on GNC’s balance sheet solely as a result of the application of SFAS No. 141; | |
(7) any gain (or loss), together with any related provision for taxes on such gain (or loss), realized in connection with any asset sale (other than in the ordinary course of business); | |
(8) costs incurred prior to the date of the indenture related to the closing of stores in connection with the Acquisition; and | |
(9) costs incurred by GNC relating to an election made under Section 338(h)(10) of the Code (and any corresponding election under state, local, and foreign income tax laws), as provided in the Acquisition Agreement, in an amount not to exceed $10 million. |
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(1) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise; | |
(2) is convertible or exchangeable for Indebtedness or Disqualified Stock; or | |
(3) is redeemable at the option of the holder thereof, in whole or in part; |
(1) income tax expense; | |
(2) Consolidated Interest Expense (including the amortization of any debt issuance costs to the extent such costs are included in the calculation of Consolidated Interest Expense); | |
(3) depreciation expense; | |
(4) amortization expense (including the amortization of any debt issuance costs to the extent such costs are included in the calculation of Consolidated Interest Expense); | |
(5) other non-cash charges or non-cash losses; and | |
(6) any fees or expenses paid prior to the date of the indenture in connection with the Acquisition. |
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(1) to purchase or pay, or advance or supply funds for the purchase or payment of, such Indebtedness or such other obligation of such other Person, whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise; or | |
(2) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof, in whole or in part;provided, however, that the term“Guarantee”shall not include endorsements for collection or deposits made in the ordinary course of business. |
(1) GNC’s direct and indirect Domestic Subsidiaries existing on the date of the indenture; and | |
(2) any Domestic Subsidiary created or acquired by GNC after the date of the indenture, other than any Immaterial Subsidiary. |
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(1) the principal of Indebtedness of such Person for borrowed money if and to the extent it would appear as a liability upon the consolidated balance sheet of such Person prepared in accordance with GAAP; | |
(2) the principal of obligations of such Person evidenced by bonds, debentures, notes or other similar instruments if and to the extent it would appear as a liability upon the consolidated balance sheet of such Person prepared in accordance with GAAP; | |
(3) all reimbursement obligations of such Person, including reimbursement obligations in respect of letters of credit or other similar instruments, the amount of such obligations being equal at any time to the aggregate then undrawn and unexpired amount of such letters of credit or other instruments plus the aggregate amount of drawings thereunder that have not then been reimbursed; | |
(4) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, except Trade Payables, which purchase price is due more than one year after the date of placing such property in final service or taking final delivery and title thereto or the completion of such services if and to the extent it would appear as a liability upon the consolidated balance sheet of such Person prepared in accordance with GAAP; | |
(5) all Capitalized Lease Obligations of such Person; | |
(6) the redemption, repayment or other repurchase amount of such Person with respect to any Disqualified Stock or, if such Person is a Subsidiary of GNC, any Preferred Stock of such Subsidiary, but excluding, in each case, any accrued dividends, the amount of such obligation to be equal at any time to the maximum fixed involuntary redemption, repayment or repurchase price for such Capital Stock, or if such Capital Stock has no fixed price, to the involuntary redemption, repayment or repurchase price therefor calculated in accordance with the terms thereof as if then redeemed, repaid or repurchased, and if such price is based upon or measured by the fair market value of such Capital Stock, such fair market value shall be as determined in good faith by the Board of Directors or the board of directors of the issuer of such Capital Stock; | |
(7) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person;provided, however, that the amount of Indebtedness of such Person shall be the lesser of: |
(a) the fair market value of such asset at such date of determination; and | |
(b) the amount of such Indebtedness of such other Persons; |
(8) all Indebtedness of other Persons to the extent Guaranteed by such Person; and | |
(9) to the extent not otherwise included in this definition, net Hedging Obligations of such Person, such obligations to be equal at any time to the termination value of such agreement or arrangement giving rise to such Hedging Obligation that would be payable by such Person at such time. |
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(1) the aggregate amount of Indebtedness of GNC and its Restricted Subsidiaries on a consolidated basis as of such date, to | |
(2) the aggregate amount of EBITDA of GNC and its Restricted Subsidiaries for the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination for which consolidated financial statements of GNC are available;provided, however, that: |
(a) if since the beginning of such period GNC or any Restricted Subsidiary has made any Asset Disposition of any company or any business or any business segment, the EBITDA for such period shall be reduced by an amount equal to the EBITDA, if positive, directly attributable to the company, business or business segment that are the subject of such Asset Disposition for such period or increased by an amount equal to the EBITDA, if negative, directly attributable thereto for such period; | |
(b) if since the beginning of such period GNC or any Restricted Subsidiary, by merger or otherwise, has made an Investment in any Person that thereby becomes a Restricted Subsidiary, or otherwise acquired any company or any business or any business segment, including any such acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, EBITDA for such period shall be calculated after giving pro forma effect thereto, including the Incurrence of any Indebtedness and including the pro forma expenses and cost reductions calculated on a basis consistent with Regulation S-X of the Securities Act, as if such Investment or acquisition occurred on the first day of such period; and | |
(c) if since the beginning of such period any Person that subsequently became a Restricted Subsidiary or was merged with or into GNC or any Restricted Subsidiary since the beginning of such period, has made any Asset Disposition or any Investment or acquisition of assets that would have required an adjustment pursuant to clause (a) or (b) above if made by GNC or a Restricted Subsidiary during such period, EBITDA for such period shall be calculated after giving pro forma effect thereto, including the Incurrence of any Indebtedness and including the pro forma expenses and cost reductions calculated on a basis consistent with Regulation S-X of the Securities Act, as if such Asset Disposition, Investment or acquisition of assets occurred on the first day of such period. |
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(1) all legal, title and recording tax expenses, commissions and other fees and expenses incurred, including, without limitation, fees and expenses of legal counsel, accountants and financial advisors, and all Federal, state, provincial, foreign and local taxes required to be paid or accrued as a liability under GAAP, as a consequence of such Asset Disposition; | |
(2) all payments made on any Indebtedness that is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon such assets, or that must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law be repaid out of the proceeds from such Asset Disposition; | |
(3) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition or to any other Person, other than GNC or any Restricted Subsidiary, owning a beneficial interest in the assets disposed of in such Asset Disposition; and | |
(4) appropriate amounts to be provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the assets disposed of in such Asset Disposition and retained by GNC or any Restricted Subsidiary after such Asset Disposition. |
(1) as to which neither GNC nor any Restricted Subsidiary; |
(a) provides any Guarantee or credit support of any kind, including any undertaking, Guarantee, indemnity, agreement or instrument that would constitute Indebtedness; or | |
(b) is directly or indirectly liable, as a guarantor or otherwise; and |
(2) no default with respect to which, including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary, would permit, upon notice, lapse of time or both, any holder of any other Indebtedness of GNC or any Restricted Subsidiary to declare a default under such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity. |
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(1) any Investment by GNC or any Restricted Subsidiary in a Restricted Subsidiary, GNC or a Person that will, upon the making of such Investment, become a Restricted Subsidiary; | |
(2) any Investment by GNC or any Restricted Subsidiary in another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, GNC or a Restricted Subsidiary; | |
(3) any Investment by GNC or any Restricted Subsidiary in Cash Equivalents; | |
(4) any Investment by GNC or any Restricted Subsidiary in receivables owing to GNC or any Restricted Subsidiary, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms;provided, however, that such trade terms may include such concessionary trade terms as GNC or any such Restricted Subsidiary deems reasonable under the circumstances; | |
(5) any Investment by GNC or any Restricted Subsidiary in securities or other Investments received as consideration in sales or other dispositions of property or assets made in compliance with the covenant described under “— Certain Covenants — Limitation on Sales of Assets;” | |
(6) any Investment by GNC or any Restricted Subsidiary in securities or other Investments received in settlement of debts created in the ordinary course of business and owing to GNC or any Restricted Subsidiary, or as a result of foreclosure, perfection or enforcement of any Lien, or in satisfaction of judgments, including in connection with any bankruptcy proceeding or other reorganization of another Person; | |
(7) Investments in existence or made pursuant to legally binding written commitments in existence on the date of the indenture; | |
(8) any Investment by GNC or any Restricted Subsidiary in Hedging Obligations, which obligations are Incurred in compliance with the covenant described under “— Certain Covenants — Limitations on Indebtedness;” | |
(9) any Investment by GNC or any Restricted Subsidiary in pledges or deposits: |
(a) with respect to leases or utilities provided to third parties in the ordinary course of business; or | |
(b) otherwise described in the definition of “Permitted Liens;” |
(10) Investments in a Related Business in an amount not to exceed $35 million (measured at the time each such Investment is made without giving effect to subsequent changes in value) in the aggregate at any time outstanding (after giving effect to any such Investments that are returned to GNC or any Restricted Subsidiary, including through redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary); | |
(11) loans by GNC or any Restricted Subsidiary to franchisees in an aggregate principal amount not to exceed $75 million at any one time outstanding; | |
(12) the acquisition by a Receivables Subsidiary in connection with a Qualified Receivables Transaction of Capital Stock of a trust or other Person established by such Receivables Subsidiary to effect such Qualified Receivables Transaction; and any other Investment by GNC or a Restricted Subsidiary of GNC in a Receivables Subsidiary or any Investment by a Receivables Subsidiary in any |
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other Person in connection with a Qualified Receivables Transaction;providedthat such other Investment is in the form of a note or other instrument that the Receivables Subsidiary or other Person is required to repay as soon as practicable from available cash collections less amounts required to be established as reserves pursuant to contractual agreements with entities that are not Affiliates of GNC entered into as part of a Qualified Receivables Transaction; | |
(13) any Investment in exchange for, or out of the net proceeds of the substantially concurrent sale (other than to a Subsidiary of GNC or an employee stock ownership plan or similar trust) of Capital Stock of GNC (other than Disqualified Stock);providedthat the amount of any Net Cash Proceeds that are utilized for any such Investment will be excluded from clause 3(b) of the first paragraph set forth under “Certain Covenants — Restricted Payments”;provided, however, that the value of any non-cash net proceeds shall be as conclusively determined by the Board of Directors in good faith, except that in the event the value of any non-cash net proceeds shall be $20 million or more, the value shall be as determined in writing by an independent investment banking firm of nationally recognized standing; | |
(14) any sublease of real property to a franchisee, any advertising cooperative with franchisees and any trade credit extended to franchisees, in each case in the ordinary course of business; | |
