GENERAL NUTRITION CENTERS, INC. - FORM 10-Q

Attached files

file	filename
EX-31.2 - EX-31.2 - GENERAL NUTRITION CENTERS, INC.	l37967exv31w2.htm
EX-31.1 - EX-31.1 - GENERAL NUTRITION CENTERS, INC.	l37967exv31w1.htm
EX-32.1 - EX-32.1 - GENERAL NUTRITION CENTERS, INC.	l37967exv32w1.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark one)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 333-144396

GENERAL NUTRITION CENTERS, INC.

(Exact name of registrant as specified in its charter)


Delaware		72-1575168
(State or other jurisdiction of		(I.R.S. Employer
Incorporation or organization)		Identification No.)

300 Sixth Avenue		15222
Pittsburgh, Pennsylvania		(Zip Code)
(Address of principal executive offices)

Registrant’s telephone number, including area code: (412) 288-4600

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. o Yes þ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:


Large accelerated filer o	Accelerated filer o	Non-accelerated filer þ	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

As of November 5, 2009, 100 shares of common stock, par value $0.01 per share (the “Common Stock”) of General Nutrition Centers, Inc. were outstanding. All shares of our Common Stock are held by GNC Corporation.

TABLE OF CONTENTS


		PAGE
PART I — FINANCIAL INFORMATION
Explanatory Note.

Item 1.	Financial Statements.

	Consolidated Balance Sheets as of September 30, 2009 (unaudited) and December 31, 2008		1

	Unaudited Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2009 and 2008.		2

	Unaudited Consolidated Statement of Stockholder’s Equity for the nine months ended September 30, 2009		3

	Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008		4

	Summarized Notes to Unaudited Consolidated Financial Statements		5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		33

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.		48

Item 4.	Controls and Procedures.		49

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings.		50

Item 1A.	Risk Factors.		55

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.		64

Item 3.	Defaults Upon Senior Securities.		64

Item 4.	Submission of Matters to a Vote of Security Holders.		64

Item 5.	Other Information.		64

Item 6.	Exhibits.		64

Signatures			65
EX-31.1
EX-31.2
EX-32.1

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets
(in thousands, except share data)


	September 30,			December 31,
	2009			2008 *
	(unaudited)
Current assets:
Cash and cash equivalents	$	64,559		$	42,307
Receivables, net		96,805			89,413
Inventories, net (Note 3)		376,659			363,654
Deferred tax assets, net		3,566			11,455
Prepaids and other current assets		30,967			47,952

Total current assets		572,556			554,781

Long-term assets:
Goodwill (Note 4)		624,725			622,909
Brands (Note 4)		720,000			720,000
Other intangible assets, net (Note 4)		156,641			163,176
Property, plant and equipment, net		200,572			206,154
Deferred financing fees, net		19,463			22,470
Other long-term assets		4,044			2,518

Total long-term assets		1,725,445			1,737,227


Total assets	$	2,298,001		$	2,292,008


Current liabilities:
Accounts payable	$	102,925		$	123,577
Accrued payroll and related liabilities		23,773			22,582
Accrued interest (Note 5)		6,270			15,745
Current portion, long-term debt (Note 5)		1,462			13,509
Deferred revenue and other current liabilities		75,965			74,309

Total current liabilities		210,395			249,722

Long-term liabilities:
Long-term debt (Note 5)		1,063,605			1,071,237
Deferred tax liabilities, net		281,837			278,003
Other long-term liabilities		40,215			40,984

Total long-term liabilities		1,385,657			1,390,224


Total liabilities		1,596,052			1,639,946

Stockholder’s equity:
Common stock, $0.01 par value, 1,000 shares authorized, 100 shares issued and outstanding		—			—
Paid-in-capital		594,139			592,355
Retained earnings		117,100			73,764
Accumulated other comprehensive loss		(9,290	)		(14,057	)

Total stockholder’s equity		701,949			652,062


Total liabilities and stockholder’s equity	$	2,298,001		$	2,292,008


*		Footnotes summarized from the Audited Financial Statements

The accompanying notes are an integral part of the consolidated financial statements.

GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Income
(unaudited)
(in thousands)


	Three months ended				Nine months ended
	September 30,		September 30,		September 30,			September 30,
	2009		2008		2009			2008
Revenue	$	430,798	$	414,194	$	1,303,111		$	1,264,989

Cost of sales, including costs of warehousing, distribution and occupancy		282,606		269,976		849,241			823,143

Gross profit		148,192		144,218		453,870			441,846

Compensation and related benefits		65,470		63,351		196,321			187,806
Advertising and promotion		11,043		13,565		40,177			45,352
Other selling, general and administrative		24,272		23,668		74,006			73,504
Foreign currency (gain) loss		6		76		(27	)		139

Operating income		47,401		43,558		143,393			135,045

Interest expense, net (Note 5)		16,874		19,714		53,017			62,218


Income before income taxes		30,527		23,844		90,376			72,827

Income tax expense (Note 11)		11,002		7,528		33,440			26,163


Net income		19,525		16,316		56,936			46,664

Other comprehensive income		1,015		3,502		4,767			1,281


Comprehensive income	$	20,540	$	19,818	$	61,703		$	47,945

The accompanying notes are an integral part of the consolidated financial statements.

GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholder’s Equity
(in thousands, except share data)


											Accumulated
											Other			Total
	Common Stock							Retained			Comprehensive			Stockholder’s
	Shares		Dollars		Paid-in-Capital			Earnings			Loss			Equity
Balance at December 31, 2008		100	$	—	$	592,355		$	73,764		$	(14,057	)	$	652,062


Return of capital to GNC Corporation		—		—		(278	)		—			—			(278	)
Non-cash stock-based compensation		—		—		2,062			—			—			2,062
Net income		—		—		—			56,936			—			56,936
Dividend payment		—		—		—			(13,600	)		—			(13,600	)
Unrealized gain on derivatives designated and qualified as cash flow hedges, net of tax of $753		—		—		—			—			1,316			1,316
Foreign currency translation adjustments		—		—		—			—			3,451			3,451


Balance at September 30, 2009 (unaudited)		100	$	—	$	594,139		$	117,100		$	(9,290	)	$	701,949

The accompanying notes are an integral part of the consolidated financial statements.

GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows
(unaudited)
(in thousands)


	Nine months ended
	September 30,			September 30,
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	56,936		$	46,664

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense		27,327			23,029
Amortization of intangible assets		7,308			8,330
Amortization of deferred financing fees		3,053			2,909
Amortization of original issue discount		277			250
Increase in provision for inventory losses		8,278			10,345
Non-cash stock-based compensation		2,062			2,182
(Decrease) increase in provision for losses on accounts receivable		(2,173	)		638
Decrease in net deferred taxes		10,970			(651	)
Changes in assets and liabilities:
(Increase) decrease in receivables		(6,762	)		(3,374	)
Increase in inventory, net		(19,298	)		(43,753	)
(Increase) decrease in franchise note receivables, net		(31	)		754
Decrease in prepaid income taxes		8,928			17,310
Decrease in other assets		7,486			1,876
(Decrease) increase in accounts payable		(21,025	)		20,194
Decrease in interest payable		(9,475	)		(11,036	)
Increase (decrease) in accrued liabilities		3,987			(11,911	)

Net cash provided by operating activities		77,848			63,756


CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(20,448	)		(34,997	)
Acquisition of the Company		—			(10,842	)
Franchise store conversions		231			163
Store acquisition costs		(1,791	)		(258	)

Net cash used in investing activities		(22,008	)		(45,934	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Return of capital to Parent company		(278	)		(832	)
Dividend payment		(13,600	)		—
Debt financing fees		(45	)		—
Payments on long-term debt		(19,973	)		(5,956	)

Net cash used in financing activities		(33,896	)		(6,788	)


Effect of exchange rate on cash		308			14

Net increase in cash		22,252			11,048
Beginning balance, cash		42,307			28,854

Ending balance, cash	$	64,559		$	39,902

The accompanying notes are an integral part of the consolidated financial statements.

GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1. NATURE OF BUSINESS

General Nature of Business. General Nutrition Centers, Inc. (“GNC” or the “Company”), a Delaware corporation, is a leading specialty retailer of nutritional supplements, which includes: vitamins, minerals and herbal supplements (“VMHS”), sports nutrition products, diet products and other wellness products.

The Company’s organizational structure is vertically integrated as the operations consist of purchasing raw materials, formulating and manufacturing products and selling the finished products through its retail, franchising and manufacturing/wholesale segments. The Company operates primarily in three business segments: Retail, Franchising, and Manufacturing/Wholesale. Corporate retail store operations are located in North America and Puerto Rico and in addition the Company offers products domestically through www.gnc.com. Franchise stores are located in the United States and 47 international markets. The Company operates its primary manufacturing facilities in South Carolina and distribution centers in Arizona, Pennsylvania and South Carolina. The Company manufactures the majority of its branded products, but also merchandises various third-party products. Additionally, the Company licenses the use of its trademarks and trade names.

The processing, formulation, packaging, labeling and advertising of the Company’s products are subject to regulation by one or more federal agencies, including the Food and Drug Administration (“FDA”), Federal Trade Commission (“FTC”), Consumer Product Safety Commission, United States Department of Agriculture and the Environmental Protection Agency. These activities are also regulated by various agencies of the states and localities in which the Company’s products are sold.

Merger of the Company. On February 8, 2007, GNC Parent Corporation entered into an Agreement and Plan of Merger with GNC Acquisition Inc. and its parent company, GNC Acquisition Holdings Inc. (“Parent”), pursuant to which GNC Acquisition Inc. agreed to merge with and into GNC Parent Corporation, and as a result GNC Parent Corporation would continue as the surviving corporation and a wholly owned subsidiary of Parent. (the “Merger”). Immediately following the Merger, GNC Parent Corporation was converted into a Delaware limited liability company and renamed GNC Parent LLC. The purchase equity contribution was made by Ares Corporate Opportunities Fund II, L.P. (“Ares”) and Ontario Teachers’ Pension Plan Board (“OTPP”), (collectively, the “Sponsors”), together with additional institutional investors and certain management of the Company. The transaction closed on March 16, 2007 and was accounted for under the purchase method of accounting. The transaction occurred between unrelated parties and no common control existed. The merger consideration (excluding acquisition costs of $13.7 million) totaled $1.65 billion, including the repayment of existing debt and other liabilities, and was funded with a combination of equity contributions and the issuance of new debt. In September 2008, pursuant to the Merger agreement, $10.8 million of additional consideration was paid as a result of the Company filing its March 16, 2007 to December 31, 2007 consolidated federal tax return. Also, in October 2009, the Company paid $11.2 million of additional consideration as a result of filing the 2008 consolidated federal tax return. The Merger agreement requires payments to former shareholders and optionholders in lieu of income tax payments made for utilizing net operating losses created as a result of the Merger.

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

NOTE 2. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements and footnotes have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and related footnotes that would normally be required by U.S. GAAP for complete financial reporting. These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements in the Company’s Annual Report on Form 10-K filed for the year ended December 31, 2008 (the “Form 10-K”). The Company’s reporting period is based on a calendar year.

The accounting policies of the Company are consistent with the policies disclosed in the Company’s audited financial statements for the year ended December 31, 2008. There have been no significant changes to these policies since December 31, 2008.

The accompanying unaudited consolidated financial statements include all adjustments (consisting of a normal and recurring nature) that management considers necessary for a fair statement of financial information for the interim periods. Interim results are not necessarily indicative of the results that may be expected for the remainder of the year ending December 31, 2009.

Principles of Consolidation. The consolidated financial statements include the accounts of the Company and all of its subsidiaries. All material intercompany transactions have been eliminated in consolidation.

The Company has no relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off balance sheet arrangements, or other contractually narrow or limited purposes.

Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. Accordingly, these estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Some of the most significant estimates pertaining to the Company include the valuation of inventories, the allowance for doubtful accounts, income tax valuation allowances and the recoverability of long-lived assets. On a regular basis, management reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.

Cash and Cash Equivalents. The Company considers cash and cash equivalents to include all cash and liquid deposits and investments with a maturity of three months or less. The majority of payments due from banks for third-party credit cards process within 24-48 hours, except for transactions occurring on a Friday, which are generally processed the following Monday. All credit card transactions are classified as cash and the amounts due from these transactions totaled $2.1 million at September 30, 2009 and $2.2 million at December 31, 2008.

Book overdrafts of $3.1 million and $4.2 million as of September 30, 2009 and December 31, 2008, respectively, represent checks issued that had not been presented for payment to the banks and are classified as accounts payable in the Company’s consolidated balance sheet. The Company typically funds these overdrafts through normal collections of funds or transfers from bank balances at other financial institutions. Under the terms of the Company’s facilities with its banks, the respective financial institutions are not legally obligated to honor the book overdraft balances as of September 30, 2009 and December 31, 2008, or any balance on any given date.

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

For the year ended December 31, 2008, the Company revised the presentation of changes in book overdrafts from a financing activity to an operating activity in its consolidated statement of cash flows with a conforming change to the prior period presentation. The effect of this revision had no impact on the net increase in cash; however, it changed the cash provided by operating activities for the nine months ended September 30, 2008, from $65.4 million, as previously disclosed in the prior year Form 10-Q, to $63.8 million, with a corresponding change in the cash flows used in financing activities for the nine months ended September 30, 2008 from $8.4 million to $6.8 million.

Financial Instruments and Derivatives. On January 1, 2009, the Company adopted accounting standards on disclosure of derivative instruments and hedging activities. This standard expands the current disclosure requirements. This standard provides for an enhanced understanding of (1) how and why an entity uses derivative instruments, (2) how derivative instruments and related hedged items are accounted for under previous standards and their related interpretations, and (3) how derivative instruments affect an entity’s financial position, financial performance, and cash flows.

As part of the Company’s financial risk management program, it uses certain derivative financial instruments. The Company does not enter into derivative transactions for speculative purposes and holds no derivative instruments for trading purposes. The Company uses derivative financial instruments to reduce its exposure to market risk for changes in interest rates primarily in respect of its long term debt obligations. The Company tries to manage its interest rate risk in order to balance its exposure to both fixed and floating rates while minimizing its borrowing costs. Floating-to-fixed interest rate swap agreements, designated as cash flow hedges of interest rate risk, are entered into from time to time to hedge our exposure to interest rate changes on a portion of the Company’s floating rate debt. These interest rate swap agreements convert a portion of the Company’s floating rate debt to fixed rate debt. Interest rate floors designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates fall below the strike rate on the contract in exchange for an up front premium. The Company records the fair value of these contracts as an asset or a liability, as applicable, in the balance sheet, with the offset to accumulated other comprehensive income (loss), net of tax. The Company measures hedge effectiveness by assessing the changes in the fair value or expected future cash flows of the hedged item. The ineffective portions, if any, are recorded in interest expense in the current period.

Derivatives designated as hedging instruments have been recorded in the consolidated balance sheet at fair value as follows:


		Fair Value
	Balance Sheet Location	September 30, 2009			December 31, 2008
		(unaudited)
		(in thousands)
Interest Rate Products	Other long-term liabilities	$	(16,833	)	$	(18,902	)

The Company has interest rate swap agreements outstanding that effectively converted notional amounts of an aggregate $550.0 million of debt from floating to fixed interest rates. The five outstanding agreements mature between April 2010 and September 2012. During the second quarter of 2009, the Company entered into a derivative contract that consisted of an interest rate swap with a bought floor that effectively converted a notional amount of $150.0 million of the senior toggle notes from a floating to a fixed rate, effective September 2009. The floor is intended to replicate the optionality present in the original debt agreement, providing an equivalent offset in the interest payments. The Company did not enter into any new swap agreements during the third quarter of 2009.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the twelve months ending September 30, 2010, the Company estimates that an additional $14.0 million will be reclassified as an increase to interest expense.

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

Components of gains and losses recorded in the consolidated balance sheet and consolidated income statements for the three months ended September 30, 2009, are as follows:


	Amount of Gain or		Location of Gain or (Loss)	Amount of Gain or (Loss)
Derivatives in Cash	(Loss) Recognized in		Reclassified from	Reclassified from
Flow Hedging	OCI on Derivative		Accumulated OCI into	Accumulated OCI into
Relationships	(Effective Portion)		Income (Effective Portion)	Income (Effective Portion)
(in thousands)
Interest Rate Products	$	1,543	Interest income/ (expense)	$	(3,381	)

Components of gains and losses recorded in the consolidated balance sheet and consolidated income statements for the nine months ended September 30, 2009, are as follows:


	Amount of Gain or		Location of Gain or (Loss)	Amount of Gain or (Loss)
Derivatives in Cash	(Loss) Recognized in		Reclassified from	Reclassified from
Flow Hedging	OCI on Derivative		Accumulated OCI into	Accumulated OCI into
Relationships	(Effective Portion)		Income (Effective Portion)	Income (Effective Portion)
(in thousands)
Interest Rate Products	$	6,307	Interest income/ (expense)	$	(8,376	)

During the three and nine months ended September 30, 2009, there was no amount recorded as ineffective from accumulated other comprehensive income.

Under the Company’s agreements with its derivative counterparty, if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.

As of September 30, 2009, the fair value of derivatives in a net liability position related to these agreements was $20.4 million, including accrued interest of $2.7 million but excluding adjustments for nonperformance risk. As of September 30, 2009, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions at September 30, 2009, it could have been required to settle its obligations under the agreements at their full termination value.

Recently Issued Accounting Pronouncements

In September 2006, the FASB issued a standard on fair value measurements and disclosures. This standard defines fair value, establishes a framework for measuring fair value in U.S. GAAP, and expands disclosures about fair value measurements. The standard applies under other accounting pronouncements that require or permit fair value measurements and, accordingly, does not require any new fair value measurements. The original standard was initially effective as of January 1, 2008, but in February 2008 the FASB delayed the effectiveness date for applying this standard to nonfinancial assets and nonfinancial liabilities that are not currently recognized or disclosed at fair value in the financial statements. The standard was effective for fiscal years beginning after November 15, 2007, except for nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis, for which application has been deferred for one year. The Company adopted this standard in the first quarter of fiscal 2008 (See Note 12) for financial assets and liabilities. The Company evaluated the impact of the standard on the valuation of all nonfinancial assets and liabilities, including those measured at fair value in goodwill, brands, and indefinite lived intangible asset impairment testing; the adoption had no impact on its consolidated financial statements for the nine months ended September 30, 2009.

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

contingencies, transaction costs, in-process research and development and restructuring costs. In addition, under this standard, changes in an acquired entity’s deferred tax assets and uncertain tax positions after the measurement period will impact the acquirer’s income tax expense. The standard provides guidance regarding what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The original standard became effective for fiscal years beginning after December 15, 2008 with early application prohibited and amends the standard on income taxes such that adjustments made to deferred taxes and acquired tax contingencies after January 1, 2009, even for business combinations completed before this date, will impact net income. The Company adopted this standard during the first quarter of fiscal 2009; the adoption did not have a material impact on its consolidated financial statements.

In December 2007, the FASB issued a standard on consolidation. The issuance of this standard changes the accounting and reporting for minority interests, which have been recharacterized as noncontrolling interests and classified as a component of equity. This new consolidation method significantly changes the accounting for transactions with minority interest holders. The standard was effective for fiscal years beginning after December 15, 2008 with early application prohibited. The Company adopted this standard during the first quarter of fiscal 2009; the adoption did not have a material impact on its consolidated financial statements.

In March 2008, the FASB issued a standard on derivatives and hedging. The standard requires companies with derivative instruments to disclose information that should enable financial statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for and how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows. The standard was effective for interim and annual periods beginning on or after November 15, 2008. The Company adopted this standard during the first quarter of 2009; the adoption had no impact on its consolidated financial statements.

In April 2008, the FASB issued a standard on goodwill and intangibles which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible. The intent of this standard is to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset. The Company adopted this standard during the first quarter of fiscal 2009; the adoption did not have a material impact on its consolidated financial statements.

In April 2009, the FASB issued a standard on the disclosure of financial instruments This standard brings the interpretive guidance into alignment with the changes in U.S. GAAP. The Company adopted this standard during the second quarter of fiscal 2009; the adoption did not have a material impact on its consolidated financial statements.