(15) any Investments received in compromise or resolution of (a) obligations of trade creditors or customers that were incurred in the ordinary course of business of GNC or any Restricted Subsidiary, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer; or (b) litigation, arbitration or other disputes with Persons who are not Affiliates; and | |
(16) any Investments representing amounts held for employees of GNC and its Restricted Subsidiaries under GNC’s deferred compensation plan;provided that the amount of such Investments (excluding income earned thereon) shall not exceed the amount otherwise payable to such employees the payment of which was deferred under such plan and any amounts matched by GNC under such plan. |
(1) Liens on properties or assets of GNC or any Guarantor securing Indebtedness and other Obligations under Credit Facilities that was incurred pursuant to either clause (1) or clause (14) of the definition of Permitted Debt or securing Hedging Obligations with respect thereto; | |
(2) Liens for taxes, assessments or other governmental charges not yet delinquent or the nonpayment of which in the aggregate would not be reasonably expected to have a material adverse effect on GNC and its Restricted Subsidiaries, or that are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of GNC or such Subsidiary, as the case may be, in accordance with GAAP; | |
(3) carriers’, warehousemen’s, mechanics’, landlords’, materialmen’s, repairmen’s or other like Liens arising in the ordinary course of business in respect of obligations that are not overdue for a period of more than 60 days or that are bonded or that are being contested in good faith and by appropriate proceedings; | |
(4) pledges, deposits or Liens in connection with workers’ compensation, unemployment insurance and other social security legislation and/or similar legislation or other insurance-related obligations, including, without limitation, pledges or deposits securing liability to insurance carriers under insurance or self-insurance arrangements; | |
(5) pledges, deposits or Liens to secure the performance of bids, tenders, trade, government or other contracts, other than for borrowed money, obligations and deposits for or under or in respect of utilities, leases, licenses, statutory obligations, surety, judgment and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; |
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(6) easements, including reciprocal easement agreements, rights-of-way, building, zoning and similar restrictions, utility agreements, covenants, reservations, restrictions, encroachments, changes, and other similar encumbrances or title defects incurred, or leases or subleases granted to others, in the ordinary course of business, which do not in the aggregate materially interfere with the ordinary conduct of the business of GNC and its Subsidiaries, taken as a whole; | |
(7) Liens existing on, or provided for underwritten arrangements existing on, the date of the indenture, or, in the case of any such Liens securing Indebtedness of GNC or any of its Subsidiaries existing or arising under written arrangements existing on the date of the indenture, securing any Refinancing Indebtedness (except for Refinancing Indebtedness that was incurred in exchange for, or the net proceeds of which were used to refund, refinance or replace, Indebtedness that was permitted to be incurred under Credit Facilities pursuant to clause (1) or (14) of the definition of Permitted Debt) in respect of such Indebtedness so long as the Lien securing such Refinancing Indebtedness is limited to all or part of the same property or assets, plus improvements, accessions, proceeds or dividends or distributions in respect thereof, that secured, or under such written arrangements could secure, the original Indebtedness; | |
(8) Liens securing Hedging Obligations Incurred in compliance with the covenant described under “— Certain Covenants — Limitation on Indebtedness;” | |
(9) Liens arising out of judgments, decrees, orders or awards in respect of which GNC shall in good faith be prosecuting an appeal or proceedings for review which appeal or proceedings shall not have been finally terminated, or the period within which such appeal or proceedings may be initiated shall not have expired and Liens arising from final judgments only to the extent, in an amount and for a period not resulting in an Event of Default with respect thereto; | |
(10) Liens existing on property or assets of a Person at the time such Person becomes a Subsidiary of GNC, or at the time GNC or a Restricted Subsidiary acquires such property or assets;provided, however, that such Liens are not created in connection with, or in contemplation of, such other Person becoming such a Subsidiary, or such acquisition of such property or assets, and that such Liens are limited to all or part of the same property or assets, plus improvements, accessions, proceeds or dividends or distributions in respect thereof, that secured, or, under the written arrangements under which such Liens arose, could secure, the obligations to which such Liens relate; | |
(11) Liens on Capital Stock of an Unrestricted Subsidiary that secure Indebtedness or other obligations of such Unrestricted Subsidiary; | |
(12) Liens securing the notes or the Note Guarantees; | |
(13) Liens on assets of GNC or a Receivables Subsidiary incurred in connection with a Qualified Receivables Transaction; | |
(14) Liens securing Refinancing Indebtedness (except for Refinancing Indebtedness that was incurred in exchange for, or the net proceeds of which were used to refund, refinance or replace, Indebtedness that was permitted to be incurred under Credit Facilities pursuant to clause (1) or (14) of the definition of Permitted Debt) Incurred in respect of any Indebtedness secured by, or securing any refinancing, refunding, extension, renewal or replacement, in whole or in part, of any other obligation secured by, any other Permitted Liens;providedthat any such new Lien is limited to all or part of the same property or assets, plus improvements, accessions, proceeds or dividends or distributions in respect thereof, that secured, or, under the written arrangements under which the original Lien arose, could secure, the obligations to which such Liens relate; | |
(15) survey exceptions, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property that were not incurred in connection with Indebtedness and that |
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do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person; | |
(16) Liens to secure Indebtedness permitted by clause (7) of the second paragraph of the covenant described under “— Certain Covenants — Limitation on Indebtedness”;providedthat (a) any such Lien attaches to such assets concurrently with or within 180 days after the acquisition, construction or capital improvement thereof, (b) such Lien attaches solely to the assets so acquired, constructed or improved in such transaction and (c) the principal amount of the Indebtedness secured thereby does not exceed 100% of the cost of such assets; | |
(17) Liens arising out of conditional sale, title retention, consignment or similar arrangements for sale of goods in the ordinary course of business; | |
(18) licenses of intellectual property granted in the ordinary course of business; | |
(19) Liens in favor of customs or revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; | |
(20) Liens in favor GNC or any Restricted Subsidiary; and | |
(21) Liens incurred with respect to Obligations that do not exceed $25.0 million at any one time outstanding. |
(1) payments to the Parent to permit the Parent to pay reasonable directors fees and expenses when due and reasonable accounting, legal and administrative expenses of the Parent when due in an aggregate amount not to exceed $250,000 per annum; and | |
(2) for so long as GNC is a member of a group filing a consolidated, combined or other similar group tax return with the Parent, payments to the Parent in respect of an allocable portion of the tax liabilities of such group that is attributable to GNC and its Subsidiaries(“Tax Payments”). The Tax Payments shall not exceed the lesser of (i) the amount of the relevant tax (including any penalties and interest) that GNC would owe if GNC and its Subsidiaries were filing a separate tax return (or a separate consolidated or combined return with its Subsidiaries that are members of the consolidated or combined group), taking into account any carryovers and carrybacks of tax attributes (such as net operating losses) of GNC and such Subsidiaries from other taxable years (as reduced by the use of such carryovers and carrybacks by the group of which the Parent is a member) and (ii) the amount of the relevant tax, taking into account any allowed tax credits, that the Parent actually owes to the appropriate taxing authority. Any Tax Payments received from GNC shall be paid over to the appropriate taxing authority within 30 days of the Parent’s receipt of such Tax Payments or refunded to GNC. |
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(1) no portion of the Indebtedness or any other Obligations (contingent or otherwise) of which: |
(a) is guaranteed by GNC or any Restricted Subsidiary (excluding guarantees of Obligations (other than the principal of, and interest on, Indebtedness) pursuant to representations, warranties, covenants and indemnities entered into in the ordinary course of business in connection with a Qualified Receivables Transaction); | |
(b) is recourse to or obligates GNC or any Restricted Subsidiary in any way other than pursuant to representations, warranties, covenants and indemnities entered into in the ordinary course of business in connection with a Qualified Receivables Transaction; or | |
(c) subjects any property or asset of GNC or any Restricted Subsidiary (other than franchise accounts receivable and related assets as provided in the definition of “Qualified Receivables Transaction”), directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to representations, warranties, covenants and indemnities entered into in the ordinary course of business in connection with a Qualified Receivables Transaction; |
(2) with which neither GNC nor any Restricted Subsidiary has any material contract, agreement, arrangement or understanding other than on terms no less favorable to GNC or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of GNC, other than fees payable in the ordinary course of business in connection with servicing franchise accounts receivable; and | |
(3) with which neither GNC nor any Restricted Subsidiary has any obligation to maintain or preserve such Subsidiary’s financial condition or cause such Subsidiary to achieve certain levels of operating results. Any such designation by the Board of Directors will be evidenced to the Trustee by filing with the Trustee a certified copy of the resolution of the Board of Directors giving effect to such designation and an Officer’s Certificate certifying that such designation complied with the foregoing conditions. |
(1) the Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being refinanced; | |
(2) the Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being refinanced; | |
(3) if the Indebtedness being refunded, refinanced, replaced, renewed, repaid, extended, defeased or discharged is Subordinated Obligations, such Refinancing Indebtedness is subordinated in right of payment to the notes on terms at least as favorable to the holders of notes as those contained in the |
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documentation governing the Indebtedness being refunded, refinanced, replaced, renewed, repaid, extended, defeased or discharged; | |
(4) such Refinancing Indebtedness is Incurred in an aggregate principal amount, or if issued with original issue discount, an aggregate issue price, that is equal to or less than the aggregate principal amount, or if issued with original issue discount, the aggregate accreted value, then outstanding of the Indebtedness being refinanced, plus fees, underwriting discounts, premiums and other costs and expenses Incurred in connection with such Refinancing Indebtedness;provided further, however, that Refinancing Indebtedness shall not include: |
(a) Indebtedness of a Restricted Subsidiary that refinances Indebtedness of GNC; or | |
(b) Indebtedness of GNC or a Restricted Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary; and |
(5) in the case of Indebtedness of GNC or a Guarantor, such Refinancing Indebtedness is Incurred by GNC, a Guarantor or by the Subsidiary who is the obligor on the Indebtedness being refinanced. |
(1) any controlling equityholder, 80% (or more) owned Subsidiary, or immediate family member (in the case of an individual) of any Permitted Holder; or | |
(2) any trust, corporation, partnership, limited liability company or other entity, the beneficiaries, stockholders, partners, members, owners or Persons beneficially holding an 80% or more controlling interest of which consist of any one or more Permitted Holders and/or such other Persons referred to in the immediately preceding clause (1). |
(1) any Subsidiary that would be a “significant subsidiary” as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date of the indenture; and | |
(2) any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary. |
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(1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders’ agreement that effectively transfers voting power) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and | |
(2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any combination thereof). |
(1) any Subsidiary of GNC that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below; and | |