In May 2009, the FASB issued a standard on subsequent events which establishes general standards of accounting for and disclosing of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The intent of this standard is to incorporate accounting guidance that originated as auditing standards into the body of authoritative literature issued by the FASB which is consistent with the FASB’s objective to codify all authoritative U.S. accounting guidance related to a particular topic in one place. The Company adopted this standard during the second quarter of 2009; the adoption did not have a material impact on its consolidated financial statements.

In June 2009, the FASB issued an update to the standard on consolidations. The standard is intended to improve financial reporting by providing additional guidance to companies involved with variable interest entities and by requiring additional disclosures about a company’s involvement in variable interest entities. This standard is effective for interim and annual periods ending after November 15, 2009. The adoption of this standard will not have a material impact on the Company’s financial statements.

In June 2009, the FASB issued a standard on Generally Accepted Accounting Principles. This standard establishes the FASB Accounting Standards Codification (the “Codification”) as the single source of authoritative nongovernmental U.S. GAAP. The Codification is effective for interim and annual periods ending after September 15, 2009. The adoption of this standard did not have a material impact on the Company’s financial statements.

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

In June 2009, the SEC issued a Staff Accounting Bulletin that revises or rescinds portions of the interpretive guidance included in the codification of SABs in order to make the interpretive guidance consistent with U.S. GAAP. The principal revisions include deletion of material no longer necessary or that has been superseded because of the issuance of new standards. The Company adopted this Staff Accounting Bulletin during the second quarter of 2009; the adoption did not have a material impact on its consolidated financial statements.

In August 2009, the FASB issued an update to the standard on fair value measurements and disclosures. This update provides guidance on the manner in which the fair value of liabilities should be determined. This update is effective for annual periods ending after September 15, 2009. The adoption of this standard did not have a material impact on the Company’s financial statements.

In September 2009, the FASB issued an update to the standard on income taxes. This update adds to the definition of a tax position of an entity’s status, including its status as a pass-through entity, eliminates certain disclosure requirements for non-public entities, and provides application for pass-through entities. The adoption of this standard did not have a material impact on the Company’s financial statements.

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

NOTE 3. INVENTORIES, NET

Inventories at each respective period consisted of the following:


	September 30, 2009
						Net Carrying
	Gross cost		Reserves			Value
	(unaudited)
	(in thousands)
Finished product ready for sale	$	318,131	$	(8,471	)	$	309,660
Work-in-process, bulk product and raw materials		62,877		(1,320	)		61,557
Packaging supplies		5,442		—			5,442

	$	386,450	$	(9,791	)	$	376,659


	December 31, 2008
						Net Carrying
	Gross cost		Reserves			Value
	(in thousands)
Finished product ready for sale	$	311,218	$	(9,275	)	$	301,943
Work-in-process, bulk product and raw materials		57,995		(1,111	)		56,884
Packaging supplies		4,827		—			4,827

	$	374,040	$	(10,386	)	$	363,654

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

NOTE 4. GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill represents the excess of purchase price over the fair value of identifiable net assets of acquired entities. In accordance with the standard on intangibles and goodwill, goodwill and intangible assets with indefinite useful lives are not amortized, but instead are tested for impairment at least annually. Other intangible assets with finite lives are amortized on a straight-line or declining balance basis over periods not exceeding 35 years.

For the nine months ended September 30, 2009, the Company acquired 43 franchise stores. These acquisitions were accounted for utilizing the purchase method of accounting and the Company recorded the acquired inventory, fixed assets, franchise rights and goodwill, with an applicable reduction to receivables and cash. The total purchase price associated with these acquisitions was $7.4 million, of which $1.8 million was paid in cash.

The following table summarizes the Company’s goodwill activity from December 31, 2008 to September 30, 2009.


					Manufacturing/
	Retail		Franchising		Wholesale		Total
	(in thousands)
Balance at December 31, 2008	$	302,765	$	117,303	$	202,841	$	622,909
Acquired franchise stores		1,816		—		—		1,816

Balance at September 30, 2009 (unaudited)	$	304,581	$	117,303	$	202,841	$	624,725

The following table summarizes the Company’s intangible asset activity from December 31, 2008 to September 30, 2009.


				Retail		Franchise		Operating			Franchise
	Gold Card			Brand		Brand		Agreements			Rights			Total
	(in thousands)
Balance at December 31, 2008	$	2,456		$	500,000	$	220,000	$	160,019		$	701		$	883,176
Acquired franchise stores		—			—		—		—			773			773
Amortization expense		(1,631	)		—		—		(5,198	)		(479	)		(7,308	)

Balance at September 30, 2009 (unaudited)	$	825		$	500,000	$	220,000	$	154,821		$	995		$	876,641

The following table reflects the gross carrying amount and accumulated amortization for each major intangible asset:


	Estimated		September 30, 2009							December 31, 2008
	Life				Accumulated			Carrying				Accumulated			Carrying
	in years		Cost		Amortization			Amount		Cost		Amortization			Amount
					(unaudited)			(in thousands)
Brands — retail		—	$	500,000	$	—		$	500,000	$	500,000	$	—		$	500,000
Brands — franchise		—		220,000		—			220,000		220,000		—			220,000
Gold card — retail		3		3,500		(3,179	)		321		3,500		(2,545	)		955
Gold card — franchise		3		5,500		(4,996	)		504		5,500		(3,999	)		1,501
Retail agreements		25-35		31,000		(2,827	)		28,173		31,000		(2,038	)		28,962
Franchise agreements		25		70,000		(7,117	)		62,883		70,000		(5,016	)		64,984
Manufacturing agreements		25		70,000		(7,117	)		62,883		70,000		(5,017	)		64,983
Other intangibles		5		1,150		(268	)		882		1,150		(60	)		1,090
Franchise rights		1-5		2,881		(1,886	)		995		2,108		(1,407	)		701

			$	904,031	$	(27,390	)	$	876,641	$	903,258	$	(20,082	)	$	883,176

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

The following table represents future estimated amortization expense of other intangible assets, net, with definite lives at September 30, 2009:


	Estimated
	amortization
Years ending December 31,	expense
	(in thousands)
2009	$	2,489
2010		7,572
2011		7,038
2012		6,955
2013		6,908
Thereafter		125,679

Total	$	156,641

NOTE 5. LONG-TERM DEBT / INTEREST EXPENSE

Long-term debt at each respective period consisted of the following:


	September 30,			December 31,
	2009			2008
	(unaudited)
	(in thousands)
2007 Senior Credit Facility	$	649,619		$	668,563
Senior Toggle Notes		297,862			297,585
10.75% Senior Subordinated Notes		110,000			110,000
Mortgage		7,536			8,557
Capital leases		50			41
Less: current maturities		(1,462	)		(13,509	)

Total	$	1,063,605		$	1,071,237

The Company’s net interest expense for each respective period is as follows:


	Three months ended					Nine months ended
	September 30,		September 30,			September 30,			September 30,
	2009		2008			2009			2008
	(unaudited)
	(in thousands)
2007 Senior Credit Facility
Term Loan	$	7,823	$	10,251		$	24,971		$	32,193
Revolver		113		104			378			321
Senior Toggle Notes		4,716		5,451			15,050			17,983
10.75% Senior Subordinated Notes		2,956		2,956			8,868			8,868
OID amortization		95		85			277			250
Deferred financing fees		1,026		986			3,053			2,909
Mortgage		135		158			423			482
Interest income-other		10		(277	)		(3	)		(788	)

Interest expense, net	$	16,874	$	19,714		$	53,017		$	62,218

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

Accrued interest at each respective period consisted of the following:


	September 30,		December 31,
	2009		2008
	(unaudited)
	(in thousands)
2007 Senior Credit Facility	$	4,883	$	5,564
Senior Toggle Notes		861		6,700
10.75% Senior Subordinated Notes		526		3,481

Total	$	6,270	$	15,745

Interest on the 2007 Senior Credit Facility and the Senior Toggle Notes is based on variable rates. At September 30, 2009 and December 31, 2008 the interest rate for the 2007 Senior Credit Facility was 2.7% and 4.9%, respectively. At September 30, 2009 and December 31, 2008 the interest rate for the Senior Toggle Notes was 5.8% and 7.6%, respectively.

NOTE 6. FINANCIAL INSTRUMENTS

At September 30, 2009 and December 31, 2008, the Company’s financial instruments consisted of cash and cash equivalents, receivables, franchise notes receivable, accounts payable, certain accrued liabilities and long-term debt. The carrying amount of cash and cash equivalents, receivables, accounts payable and accrued liabilities approximates their fair value because of the short maturity of these instruments. Based on current interest rates and their underlying risk, the carrying value of the franchise notes receivable approximates their fair value. These fair values are reflected net of reserves, which are recognized according to Company policy. The Company determined the estimated fair values of its debt by using currently available market information and estimates and assumptions where appropriate. Accordingly, as considerable judgment is required to determine these estimates, changes in the assumptions or methodologies may have an effect on these estimates. The actual and estimated fair values of the Company’s financial instruments are as follows:


	September 30,				December 31,
	2009				2008
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
	(unaudited)
	(in thousands)
Cash and cash equivalents	$	64,559	$	64,559	$	42,307	$	42,307
Receivables		96,805		96,805		89,413		89,413
Franchise notes receivable		2,995		2,995		1,828		1,828
Accounts payable		102,925		102,925		123,577		123,577
Long term debt		1,065,067		1,005,646		1,084,746		702,392

GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 7. COMMITMENTS AND CONTINGENCIES

Litigation

The Company is engaged in various legal actions, claims and proceedings arising in the normal course of business, including claims related to breach of contracts, products liabilities, intellectual property matters and employment-related matters resulting from the Company’s business activities. As with most actions such as these, an estimation of any possible and/or ultimate liability cannot always be determined. The Company continues to assess its requirement to account for additional contingencies in accordance with the standard on contingencies. If the Company is required to make a payment in connection with an adverse outcome in these matters, it could have a material impact on its financial condition and operating results.