(2) any Subsidiary of an Unrestricted Subsidiary. |
(a) the Subsidiary to be so designated has total consolidated assets of $100,000 or less; or | |
(b) if such Subsidiary has consolidated assets greater than $100,000, then such designation would be permitted under “— Certain Covenants — Limitation on Restricted Payments.” |
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(a) GNC could Incur at least $1.00 of additional Indebtedness under the first paragraph of the covenant described under “— Certain Covenants — Limitation on Indebtedness;” and | |
(b) no Default or Event of Default shall have occurred and be continuing. |
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• | in the over-the-counter market, | |
• | in negotiated transactions, | |
• | through the writing of options on the new notes, or | |
• | a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. |
• | may not rely on the applicable interpretation of the staff of the SEC’s position contained inExxon Capital Holdings Corp., SEC no-action letter (April 13, 1988),Morgan, Stanley and Co. Inc., SEC no-action letter (June 5, 1991) andShearman & Sterling, SEC no-action letter (July 2, 1983); and | |
• | must also be named as a selling noteholder in connection with the registration and prospectus delivery requirements of the Securities Act relating to any resale transaction. |
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December 31, | December 31, | ||||||||||
2003 | 2004 | ||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 33,176 | $ | 85,161 | |||||||
Receivables, net (Note 3) | 87,984 | 70,013 | |||||||||
Inventories, net (Note 4) | 256,000 | 272,254 | |||||||||
Deferred tax assets, net (Note 5) | 15,946 | 14,133 | |||||||||
Other current assets (Note 6) | 27,480 | 35,775 | |||||||||
Total current assets | 420,586 | 477,336 | |||||||||
Long-term assets: | |||||||||||
Goodwill (Note 7) | 83,089 | 78,585 | |||||||||
Brands (Note 7) | 212,000 | 212,000 | |||||||||
Other intangible assets, net (Note 7) | 32,667 | 28,652 | |||||||||
Property, plant and equipment, net (Note 8) | 201,280 | 195,409 | |||||||||
Deferred financing fees, net | 19,796 | 18,130 | |||||||||
Deferred tax assets, net (Note 5) | 15,289 | 1,093 | |||||||||
Other long-term assets (Note 9) | 34,160 | 21,393 | |||||||||
Total long-term assets | 598,281 | 555,262 | |||||||||
Total assets | $ | 1,018,867 | $ | 1,032,598 | |||||||
Current liabilities: | |||||||||||
Accounts payable (Note 10) | $ | 102,926 | $ | 106,557 | |||||||
Accrued payroll and related liabilities (Note 11) | 33,277 | 20,353 | |||||||||
Accrued income taxes (Note 5) | 438 | — | |||||||||
Accrued interest (Note 13) | 1,799 | 1,863 | |||||||||
Current portion, long-term debt (Note 13) | 3,830 | 3,901 | |||||||||
Other current liabilities (Note 12) | 78,271 | 61,162 | |||||||||
Total current liabilities | 220,541 | 193,836 | |||||||||
Long-term liabilities: | |||||||||||
Long-term debt (Note 13) | 510,374 | 506,474 | |||||||||
Other long-term liabilities | 9,796 | 9,866 | |||||||||
Total long-term liabilities | 520,170 | 516,340 | |||||||||
Total liabilities | 740,711 | 710,176 | |||||||||
Stockholder’s equity (Note 17): | |||||||||||
Common stock, $0.01 par value, 1,000 shares authorized, 100 shares issued and outstanding | — | — | |||||||||
Paid-in-capital | 277,500 | 278,258 | |||||||||
Retained earnings | 354 | 43,001 | |||||||||
Accumulated other comprehensive income (Note 20) | 302 | 1,163 | |||||||||
Total stockholder’s equity | 278,156 | 322,422 | |||||||||
Total liabilities and stockholder’s equity | $ | 1,018,867 | $ | 1,032,598 | |||||||
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Predecessor | Successor | |||||||||||||||
Twelve Months | Twelve Months | |||||||||||||||
Ended | Period Ended | 27 Days Ended | Ended | |||||||||||||
December 31, | December 4, | December 31, | December 31, | |||||||||||||
2002 | 2003 | 2003 | 2004 | |||||||||||||
Revenue | $ | 1,424,976 | $ | 1,340,209 | $ | 89,288 | $ | 1,344,742 | ||||||||
Cost of sales, including costs of warehousing, distribution and occupancy | 969,908 | 934,860 | 63,580 | 895,235 | ||||||||||||
Gross profit | 455,068 | 405,349 | 25,708 | 449,507 | ||||||||||||
Compensation and related benefits | 245,165 | 234,990 | 16,719 | 229,957 | ||||||||||||
Advertising and promotion | 52,026 | 38,413 | 514 | 43,955 | ||||||||||||
Other selling, general and administrative | 86,048 | 70,938 | 5,098 | 73,728 | ||||||||||||
Income from legal settlements | (214,409 | ) | (7,190 | ) | — | — | ||||||||||
Foreign currency loss/(gain) | 3,168 | (2,895 | ) | 22 | (290 | ) | ||||||||||
Impairment of goodwill and intangible assets (Note 7) | 222,000 | 709,367 | — | — | ||||||||||||
Operating income (loss) | 61,070 | (638,274 | ) | 3,355 | 102,157 | |||||||||||
Interest expense, net (Note 9) | 136,353 | 121,125 | 2,773 | 34,432 | ||||||||||||
Gain on sale of marketable securities | (5,043 | ) | — | — | — | |||||||||||
(Loss) income before income taxes | (70,240 | ) | (759,399 | ) | 582 | 67,725 | ||||||||||
Income tax expense (benefit) (Note 5) | 996 | (174,478 | ) | 228 | 25,078 | |||||||||||
Net (loss) income before cumulative effect of accounting change | (71,236 | ) | (584,921 | ) | 354 | 42,647 | ||||||||||
Loss from cumulative effect of accounting change, net of tax (Note 7) | (889,621 | ) | — | — | — | |||||||||||
Net (loss) income | (960,857 | ) | (584,921 | ) | 354 | 42,647 | ||||||||||
Other comprehensive (loss) income (Note 20) | (1,853 | ) | 1,603 | 302 | 861 | |||||||||||
Comprehensive (loss) income | $ | (962,710 | ) | $ | (583,318 | ) | $ | 656 | $ | 43,508 | ||||||
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Common Stock | Other | Total | ||||||||||||||||||||||
Additional | Retained | Comprehensive | Stockholder’s | |||||||||||||||||||||
Shares | Dollars | Paid-in-Capital | Earnings | (Loss)/Income | (Deficit) Equity | |||||||||||||||||||
Predecessor | ||||||||||||||||||||||||
Balance at December 31, 2002 | 100 | $ | — | $ | 690,955 | $ | (1,183,231 | ) | $ | (1,476 | ) | $ | (493,752 | ) | ||||||||||
Net loss | — | — | — | (584,921 | ) | — | (584,921 | ) | ||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | 1,603 | 1,603 | ||||||||||||||||||
Balance at December 4, 2003 | 100 | $ | — | $ | 690,955 | $ | (1,768,152 | ) | $ | 127 | $ | (1,077,070 | ) | |||||||||||
Successor | ||||||||||||||||||||||||
GNC Corporation investment in General Nutrition Centers, Inc. | 100 | $ | — | $ | 277,500 | $ | — | $ | — | $ | 277,500 | |||||||||||||
Net income | — | — | — | 354 | — | 354 | ||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | 302 | 302 | ||||||||||||||||||
Balance at December 31, 2003 | 100 | $ | — | $ | 277,500 | $ | 354 | $ | 302 | $ | 278,156 | |||||||||||||
GNC Corporation investment in General Nutrition Centers, Inc. | — | $ | — | $ | 758 | $ | — | $ | — | $ | 758 | |||||||||||||
Net income | — | — | — | 42,647 | — | 42,647 | ||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | 861 | 861 | ||||||||||||||||||
Balance at December 31, 2004 | 100 | $ | — | $ | 278,258 | $ | 43,001 | $ | 1,163 | $ | 322,422 | |||||||||||||
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Predecessor | Successor | ||||||||||||||||||
Twelve Months | Twelve Months | ||||||||||||||||||
Ended | Period Ended | 27 Days Ended | Ended | ||||||||||||||||
December 31, | December 4, | December 31, | December 31, | ||||||||||||||||
2002 | 2003 | 2003 | 2004 | ||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||||||||||
Net (loss)/income | $ | (960,857 | ) | $ | (584,921 | ) | $ | 354 | $ | 42,647 | |||||||||
Depreciation expense | 46,461 | 50,880 | 1,950 | 34,778 | |||||||||||||||
Loss from cumulative effect of accounting change, net of tax | 889,621 | — | — | — | |||||||||||||||
Impairment of goodwill and intangible assets | 222,000 | 709,367 | — | — | |||||||||||||||
Amortization of intangible assets | 11,536 | 8,171 | 303 | 4,015 | |||||||||||||||
Amortization of deferred financing fees | — | — | 224 | 2,772 | |||||||||||||||
Increase in provision for inventory losses | 33,911 | 27,701 | 2,237 | 9,588 | |||||||||||||||
Changes in stock-based compensation | (2,030 | ) | — | — | — | ||||||||||||||
Stock appreciation rights compensation | — | 4,347 | — | — | |||||||||||||||
Provision for losses on accounts receivable | 5,285 | 1,953 | 767 | 1,828 | |||||||||||||||
Gain on sale of marketable securities | (5,043 | ) | — | — | — | ||||||||||||||
(Increase) decrease in net deferred taxes | (44,908 | ) | (197,629 | ) | (210 | ) | 24,154 | ||||||||||||
Changes in assets and liabilities: | |||||||||||||||||||
(Increase) decrease in receivables | (132,581 | ) | 57,933 | 2,119 | 1,590 | ||||||||||||||
(Increase) decrease in inventory, net | (11,695 | ) | 1,258 | 1,581 | (24,658 | ) | |||||||||||||
Decrease in franchise note receivables, net | 8,069 | 1,546 | 1,326 | 11,572 | |||||||||||||||
Decrease (increase) in other assets | 9,125 | (5,597 | ) | (4,950 | ) | (5,740 | ) | ||||||||||||
Increase (decrease) in accounts payable | 18,800 | (3,245 | ) | (5,342 | ) | 3,855 | |||||||||||||
Increase (decrease) in accrued taxes | 25,541 | 5,638 | 438 | (438 | ) | ||||||||||||||
Increase in interest payable | — | — | 1,799 | 64 | |||||||||||||||
(Decrease) increase in accrued liabilities | (2,200 | ) | 15,466 | 2,092 | (22,559 | ) | |||||||||||||
Net cash provided by operating activities | 111,035 | 92,868 | 4,688 | 83,468 | |||||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||||||||||
Capital expenditures | (51,899 | ) | (31,020 | ) | (1,827 | ) | (28,329 | ) | |||||||||||
Franchise store conversions | 4,254 | 2,760 | 24 | 169 | |||||||||||||||
Store acquisition costs | (4,055 | ) | (3,193 | ) | (81 | ) | (979 | ) | |||||||||||
Investments, loans and advances to investees | (200 | ) | — | — | — | ||||||||||||||
Acquisition of General Nutrition Companies, Inc. | — | — | (738,117 | ) | 2,102 | ||||||||||||||
Proceeds from sale of marketable securities | 7,443 | — | — | — | |||||||||||||||
Net cash used in investing activities | (44,457 | ) | (31,453 | ) | (740,001 | ) | (27,037 | ) | |||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||||||||||
GNC Corporation investment in General Nutrition Centers, Inc | — | — | 277,500 | 758 | |||||||||||||||
(Decrease) increase in cash overdrafts | (1,112 | ) | 1,915 | 1,735 | (347 | ) | |||||||||||||
Payments on short-term debt — related party | (42,341 | ) | — | — | — | ||||||||||||||
Payments on long-term debt — related party | — | (91,794 | ) | — | — | ||||||||||||||
Payments on long-term debt — third parties | (847 | ) | (887 | ) | — | (3,828 | ) | ||||||||||||
Borrowings from senior credit facility | — | — | 285,000 | — | |||||||||||||||
Proceeds from senior subordinated notes | — | — | 215,000 | — | |||||||||||||||
Deferred financing fees | — | — | (20,020 | ) | (1,106 | ) | |||||||||||||
Net cash (used in)/provided by financing activities | (44,300 | ) | (90,766 | ) | 759,215 | (4,523 | ) | ||||||||||||
Effect of exchange rate on cash | 175 | 12 | (152 | ) | 77 | ||||||||||||||
Net increase (decrease) in cash | 22,453 | (29,339 | ) | 23,750 | 51,985 | ||||||||||||||
Beginning balance, cash | 16,312 | 38,765 | 9,426 | 33,176 | |||||||||||||||
Ending balance, cash | $ | 38,765 | $ | 9,426 | $ | 33,176 | $ | 85,161 | |||||||||||
F-7
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Note 1. | Nature of Business |
F-8
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Original | Adjusted | |||||||||
December 5, 2003 | December 5, 2003 | |||||||||
(in thousands) | ||||||||||
Assets: | ||||||||||
Current assets | $ | 438,933 | $ | 449,376 | ||||||
Goodwill | 83,089 | 78,582 | ||||||||
Other intangible assets | 244,970 | 244,970 | ||||||||
Property, plant and equipment | 201,287 | 201,287 | ||||||||
Other assets | 54,426 | 48,649 | ||||||||
Total assets | 1,022,705 | 1,022,864 | ||||||||
Liabilities: | ||||||||||
Current liabilities | 217,033 | 217,192 | ||||||||
Long-term debt | 513,217 | 513,217 | ||||||||
Other liabilities | 14,955 | 14,955 | ||||||||
Total liabilities | 745,205 | 745,364 | ||||||||
GNC Corporation investment in General Nutrition Centers, Inc. | $ | 277,500 | $ | 277,500 | ||||||
Note 2. | Basis of Presentation and Summary of Significant Accounting Policies |
F-9
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Successor |
Predecessor |
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Predecessor | Successor | |||||||||||||||
Twelve Months | 27 Days | Twelve Months | ||||||||||||||
Ended | Period Ended | Ended | Ended | |||||||||||||
December 31, | December 4, | December 31, | December 31, | |||||||||||||
2002 | 2003 | 2003 | 2004 | |||||||||||||
(in thousands) | ||||||||||||||||
Net (loss) income as reported | $ | (960,857 | ) | $ | (584,921 | ) | $ | 354 | $ | 42,647 | ||||||
Less: total stock based employee compensation costs determined using fair value method, net of related tax effects | (657 | ) | (215 | ) | (560 | ) | (873 | ) | ||||||||
Adjusted net (loss) income | $ | (961,514 | ) | $ | (585,136 | ) | $ | (206 | ) | $ | 41,774 | |||||
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December 31, | December 31, | |||||||
2003 | 2004 | |||||||
(in thousands) | ||||||||
Trade receivables | $ | 76,270 | $ | 69,884 | ||||
Related party receivables | — | 1,866 | ||||||
Contingent purchase price receivable | 12,711 | — | ||||||
Other | 6,747 | 5,477 | ||||||
Allowance for doubtful accounts | (7,744 | ) | (7,214 | ) | ||||
$ | 87,984 | $ | 70,013 | |||||
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Note 4. | Inventories |
December 31, 2003 | ||||||||||||
Net Carrying | ||||||||||||
Gross Cost | Reserves | Value | ||||||||||
(in thousands) | ||||||||||||
Finished product ready for sale | $ | 235,984 | $ | (15,319 | ) | $ | 220,665 | |||||