As a manufacturer and retailer of nutritional supplements and other consumer products that are ingested by consumers or applied to their bodies, the Company has been and is currently subjected to various product liability claims. Although the effects of these claims to date have not been material to the Company, it is possible that current and future product liability claims could have a material adverse impact on its business or financial condition. The Company currently maintains product liability insurance with a deductible/retention of $3.0 million per claim with an aggregate cap on retained loss of $10.0 million. The Company typically seeks and has obtained contractual indemnification from most parties that supply raw materials for its products or that manufacture or market products it sells. The Company also typically seeks to be added, and has been added, as an additional insured under most of such parties’ insurance policies. However, any such indemnification or insurance is limited by its terms and any such indemnification, as a practical matter, is limited to the creditworthiness of the indemnifying party and its insurer, and the absence of significant defenses by the insurers. The Company may incur material products liability claims, which could increase its costs and adversely affect its reputation, revenues and operating income.

Pro-Hormone/Androstenedione Cases. The Company is currently defending six lawsuits (the “Andro Actions”) relating to the sale by GNC of certain nutritional products alleged to contain the ingredients commonly known as Androstenedione, Androstenediol, Norandrostenedione, and Norandrostenediol (collectively, “Andro Products”). Five of these lawsuits were filed in California, New York, New Jersey, Pennsylvania, and Florida. The most recent case was filed in Illinois (see Stephens and Pio matter discussed below).

In each of the six cases, plaintiffs sought, or are seeking, to certify a class and obtain damages on behalf of the class representatives and all those similarly-situated who purchased from the Company certain nutritional supplements alleged to contain one or more Andro Products.

On April 17 and 18, 2006, the Company filed pleadings seeking to remove the then-pending Andro Actions to the respective federal district courts for the districts in which the respective Andro Actions were pending. At the same time, the Company filed motions seeking to transfer the then-pending Andro Actions to the U.S. District Court, Southern District of New York based on “related to” bankruptcy jurisdiction, as one of the manufacturers supplying it with Andro Products, and from whom it sought indemnity, MuscleTech Research and Development, Inc. (“MuscleTech”), had filed for bankruptcy. The Company was successful in removing the New Jersey, New York, Pennsylvania, and Florida Andro Actions to federal court and transferring these actions to the U.S. District Court, Southern District of New York based on bankruptcy jurisdiction. The California case, Guzman v. General Nutrition Companies, Inc., was not removed and remains pending in the Superior Court of the State of California for the County of Los Angeles.

Following the conclusion of the MuscleTech bankruptcy case, in September 2007, plaintiffs filed a stipulation dismissing all claims related to the sale of MuscleTech products in the four cases then-pending in the U.S. District Court, Southern District of New York (New Jersey, New York, Pennsylvania, and Florida). Additionally, plaintiffs filed motions with the Court to remand those actions to their respective state courts, asserting that the federal court had been divested of jurisdiction because the MuscleTech bankruptcy action was no longer pending. That motion was never ruled upon and has been rendered moot by the disposition of the case, discussed below.

GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

On June 4, 2008, the U.S. District Court, Southern District of New York (on its own motion) set a hearing for July 14, 2008 for the purpose of hearing argument as to why the New Jersey, New York, Pennsylvania, and Florida cases should not be dismissed for failure to prosecute in conformity to the Court’s Case Management Order. Following the hearing, the Court advised that all four cases would be dismissed with prejudice and issued an Order to that effect on July 29, 2008. On August 25, 2008, plaintiffs appealed the dismissal of the four cases to U.S. Court of Appeals for the Second Circuit. Appellate briefs were submitted by all parties in January 2009, an oral argument was heard on October 14, 2009 and the Company is awaiting a decision by the Court.

In the Guzman case in California, plaintiffs’ Motion for Class Certification was denied on September 8, 2008. Plaintiffs appealed on October 31, 2008. Appellants’ opening brief was filed in June 2009, the Company filed its appellate brief on September 24, 2009, and appellants’ filed their brief on October 24, 2009. Oral arguments have not been scheduled.

On October 3, 2008, the plaintiffs in the five other Andro Actions filed another suit related to the sale of Andro Products in state court in Illinois. Stephens and Pio v. General Nutrition Companies, Inc. (Case No. 08 CH 37097, Circuit Court of Cook County, Illinois, County Department, Chancery Division). The allegations are substantially similar to all of the other Andro Actions.

As any liabilities that may arise from these cases are not probable or reasonably estimable at this time, no liability has been accrued in the accompanying financial statements.

California Wage and Break Claim (“Casarez Matter”). On April 24, 2007, Kristin Casarez and Tyler Goodell filed a lawsuit against the Company in the Superior Court of the State of California for the County of Orange. The Company removed the lawsuit to the U.S. District Court, Central District of California. Plaintiffs purported to bring the action on their own behalf, on behalf of a class of all current and former non-exempt employees of the Company throughout the California employed on or after August 24, 2004, and as private attorney general on behalf of the general public. Plaintiffs allege that they and members of the putative class were not provided all of the rest periods and meal periods to which they were entitled under California law, and further allege that the Company failed to pay them split shift and overtime compensation to which they were entitled under California law. On September 9, 2008, plaintiffs’ Motion for Class Certification was denied from which plaintiffs did not file an interlocutory appeal. Discovery closed on March 9, 2009, and GNC filed a partial Motion for Summary Judgment on that date. On April 28, 2009, the Court granted summary judgment to GNC on the private attorney general claim but denied summary judgment as to meal and rest break claims of the two individual plaintiffs. The trial on those claims was scheduled for July 2009; however, the parties instead negotiated a written settlement agreement. The settlement agreement, which required the Company’s payment of an immaterial amount, was approved by the court on August 14, 2009, and all required settlement payments were disbursed in September 2009.

California Wage and Break Claim. On November 4, 2008, ninety individual members of the purported class in the Casarez Matter refiled their individual claims against the Company in the Superior Court of the State of California for the County of Orange, which was removed to the U.S. District Court, Central District of California on February 17, 2009 and assigned to the same judge hearing the related Casarez matter. Discovery in this case is ongoing and the Company is vigorously defending these matters. Any liabilities that may arise from these matters are not probable or reasonably estimable at this time.

GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

forcing franchises to sell the same products at a loss; and (5) manipulating prices at which franchised stores can purchase products from third-party suppliers, so as to maintain GNC’s favored position as a product wholesaler. Plaintiffs are seeking damages in an unspecified amount and equitable and injunctive relief. On March 19, 2008, the court certified a class as to only plaintiffs’ claim under the CBPC. The class consists of all persons or entities who are or were GNC franchisees in the State of California from November 13, 2002 to the date of adjudication. Plaintiff’s individual claims were settled and dismissed. On March 18, 2009, the Company’s motion for summary judgment was granted as to the CBPC class claim. In April 2009 GNC filed a motion for court costs and attorneys’ fees and the court ordered the plaintiffs to pay approximately $0.4 million to GNC for its fees and costs. Plaintiff’s full judgment has been satisfied.

Creatine Claim. On October 29, 2008, plaintiff S.K., a minor, on behalf of himself and all others similarly situated, filed a complaint against the Company and General Nutrition Corporation in the U.S. District Court, Southern District of New York. Plaintiff makes certain allegations regarding consumption of GNC products containing creatine and GNC’s alleged failure to warn consumers of those risks. Plaintiff asserts, among other things, claims for deceptive sales practices, fraud, breach of implied contract, strict liability and related tort claims, and seeks unspecified monetary damages. In July 2009, a settlement was reached, contemplating payment of an immaterial amount by GNC and placement of a label warning on GNC creatine products. The court signed the stipulation of dismissal on August 5, 2009.

Jackson Claim. On November 10, 2008, Grady Jackson, on behalf of himself and all others similarly situated, filed a complaint against General Nutrition Corporation and General Nutrition Centers, Inc. in the Superior Court of the State of California for the County of Alameda. On December 15, 2008, the matter was removed to the U.S. District Court, Northern District of California. This consumer class and representative action brought under California Unfair Competition and False Advertising Law asserts, among other things, that the non-GNC product “Nikki Haskell’s Star Caps” contained a prescription diuretic ingredient that was not disclosed on the label. On March 31, 2009, GNC filed a motion to dismiss. By order dated June 10, 2009, the court dismissed three of the seven counts asserted by plaintiffs. In September 2009, a settlement was reached, contemplating payment of an immaterial amount of attorneys’ fees to putative class counsel by GNC, and distribution of GNC discount coupons to certain putative class members.

DiMauro Claim. On December 18, 2008, plaintiffs Laura and Charles DiMauro filed a personal injury complaint against General Nutrition Corporation in Circuit Court for Miami-Dade County Florida. Plaintiffs allege that Laura DiMauro’s use and consumption of a non-GNC product called “Up Your Gas” resulted in liver failure that required a liver transplant in August 2007. Plaintiffs assert, among other things, claims for strict liability, negligence, and fraud and seek unspecified monetary damages. GNC has moved to dismiss this case on the grounds of forum non conveniens. Oral argument on the Motion is scheduled for December 2, 2009. Any liabilities that may arise from this matter are not probable or reasonably estimable at this time.

Romero Claim. On April 27, 2009, plaintiff J.C. Romero, a professional baseball player, filed a complaint against, among others, General Nutrition Centers, Inc. in Superior Court of New Jersey (Law Division/ Camden County). Plaintiff alleges that he purchased from a GNC store and consumed 6-OXO Extreme, which is manufactured by a third party, and in August 2008, was alleged to have tested positive for a banned substance. Plaintiff served a 50 game suspension imposed by Major League Baseball. The seven count complaint asserts, among other things, claims for negligence, strict liability, misrepresentation, breach implied warranty and violations of the New Jersey Consumer Fraud Act, and seeks unspecified monetary damages. GNC tendered the claim to the insurance company of the franchisee whose GNC store sold and allegedly misrepresented the product. On or about October 9, 2009, GNC answered plaintiff’s first amended complaint and cross-claimed against co-defendants Proviant Technologies and Ergopharm. Any liabilities that may arise from this matter are not probable or reasonably estimable at this time.

Ciavarra Claim. On November 19, 2008, Ryan Ciavarra filed a personal injury lawsuit against, among others, General Nutrition Corporation, in the District Court of Harris County, Texas. Plaintiff alleges that his use and consumption of the diet product Hydroxycut, which is manufactured by a third party and was, until recently, sold in the Company’s stores, caused severe liver damage, jaundice and elevated liver enzymes. Plaintiff asserts claims for strict liability, negligence and breach of warranty and seeks unspecified monetary damages. Any liabilities that may arise from this matter are not probable or reasonably estimable at this time.

GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Hydroxycut Claims. On May 1, 2009, the FDA issued a warning on several Hydroxycut-branded products manufactured by Iovate Health Sciences U.S.A., Inc. (“Iovate”). The FDA warning was based on 23 reports of liver injuries from consumers who claimed to have used the products between 2002 and 2009. As a result, Iovate voluntarily recalled fourteen Hydroxycut-branded products. Following the recall, GNC was named, among other defendants, in thirteen (13) lawsuits in Alabama, California, Louisiana, and Texas (note that prior to May 1, 2009, GNC was a co-defendant in one (1) Hydroxycut case, Ciavarra (see “Ciavarra Claim” entry above)). Iovate previously accepted GNC’s tender request for defense and indemnification under its purchasing agreement with GNC and as such, Iovate has accepted GNC’s request for defense and indemnification in the new Hydroxycut matters. GNC’s ability to obtain full recovery in respect of any claims against GNC in connection with products manufactured by Iovate under the indemnity is dependent on Iovate’s insurance coverage and the creditworthiness of its insurer, and the absence of significant defenses by the insurer. To the extent GNC was not fully compensated by Iovate’s insurer, it could seek recovery directly from Iovate. GNC’s ability to fully recover such amounts would be limited by the creditworthiness of Iovate.

GNC has been named in two different types of lawsuits: eight (8) individual personal injury claims (including Ciavarra discussed above) and six (6) putative class actions (the sixth class action was filed on October 20, 2009 and as of the date of this filing GNC has not been formally served with the complaint). The following personal injury matters are single plaintiff lawsuits filed by individuals claiming injuries from use and consumption of Hydroxycut-branded products.

	•		Michael Owens and Donna Owens v. Iovate Health Sciences USA, Inc., et al., Superior Court of the State of California, County of Los Angeles;

	•		Eva M. Stasiak v. Iovate Health Sciences USA, Inc., et al., Superior Court of the State of California, County of Los Angeles;

	•		Jaime Ruben Perez v. Gerald Brandt, individually and d/b/a/ Breakthru Products, et al., 229^th Judicial District, Duval County, Texas;

	•		Juan A. Noyola, II v. Iovate Health Sciences USA, Inc., et al., U.S. District Court, Southern District of New York;

	•		Christopher and Dana Hamilton v. Iovate Health Sciences USA, Inc., et al., U.S. District Court, Northern District of Ohio;

	•		Hector Manuel Abarca and Diana Curiel v. Iovate Health Sciences USA, Inc., et al., U.S. District Court, Northern District of California; and

	•		Jessica Rogoff v. General Nutrition Centers, Inc., et al., Superior Court of the State of California, County of Los Angeles.

Plaintiffs in the Owens and Stasiak cases dismissed those cases without prejudice in June 2009.

The following six (6) putative class actions generally include claims of consumer fraud, misrepresentation, strict liability, and breach of warranty.

	•		Andrew Dremak, et al. v. Iovate Health Sciences Group, Inc., et al., U.S. District Court, Southern District of California;

	•		Enjoli Pennier, et al. v. Iovate Health Sciences, et al., U.S. District Court, Eastern District of Louisiana;

	•		Alejandro M. Jimenez, et al. v. Iovate Health Sciences, Inc., et al., U.S. District Court, Eastern District of California;

	•		Amy Baker, et al. v. Iovate Health Sciences USA, Inc., et al., U.S. District Court, Northern District of Alabama;

	•		Kyle Davis and Sara Carreon, et al. v. Iovate Health Sciences USA, Inc., et al., U.S. District Court, Northern District of Alabama; and,

	•		Lenny Charles Gunn, Tonya Rhoden, and Nicholas Atelevich, et al., v. Iovate Health Sciences Group, Inc., et al., U.S. District Court, Southern District of California.

By court order dated October 6, 2009, the United States Judicial Panel on Multidistrict Litigation consolidated pretrial proceedings of sixteen (16) pending actions (including the first five of six above- listed GNC class actions) in the Southern District of California (In re: Hydroxycut Marketing and Sales Practices Litigation. MDL No. 2087). Any liabilities that may arise from these matters are not probable or reasonably estimable at this time.

GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Bedell Claim. On May 1, 2009, plaintiff Eugene Bedell, Jr. filed a personal injury complaint against, among others, General Nutrition Centers, Inc. and GNC Corporation, in Circuit Court of Loudoun County, Virginia. Plaintiff alleges that his use and consumption of a non-GNC product called “Nitro T3” caused him to have a stroke. Plaintiff makes certain allegations regarding the risks of using and consuming Nitro T3 and GNC’s alleged failure to warn consumers of those risks. Plaintiff seeks unspecified monetary damages. Under its purchasing agreement with the vendor, WellNx, GNC tendered the matter to WellNx for defense and indemnification WellNx has accepted GNC’s request for defense and indemnification. Any liabilities that may arise from this matter are not probable or reasonably estimable at this time.

Chen Claim. On April 30, 2009, plaintiff Yuging “Phillis” Chen filed a Third Amended Complaint against, among others, Nutra Manufacturing, Inc., in the Superior Court of California for the County of Los Angeles. Plaintiff alleges that her use and consumption of various products, including Mega Garlic Plus and Herbalifeline, manufactured by Nutra Manufacturing, caused personal injuries. Plaintiff asserts, among other things, claims for strict liability, negligence, and fraud and seeks unspecified monetary damages. Any liabilities that may arise from this matter are not probable or reasonably estimable at this time.

California False Labeling and Consumer Fraud Claims. Beginning in May 2009, a series of false labeling and consumer fraud cases (listed below) were filed in California in connection with label claims of non-GNC products sold in the Company’s stores.

	•		Michael Gonzales and Zia Nawabi, et al. v. Maximum Human Performance, Inc., et al., U.S. District Court, Central District of California (“Musclemeds”);

	•		Michael Campos and Michael Gonzales, et al. v. LG Sciences, LLC, et al., Superior Court of California, for the County of Orange (“LG Sciences”);

	•		Nicole Forlenza and Shaiden Monroe, et al. v. Dynakor Pharmacal, LLC, et al., U.S. District Court, Central District of California; and

	•		Vance Monroe and Mac Gonzales, et al. v. Biotab Nutraceuticals, Inc., et al., U.S. District Court, Southern District of California.

A tentative settlement has been reached in the Musclemeds case, subject to court approval. The LG Sciences matter was settled and dismissed in August 2009.

While only four (4) lawsuits of this type have been filed to date, GNC expects the number of these types of cases to grow as the Company has received four (4) additional demand notices of similar claims. In all instances, the GNC vendors of the products at issue have agreed to defend and indemnify GNC. Any liabilities that may arise from these matters are not probable or reasonably estimable at this time.

Commitments

The Company maintains certain purchase commitments of approximately $25.9 million with various vendors to ensure its operational needs are fulfilled. The 2009 purchase commitments consisted of $13.6 million of advertising, inventory commitments and spending for website redesign, and $12.3 million management services agreement and bank fees. Other commitments related to the Company’s business operations cover varying periods of time and are not significant. All of these commitments are expected to be fulfilled with no adverse consequences to the Company’s operations or financial condition.

Environmental Compliance

In March 2008, the South Carolina Department of Health and Environmental Control (“DHEC”) requested that the Company investigate the Company’s South Carolina facility for a possible source or sources of contamination detected on an adjoining property. The Company has commenced the investigation at the facility as requested by DHEC. After several phases of the investigation the possible source or sources of contamination have not been sufficiently identified. The Company is continuing such investigation. The proceedings in this matter have not yet progressed to a stage where it is possible to estimate the timing and extent of any remedial action that may be required, the ultimate cost of remediation, or the amount of the Company’s potential liability.

GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

In addition to the foregoing, the Company is subject to numerous federal, state, local, and foreign environmental and health and safety laws and regulations governing its operations, including the handling, transportation, and disposal of its non-hazardous and hazardous substances and wastes, as well as emissions and discharges from its operations into the environment, including discharges to air, surface water, and groundwater. Failure to comply with such laws and regulations could result in costs for remedial actions, penalties, or the imposition of other liabilities. New laws, changes in existing laws or the interpretation thereof, or the development of new facts or changes in its processes could also cause the Company to incur additional capital and operation expenditures to maintain compliance with environmental laws and regulations and environmental permits. The Company also is subject to laws and regulations that impose liability and cleanup responsibility for releases of hazardous substances into the environment without regard to fault or knowledge about the condition or action causing the liability. Under certain of these laws and regulations, such liabilities can be imposed for cleanup of previously owned or operated properties, or for properties to which substances or wastes that were sent in connection with current or former operations at the Company’s facilities. The presence of contamination from such substances or wastes could also adversely affect the Company’s ability to sell or lease its properties, or to use them as collateral for financing. From time to time, the Company has incurred costs and obligations for correcting environmental and health and safety noncompliance matters and for remediation at or relating to certain of its properties or properties at which its waste has been disposed. The Company believes it has complied with, and is currently complying with, its environmental obligations pursuant to environmental and health and safety laws and regulations and that any liabilities for noncompliance will not have a material adverse effect on its business or financial performance. However, it is difficult to predict future liabilities and obligations, which could be material.

Contingencies

Due to the nature of the Company’s business operations having a presence in multiple taxing jurisdictions, the Company periodically receives inquiries and/or audits from various state and local taxing authorities. Any probable and reasonably estimable liabilities that may arise from these inquiries have been accrued and reflected in the accompanying financial statements.