Unpackaged bulk product and raw materials | 35,615 | (3,932 | ) | 31,683 | ||||||||
Packaging supplies | 3,652 | — | 3,652 | |||||||||
$ | 275,251 | $ | (19,251 | ) | $ | 256,000 | ||||||
December 31, 2004 | ||||||||||||
Net Carrying | ||||||||||||
Gross Cost | Reserves | Value | ||||||||||
(in thousands) | ||||||||||||
Finished product ready for sale | $ | 242,578 | $ | (11,542 | ) | $ | 231,036 | |||||
Unpackaged bulk product and raw materials | 41,607 | (3,019 | ) | 38,588 | ||||||||
Packaging supplies | 2,630 | — | 2,630 | |||||||||
$ | 286,815 | $ | (14,561 | ) | $ | 272,254 | ||||||
Note 5. | Income Taxes |
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December 31, 2003 | December 31, 2004 | ||||||||||||||||||||||||
Assets | Liabilities | Net | Assets | Liabilities | Net | ||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||
Deferred tax: | |||||||||||||||||||||||||
Current assets (liabilities): | |||||||||||||||||||||||||
Operating reserves | $ | — | $ | — | $ | — | $ | 2,958 | $ | — | $ | 2,958 | |||||||||||||
Inventory capitalization | 5,267 | (664 | ) | 4,603 | 1,237 | — | 1,237 | ||||||||||||||||||
Deferred revenue | 11,343 | — | 11,343 | 11,001 | — | 11,001 | |||||||||||||||||||
Prepaid expenses | — | — | — | — | (7,390 | ) | (7,390 | ) | |||||||||||||||||
Accrued worker compensation | — | — | — | 2,906 | — | 2,906 | |||||||||||||||||||
Other | — | — | — | 3,781 | (360 | ) | 3,421 | ||||||||||||||||||
Total current | $ | 16,610 | $ | (664 | ) | $ | 15,946 | $ | 21,883 | $ | (7,750 | ) | $ | 14,133 | |||||||||||
Non-current assets (liabilities): | |||||||||||||||||||||||||
Intangibles | $ | — | $ | (475 | ) | $ | (475 | ) | $ | — | $ | (4,080 | ) | $ | (4,080 | ) | |||||||||
Fixed assets | 14,233 | (2,604 | ) | 11,629 | 8,411 | (2,465 | ) | 5,946 | |||||||||||||||||
Other | 4,280 | (145 | ) | 4,135 | 2,753 | (3,526 | ) | (773 | ) | ||||||||||||||||
Total non-current | $ | 18,513 | $ | (3,224 | ) | $ | 15,289 | $ | 11,164 | $ | (10,071 | ) | $ | 1,093 | |||||||||||
Total net deferred taxes | $ | 35,123 | $ | (3,888 | ) | $ | 31,235 | $ | 33,047 | $ | (17,821 | ) | $ | 15,226 | |||||||||||
F-20
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Predecessor | Successor | ||||||||||||||||
Twelve Months | Period | 27 Days | Twelve Months | ||||||||||||||
Ended | Ended | Ended | Ended | ||||||||||||||
December 31, | December 4, | December 31, | December 31, | ||||||||||||||
2002 | 2003 | 2003 | 2004 | ||||||||||||||
(in thousands) | |||||||||||||||||
Current: | |||||||||||||||||
Federal | $ | 43,637 | $ | 22,145 | $ | 420 | $ | 558 | |||||||||
State | 2,267 | 1,006 | 18 | 258 | |||||||||||||
Foreign | — | — | — | 108 | |||||||||||||
45,904 | 23,151 | 438 | 924 | ||||||||||||||
Deferred: | |||||||||||||||||
Federal | (40,856 | ) | (218,770 | ) | (202 | ) | 22,365 | ||||||||||
State | (4,052 | ) | (12,904 | ) | (8 | ) | 1,852 | ||||||||||
Foreign | — | — | — | (63 | ) | ||||||||||||
(44,908 | ) | (231,674 | ) | (210 | ) | 24,154 | |||||||||||
Valuation allowance | — | 34,045 | — | — | |||||||||||||
Income tax expense (benefit) | $ | 996 | $ | (174,478 | ) | $ | 228 | $ | 25,078 | ||||||||
Predecessor | Successor | ||||||||||||||||
Twelve Months | Period | 27 Days | Twelve Months | ||||||||||||||
Ended | Ended | Ended | Ended | ||||||||||||||
December 31, | December 4, | December 31, | December 31, | ||||||||||||||
2002 | 2003 | 2003 | 2004 | ||||||||||||||
Percent of pretax earnings: | |||||||||||||||||
Statutory federal tax rate | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | |||||||||
Increase/(decrease): | |||||||||||||||||
Goodwill amortization, impairment | (37.6 | )% | (9.6 | )% | — | — | |||||||||||
State income tax, net of federal tax benefit | 0.8 | % | 0.5 | % | 0.6 | % | 2.4 | % | |||||||||
Other | 0.4 | % | 1.6 | % | 3.6 | % | (0.4 | %) | |||||||||
Valuation allowance | — | (4.5 | )% | — | — | ||||||||||||
Effective income tax rate | (1.4 | )% | 23.0 | % | 39.2 | % | 37.0 | % | |||||||||
F-21
Table of Contents
Note 6. | Other Current Assets |
December 31, | December 31, | ||||||||
2003 | 2004 | ||||||||
(in thousands) | |||||||||
Current portion of franchise note receivables | $ | 7,635 | $ | 5,087 | |||||
Less: allowance for doubtful accounts | (971 | ) | (634 | ) | |||||
Prepaid rent | 11,525 | 11,316 | |||||||
Prepaid insurance | 2,003 | 6,404 | |||||||
Other current assets | 7,288 | 13,602 | |||||||
$ | 27,480 | $ | 35,775 | ||||||
Note 7. | Goodwill, Brands, and Other Intangible Assets |
F-22
Table of Contents
Manufacturing/ | ||||||||||||||||
Retail | Franchising | Wholesale | Total | |||||||||||||
(in thousands) | ||||||||||||||||
Predecessor | ||||||||||||||||
Balance at December 31, 2002 | $ | 34,312 | $ | 210,906 | $ | 3,620 | $ | 248,838 | ||||||||
Impairment | (34,312 | ) | (199,435 | ) | (3,620 | ) | (237,367 | ) | ||||||||
Goodwill recorded related to franchisee store purchases | 914 | — | — | 914 | ||||||||||||
Balance at December 4, 2003 | $ | 914 | $ | 11,471 | $ | — | $ | 12,385 | ||||||||
Successor | ||||||||||||||||
Balance at December 5, 2003 | $ | 19,086 | $ | 63,563 | $ | 440 | $ | 83,089 | ||||||||
Balance at December 31, 2003 | $ | 19,086 | $ | 63,563 | $ | 440 | $ | 83,089 | ||||||||
Adjustments from contingent consideration | 2,087 | 812 | — | 2,899 | ||||||||||||
Purchase accounting adjustments | (3,547 | ) | (3,855 | ) | (1 | ) | (7,403 | ) | ||||||||
Goodwill balance at December 31, 2004 | $ | 17,626 | $ | 60,520 | $ | 439 | $ | 78,585 | ||||||||
F-23
Table of Contents
Retail | Franchise | Operating | ||||||||||||||||||||||
Gold Card | Brand | Brand | Agreements | Other | Total | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Predecessor | ||||||||||||||||||||||||
Balance at December 31, 2002 | $ | — | $ | 360,000 | $ | 306,000 | $ | 68,221 | $ | 2,248 | $ | 736,469 | ||||||||||||
Amortization expense | — | — | — | (6,873 | ) | (1,298 | ) | (8,171 | ) | |||||||||||||||
Impairment | — | (323,000 | ) | (149,000 | ) | — | — | (472,000 | ) | |||||||||||||||
Balance at December 4, 2003 | $ | — | $ | 37,000 | $ | 157,000 | $ | 61,348 | $ | 950 | $ | 256,298 | ||||||||||||
Successor | ||||||||||||||||||||||||
Balance at December 5, 2003 | $ | 2,570 | $ | 49,000 | $ | 163,000 | $ | 30,400 | $ | — | $ | 244,970 | ||||||||||||
Amortization expense | (85 | ) | — | — | (218 | ) | — | (303 | ) | |||||||||||||||
Balance at December 31, 2003 | $ | 2,485 | $ | 49,000 | $ | 163,000 | $ | 30,182 | $ | — | $ | 244,667 | ||||||||||||
Amortization expense | (1,072 | ) | — | — | (2,943 | ) | — | (4,015 | ) | |||||||||||||||
Balance at December 31, 2004 | $ | 1,413 | $ | 49,000 | $ | 163,000 | $ | 27,239 | $ | — | $ | 240,652 | ||||||||||||
December 31, 2003 | December 31, 2004 | |||||||||||||||||||||||
Accumulated | Carrying | Accumulated | Carrying | |||||||||||||||||||||
Cost | Amortization | Amount | Cost | Amortization | Amount | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Brands — retail | $ | 49,000 | $ | — | $ | 49,000 | $ | 49,000 | $ | — | $ | 49,000 | ||||||||||||
Brands — franchise | 163,000 | — | 163,000 | 163,000 | — | 163,000 | ||||||||||||||||||
Gold card — retail | 2,230 | (61 | ) | 2,169 | 2,230 | (1,004 | ) | 1,226 | ||||||||||||||||
Gold card — franchise | 340 | (24 | ) | 316 | 340 | (153 | ) | 187 | ||||||||||||||||
Retail agreements | 8,500 | (88 | ) | 8,412 | 8,500 | (1,267 | ) | 7,233 | ||||||||||||||||
Franchise agreements | 21,900 | (130 | ) | 21,770 | 21,900 | (1,894 | ) | 20,006 | ||||||||||||||||
$ | 244,970 | $ | (303 | ) | $ | 244,667 | $ | 244,970 | $ | (4,318 | ) | $ | 240,652 | |||||||||||
F-24
Table of Contents
Estimated | ||||
Amortization | ||||
Years Ending December 31, | Expense | |||
(in thousands) | ||||
2005 | $ | 3,843 | ||
2006 | 3,457 | |||
2007 | 2,943 | |||
2008 | 2,894 | |||
2009 | 2,283 | |||
Thereafter | 13,232 | |||
Total | $ | 28,652 | ||
Note 8. | Property, Plant and Equipment |
December 31, | December 31, | |||||||
2003 | 2004 | |||||||
(in thousands) | ||||||||
Land, buildings and improvements | $ | 59,445 | $ | 60,057 | ||||
Machinery and equipment | 56,673 | 66,162 | ||||||
Leasehold improvements | 35,560 | 42,263 | ||||||
Furniture and fixtures | 42,077 | 50,643 | ||||||
Software | 8,964 | 10,970 | ||||||
Construction in progress | 511 | 6 | ||||||
Total property, plant and equipment | $ | 203,230 | $ | 230,101 | ||||
Less: accumulated depreciation | (1,950 | ) | (34,692 | ) | ||||
Net property, plant and equipment | $ | 201,280 | $ | 195,409 | ||||
F-25
Table of Contents
Note 9. | Other Long-Term Assets |
December 31, | December 31, | |||||||
2003 | 2004 | |||||||
(in thousands) | ||||||||
Long-term franchise notes receivables | $ | 30,078 | $ | 20,726 | ||||
Long-term deposit | 9,070 | 5,077 | ||||||
Other | 1,287 | — | ||||||
Allowance for doubtful accounts | (6,275 | ) | (4,410 | ) | ||||
$ | 34,160 | $ | 21,393 | |||||
Years Ending December 31, | Receivables | |||
(in thousands) | ||||
2005 | $ | 5,087 | ||
2006 | 5,275 | |||
2007 | 5,064 | |||
2008 | 3,481 | |||
2009 | 726 | |||
Thereafter | 6,180 | |||
Total | $ | 25,813 | ||
Note 10. | Accounts Payable |
December 31, | December 31, | |||||||
2003 | 2004 | |||||||
(in thousands) | ||||||||
Trade payables | $ | 98,435 | $ | 102,413 | ||||
Cash overdrafts | 4,491 | 4,144 | ||||||
Total | $ | 102,926 | $ | 106,557 | ||||
F-26
Table of Contents
Note 11. | Accrued Payroll and Related Liabilities |
December 31, | December 31, | |||||||
2003 | 2004 | |||||||
(in thousands) | ||||||||
Accrued payroll | $ | 27,688 | $ | 15,201 | ||||
Accrued taxes & benefits | 5,589 | 5,152 | ||||||
Total | $ | 33,277 | $ | 20,353 | ||||
F-27
Table of Contents
Change in Control/ | ||||||||||||
Retention | Severance | Total | ||||||||||
(in thousands) | ||||||||||||
Predecessor | ||||||||||||
Balance at December 31, 2002 | $ | — | $ | 2,418 | $ | 2,418 | ||||||
Severance accruals | — | 1,713 | 1,713 | |||||||||
Severance payments | — | (3,207 | ) | (3,207 | ) | |||||||
Change in control/retention accrual | 8,673 | — | 8,673 | |||||||||
Balance at December 4, 2003 | $ | 8,673 | $ | 924 | $ | 9,597 | ||||||
Successor | ||||||||||||
Severance accruals | $ | — | $ | 1,400 | $ | 1,400 | ||||||
Change in control accrual | 563 | — | 563 | |||||||||
Severance payments | — | (126 | ) | (126 | ) | |||||||
Balance at December 31, 2003 | $ | 9,236 | $ | 2,198 | $ | 11,434 | ||||||
Severance accruals | $ | — | $ | 2,049 | $ | 2,049 | ||||||
Change in control accrual | 2,911 | — | 2,911 | |||||||||
Change in control/retention payments | (12,147 | ) | — | (12,147 | ) | |||||||
Severance payments | — | (2,516 | ) | (2,516 | ) | |||||||
Balance at December 31, 2004 | $ | — | $ | 1,731 | $ | 1,731 | ||||||
Note 12. | Other Current Liabilities |
December 31, | December 31, | |||||||
2003 | 2004 | |||||||
(in thousands) | ||||||||
Deferred revenue | $ | 31,077 | $ | 29,298 | ||||
Accrued occupancy | 4,735 | 4,443 | ||||||
Accrued acquisition costs | 7,750 | — | ||||||
Accrued store closing costs | 7,600 | — | ||||||
Accrued worker compensation | 5,083 | 7,854 | ||||||
Accrued taxes | 6,018 | 6,977 | ||||||
Other current liabilities | 16,008 | 12,590 | ||||||
Total | $ | 78,271 | $ | 61,162 | ||||
F-28
Table of Contents
Note 13. | Long-Term Debt |
F-29
Table of Contents
Redemption | ||||
Period | Price | |||
2007 | 104.250% | |||
2008 | 102.125% | |||
2009 and after | 100.000% |
December 31, | December 31, | |||||||
2003 | 2004 | |||||||
(in thousands) | ||||||||
Mortgage | $ | 14,160 | $ | 13,190 | ||||
Capital leases | 44 | 35 | ||||||
Senior credit facility | 285,000 | 282,150 | ||||||
Senior subordinated notes | 215,000 | 215,000 | ||||||
Less: current maturities | (3,830 | ) | (3,901 | ) | ||||
Total | $ | 510,374 | $ | 506,474 | ||||
Mortgage | Senior | |||||||||||||||
Loan/Capital | Senior | Subordinated | ||||||||||||||
Leases | Credit Facility | Notes | Total | |||||||||||||
(in thousands) | ||||||||||||||||
2005 | $ | 1,051 | $ | 2,850 | $ | — | $ | 3,901 | ||||||||
2006 | 1,141 | 2,850 | — | 3,991 | ||||||||||||
2007 | 1,195 | 2,850 | — | 4,045 | ||||||||||||
2008 | 1,281 | 2,850 | — | 4,131 | ||||||||||||
2009 | 1,373 | 270,750 | — | 272,123 | ||||||||||||
Thereafter | 7,184 | — | 215,000 | 222,184 | ||||||||||||
$ | 13,225 | $ | 282,150 | $ | 215,000 | $ | 510,375 | |||||||||
F-30
Table of Contents
Predecessor | Successor | |||||||||||||||||
Twelve | 27 Days | Twelve | ||||||||||||||||
Months Ended | Period Ended | Ended | Months Ended | |||||||||||||||
December 31, | December 4, | December 31, | December 31, | |||||||||||||||
2002 | 2003 | 2003 | 2004 | |||||||||||||||
(in thousands) | ||||||||||||||||||
Composition of interest expense: | ||||||||||||||||||
Interest on mortgage | $ | 1,078 | $ | 972 | $ | 72 | $ | 1,115 | ||||||||||
Interest on senior credit facility | — | — | 1,111 | 13,485 | ||||||||||||||
Interest on senior subordinated notes | — | — | 1,371 | 18,224 | ||||||||||||||
Interest on related party term loan | 136,875 | 121,542 | — | — | ||||||||||||||
Deferred financing fees | — | — | 224 | 2,772 | ||||||||||||||
Interest income — — other | (1,600 | ) | (1,389 | ) | (5 | ) | (1,164 | ) | ||||||||||
Interest expense, net | $ | 136,353 | $ | 121,125 | $ | 2,773 | $ | 34,432 | ||||||||||
December 31, | December 31, | |||||||
2003 | 2004 | |||||||
(in thousands) | ||||||||
Accrued senior credit facility interest | $ | 429 | $ | 340 | ||||
Accrued subordinated notes interest | 1,370 | 1,523 | ||||||
Total | $ | 1,799 | $ | 1,863 | ||||
F-31
Table of Contents
Note 14. | Financial Instruments |
F-32
Table of Contents
December 31, 2003 | December 31, 2004 | |||||||||||||||
Carrying | Carrying | |||||||||||||||
Amount | Fair Value | Amount | Fair Value | |||||||||||||
(in thousands) | ||||||||||||||||
Cash and cash equivalents | $ | 33,176 | $ | 33,176 | $ | 85,161 | $ | 85,161 | ||||||||
Receivables | 87,984 | 87,984 | 70,013 | 70,013 | ||||||||||||
Long term franchise notes receivable current portion | 6,664 | 6,664 | 4,453 | 4,453 | ||||||||||||
Long term franchise notes receivable | 23,803 | 23,803 | 16,316 | 16,316 | ||||||||||||
Accounts payable | 102,926 | 102,926 | 106,557 | 106,557 | ||||||||||||
Long term debt | 514,204 | 514,204 | 510,375 | 497,475 |
Note 15. | Long-Term Lease Obligations |
F-33
Table of Contents
Predecessor | Successor | |||||||||||||||
Twelve Months | Period Ended | 27 Days Ended | Twelve Months | |||||||||||||
Ended December 31, | December 4, | December 31, | Ended December 31, | |||||||||||||
2002 | 2003 | 2003 | 2004 | |||||||||||||
(in thousands) | ||||||||||||||||
Retail stores: | ||||||||||||||||
Rent on long-term operating leases, net of sublease income | $ | 101,261 | $ | 89,672 | $ | 7,104 | $ | 94,998 | ||||||||
Landlord related taxes | 14,311 | 13,927 | 1,065 | 12,951 | ||||||||||||
Common operating expenses | 27,626 | 27,443 | 1,920 | 27,097 | ||||||||||||
Percent rent | 8,696 | 7,751 | 507 | 8,943 | ||||||||||||
151,894 | 138,793 | 10,596 | 143,989 | |||||||||||||
Truck fleet | 5,475 | 5,451 | 366 | 4,943 | ||||||||||||
Other | 10,022 | 10,602 | 595 | 10,107 | ||||||||||||
$ | 167,391 | $ | 154,846 | $ | 11,557 | $ | 159,039 | |||||||||
Company | Franchise | |||||||||||||||||||
Retail | Retail | Sublease | ||||||||||||||||||
Stores | Stores | Other | Income | Consolidated | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
2005 | $ | 98,642 | $ | 36,143 | $ | 6,594 | $ | (36,143 | ) | $ | 105,236 | |||||||||
2006 | 83,066 | 30,223 | 4,492 | (30,223 | ) | 87,558 | ||||||||||||||
2007 | 64,864 | 22,374 | 3,379 | (22,374 | ) | 68,243 | ||||||||||||||
2008 | 47,685 | 14,952 | 2,700 | (14,952 | ) | 50,385 | ||||||||||||||
2009 | 31,308 | 6,348 | 1,400 | (6,348 | ) | 32,708 | ||||||||||||||
Thereafter | 52,119 | 4,371 | 4,777 | (4,371 | ) | 56,896 | ||||||||||||||
$ | 377,684 | $ | 114,411 | $ | 23,342 | $ | (114,411 | ) | $ | 401,026 | ||||||||||
Note 16. | Commitments and Contingencies |
F-34
Table of Contents
• | Brown v. General Nutrition Companies, Inc., Case No. 02-14221-AB, Florida Circuit Court for the 15th Judicial Circuit Court, Palm Beach County; | |
• | Rodriguez v. General Nutrition Companies, Inc., Index No. 02/126277, New York Supreme Court, County of New York, Commercial Division; | |
• | Abrams v. General Nutrition Companies, Inc., Docket No. L-3789-02, New Jersey Superior Court, Mercer County; | |
• | Toth v. Bodyonics, Ltd., Case No. 003886, Pennsylvania Court of Common Pleas, Philadelphia County; and | |
• | Pio v. General Nutrition Companies, Inc., Case No. 2-CH-14122, Illinois Circuit Court, Cook County. |
F-35
Table of Contents
F-36
Table of Contents
Weighted Average | Weighted Average | ||||||||||||
Total Options | Exercise Price | Fair Value | |||||||||||
Granted effective December 5, 2003 | 2,604,974 | $ | 6.00 | $ | 2.40 | ||||||||
Outstanding at December 31, 2003 | 2,604,974 | 6.00 | |||||||||||
Granted | 362,020 | 6.00 | 1.23 | ||||||||||
Forfeited | (531,601 | ) | 6.00 | ||||||||||
Outstanding at December 31, 2004 | 2,435,393 | 6.00 | |||||||||||
2003 | 2004 | |||
Dividend yield | 0.00% | 0.00% | ||
Expected option life | 5 years | 5 years | ||
Volatility factor percentage of market price | 40.00% | 40.00% | ||
Discount rate | 3.27% | 3.63% |
F-37
Table of Contents
Weighted | |||||||||
Average | |||||||||
Total | Exercise | ||||||||
Options | Price | ||||||||
Outstanding at December 31, 2001 | 634,000 | $ | 40.22 | ||||||
Forfeited | (99,000 | ) | 40.91 | ||||||
Outstanding at December 31, 2002 | 535,000 | 40.09 | |||||||
Outstanding at December 4, 2003 | 535,000 | 40.09 | |||||||
F-38
Table of Contents
Weighted | |||||||||
Average | |||||||||
Total | Exercise | ||||||||
SARs | Price | ||||||||
Outstanding at December 31, 2001 | 262,500 | $ | 23.66 | ||||||
Granted | 306,000 | 24.04 | |||||||
Forfeited | (60,500 | ) | |||||||
Outstanding at December 31, 2002 | 508,000 | 23.89 | |||||||
Granted | 321,000 | 11.83 | |||||||
Outstanding at December 4, 2003 | 829,000 | ||||||||
F-39
Table of Contents
Predecessor | Successor | |||||||||||||||||
Twelve | 27 Days | Twelve | ||||||||||||||||
Months Ended | Period Ended | Ended | Months Ended | |||||||||||||||
December 31, | December 4, | December 31, | December 31, | |||||||||||||||
2002 | 2003 | 2003 | 2004 | |||||||||||||||
(in thousands) | ||||||||||||||||||
Revenues: | ||||||||||||||||||
Retail | $ | 1,068,637 | $ | 993,283 | $ | 66,177 | $ | 1,001,836 | ||||||||||
Franchise | 256,076 | 241,301 | 14,186 | 226,506 | ||||||||||||||
Manufacturing/Wholesale: | ||||||||||||||||||
Intersegment(1) | 149,439 | 151,137 | 9,907 | 181,528 | ||||||||||||||
Third Party | 100,263 | 105,625 | 8,925 | 116,400 | ||||||||||||||
Sub total Manufacturing/Wholesale | 249,702 | 256,762 | 18,832 | 297,928 | ||||||||||||||
Sub total segment revenues | 1,574,415 | 1,491,346 | 99,195 | 1,526,270 | ||||||||||||||
Intersegment elimination(1) | (149,439 | ) | (151,137 | ) | (9,907 | ) | (181,528 | ) | ||||||||||
Total revenues | 1,424,976 | 1,340,209 | 89,288 | 1,344,742 | ||||||||||||||
Operating income: | ||||||||||||||||||
Retail | 86,770 | 79,105 | 6,546 | 107,696 | ||||||||||||||
Franchise | 65,372 | 63,660 | 2,427 | 62,432 | ||||||||||||||
Manufacturing/Wholesale | 25,786 | 24,270 | 1,426 | 38,640 | ||||||||||||||
Unallocated corporate and other costs: | ||||||||||||||||||
Warehousing & distribution costs | (40,337 | ) | (40,654 | ) | (3,393 | ) | (49,322 | ) | ||||||||||
Corporate costs | (68,930 | ) | (62,478 | ) | (3,651 | ) | (57,289 | ) | ||||||||||
Impairment of goodwill and intangible assets | (222,000 | ) | (709,367 | ) | — | — | ||||||||||||
Legal settlement income | 214,409 | 7,190 | — | — | ||||||||||||||
Sub total unallocated corporate and other costs | (116,858 | ) | (805,309 | ) | (7,044 | ) | (106,611 | ) | ||||||||||
Total operating income (loss) | 61,070 | (638,274 | ) | 3,355 | 102,157 | |||||||||||||
Interest expense, net | 136,353 | 121,125 | 2,773 | 34,432 | ||||||||||||||
Gain on sale of marketable securities | (5,043 | ) | — | — | — | |||||||||||||
(Loss) income before income taxes | (70,240 | ) | (759,399 | ) | 582 | 67,725 | ||||||||||||
Income tax expense (benefit) | 996 | (174,478 | ) | 228 | 25,078 | |||||||||||||
Net (loss) income before cumulative effect of accounting change | $ | (71,236 | ) | $ | (584,921 | ) | $ | 354 | $ | 42,647 | ||||||||
(1) | Intersegment revenues are eliminated from consolidated revenue. |
F-40
Table of Contents
Predecessor | Successor | ||||||||||||||||||
Twelve | Period | 27 Days | Twelve | ||||||||||||||||
Months Ended | Ended | Ended | Months Ended | ||||||||||||||||
December 31, | December 4, | December 31, | December 31, | ||||||||||||||||
2002 | 2003 | 2003 | 2004 | ||||||||||||||||
(in thousands) | |||||||||||||||||||
Depreciation & amortization: | |||||||||||||||||||
Retail | $ | 38,699 | $ | 41,475 | $ | 1,444 | $ | 19,347 | |||||||||||
Franchise | 4,668 | 3,199 | 163 | 1,922 | |||||||||||||||
Manufacturing/ Wholesale | 13,330 | 12,718 | 469 | 8,877 | |||||||||||||||
Corporate/ Other | 1,300 | 1,659 | 177 | 8,647 | |||||||||||||||
Total depreciation & amortization | $ | 57,997 | $ | 59,051 | $ | 2,253 | $ | 38,793 | |||||||||||
Capital expenditures: | |||||||||||||||||||
Retail | $ | 35,177 | $ | 20,780 | $ | 455 | $ | 18,267 | |||||||||||
Franchise | 16 | — | — | — | |||||||||||||||
Manufacturing/ Wholesale | 9,033 | 4,746 | 1,075 | 6,939 | |||||||||||||||
Corporate/ Other | 7,673 | 5,494 | 297 | 3,123 | |||||||||||||||
Total capital expenditures | $ | 51,899 | $ | 31,020 | $ | 1,827 | $ | 28,329 | |||||||||||
Total assets: | |||||||||||||||||||
Retail | $ | 884,541 | $ | 400,594 | $ | 424,645 | $ | 418,136 | |||||||||||
Franchise | 671,616 | 316,497 | 362,748 | 314,836 | |||||||||||||||
Manufacturing/ Wholesale | 260,413 | 193,199 | 137,105 | 143,151 | |||||||||||||||
Corp/ Other | 61,740 | 127,799 | 94,369 | 156,475 | |||||||||||||||
Total assets | $ | 1,878,310 | $ | 1,038,089 | $ | 1,018,867 | $ | 1,032,598 | |||||||||||
Geographic areas | |||||||||||||||||||
Total revenues: | |||||||||||||||||||
United States | $ | 1,379,176 | $ | 1,290,732 | $ | 84,605 | $ | 1,283,041 | |||||||||||
Foreign | 45,800 | 49,477 | 4,683 | 61,701 | |||||||||||||||
Total revenues | $ | 1,424,976 | $ | 1,340,209 | $ | 89,288 | $ | 1,344,742 | |||||||||||
Long-lived assets: | |||||||||||||||||||
United States | $ | 1,290,999 | $ | 498,862 | $ | 556,496 | $ | 529,756 | |||||||||||
Foreign | 7,474 | 7,362 | 6,700 | 6,284 | |||||||||||||||
Total long-lived assets | $ | 1,298,473 | $ | 506,224 | $ | 563,196 | $ | 536,040 | |||||||||||
F-41
Table of Contents
Predecessor | Successor | ||||||||||||||||
Twelve | 27 Days | Twelve | |||||||||||||||
Months Ended | Period Ended | Ended | Months Ended | ||||||||||||||
December 31, | December 4, | December 31, | December 31, | ||||||||||||||
2002 | 2003 | 2003 | 2004 | ||||||||||||||
(in thousands) | |||||||||||||||||
U.S. Retail Product Categories: | |||||||||||||||||
Sports Nutrition Products | $ | 288,600 | $ | 284,700 | $ | 15,500 | $ | 293,100 | |||||||||
Diet and Weight Management Products | 267,200 | 253,600 | 12,000 | 193,100 | |||||||||||||
VMHS | 252,800 | 221,700 | 16,200 | 242,900 | |||||||||||||
Speciality Supplements | 139,800 | 118,500 | 8,200 | 119,600 | |||||||||||||
Other | 77,337 | 72,200 | 7,660 | 98,735 | |||||||||||||
Total U.S. Retail revenues | 1,025,737 | 950,700 | 59,560 | 947,435 | |||||||||||||
Canada retail revenues(1) | 42,900 | 45,000 | 4,200 | 54,401 | |||||||||||||
Total Retail revenue | $ | 1,068,637 | $ | 995,700 | $ | 63,760 | $ | 1,001,836 | |||||||||
(1) | Product sales for Canada are managed in local currency, therefore total results are reflected in this table. |
F-42
Table of Contents
Tax Benefit | Net Other Comprehensive | |||||||||||||||||||||||
Before Tax Amount | (Expense) | Income (Loss) | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Foreign | Gain/(Loss) | Gain/(Loss) | Foreign | Gain/(Loss) | ||||||||||||||||||||
Currency | On | On | Currency | On | ||||||||||||||||||||
Translation | Securities | Securities | Translation | Securities | Total | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Predecessor | ||||||||||||||||||||||||
Balance at January 1, 2002 | $ | (1,768 | ) | $ | 3,300 | $ | (1,155 | ) | $ | (1,768 | ) | $ | 2,145 | $ | 377 | |||||||||
Foreign currency translation adjustment | 292 | — | — | 292 | — | 292 | ||||||||||||||||||
Unrealized appreciation (depreciation) in marketable equity securities, net of tax | — | (3,300 | ) | 1,155 | — | (2,145 | ) | (2,145 | ) | |||||||||||||||
Balance at December 31, 2002 | $ | (1,476 | ) | $ | — | $ | — | $ | (1,476 | ) | $ | — | $ | (1,476 | ) | |||||||||
Foreign currency translation adjustment | 1,603 | — | — | 1,603 | — | 1,603 | ||||||||||||||||||
Balance at December 4, 2003 | $ | 127 | $ | — | $ | — | $ | 127 | $ | — | $ | 127 | ||||||||||||
Successor | ||||||||||||||||||||||||
Foreign currency translation adjustment | 302 | — | — | 302 | — | 302 | ||||||||||||||||||
Balance at December 31, 2003 | $ | 302 | $ | — | $ | — | $ | 302 | $ | — | $ | 302 | ||||||||||||
Foreign currency translation adjustment | 861 | — | — | 861 | — | 861 | ||||||||||||||||||
Balance at December 31, 2004 | $ | 1,163 | $ | — | $ | — | $ | 1,163 | $ | — | $ | 1,163 | ||||||||||||
F-43
Table of Contents
Predecessor | Successor | |||||||||||||||
Twelve Months | Twelve Months | |||||||||||||||
Ended | Period Ended | 27 Days Ended | Ended | |||||||||||||
December 31, | December 4, | December 31, | December 31, | |||||||||||||
2002 | 2003 | 2003 | 2004 | |||||||||||||
(in thousands) | ||||||||||||||||
Product sales | $ | 213,765 | $ | 193,984 | $ | 11,705 | $ | 188,026 | ||||||||
Royalties | 31,846 | 31,038 | 1,870 | 32,452 | ||||||||||||
Franchise fees | 3,865 | 4,300 | 385 | 3,474 | ||||||||||||
Other | 6,600 | 11,979 | 226 | 2,554 | ||||||||||||
Total franchise revenue | $ | 256,076 | $ | 241,301 | $ | 14,186 | $ | 226,506 | ||||||||
F-44
Table of Contents
(in thousands) | ||||
Purchase Price Reconciliation: | ||||
Cash paid at acquisition | $ | 738,117 | ||
Accrued acquisition costs | 7,750 | |||
Contingent purchase price receivable | (12,711 | ) | ||
Adjusted net purchase price | $ | 733,156 | ||
Fair value of assets acquired | $ | 1,022,705 | ||
Less liabilities | (245,205 | ) | ||
Cash paid | 777,500 | |||
Less acquisition fees | (19,633 | ) | ||
Less cash acquired | (19,750 | ) | ||
Net cash paid | $ | 738,117 | ||
Years of Service | Percent Vested | |||
0-1 | 0 | % | ||
1-2 | 33 | % | ||
2-3 | 66 | % | ||
3+ | 100 | % |
F-45
Table of Contents
F-46
Table of Contents
F-47
Table of Contents
Note 25. | Business Combinations |
F-48
Table of Contents
Combined | Combined | |||||||||||||||||||||
Parent/ | Guarantor | Non-Guarantor | ||||||||||||||||||||
Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
December 31, 2004 | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||
Current assets | ||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 82,722 | $ | 2,439 | $ | — | $ | 85,161 | ||||||||||||
Receivables, net | 1,865 | 66,821 | 1,327 | — | 70,013 | |||||||||||||||||
Intercompany receivables | 15,887 | 16,848 | — | (32,735 | ) | — | ||||||||||||||||
Inventories, net | — | 258,085 | 14,169 | — | 272,254 | |||||||||||||||||
Other current assets | 257 | 45,731 | 3,920 | — | 49,908 | |||||||||||||||||
Total current assets | 18,009 | 470,207 | 21,855 | (32,735 | ) | 477,336 | ||||||||||||||||
Property, plant and equipment, net | — | 172,813 | 22,596 | — | 195,409 | |||||||||||||||||
Investment in subsidiaries | 784,710 | 3,951 | — | (788,661 | ) | — | ||||||||||||||||
Goodwill, net | — | 77,643 | 942 | — | 78,585 | |||||||||||||||||