NOTE 8. STOCK-BASED COMPENSATION PLANS

Stock Options

In 2007, the Board of Directors of the Company and the Parent (the “Board”) and Parent’s stockholders approved and adopted the GNC Acquisition Holdings Inc. 2007 Stock Incentive Plan (the “2007 Plan”). The purpose of the 2007 Plan is to enable Parent to attract and retain highly qualified personnel who will contribute to the success of the Company. The 2007 Plan provides for the granting of stock options, restricted stock, and other stock-based awards. The 2007 Plan is available to certain eligible employees, directors, consultants or advisors as determined by the compensation committee of the Board. The total number of shares of Parent’s Class A Common Stock reserved and available for the 2007 Plan was 10.4 million shares at September 30, 2009. Stock options under the 2007 Plan are granted with exercise prices at or above fair market value, typically vest over a four- or five-year period and expire ten years from the date of grant. The Parent Compensation Committee has used a valuation methodology in which the fair market value of the common stock is based on our business enterprise value and, in situations deemed appropriate by the Parent Compensation Committee, may be discounted to reflect the lack of marketability associated with the common stock. As of September 30, 2009, the Company had 8.7 million outstanding stock options under the 2007 Plan. No stock appreciation rights, restricted stock, deferred stock or performance shares have been granted under the 2007 Plan.

GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table outlines the Parent’s stock option activity:


				Weighted
				Average
	Total Options			Exercise Price
Outstanding at December 31, 2008		8,883,692		$	7.10
Granted		260,000			9.75
Forfeited		(338,715	)		6.25
Expired		(88,187	)		6.25

Outstanding at September 30, 2009		8,716,790		$	7.08


Exercisable at September 30, 2009		5,677,080		$	7.36

The Company utilizes the Black-Scholes model to calculate the fair value of options under the standard on compensation. The resulting compensation cost is recognized in the Company’s financial statements over the option vesting period. As of September 30, 2009, the net unrecognized compensation cost related to options outstanding, after taking into consideration estimated forfeitures, was $8.0 million and is expected to be recognized over a weighted average period of approximately 2.5 years. As of September 30, 2009, the weighted average remaining contractual life of outstanding options and exercisable options was 7.8 years and 7.6 years, respectively.

The standard on compensation requires that the cost resulting from all share-based payment transactions be recognized in the Company’s financial statements. Stock-based compensation expense for each of the nine months ended September 30, 2009 and 2008 was $2.1 million and $2.2 million, respectively.

The Black-Scholes model utilizes the following assumptions in determining a fair value: price of underlying stock, option exercise price, expected option term, risk-free interest rate, expected dividend yield, and expected stock price volatility over the option’s expected term. As the Company had minimal exercises of stock options through the period ended September 30, 2009, the expected option term has been estimated by considering both the vesting period, which is typically five years, and the contractual term of ten years. As Parent’s underlying stock is not publicly traded on an open market, the Company utilized its current peer group average to estimate the expected volatility. The assumptions used in the Company’s Black-Scholes valuation related to stock option grants made during the period ended September 30, 2009 are as follows:


		September 30,
		2009
		(unaudited)
Dividend yield		0.00%
Expected option life		7.5 years
Volatility factor percentage of market price		42.7%-44.6%
Discount rate		2.62-3.28%

As the Black-Scholes option valuation model utilizes certain estimates and assumptions, the existing models do not necessarily represent the definitive fair value of options for future periods.

GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 9. SEGMENTS

The Company has three operating segments, Retail, Franchising, and Manufacturing/Wholesale, each of which is a reportable segment. The operating segments represent identifiable components of the Company for which separate financial information is available. This information is utilized by management to assess performance and allocate assets accordingly. The Company’s management evaluates segment operating results based on several indicators. The primary key performance indicators are revenue and operating income or loss for each segment. Operating income or loss, as evaluated by management, excludes certain items that are managed at the consolidated level, such as warehousing and distribution costs and other corporate costs. The following table represents key financial information for each of the Company’s operating segments, identifiable by the distinct operations and management of each segment. The Retail segment includes the Company’s corporate store operations in the United States, Canada and Puerto Rico and the sales generated through www.gnc.com. The Franchise segment represents the Company’s franchise operations, both domestically and internationally. The Manufacturing/Wholesale segment represents the Company’s manufacturing operations in South Carolina and the wholesale sales business, including sales through www.drugstore.com. This segment supplies the Retail and Franchise segments, along with various third parties, with finished products for sale. The Warehousing and Distribution costs and Corporate costs represent the Company’s administrative expenses. The accounting policies of the segments are the same as those described in Note 2 “Basis of Presentation”.


	Three months ended						Nine months ended
	September 30,			September 30,			September 30,			September 30,
	2009			2008			2009			2008
				(unaudited)
				(in thousands)
Revenue:
Retail	$	311,933		$	298,823		$	962,587		$	934,624
Franchise		67,355			67,501			201,063			197,512
Manufacturing/Wholesale:
Intersegment ⁽¹⁾		51,452			43,798			149,470			134,120
Third Party		51,510			47,870			139,461			132,853

Sub total Manufacturing/Wholesale		102,962			91,668			288,931			266,973
Sub total segment revenues		482,250			457,992			1,452,581			1,399,109
Intersegment elimination ⁽¹⁾		(51,452	)		(43,798	)		(149,470	)		(134,120	)

Total revenue	$	430,798		$	414,194		$	1,303,111		$	1,264,989


Operating income:
Retail	$	37,251		$	32,618		$	123,277		$	111,668
Franchise		22,486			22,634			61,243			61,117
Manufacturing/Wholesale		18,854			18,926			54,072			51,989
Unallocated corporate and other costs:
Warehousing and distribution costs		(13,441	)		(13,539	)		(40,458	)		(41,145	)
Corporate costs		(17,749	)		(17,081	)		(54,741	)		(48,584	)

Sub total unallocated corporate and other costs		(31,190	)		(30,620	)		(95,199	)		(89,729	)

Total operating income	$	47,401		$	43,558		$	143,393		$	135,045


⁽¹⁾		Intersegment revenues are eliminated from consolidated revenue.

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

NOTE 10. SUPPLEMENTAL GUARANTOR INFORMATION

As of September 30, 2009 the Company’s debt included its 2007 Senior Credit Facility, Senior Toggle Notes and 10.75% Senior Subordinated Notes. The 2007 Senior Credit Facility has been guaranteed by the Company’s direct parent, GNC Corporation, and the Company’s existing and future direct and indirect material domestic subsidiaries. The Senior Toggle Notes are general non collateralized obligations of the Company, are effectively subordinated to the Company’s 2007 Senior Credit Facility to the extent of the value of the collateral securing the 2007 Senior Credit Facility and are senior in right of payment to all existing and future subordinated obligations of the Company, including its 10.75% Senior Subordinated Notes. The Senior Toggle Notes are unconditionally guaranteed on a non collateralized basis by all of the Company’s existing and future direct and indirect material domestic subsidiaries. The 10.75% Senior Subordinated Notes are general non collateralized obligations and are guaranteed on a senior subordinated basis by the Company’s existing and future direct and indirect material domestic subsidiaries and rank junior in right of payment to the Company’s 2007 Senior Credit Facility and Senior Toggle Notes. The guarantors are the same for the 2007 Senior Credit Facility, Senior Toggle Notes and 10.75% Senior Subordinated Notes. Non-guarantor subsidiaries include the Company’s direct and indirect foreign subsidiaries. Each subsidiary guarantor is 100% owned, directly or indirectly, by the Company. The guarantees are full and unconditional and joint and several. Investments in subsidiaries are accounted for under the equity method of accounting.

Presented below are condensed consolidating financial statements of the Company as the parent/issuer, and the combined guarantor and non-guarantor subsidiaries as of September 30, 2009, and December 31, 2008, and the three and nine months ended September 30, 2009 and 2008. Intercompany balances and transactions have been eliminated.

The Company reorganized its corporate structure effective January 1, 2009. Certain guarantor subsidiaries were merged into General Nutrition Centers, Inc. (the “Parent/Issuer”), which remained the Parent/Issuer after the reorganization; certain other guarantor subsidiaries were merged into each other. Supplemental guarantor information for periods prior to January 1, 2009 reflect the corporate structure that existed prior to the reorganization.

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

Supplemental Condensed Consolidating Balance Sheets


				Combined			Combined
	Parent/			Guarantor			Non-Guarantor
September 30, 2009	Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
							(unaudited)
							(in thousands)
Current assets
Cash and cash equivalents	$	64,797		$	(2,164	)	$	1,926		$	—		$	64,559
Receivables, net		477			95,424			904			—			96,805
Intercompany receivables		130,206			—			—			(130,206	)		—
Inventories, net		—			347,774			28,885			—			376,659
Prepaids and other current assets		13,109			13,727			7,697			—			34,533

Total current assets		208,589			454,761			39,412			(130,206	)		572,556

Goodwill		—			624,257			468			—			624,725
Brands		—			720,000			—			—			720,000
Property, plant and equipment, net		8,062			164,827			27,683			—			200,572
Investment in subsidiaries		1,568,836			(7,371	)		—			(1,561,465	)		—
Other assets		29,934			158,995			—			(8,781	)		180,148

Total assets	$	1,815,421		$	2,115,469		$	67,563		$	(1,700,452	)	$	2,298,001


Current liabilities
Current liabilities	$	37,251		$	161,102		$	12,042		$	—		$	210,395
Intercompany payables		—			108,030			22,176			(130,206	)		—

Total current liabilities		37,251			269,132			34,218			(130,206	)		210,395

Long-term debt		1,057,481			35			14,870			(8,781	)		1,063,605
Deferred tax liabilities		(6,978	)		288,847			(32	)		—			281,837
Other long-term liabilities		25,718			14,024			473			—			40,215

Total liabilities		1,113,472			572,038			49,529			(138,987	)		1,596,052
Total stockholder’s equity (deficit)		701,949			1,543,431			18,034			(1,561,465	)		701,949

Total liabilities and stockholder’s equity (deficit)	$	1,815,421		$	2,115,469		$	67,563		$	(1,700,452	)	$	2,298,001

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

Supplemental Condensed Consolidating Balance Sheets


				Combined		Combined
	Parent/			Guarantor		Non-Guarantor
December 31, 2008	Issuer			Subsidiaries		Subsidiaries		Eliminations			Consolidated
	(in thousands)
Current assets
Cash and cash equivalents	$	—		$	40,077	$	2,230	$	—		$	42,307
Receivables, net		369			88,972		72		—			89,413
Intercompany receivables		—			87,554		—		(87,554	)		—
Inventories, net		—			342,085		21,569		—			363,654
Prepaids and other current assets		(82	)		55,520		3,969		—			59,407