Brands, net | — | 209,000 | 3,000 | — | 212,000 | |||||||||||||||||
Other assets | 18,336 | 59,339 | 373 | (8,780 | ) | 69,268 | ||||||||||||||||
Total assets | $ | 821,055 | $ | 992,953 | $ | 48,766 | $ | (830,176 | ) | $ | 1,032,598 | |||||||||||
Current liabilities | ||||||||||||||||||||||
Current liabilities | $ | 4,333 | $ | 182,490 | $ | 7,013 | $ | — | $ | 193,836 | ||||||||||||
Intercompany payables | — | 15,887 | 16,848 | (32,735 | ) | — | ||||||||||||||||
Total current liabilities | 4,333 | 198,377 | 23,861 | (32,735 | ) | 193,836 | ||||||||||||||||
Long-term debt | 494,300 | — | 20,954 | (8,780 | ) | 506,474 | ||||||||||||||||
Other long-term liabilities | — | 9,866 | — | — | 9,866 | |||||||||||||||||
Total liabilities | 498,633 | 208,243 | 44,815 | (41,515 | ) | 710,176 | ||||||||||||||||
Total stockholder’s equity (deficit) | 322,422 | 784,710 | 3,951 | (788,661 | ) | 322,422 | ||||||||||||||||
Total liabilities and stockholder’s equity | $ | 821,055 | $ | 992,953 | $ | 48,766 | $ | (830,176 | ) | $ | 1,032,598 | |||||||||||
F-49
Table of Contents
Combined | Combined | |||||||||||||||||||||
Parent/ | Guarantor | Non-Guarantor | ||||||||||||||||||||
Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
December 31, 2003 | ||||||||||||||||||||||
Current assets | ||||||||||||||||||||||
Cash and equivalents | $ | — | $ | 30,642 | $ | 2,534 | $ | — | $ | 33,176 | ||||||||||||
Accounts receivable | 12,711 | 74,066 | 1,207 | — | 87,984 | |||||||||||||||||
Intercompany receivable | 18,750 | 3,192 | — | (21,942 | ) | — | ||||||||||||||||
Inventory, net | — | 242,367 | 13,633 | — | 256,000 | |||||||||||||||||
Other current assets | — | 40,544 | 2,882 | — | 43,426 | |||||||||||||||||
Total current assets | 31,461 | 390,811 | 20,256 | (21,942 | ) | 420,586 | ||||||||||||||||
Property, plant and equipment | — | 173,483 | 27,797 | — | 201,280 | |||||||||||||||||
Investment in subsidiaries | 736,448 | 2,755 | — | (739,203 | ) | — | ||||||||||||||||
Goodwill | — | 82,112 | 977 | — | 83,089 | |||||||||||||||||
Brands | — | 209,000 | 3,000 | — | 212,000 | |||||||||||||||||
Other assets | 19,796 | 90,563 | 333 | (8,780 | ) | 101,912 | ||||||||||||||||
Total assets | $ | 787,705 | $ | 948,724 | $ | 52,363 | $ | (769,925 | ) | $ | 1,018,867 | |||||||||||
Current liabilities | ||||||||||||||||||||||
Other current liabilities | $ | 12,399 | $ | 202,480 | $ | 5,662 | $ | — | $ | 220,541 | ||||||||||||
Intercompany payable | — | — | 21,942 | (21,942 | ) | — | ||||||||||||||||
Total current liabilities | 12,399 | 202,480 | 27,604 | (21,942 | ) | 220,541 | ||||||||||||||||
Long-term debt | 497,150 | — | 22,004 | (8,780 | ) | 510,374 | ||||||||||||||||
Other long-term liabilities | — | 9,796 | — | — | 9,796 | |||||||||||||||||
Total liabilities | 509,549 | 212,276 | 49,608 | (30,722 | ) | 740,711 | ||||||||||||||||
Total stockholder equity (deficit) | 278,156 | 736,448 | 2,755 | (739,203 | ) | 278,156 | ||||||||||||||||
Total liabilities and stockholder (deficit) equity | $ | 787,705 | $ | 948,724 | $ | 52,363 | $ | (769,925 | ) | $ | 1,018,867 | |||||||||||
F-50
Table of Contents
Combined | Combined | |||||||||||||||||||
Parent/ | Guarantor | Non-Guarantor | ||||||||||||||||||
Successor | Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Twelve Months Ended December 31, 2004 | ||||||||||||||||||||
(in thousands) | ||||||||||||||||||||
Revenue | $ | — | $ | 1,281,774 | $ | 72,611 | $ | (9,643 | ) | $ | 1,344,742 | |||||||||
Cost of sales, including costs of warehousing, distribution and occupancy | — | 852,190 | 52,688 | (9,643 | ) | 895,235 | ||||||||||||||
Gross profit | — | 429,584 | 19,923 | — | 449,507 | |||||||||||||||
Compensation and related benefits | — | 217,959 | 11,998 | — | 229,957 | |||||||||||||||
Advertising and promotion | — | 43,620 | 335 | — | 43,955 | |||||||||||||||
Other selling, general and administrative | 1,745 | 66,104 | 5,879 | — | 73,728 | |||||||||||||||
Subsidiary (income) expense | (43,918 | ) | (325 | ) | — | 44,243 | — | |||||||||||||
Other income | — | (52 | ) | (238 | ) | — | (290 | ) | ||||||||||||
Operating income (loss) | 42,173 | 102,278 | 1,949 | (44,243 | ) | 102,157 | ||||||||||||||
Interest expense, net | — | 32,853 | 1,579 | — | 34,432 | |||||||||||||||
Income (loss) before income taxes | 42,173 | 69,425 | 370 | (44,243 | ) | 67,725 | ||||||||||||||
Income tax (benefit) expense | (474 | ) | 25,507 | 45 | — | 25,078 | ||||||||||||||
Net income (loss) | $ | 42,647 | $ | 43,918 | $ | 325 | $ | (44,243 | ) | $ | 42,647 | |||||||||
F-51
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Combined | Combined | |||||||||||||||||||||
Parent/ | Guarantor | Non-Guarantor | ||||||||||||||||||||
Successor | Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||
27 Days ended December 31, 2003 | ||||||||||||||||||||||
Revenue | $ | — | $ | 95,987 | $ | 5,424 | $ | (12,123 | ) | $ | 89,288 | |||||||||||
Cost of sales, including costs of warehousing, distribution and occupancy | — | 71,702 | 4,001 | (12,123 | ) | 63,580 | ||||||||||||||||
Gross profit | — | 24,285 | 1,423 | — | 25,708 | |||||||||||||||||
Compensation and related benefits | — | 15,804 | 915 | — | 16,719 | |||||||||||||||||
Advertising and promotion | — | 475 | 39 | — | 514 | |||||||||||||||||
Other selling, general and administrative | — | 4,912 | 186 | — | 5,098 | |||||||||||||||||
Other (income) expense | — | (18 | ) | 40 | — | 22 | ||||||||||||||||
Subsidiary (income) loss | (496 | ) | (81 | ) | — | 577 | — | |||||||||||||||
Operating income (loss) | 496 | 3,193 | 243 | (577 | ) | 3,355 | ||||||||||||||||
Interest (expense) income, net | (224 | ) | (2,429 | ) | (120 | ) | — | (2,773 | ) | |||||||||||||
(Loss)/income before income taxes | 272 | 764 | 123 | (577 | ) | 582 | ||||||||||||||||
Income tax benefit/(expense) (Note 17) | 82 | (268 | ) | (42 | ) | — | (228 | ) | ||||||||||||||
Net income (loss) | $ | 354 | $ | 496 | $ | 81 | $ | (577 | ) | $ | 354 | |||||||||||
F-52
Table of Contents
Combined | Combined | |||||||||||||||||||||
Guarantor | Non-Guarantor | |||||||||||||||||||||
Predecessor | Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||
January 1, 2003 - December 4, 2003 | ||||||||||||||||||||||
Revenue | $ | — | $ | 1,431,275 | $ | 60,071 | $ | (151,137 | ) | $ | 1,340,209 | |||||||||||
Cost of sales, including costs of warehousing, distribution and occupancy | — | 1,040,118 | 45,879 | (151,137 | ) | 934,860 | ||||||||||||||||
Gross profit | — | 391,157 | 14,192 | — | 405,349 | |||||||||||||||||
Compensation and related benefits | — | 224,968 | 10,022 | — | 234,990 | |||||||||||||||||
Advertising and promotion | — | 38,274 | 139 | — | 38,413 | |||||||||||||||||
Other selling, general and administrative | — | 73,122 | (2,184 | ) | — | 70,938 | ||||||||||||||||
Other income | — | (5,810 | ) | (4,275 | ) | — | (10,085 | ) | ||||||||||||||
Impairment of goodwill and intangible assets | — | 692,314 | 17,053 | — | 709,367 | |||||||||||||||||
Subsidiary loss (income) | 584,921 | 10,830 | — | (595,751 | ) | — | ||||||||||||||||
Operating (loss) income | (584,921 | ) | (642,541 | ) | (6,563 | ) | 595,751 | (638,274 | ) | |||||||||||||
Interest expense, net | — | 119,502 | 1,623 | — | 121,125 | |||||||||||||||||
(Loss) income before income taxes | (584,921 | ) | (762,043 | ) | (8,186 | ) | 595,751 | (759,399 | ) | |||||||||||||
Income tax (benefit) expense | — | (177,122 | ) | 2,644 | — | (174,478 | ) | |||||||||||||||
Net (loss) income | $ | (584,921 | ) | $ | (584,921 | ) | $ | (10,830 | ) | $ | 595,751 | $ | (584,921 | ) | ||||||||
F-53
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Combined | Combined | |||||||||||||||||||||
Guarantor | Non-Guarantor | |||||||||||||||||||||
Predecessor | Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||
Twelve Months Ended December 31, 2002 | ||||||||||||||||||||||
Revenue | $ | — | $ | 1,516,248 | $ | 58,167 | $ | (149,439 | ) | $ | 1,424,976 | |||||||||||
Cost of sales, including costs of warehousing, distribution and occupancy | — | 1,076,364 | 42,983 | (149,439 | ) | 969,908 | ||||||||||||||||
Gross profit | — | 439,884 | 15,184 | — | 455,068 | |||||||||||||||||
Compensation and related benefits | — | 235,777 | 9,388 | — | 245,165 | |||||||||||||||||
Advertising and promotion | — | 51,862 | 164 | — | 52,026 | |||||||||||||||||
Other selling, general and administrative | — | 83,067 | 2,981 | — | 86,048 | |||||||||||||||||
Other income | — | (211,232 | ) | (9 | ) | — | (211,241 | ) | ||||||||||||||
Impairment of goodwill and intangible assets | — | 212,694 | 9,306 | — | 222,000 | |||||||||||||||||
Subsidiary loss (income) | 960,857 | 30,610 | — | (991,467 | ) | — | ||||||||||||||||
Operating income (loss) | (960,857 | ) | 37,106 | (6,646 | ) | 991,467 | 61,070 | |||||||||||||||
Interest expense, net | — | 133,444 | 2,909 | — | 136,353 | |||||||||||||||||
Gain on sale of marketable securities | — | (5,043 | ) | — | — | (5,043 | ) | |||||||||||||||
(Loss) income before income taxes | (960,857 | ) | (91,295 | ) | (9,555 | ) | 991,467 | (70,240 | ) | |||||||||||||
Income tax (benefit) expense | — | (535 | ) | (461 | ) | — | (996 | ) | ||||||||||||||
Net (loss) income before cumulative effect of accounting change | (960,857 | ) | (91,830 | ) | (10,016 | ) | 991,467 | (71,236 | ) | |||||||||||||
Loss from cumulative effect of accounting change, net of tax | — | (869,027 | ) | (20,594 | ) | — | (889,621 | ) | ||||||||||||||
Net (loss) income | $ | (960,857 | ) | $ | (960,857 | ) | $ | (30,610 | ) | $ | 991,467 | $ | (960,857 | ) | ||||||||
F-54
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Combined | Combined | ||||||||||||||||
Parent/ | Guarantor | Non-Guarantor | |||||||||||||||
Successor | Issuer | Subsidiaries | Subsidiaries | Consolidated | |||||||||||||
Twelve Months Ended December 31, 2004 | |||||||||||||||||
(In thousands) | |||||||||||||||||
Net cash (used in) provided by operating activities | $ | (1,754 | ) | $ | 83,675 | $ | 1,547 | $ | 83,468 | ||||||||
Cash flows from investing activities: | |||||||||||||||||
Capital expenditures | — | (27,588 | ) | (741 | ) | (28,329 | ) | ||||||||||
Acquisition of General Nutrition Companies, Inc. | 2,102 | — | — | 2,102 | |||||||||||||
Investment/distribution | 2,850 | (2,850 | ) | — | — | ||||||||||||
Other investing | — | (810 | ) | — | (810 | ) | |||||||||||
Net cash provided by (used in) investing activities | 4,952 | (31,248 | ) | (741 | ) | (27,037 | ) | ||||||||||
Cash flows from financing activities: | |||||||||||||||||
GNC Corporation investment in General Nutrition Centers, Inc. | 758 | — | — | 758 | |||||||||||||
Payments on long-term debt — third parties | (2,850 | ) | — | (978 | ) | (3,828 | ) | ||||||||||
Other financing | (1,106 | ) | (347 | ) | — | (1,453 | ) | ||||||||||
Net cash used in financing activities | (3,198 | ) | (347 | ) | (978 | ) | (4,523 | ) | |||||||||
Effect of exchange rate on cash | — | — | 77 | 77 | |||||||||||||
Net increase (decrease) in cash | — | 52,080 | (95 | ) | 51,985 | ||||||||||||
Beginning balance, cash | — | 30,642 | 2,534 | 33,176 | |||||||||||||
Ending balance, cash | $ | — | $ | 82,722 | $ | 2,439 | $ | 85,161 | |||||||||
F-55
Table of Contents
Combined | Combined | ||||||||||||||||
Parent/ | Guarantor | Non-Guarantor | |||||||||||||||
Successor | Issuer | Subsidiaries | Subsidiaries | Consolidated | |||||||||||||
27 days ended December 31, 2003 | |||||||||||||||||
Net cash (used in) provided by operating activities | $ | (19,363 | ) | $ | 24,139 | $ | (88 | ) | $ | 4,688 | |||||||
Cash flows from investing activities: | |||||||||||||||||
Acquisition of General Nutrition Companies, Inc. | (738,117 | ) | — | — | (738,117 | ) | |||||||||||
Capital expenditures | — | (1,822 | ) | (5 | ) | (1,827 | ) | ||||||||||
Other investing | — | (57 | ) | — | (57 | ) | |||||||||||
Net cash used in investing activities | (738,117 | ) | (1,879 | ) | (5 | ) | (740,001 | ) | |||||||||
Cash flows from financing activities: | |||||||||||||||||
GNC Corporation investment in General Nutrition Centers, Inc. | 277,500 | — | — | 277,500 | |||||||||||||
Borrowings from senior credit facility | 285,000 | — | — | 285,000 | |||||||||||||
Proceeds from senior subordinated notes | 215,000 | — | — | 215,000 | |||||||||||||
Other financing | (20,020 | ) | 1,735 | — | (18,285 | ) | |||||||||||
Net cash provided by financing activities | 757,480 | 1,735 | — | 759,215 | |||||||||||||
Effect of exchange rate on cash | — | — | (152 | ) | (152 | ) | |||||||||||
Net increase (decrease) in cash | — | 23,995 | (245 | ) | 23,750 | ||||||||||||
Beginning balance, cash | — | 6,647 | 2,779 | 9,426 | |||||||||||||
Ending balance, cash | $ | — | $ | 30,642 | $ | 2,534 | $ | 33,176 | |||||||||
F-56
Table of Contents
Combined | Combined | ||||||||||||||||
Guarantor | Non-Guarantor | ||||||||||||||||
Predecessor | Parent | Subsidiaries | Subsidiaries | Consolidated | |||||||||||||
Period January 1, 2003 to December 4, 2003 | |||||||||||||||||
Net cash from operating activities | $ | — | $ | 99,755 | $ | (6,887 | ) | $ | 92,868 | ||||||||
Cash flows from investing activities: | |||||||||||||||||
Capital expenditures | — | (30,069 | ) | (951 | ) | (31,020 | ) | ||||||||||
Store acquisition costs | — | (3,193 | ) | — | (3,193 | ) | |||||||||||
Investment distribution | 91,794 | (91,794 | ) | — | — | ||||||||||||
Other investing | — | 2,706 | 54 | 2,760 | |||||||||||||
Net cash from investing activities | 91,794 | (122,350 | ) | (897 | ) | (31,453 | ) | ||||||||||
Cash flows from financing activities: | |||||||||||||||||
Payments on long-term debt — related party | (91,794 | ) | — | — | (91,794 | ) | |||||||||||
Other financing | — | 1,915 | (887 | ) | 1,028 | ||||||||||||
Net cash from financing activities | (91,794 | ) | 1,915 | (887 | ) | (90,766 | ) | ||||||||||
Effect of exchange rate on cash | — | — | 12 | 12 | |||||||||||||
Net decrease in cash and cash equivalents | — | (20,680 | ) | (8,659 | ) | (29,339 | ) | ||||||||||
Cash and cash equivalents at beginning of period | — | 27,327 | 11,438 | 38,765 | |||||||||||||
Cash and cash equivalents at end of period | $ | — | $ | 6,647 | $ | 2,779 | $ | 9,426 | |||||||||
Combined | Combined | ||||||||||||||||
Guarantor | Non-Guarantor | ||||||||||||||||
Predecessor | Parent | Subsidiaries | Subsidiaries | Consolidated | |||||||||||||
Twelve months ended December 31, 2002 | |||||||||||||||||
Net cash from operating activities | $ | — | $ | 99,326 | $ | 11,709 | $ | 111,035 | |||||||||
Cash flows from investing activities: | |||||||||||||||||
Capital expenditures | — | (49,936 | ) | (1,963 | ) | (51,899 | ) | ||||||||||
Proceeds from sale of marketable securities | — | 7,443 | — | 7,443 | |||||||||||||
Other investing | — | (1 | ) | — | (1 | ) | |||||||||||
Net cash from investing activities | — | (42,494 | ) | (1,963 | ) | (44,457 | ) | ||||||||||
Cash flows from financing activities: | |||||||||||||||||
Payments on short-term debt — related party | — | (42,341 | ) | — | (42,341 | ) | |||||||||||
Other financing | — | (1,112 | ) | (847 | ) | (1,959 | ) | ||||||||||
Net cash from financing activities | — | (43,453 | ) | (847 | ) | (44,300 | ) | ||||||||||
Effect of exchange rate on cash | — | — | 175 | 175 | |||||||||||||
Net increase in cash and cash equivalents | — | 13,379 | 9,074 | 22,453 | |||||||||||||
Cash and cash equivalents at beginning of period | — | 13,948 | 2,364 | 16,312 | |||||||||||||
Cash and cash equivalents at end of period | $ | — | $ | 27,327 | $ | 11,438 | $ | 38,765 | |||||||||
F-57
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Mortgage | Senior | Senior | ||||||||||||||||||
Loan/Capital | Credit | Senior | Subordinated | |||||||||||||||||
Leases | Facility | Notes | Notes | Total | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
2005 | $ | 1,051 | $ | 981 | $ | — | $ | — | $ | 2,032 | ||||||||||
2006 | 1,141 | 981 | — | — | 2,122 | |||||||||||||||
2007 | 1,195 | 981 | — | — | 2,176 | |||||||||||||||
2008 | 1,281 | 981 | — | — | 2,262 | |||||||||||||||
2009 | 1,373 | 93,226 | — | — | 94,599 | |||||||||||||||
Thereafter | 7,184 | — | 150,000 | 215,000 | 372,184 | |||||||||||||||
$ | 13,225 | $ | 97,150 | $ | 150,000 | $ | 215,000 | $ | 475,375 | |||||||||||
F-58
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December 31, | March 31, | ||||||||||
2004* | 2005 | ||||||||||
(Unaudited) | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 85,161 | $ | 77,765 | |||||||
Receivables, net | 70,013 | 70,508 | |||||||||
Inventories, net (Note 3) | 272,254 | 293,371 | |||||||||
Deferred tax assets, net | 14,133 | 13,164 | |||||||||
Other current assets | 35,775 | 36,240 | |||||||||
Total current assets | 477,336 | 491,048 | |||||||||
Long-term assets: | |||||||||||
Goodwill (Note 4) | 78,585 | 78,585 | |||||||||
Brands (Note 4) | 212,000 | 212,000 | |||||||||
Other intangible assets, net (Note 4) | 28,652 | 27,691 | |||||||||
Property, plant and equipment, net | 195,409 | 190,808 | |||||||||
Deferred financing fees, net | 18,130 | 17,727 | |||||||||
Deferred tax assets, net | 1,093 | — | |||||||||
Other long-term assets | 21,393 | 15,797 | |||||||||
Total long-term assets | 555,262 | 542,608 | |||||||||
Total assets | $ | 1,032,598 | $ | 1,033,656 | |||||||
Current liabilities: | |||||||||||
Accounts payable | $ | 106,557 | $ | 134,473 | |||||||
Accrued payroll and related liabilities | 20,353 | 16,631 | |||||||||
Accrued interest (Note 5) | 1,863 | 9,022 | |||||||||
Current portion, long-term debt (Note 5) | 3,901 | 2,048 | |||||||||
Other current liabilities | 61,162 | 63,529 | |||||||||
Total current liabilities | 193,836 | 225,703 | |||||||||
Long-term liabilities: | |||||||||||
Long-term debt (Note 5) | 506,474 | 472,836 | |||||||||
Deferred tax liabilities, net | — | 346 | |||||||||
Other long-term liabilities | 9,866 | 10,234 | |||||||||
Total long-term liabilities | 516,340 | 483,416 | |||||||||
Total liabilities | 710,176 | 709,119 | |||||||||
Stockholder’s equity: | |||||||||||
Common stock, $0.01 par value, 1,000 shares authorized, 100 shares issued and outstanding | — | — | |||||||||
Paid-in-capital | 278,258 | 277,842 | |||||||||
Retained earnings | 43,001 | 45,796 | |||||||||
Accumulated other comprehensive income | 1,163 | 899 | |||||||||
Total stockholder’s equity | 322,422 | 324,537 | |||||||||
Total liabilities and stockholder’s equity | $ | 1,032,598 | $ | 1,033,656 | |||||||
* | Footnotes summarized from the Audited Financial Statements. |
F-59
Table of Contents
Three Months | Three Months | |||||||
Ended | Ended | |||||||
March 31, | March 31, | |||||||
2004 | 2005 | |||||||
(Unaudited) | ||||||||
Revenue | $ | 372,555 | $ | 336,435 | ||||
Cost of sales, including costs of warehousing, distribution and occupancy | 247,143 | 230,456 | ||||||
Gross profit | 125,412 | 105,979 | ||||||
Compensation and related benefits | 61,100 | 57,314 | ||||||
Advertising and promotion | 12,556 | 14,601 | ||||||
Other selling, general and administrative | 17,784 | 18,822 | ||||||
Foreign currency gain | (193 | ) | (105 | ) | ||||
Other income | — | (2,500 | ) | |||||
Operating income | 34,165 | 17,847 | ||||||
Interest expense, net | 8,653 | 13,471 | ||||||
Income before income taxes | 25,512 | 4,376 | ||||||
Income tax expense | 9,279 | 1,581 | ||||||
Net income | 16,233 | 2,795 | ||||||
Other comprehensive loss | (418 | ) | (264 | ) | ||||
Comprehensive income | $ | 15,815 | $ | 2,531 | ||||
F-60
Table of Contents
Accumulated | ||||||||||||||||||||||||
Common Stock | Other | Total | ||||||||||||||||||||||
Additional | Retained | Comprehensive | Stockholder’s | |||||||||||||||||||||
Shares | Dollars | Paid-in-Capital | Earnings | Income | Equity | |||||||||||||||||||
Balance at December 31, 2004 | 100 | $ | — | $ | 278,258 | $ | 43,001 | $ | 1,163 | $ | 322,422 | |||||||||||||
GNC Corporation investment in General Nutrition Centers, Inc. | — | — | (416 | ) | — | — | (416 | ) | ||||||||||||||||
Net income | — | — | — | 2,795 | — | 2,795 | ||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | (264 | ) | (264 | ) | ||||||||||||||||
Balance at March 31, 2005 (unaudited) | 100 | $ | — | $ | 277,842 | $ | 45,796 | $ | 899 | $ | 324,537 | |||||||||||||
F-61
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Three Months | Three Months | ||||||||||
Ended | Ended | ||||||||||
March 31, | March 31, | ||||||||||
2004 | 2005 | ||||||||||
(Unaudited) | |||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
Net income | $ | 16,233 | $ | 2,795 | |||||||
Depreciation expense | 8,257 | 9,139 | |||||||||
Deferred fee writedown — early debt extinguishment | — | 3,890 | |||||||||
Amortization of intangible assets | 1,004 | 961 | |||||||||
Amortization of deferred financing fees | 771 | 683 | |||||||||
Increase in provision for inventory losses | 4,659 | 2,238 | |||||||||
(Decrease) increase in provision for losses on accounts receivable | (1,099 | ) | 591 | ||||||||
Decrease in net deferred taxes | 1,353 | 2,408 | |||||||||
Changes in assets and liabilities: | |||||||||||
Decrease (increase) in receivables | 419 | (1,086 | ) | ||||||||
Increase in inventory, net | (31,844 | ) | (23,159 | ) | |||||||
Decrease in franchise note receivables, net | 3,201 | 3,604 | |||||||||
Decrease in other assets | 3,862 | 1,529 | |||||||||
Increase in accounts payable | 36,814 | 26,157 | |||||||||
Increase in accrued taxes | 7,919 | — | |||||||||
Increase in interest payable | 4,572 | 7,159 | |||||||||
Decrease in accrued liabilities | (7,675 | ) | (1,369 | ) | |||||||
Net cash provided by operating activities | 48,446 | 35,540 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
Capital expenditures | (5,342 | ) | (4,383 | ) | |||||||
Franchise store conversions | 27 | — | |||||||||
Store acquisition costs | (232 | ) | (558 | ) | |||||||
Acquisition of General Nutrition Companies, Inc. | (7,710 | ) | — | ||||||||
Net cash used in investing activities | (13,257 | ) | (4,941 | ) | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
GNC Corporation investment in (return of capital from) General Nutrition Centers, Inc. | 1,628 | (416 | ) | ||||||||
(Decrease) increase in cash overdrafts | (839 | ) | 1,760 | ||||||||
Payments on long-term debt — third parties | (951 | ) | (185,491 | ) | |||||||
Proceeds from senior notes issuance | — | 150,000 | |||||||||
Financing fees | — | (3,785 | ) | ||||||||
Net cash used in financing activities | (162 | ) | (37,932 | ) | |||||||
Effect of exchange rate on cash | (72 | ) | (63 | ) | |||||||
Net increase (decrease) in cash | 34,955 | (7,396 | ) | ||||||||
Beginning balance, cash | 33,176 | 85,161 | |||||||||
Ending balance, cash | $ | 68,131 | $ | 77,765 | |||||||
F-62
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Note 1. | Nature of Business |
Note 2. | Basis of Presentation |
F-63
Table of Contents
Three Months Ended | |||||||||
March 31, | |||||||||
2004 | 2005 | ||||||||
(Unaudited) | |||||||||
(In thousands) | |||||||||
Net income as reported | $ | 16,233 | $ | 2,795 | |||||
Less: total stock-based employee compensation costs determined using fair value method, net of related tax effects | (216 | ) | (313 | ) | |||||
Adjusted net income | $ | 16,017 | $ | 2,482 | |||||
Note 3. | Inventories, Net |
December 31, 2004 | ||||||||||||
Net Carrying | ||||||||||||
Gross Cost | Reserves | Value | ||||||||||
(In thousands) | ||||||||||||
Finished product ready for sale | $ | 242,578 | $ | (11,542 | ) | $ | 231,036 | |||||
Unpackaged bulk product and raw materials | 41,607 | (3,019 | ) | 38,588 | ||||||||
Packaging supplies | 2,630 | — | 2,630 | |||||||||
$ | 286,815 | $ | (14,561 | ) | $ | 272,254 | ||||||
F-64
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March 31, 2005 | ||||||||||||
Net Carrying | ||||||||||||
Gross Cost | Reserves | Value | ||||||||||
(Unaudited) | ||||||||||||
(In thousands) | ||||||||||||
Finished product ready for sale | $ | 258,981 | $ | (10,785 | ) | $ | 248,196 | |||||
Unpackaged bulk product and raw materials | 45,198 | (3,179 | ) | 42,019 | ||||||||
Packaging supplies | 3,156 | — | 3,156 | |||||||||
$ | 307,335 | $ | (13,964 | ) | $ | 293,371 | ||||||
Note 4. | Goodwill and Intangible Assets, Net |
Retail | Franchise | Operating | ||||||||||||||||||
Gold Card | Brand | Brand | Agreements | Total | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Balance at December 31, 2004 | $ | 1,413 | $ | 49,000 | $ | 163,000 | $ | 27,239 | $ | 240,652 | ||||||||||
Amortization expense | (224 | ) | — | — | (737 | ) | (961 | ) | ||||||||||||
Balance at March 31, 2005 (unaudited) | $ | 1,189 | $ | 49,000 | $ | 163,000 | $ | 26,502 | $ | 239,691 | ||||||||||
December 31, 2004 | March 31, 2005 | |||||||||||||||||||||||
Accumulated | Carrying | Accumulated | Carrying | |||||||||||||||||||||
Cost | Amortization | Amount | Cost | Amortization | Amount | |||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Brands — retail | $ | 49,000 | $ | — | $ | 49,000 | $ | 49,000 | $ | — | $ | 49,000 | ||||||||||||
Brands — franchise | 163,000 | — | 163,000 | 163,000 | — | 163,000 | ||||||||||||||||||
Gold card — retail | 2,230 | (1,004 | ) | 1,226 | 2,230 | (1,198 | ) | 1,032 | ||||||||||||||||
Gold card — franchise | 340 | (153 | ) | 187 | 340 | (183 | ) | 157 | ||||||||||||||||
Retail agreements | 8,500 | (1,267 | ) | 7,233 | 8,500 | (1,562 | ) | 6,938 | ||||||||||||||||
Franchise agreements | 21,900 | (1,894 | ) | 20,006 | 21,900 | (2,336 | ) | 19,564 | ||||||||||||||||
$ | 244,970 | $ | (4,318 | ) | $ | 240,652 | $ | 244,970 | $ | (5,279 | ) | $ | 239,691 | |||||||||||
F-65
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Estimated | ||||
Amortization | ||||
Years Ending December 31, | Expense | |||
(Unaudited) | ||||
(In thousands) | ||||
2005 | $ | 2,882 | ||
2006 | 3,457 | |||
2007 | 2,943 | |||
2008 | 2,894 | |||
2009 | 2,283 | |||
Thereafter | 13,232 | |||
Total | $ | 27,691 | ||
Note 5. | Long-Term Debt/Interest |
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December 31, | March 31, | |||||||
2004 | 2005 | |||||||
(Unaudited) | ||||||||
(In thousands) | ||||||||
Mortgage | $ | 13,190 | $ | 12,946 | ||||
Capital leases | 35 | 34 | ||||||
Senior credit facility | 282,150 | 96,904 | ||||||
85/8% Senior Notes | — | 150,000 | ||||||
81/2% Senior Subordinated Notes | 215,000 | 215,000 | ||||||
Less: current maturities | (3,901 | ) | (2,048 | ) | ||||
Total | $ | 506,474 | $ | 472,836 | ||||
Mortgage | 81/2% Senior | |||||||||||||||||||
Loan/Capital | Senior | 85/8% Senior | Subordinated | |||||||||||||||||
Years Ended December 31, | Leases | Credit Facility | Notes | Notes | Total | |||||||||||||||
(Unaudited) | ||||||||||||||||||||
(In thousands) | ||||||||||||||||||||
2005 | $ | 806 | $ | 736 | $ | — | $ | — | $ | 1,542 | ||||||||||
2006 | 1,141 | 981 | — | — | 2,122 | |||||||||||||||
2007 | 1,195 | 981 | — | — | 2,176 | |||||||||||||||
2008 | 1,281 | 981 | — | — | 2,262 | |||||||||||||||
2009 | 1,373 | 93,225 | — | — | 94,598 | |||||||||||||||
Thereafter | 7,184 | — | 150,000 | 215,000 | 372,184 | |||||||||||||||
$ | 12,980 | $ | 96,904 | $ | 150,000 | $ | 215,000 | $ | 474,884 | |||||||||||
Three Months Ended | |||||||||
March 31, | |||||||||
2004 | 2005 | ||||||||
(Unaudited) | |||||||||
(In thousands) | |||||||||
Composition of interest expense: | |||||||||
Mortgage | $ | 245 | $ | 232 | |||||
Senior credit facility | 3,161 | 1,983 | |||||||
85/8% Senior Notes | — | 2,623 | |||||||
81/2% Senior Subordinated Notes | 4,569 | 4,569 | |||||||
Deferred fee writedown — early debt extinguishment | — | 3,890 | |||||||
Deferred financing fees | 771 | 683 | |||||||
Interest income — other | (93 | ) | (509 | ) | |||||
Interest expense, net | $ | 8,653 | $ | 13,471 | |||||
F-67