Total current assets		287			614,208		27,840		(87,554	)		554,781

Goodwill		—			622,441		468		—			622,909
Brands		—			720,000		—		—			720,000
Property, plant and equipment, net		—			180,494		25,660		—			206,154
Investment in subsidiaries		1,797,306			10,482		—		(1,807,788	)		—
Other assets		22,470			174,475		—		(8,781	)		188,164

Total assets	$	1,820,063		$	2,322,100	$	53,968	$	(1,904,123	)	$	2,292,008


Current liabilities
Current liabilities	$	20,644		$	220,120	$	8,958	$	—		$	249,722
Intercompany payables		69,244			—		18,310		(87,554	)		—

Total current liabilities		89,888			220,120		27,268		(87,554	)		249,722

Long-term debt		1,064,024			30		15,964		(8,781	)		1,071,237
Deferred tax liabilities		(4,813	)		282,816		—		—			278,003
Other long-term liabilities		18,902			21,828		254		—			40,984

Total liabilities		1,168,001			524,794		43,486		(96,335	)		1,639,946
Total stockholder’s equity (deficit)		652,062			1,797,306		10,482		(1,807,788	)		652,062

Total liabilities and stockholder’s equity (deficit)	$	1,820,063		$	2,322,100	$	53,968	$	(1,904,123	)	$	2,292,008

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

Supplemental Condensed Consolidating Statements of Operations


				Combined		Combined
	Parent/			Guarantor		Non-Guarantor
Three months ended September 30, 2009	Issuer			Subsidiaries		Subsidiaries		Eliminations			Consolidated
	(unaudited)
	(in thousands)
Revenue	$	—		$	409,634	$	26,343	$	(5,179	)	$	430,798

Cost of sales, including costs of warehousing, distribution and occupancy		—			268,609		19,176		(5,179	)		282,606

Gross profit		—			141,025		7,167		—			148,192

Compensation and related benefits		9,897			51,442		4,131		—			65,470
Advertising and promotion		—			10,925		118		—			11,043
Other selling, general and administrative		8,382			15,885		5		—			24,272
Subsidiary (income) expense		(20,789	)		236		—		20,553			—
Other (income) expense		(17,407	)		16,452		961		—			6

Operating income (loss)		19,917			46,085		1,952		(20,553	)		47,401

Interest expense, net		982			15,595		297		—			16,874

Income (loss) before income taxes		18,935			30,490		1,655		(20,553	)		30,527

Income tax (benefit) expense		(590	)		11,084		508		—			11,002

Net income (loss)	$	19,525		$	19,406	$	1,147	$	(20,553	)	$	19,525

Supplemental Condensed Consolidating Statements of Operations


				Combined		Combined
	Parent/			Guarantor		Non-Guarantor
Nine months ended September 30, 2009	Issuer			Subsidiaries		Subsidiaries		Eliminations			Consolidated
	(unaudited)
	(in thousands)
Revenue	$	—		$	1,238,791	$	75,784	$	(11,464	)	$	1,303,111

Cost of sales, including costs of warehousing, distribution and occupancy		—			807,078		53,627		(11,464	)		849,241

Gross profit		—			431,713		22,157		—			453,870

Compensation and related benefits		30,639			153,818		11,864		—			196,321
Advertising and promotion		—			39,571		606		—			40,177
Other selling, general and administrative		25,516			48,345		145		—			74,006
Subsidiary (income) expense		(60,434	)		681		—		59,753			—
Other (income) expense		(53,546	)		50,702		2,817		—			(27	)

Operating income (loss)		57,825			138,596		6,725		(59,753	)		143,393

Interest expense, net		2,746			49,384		887		—			53,017

Income (loss) before income taxes		55,079			89,212		5,838		(59,753	)		90,376

Income tax (benefit) expense		(1,857	)		33,560		1,737		—			33,440


Net income (loss)	$	56,936		$	55,652	$	4,101	$	(59,753	)	$	56,936

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

Supplemental Condensed Consolidating Statements of Operations


				Combined			Combined
	Parent/			Guarantor			Non-Guarantor
Three months ended September 30, 2008	Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
	(unaudited)
	(in thousands)
Revenue	$	—		$	391,058		$	25,766		$	(2,630	)	$	414,194

Cost of sales, including costs of warehousing, distribution and occupancy		—			254,369			18,237			(2,630	)		269,976

Gross profit		—			136,689			7,529			—			144,218

Compensation and related benefits		—			59,297			4,054			—			63,351
Advertising and promotion		—			13,356			209			—			13,565
Other selling, general and administrative		695			22,152			821			—			23,668
Subsidiary income		(17,411	)		(2,983	)		—			20,394			—
Other (income) expense		—			82			(6	)		—			76

Operating income .		16,716			44,785			2,451			(20,394	)		43,558

Interest expense, net		1,070			18,351			293			—			19,714

Income before income taxes .		15,646			26,434			2,158			(20,394	)		23,844

Income tax (benefit) expense		(670	)		9,023			(825	)		—			7,528


Net income	$	16,316		$	17,411		$	2,983		$	(20,394	)	$	16,316

Supplemental Condensed Consolidating Statements of Operations


				Combined			Combined
	Parent/			Guarantor			Non-Guarantor
Nine months ended September 30, 2008	Issuer			Subsidiaries			Subsidiaries		Eliminations			Consolidated
	(unaudited)
	(in thousands)
Revenue	$	—		$	1,194,061		$	79,290	$	(8,362	)	$	1,264,989

Cost of sales, including costs of warehousing, distribution and occupancy		—			774,317			57,188		(8,362	)		823,143

Gross profit		—			419,744			22,102		—			441,846

Compensation and related benefits		—			175,963			11,843		—			187,806
Advertising and promotion		—			44,842			510		—			45,352
Other selling, general and administrative		1,709			69,243			2,552		—			73,504
Subsidiary (income) expense		(49,694	)		(5,258	)		—		54,952			—
Other (income) expense		—			44			95		—			139

Operating income (loss)		47,985			134,910			7,102		(54,952	)		135,045

Interest expense, net		3,156			58,177			885		—			62,218

Income (loss) before income taxes		44,829			76,733			6,217		(54,952	)		72,827

Income tax (benefit) expense		(1,835	)		27,039			959		—			26,163


Net income (loss)	$	46,664		$	49,694		$	5,258	$	(54,952	)	$	46,664

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

Supplemental Condensed Consolidating Statements of Cash Flows


				Combined			Combined
	Parent/			Guarantor			Non-Guarantor
Nine months ended September 30, 2009	Issuer			Subsidiaries			Subsidiaries			Consolidated
	(unaudited)
	(in thousands)
NET CASH PROVIDED BY OPERATING ACTIVITIES:	$	—		$	74,730		$	3,118		$	77,848

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(1,821	)		(15,920	)		(2,707	)		(20,448	)
Investment/distribution		99,486			(99,486	)		—			—
Other investing		—			(1,560	)		—			(1,560	)

Net cash provided by (used in) investing activities		97,665			(116,966	)		(2,707	)		(22,008	)

CASH FLOWS FROM FINANCING ACTIVITIES:
GNC Corporation investment in General Nutrition Centers, Inc		(278	)		—			—			(278	)
Dividend payment		(13,600	)		—			—			(13,600	)
Financing fees		(45	)		—			—			(45	)
Other financing		(18,945	)		(5	)		(1,023	)		(19,973	)

Net cash used in financing activities		(32,868	)		(5	)		(1,023	)		(33,896	)

Effect of exchange rate on cash		—			—			308			308


Net increase (decrease) in cash		64,797			(42,241	)		(304	)		22,252

Beginning balance, cash		—			40,077			2,230			42,307


Ending balance, cash	$	64,797		$	(2,164	)	$	1,926		$	64,559

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

Supplemental Condensed Consolidating Statements of Cash Flows


				Combined			Combined
	Parent/			Guarantor			Non-Guarantor
Nine months ended September 30, 2008	Issuer			Subsidiaries			Subsidiaries			Consolidated
	(unaudited)
	(in thousands)
NET CASH PROVIDED BY OPERATING ACTIVITIES:	$	—		$	59,293		$	4,463		$	63,756

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		—			(32,061	)		(2,936	)		(34,997	)
Investment/distribution		16,742			(16,742	)		—			—
Acquisition of the Company		(10,842	)		—			—			(10,842	)
Other investing		—			(95	)		—			(95	)

Net cash provided by (used in) investing activities		5,900			(48,898	)		(2,936	)		(45,934	)

CASH FLOWS FROM FINANCING ACTIVITIES:
GNC Corporation investment in General Nutrition Centers, Inc		(832	)		—			—			(832	)
Other financing		(5,068	)		—			(888	)		(5,956	)

Net cash provided by (used in) financing activities		(5,900	)		—			(888	)		(6,788	)

Effect of exchange rate on cash		—			—			14			14


Net increase (decrease) in cash		—			10,395			653			11,048

Beginning balance, cash		—			26,090			2,764			28,854


Ending balance, cash	$	—		$	36,485		$	3,417		$	39,902

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

NOTE 11. INCOME TAXES

The Company recognized $33.5 million of income tax expense (or 37.0% of pre-tax income) during the nine months ended September 30, 2009 compared to $26.1 million (or 36.0% of pre-tax income) for the same period of 2008. For the nine months ended September 30, 2009, a net $0.5 million discrete tax benefit was recorded while a $1.3 million discrete tax benefit was recorded for the nine months ended September 30, 2008.

The Company files a consolidated federal tax return and various consolidated and separate tax returns as prescribed by the tax laws of the state and local jurisdictions in which it and its subsidiaries operate. The Company has been audited by the Internal Revenue Service (the “IRS”) through its December 4, 2003 tax year. The IRS commenced an examination of the Company’s 2005, 2006 and short period 2007 federal income tax returns in February 2008. The IRS issued an examination report in the second quarter of 2009, which was sent for review by the Joint Committee of Taxation. During the third quarter of 2009, the Company received notification from the IRS that the Joint Committee of Taxation had completed its review and had taken no exceptions to the conclusions reached by the IRS. As such the Company recorded a discrete tax benefit of $0.9 million for the reduction of its liability of unrecognized tax benefits. The Company has various state and local jurisdiction tax years open to examination (the earliest open period is 2003), and is also currently under audit in certain state and local jurisdictions. As of September 30, 2009, the Company believes that it has appropriately reserved for any potential federal, state and local income tax exposures.