Table of Contents
December 31, | March 31, | |||||||
2004 | 2005 | |||||||
(Unaudited) | ||||||||
(In thousands) | ||||||||
Senior credit facility | $ | 340 | $ | 307 | ||||
85/8% Senior Notes | — | 2,623 | ||||||
81/2% Senior Subordinated Notes | 1,523 | 6,092 | ||||||
Total | $ | 1,863 | $ | 9,022 | ||||
Note 6. | Commitments and Contingencies |
F-68
Table of Contents
• | Brown v. General Nutrition Companies, Inc., Case No. 02-14221-AB, Florida Circuit Court for the 15th Judicial Circuit Court, Palm Beach County; | |
• | Rodriguez v. General Nutrition Companies, Inc., Index No. 02/126277, New York Supreme Court, County of New York, Commercial Division; | |
• | Abrams v. General Nutrition Companies, Inc., Docket No. L-3789-02, New Jersey Superior Court, Mercer County; | |
• | Toth v. Bodyonics, Ltd., Case No. 003886, Pennsylvania Court of Common Pleas, Philadelphia County; and | |
• | Pio v. General Nutrition Companies, Inc., Case No. 2-CH-14122, Illinois Circuit Court, Cook County. |
Note 7. | Stock-Based Compensation Plans |
F-69
Table of Contents
Weighted | Weighted | ||||||||||||
Average | Average | ||||||||||||
Total | Exercise | Fair | |||||||||||
Options | Price | Value | |||||||||||
Outstanding at December 31, 2004 | 2,435,393 | $ | 6.00 | ||||||||||
Granted | 294,573 | 6.00 | $ | 0.20 | |||||||||
Forfeited | (349,969 | ) | 6.00 | ||||||||||
Outstanding at March 31, 2005 (unaudited) | 2,379,997 | 6.00 | 1.95 | ||||||||||
December 31, | March 31, | |||||||
2004 | 2005 | |||||||
(unaudited) | ||||||||
Dividend yield | 0.00 | % | 0.00 | % | ||||
Expected option life | 5 years | 5 years | ||||||
Volatility factor percentage of market price | 40.00 | % | 24.00 | % | ||||
Discount rate | 3.63 | % | 4.18 | % |
Note 8. | Segments |
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Table of Contents
Three Months Ended | ||||||||||||
March 31, | ||||||||||||
2004 | 2005 | |||||||||||
Revenues: | ||||||||||||
Retail | $ | 279,641 | $ | 255,252 | ||||||||
Franchise | 64,138 | 52,627 | ||||||||||
Manufacturing/Wholesale: | ||||||||||||
Intersegment(1) | 47,546 | 55,495 | ||||||||||
Third Party | 28,776 | 28,556 | ||||||||||
Sub total Manufacturing/ Wholesale | 76,322 | 84,051 | ||||||||||
Sub total segment revenues | 420,101 | 391,930 | ||||||||||
Intersegment elimination(1) | (47,546 | ) | (55,495 | ) | ||||||||
Total revenues | 372,555 | 336,435 | ||||||||||
Operating income: | ||||||||||||
Retail | 35,395 | 17,906 | ||||||||||
Franchise(2) | 17,122 | 13,343 | ||||||||||
Manufacturing/Wholesale | 8,186 | 12,059 | ||||||||||
Unallocated corporate and other costs: | ||||||||||||
Warehousing & distribution costs | (12,705 | ) | (12,659 | ) | ||||||||
Corporate costs | (13,833 | ) | (12,802 | ) | ||||||||
Sub total unallocated corporate and other costs | (26,538 | ) | (25,461 | ) | ||||||||
Total operating income | 34,165 | 17,847 | ||||||||||
Interest expense, net | 8,653 | 13,471 | ||||||||||
Income before income taxes | 25,512 | 4,376 | ||||||||||
Income tax expense | 9,279 | 1,581 | ||||||||||
Net income | $ | 16,233 | $ | 2,795 | ||||||||
Total assets: | ||||||||||||
Retail | $ | 458,208 | $ | 431,263 | ||||||||
Franchise | 336,017 | 310,630 | ||||||||||
Manufacturing/Wholesale | 142,463 | 145,319 | ||||||||||
Corp/Other | 131,625 | 146,444 | ||||||||||
Total assets | $ | 1,068,313 | $ | 1,033,656 | ||||||||
(1) | Intersegment revenues are eliminated from consolidated revenue. |
(2) | Franchise operating income for the three months ended March 31, 2005 includes $2.5 million of income, which related to recognition of transaction fee income on the transfer of our Australian franchise. |
F-71
Table of Contents
Note 9. | Supplemental Guarantor Information |
F-72
Table of Contents
Combined | Combined | |||||||||||||||||||||
Parent/ | Guarantor | Non-Guarantor | ||||||||||||||||||||
Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
March 31, 2005 | ||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||
Current assets | ||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 74,691 | $ | 3,074 | $ | — | $ | 77,765 | ||||||||||||
Receivables, net | 2,080 | 67,284 | 1,144 | — | 70,508 | |||||||||||||||||
Intercompany receivables | — | 33,538 | — | (33,538 | ) | — | ||||||||||||||||
Inventories, net | — | 278,789 | 14,582 | — | 293,371 | |||||||||||||||||
Other current assets | 2,162 | 43,152 | 4,090 | — | 49,404 | |||||||||||||||||
Total current assets | 4,242 | 497,454 | 22,890 | (33,538 | ) | 491,048 | ||||||||||||||||
Property, plant and equipment, net | — | 168,922 | 21,886 | — | 190,808 | |||||||||||||||||
Investment in subsidiaries | 790,050 | 4,520 | — | (794,570 | ) | — | ||||||||||||||||
Goodwill, net | — | 77,643 | 942 | — | 78,585 | |||||||||||||||||
Brands, net | — | 209,000 | 3,000 | — | 212,000 | |||||||||||||||||
Other assets | 17,727 | 51,897 | 371 | (8,780 | ) | 61,215 | ||||||||||||||||
Total assets | $ | 812,019 | $ | 1,009,436 | $ | 49,089 | $ | (836,888 | ) | $ | 1,033,656 | |||||||||||
Current liabilities | ||||||||||||||||||||||
Current liabilities | $ | 9,915 | $ | 208,600 | $ | 7,188 | $ | — | $ | 225,703 | ||||||||||||
Intercompany payables | 16,850 | — | 16,688 | (33,538 | ) | — | ||||||||||||||||
Total current liabilities | 26,765 | 208,600 | 23,876 | (33,538 | ) | 225,703 | ||||||||||||||||
Long-term debt | 460,923 | — | 20,693 | (8,780 | ) | 472,836 | ||||||||||||||||
Other long-term liabilities | (206 | ) | 10,786 | — | — | 10,580 | ||||||||||||||||
Total liabilities | 487,482 | 219,386 | 44,569 | (42,318 | ) | 709,119 | ||||||||||||||||
Total stockholder’s equity (deficit) | 324,537 | 790,050 | 4,520 | (794,570 | ) | 324,537 | ||||||||||||||||
Total liabilities and stockholder’s equity (deficit) | $ | 812,019 | $ | 1,009,436 | $ | 49,089 | $ | (836,888 | ) | $ | 1,033,656 | |||||||||||
F-73
Table of Contents
Combined | Combined | |||||||||||||||||||||
Parent/ | Guarantor | Non-Guarantor | ||||||||||||||||||||
Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
December 31, 2004 | ||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||
Current assets | ||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 82,722 | $ | 2,439 | $ | — | $ | 85,161 | ||||||||||||
Receivables, net | 1,865 | 66,821 | 1,327 | — | 70,013 | |||||||||||||||||
Intercompany receivables | 15,887 | 16,848 | — | (32,735 | ) | — | ||||||||||||||||
Inventories, net | — | 258,085 | 14,169 | — | 272,254 | |||||||||||||||||
Other current assets | 257 | 45,731 | 3,920 | — | 49,908 | |||||||||||||||||
Total current assets | 18,009 | 470,207 | 21,855 | (32,735 | ) | 477,336 | ||||||||||||||||
Property, plant and equipment, net | — | 172,813 | 22,596 | — | 195,409 | |||||||||||||||||
Investment in subsidiaries | 784,710 | 3,951 | — | (788,661 | ) | — | ||||||||||||||||
Goodwill, net | — | 77,643 | 942 | — | 78,585 | |||||||||||||||||
Brands, net | — | 209,000 | 3,000 | — | 212,000 | |||||||||||||||||
Other assets | 18,336 | 59,339 | 373 | (8,780 | ) | 69,268 | ||||||||||||||||
Total assets | $ | 821,055 | $ | 992,953 | $ | 48,766 | $ | (830,176 | ) | $ | 1,032,598 | |||||||||||
Current liabilities | ||||||||||||||||||||||
Current liabilities | $ | 4,333 | $ | 182,490 | $ | 7,013 | $ | — | $ | 193,836 | ||||||||||||
Intercompany payables | — | 15,887 | 16,848 | (32,735 | ) | — | ||||||||||||||||
Total current liabilities | 4,333 | 198,377 | 23,861 | (32,735 | ) | 193,836 | ||||||||||||||||
Long-term debt | 494,300 | — | 20,954 | (8,780 | ) | 506,474 | ||||||||||||||||
Other long-term liabilities | — | 9,866 | — | — | 9,866 | |||||||||||||||||
Total liabilities | 498,633 | 208,243 | 44,815 | (41,515 | ) | 710,176 | ||||||||||||||||
Total stockholder’s equity (deficit) | 322,422 | 784,710 | 3,951 | (788,661 | ) | 322,422 | ||||||||||||||||
Total liabilities and stockholder’s equity (deficit) | $ | 821,055 | $ | 992,953 | $ | 48,766 | $ | (830,176 | ) | $ | 1,032,598 | |||||||||||
F-74
Table of Contents
Combined | Combined | |||||||||||||||||||
Parent/ | Guarantor | Non-Guarantor | ||||||||||||||||||
Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Three Months Ended March 31, 2005 | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
(In thousands) | ||||||||||||||||||||
Revenue | $ | — | $ | 322,346 | $ | 17,685 | $ | (3,596 | ) | $ | 336,435 | |||||||||
Cost of sales, including costs of warehousing, distribution and occupancy | — | 220,927 | 13,125 | (3,596 | ) | 230,456 | ||||||||||||||
Gross profit | — | 101,419 | 4,560 | — | 105,979 | |||||||||||||||
Compensation and related benefits | — | 54,321 | 2,993 | — | 57,314 | |||||||||||||||
Advertising and promotion | — | 14,483 | 118 | — | 14,601 | |||||||||||||||
Other selling, general and administrative | 478 | 17,930 | 414 | — | 18,822 | |||||||||||||||
Subsidiary (income) expense | (6,022 | ) | (810 | ) | — | 6,832 | — | |||||||||||||
Other income | — | (2,510 | ) | (95 | ) | — | (2,605 | ) | ||||||||||||
Operating income (loss) | 5,544 | 18,005 | 1,130 | (6,832 | ) | 17,847 | ||||||||||||||
Interest expense, net | 4,574 | 8,571 | 326 | — | 13,471 | |||||||||||||||
Income (loss) before income taxes | 970 | 9,434 | 804 | (6,832 | ) | 4,376 | ||||||||||||||
Income tax (benefit) expense | (1,825 | ) | 3,412 | (6 | ) | — | 1,581 | |||||||||||||
Net income (loss) | $ | 2,795 | $ | 6,022 | $ | 810 | $ | (6,832 | ) | $ | 2,795 | |||||||||
F-75
Table of Contents
Combined | Combined | |||||||||||||||||||
Parent/ | Guarantor | Non-Guarantor | ||||||||||||||||||
Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Three Months Ended March 31, 2004 | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
(In thousands) | ||||||||||||||||||||
Revenue | $ | — | $ | 355,490 | $ | 19,344 | $ | (2,279 | ) | $ | 372,555 | |||||||||
Cost of sales, including costs of warehousing, distribution and occupancy | — | 235,442 | 13,980 | (2,279 | ) | 247,143 | ||||||||||||||
Gross profit | — | 120,048 | 5,364 | — | 125,412 | |||||||||||||||
Compensation and related benefits | — | 58,007 | 3,093 | — | 61,100 | |||||||||||||||
Advertising and promotion | — | 12,452 | 104 | — | 12,556 | |||||||||||||||
Other selling, general and administrative | 394 | 16,755 | 635 | — | 17,784 | |||||||||||||||
Subsidiary (income) expense | (16,483 | ) | (1,291 | ) | — | 17,774 | — | |||||||||||||
Other income | — | (30 | ) | (163 | ) | — | (193 | ) | ||||||||||||
Operating income (loss) | 16,089 | 34,155 | 1,695 | (17,774 | ) | 34,165 | ||||||||||||||
Interest expense, net | — | 8,249 | 404 | — | 8,653 | |||||||||||||||
Income (loss) before income taxes | 16,089 | 25,906 | 1,291 | (17,774 | ) | 25,512 | ||||||||||||||
Income tax (benefit) expense | (144 | ) | 9,423 | — | — | 9,279 | ||||||||||||||
Net income (loss) | $ | 16,233 | $ | 16,483 | $ | 1,291 | $ | (17,774 | ) | $ | 16,233 | |||||||||
F-76
Table of Contents
Combined | Combined | |||||||||||||||
Parent/ | Guarantor | Non-Guarantor | ||||||||||||||
Issuer | Subsidiaries | Subsidiaries | Consolidated | |||||||||||||
Three Months Ended March 31, 2005 | ||||||||||||||||
(Unaudited) | ||||||||||||||||
(In thousands) | ||||||||||||||||
Net cash provided by operating activities | $ | 4,201 | $ | 30,373 | $ | 966 | $ | 35,540 | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
Capital expenditures | — | (4,361 | ) | (22 | ) | (4,383 | ) | |||||||||
Investment/distribution | 35,245 | (35,245 | ) | — | — | |||||||||||
Other investing | — | (558 | ) | — | (558 | ) | ||||||||||
Net cash provided by (used in) investing activities | 35,245 | (40,164 | ) | (22 | ) | (4,941 | ) | |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
GNC Corporation return of capital from General Nutrition Centers, Inc | (416 | ) | — | — | (416 | ) | ||||||||||
Payments on long-term debt — third parties | (185,245 | ) | — | (246 | ) | (185,491 | ) | |||||||||
Proceeds from senior notes issuance | 150,000 | — | — | 150,000 | ||||||||||||
Other financing | (3,785 | ) | 1,760 | — | (2,025 | ) | ||||||||||
Net cash (used in) provided by financing activities | (39,446 | ) | 1,760 | (246 | ) | (37,932 | ) | |||||||||
Effect of exchange rate on cash | — | — | (63 | ) | (63 | ) | ||||||||||
Net (decrease) increase in cash | — | (8,031 | ) | 635 | (7,396 | ) | ||||||||||
Beginning balance, cash | — | 82,722 | 2,439 | 85,161 | ||||||||||||
Ending balance, cash | $ | — | $ | 74,691 | $ | 3,074 | $ | 77,765 | ||||||||
F-77
Table of Contents
Combined | Combined | ||||||||||||||||
Parent/ | Guarantor | Non-Guarantor | |||||||||||||||
Issuer | Subsidiaries | Subsidiaries | Consolidated | ||||||||||||||
(unaudited) | |||||||||||||||||
(in thousands) | |||||||||||||||||
Three months ended March 31, 2004 | |||||||||||||||||
Net cash provided by operating activities | $ | 6,082 | $ | 42,034 | $ | 330 | $ | 48,446 | |||||||||
Cash flows from investing activities: | |||||||||||||||||
Capital expenditures | — | (5,124 | ) | (218 | ) | (5,342 | ) | ||||||||||
Purchase transaction fees | (7,710 | ) | — | — | (7,710 | ) | |||||||||||
Investment/distribution | 713 | (713 | ) | — | — | ||||||||||||
Other investing | — | (205 | ) | — | (205 | ) | |||||||||||
Net cash used in investing activities | (6,997 | ) | (6,042 | ) | (218 | ) | (13,257 | ) | |||||||||
Cash flows from financing activities: | |||||||||||||||||
GNC Corporation investment in General Nutrition Centers, Inc. | 1,628 | — | — | 1,628 | |||||||||||||
Other financing | (713 | ) | (839 | ) | (238 | ) | (1,790 | ) | |||||||||
Net cash provided by (used in) financing activities | 915 | (839 | ) | (238 | ) | (162 | ) | ||||||||||
Effect of exchange rate on cash | — | — | (72 | ) | (72 | ) | |||||||||||
Net increase (decrease) in cash | — | 35,153 | (198 | ) | 34,955 | ||||||||||||
Beginning balance, cash | — | 30,642 | 2,534 | 33,176 | |||||||||||||
Ending balance, cash | $ | — | $ | 65,795 | $ | 2,336 | $ | 68,131 | |||||||||
F-78