The Company recorded additional unrecognized tax benefits of approximately $0.7 million during the nine months ended September 30, 2009, exclusive of amounts settled. The additional unrecognized tax benefits recorded during the nine months ended September 30, 2009 are principally related to the continuation of previously taken tax positions. As of September 30, 2009 and December 31, 2008, the Company had $4.9 million and $5.5 million, respectively, of unrecognized tax benefits. As of September 30, 2009, the Company is not aware of any tax positions for which it is reasonably possible that the amounts of unrecognized tax benefits will significantly increase or decrease within the next 12 months. The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $4.9 million. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of September 30, 2009 and December 31, 2008, the Company had accrued approximately $1.1 million and $1.2 million, respectively, in potential interest and penalties associated with uncertain tax positions. To the extent interest and penalties are not assessed with respect to the ultimate settlement of uncertain tax positions, amounts previously accrued will be reduced and reflected as a reduction of the overall income tax provision.

NOTE 12. FAIR VALUE MEASUREMENT

As described in Note 2, the Company adopted the standard on fair value measurements and disclosures under the new Codification, as of January 1, 2008. This standard defines fair value, establishes a consistent framework for measuring fair value, and expands disclosures for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. The standard clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the standard establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

Level 1	—	observable inputs such as quoted prices in active markets for identical assets and liabilities;

Level 2	—	observable inputs such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, other inputs that are observable, or can be corroborated by observable market data; and

Level 3	—	unobservable inputs for which there are little or no market data, which require the reporting entity to develop its own assumptions.

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

The following table presents our financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2009 by level within the fair value hierarchy:


	Fair Value Measurements Using
	Level 1		Level 2		Level 3
	(in thousands)
Other long-term liabilities	$	2,161	$	16,833	$	—

The following table presents the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2008 by level within the fair value hierarchy:


	Fair Value Measurements Using
	Level 1		Level 2		Level 3
	(in thousands)
Other long-term liabilities	$	1,496	$	18,902	$	—

The following is a description of the valuation methodologies used for these items, as well as the general classification of such items pursuant to the fair value hierarchy of the standard on fair value measurements and disclosures:

Other long-term liabilities. Other long-term liabilities classified as Level 1 consist of liabilities related to the Company’s non-qualified deferred compensation plan. The liabilities related to these plans are adjusted based on changes in the fair value of the underlying employee-directed investment choices. Since the employee-directed investment choices are exchange traded equity indexes with quoted prices in active markets, the liabilities are classified as within Level 1 on the fair value hierarchy. Other long-term liabilities classified as Level 2 consist of the Company’s interest rate swaps. The derivatives are pay-fixed, receive-variable interest rate swaps based on a LIBOR rate. Fair value is based on a model-derived valuation using the LIBOR rate, which is an observable input in an active market. Therefore, the Company’s derivative is classified as Level 2 on the fair value hierarchy.

In addition to the above table, the Company’s financial instruments also consist of cash and cash equivalents, accounts receivable, accounts payable and long-term debt. The Company did not elect to value its long-term debt with the fair value option in accordance with the standard on financial instruments. The Company believes that the recorded values of all of its other financial instruments approximate their fair values because of their nature and respective durations.

NOTE 13. RELATED PARTY TRANSACTIONS

Management Services Agreement. Upon consummation of the Merger, the Company entered into a management services agreement with Parent. Under the agreement, Parent provides the Company and its subsidiaries with certain services in exchange for an annual fee of $1.5 million, as well as customary fees for services rendered in connection with certain major financial transactions, plus reimbursement of expenses and a tax gross-up relating to a non-tax deductible portion of the fee. The Company provides customary indemnifications to Parent and its affiliates and those providing services on its behalf. In addition, upon consummation of the Merger, the Company incurred an aggregate fee of $10.0 million, plus reimbursement of expenses, payable to Parent for services rendered in connection with the Merger. For each of the nine months ended September 30, 2009 and 2008, $1.1 million was paid pursuant to this agreement.

Credit Facility. Upon consummation of the Merger, the Company entered into a $735.0 million credit agreement, under which various fund portfolios related to one of our sponsors, Ares, are lenders. As of September 30, 2009, certain affiliates of Ares held approximately $62.5 million of term loans under the Company’s 2007 Senior Credit Facility.

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

Lease Agreements. General Nutrition Centres Company, a wholly owned subsidiary of the Company, is party to 20 lease agreements, as lessee, with Cadillac Fairview Corporation, as lessor, with respect to properties located in Canada (the “Lease Agreements”). Cadillac Fairview Corporation is a direct, wholly owned subsidiary of OTPP, one of the principal stockholders of Parent. For the nine months ended September 30, 2009 and 2008, the Company paid $1.8 million and $2.0 million, respectively under the Lease Agreements. Each lease was negotiated in the ordinary course of business on an arm’s length basis.

NOTE 14. SUBSEQUENT EVENTS

Management has considered all other subsequent events through November 5, 2009, the date that the financial statements were filed with the SEC.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with Item 1, “Financial Statements” in Part I of this quarterly report on Form 10-Q.

Forward-Looking Statements

The discussion in this section contains forward-looking statements that involve risks and uncertainties. Forward-looking statements may relate to our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, and other information that is not historical information. Forward-looking statements can be identified by the use of terminology such as “subject to,” “believes,” “anticipates,” “plans,” “expects,” “intends,” “estimates,” “projects,” “may,” “will,” “should,” “can,” the negatives thereof, variations thereon and similar expressions, or by discussions of strategy.

All forward-looking statements, including, without limitation, our examination of historical operating trends, are based upon our current expectations and various assumptions. We believe there is a reasonable basis for our expectations and beliefs, but they are inherently uncertain. We may not realize our expectations, and our beliefs may not prove correct. Actual results could differ materially from those described or implied by such forward-looking statements. Factors that may materially affect such forward-looking statements include, among others:

	•		uncertainty of continuing weakening of the economy and its impact on us and our partners;

	•		significant competition in our industry;

	•		unfavorable publicity or consumer perception of our products;

	•		the incurrence of material product liability and product recall costs;

	•		costs of compliance and our failure to comply with new and existing governmental regulations;

	•		costs of litigation and the failure to successfully defend lawsuits and other claims against the Company;

	•		the failure of our franchisees to conduct their operations profitably and limitations on our ability to terminate or replace under-performing franchisees;

	•		economic, political, and other risks associated with our international operations;

	•		our failure to keep pace with the demands of our customers for new products and services;

	•		disruptions in our manufacturing system or losses of manufacturing certifications;

	•		the lack of long-term experience with human consumption of ingredients in some of our products;

	•		increases in the frequency and severity of insurance claims, particularly claims for which we are self-insured;

	•		loss or retirement of key members of management;

	•		increases in the cost of borrowings and limitations on availability of additional debt or equity capital;

	•		the impact of our substantial debt on our operating income and our ability to grow;

	•		the failure to adequately protect or enforce our intellectual property rights against competitors;

	•		changes in applicable laws relating to our franchise operations; and

	•		our inability to expand our franchise operations or attract new franchisees.

See Item 1A, “Risk Factors” included in Part II of this Report.

Consequently, forward-looking statements should be regarded solely as our current plans, estimates, and beliefs. You should not place undue reliance on forward-looking statements. We cannot guarantee future results, events, levels of activity, performance, or achievements. We do not undertake and specifically decline

any obligation to update, republish, or revise forward-looking statements to reflect future events or circumstances or to reflect the occurrences of unanticipated events.

Business Overview

We are a leading global specialty retailer of nutritional supplements, which include VMHS, sports nutrition products, diet products, and other wellness products. We derive our revenues principally from product sales through our company-owned stores and online through www.gnc.com, franchise activities, and sales of products manufactured in our facilities to third parties. We sell products through a worldwide network of more than 6,700 locations operating under the GNC brand name.

Revenues and Operating Performance from our Business Segments

We measure our operating performance primarily through revenues and operating income from our three business segments, Retail, Franchise, and Manufacturing/Wholesale, and through the management of unallocated costs from our warehousing, distribution and corporate segments, as follows:

	•		Retail revenues are generated by sales to consumers at our company-owned stores and online through www.gnc.com. Although we believe that our retail and franchise businesses are not seasonal in nature, historically we have experienced, and expect to continue to experience, a substantial variation in our net sales and operating results from quarter to quarter, with the first half of the year being stronger than the second half of the year. As a leader in our industry, we expect our retail revenue growth to be consistent with projected industry growth as a result of our disproportionate market share, scale economies in purchasing and advertising, strong brand awareness, and vertical integration.

	•		Franchise revenues are generated primarily from:

	(1)		product sales to our franchisees;

	(2)		royalties on franchise retail sales; and

	(3)		franchise fees, which are charged for initial franchise awards, renewals, and transfers of franchises.

Since we do not anticipate the number of our domestic franchised stores to increase, we expect our domestic franchise revenue growth will be generated by royalties on increased franchise retail sales and product sales to our existing franchisees. We expect that an increase in the number of our international franchised stores over the next five years will result in increased initial franchise fees associated with new store openings and increased revenues from product sales to new franchisees. As international franchise trends continue to improve, we also anticipate that franchise revenue from international operations will be driven by increased product sales to our franchisees. Since our international franchisees pay royalties to us in U.S. dollars, any strengthening of the U.S. dollar relative to our franchisees’ local currency may offset some of the growth in royalty revenue.

	•		Manufacturing/wholesale revenues are generated through sales of manufactured products to third parties, generally for third-party private label brands, and the sale of our proprietary and third-party products to and through Rite Aid and www.drugstore.com. License fee revenue from the opening of GNC franchised store-within-a-store locations within Rite Aid stores is also recorded in this segment. Our revenues generated by our manufacturing and wholesale operations are subject to our available manufacturing capacity, and we anticipate that these revenues will remain stable over the next five years.

	•		A significant portion of our business infrastructure is comprised of fixed operating costs. Our vertically integrated distribution network and manufacturing capacity can support higher sales volume without significant incremental costs. We therefore expect our operating expenses to grow at a lesser rate than our revenues, resulting in significant operating leverage in our business.

The following trends and uncertainties in our industry could positively or negatively affect our operating performance:

	•		broader consumer awareness of health and wellness issues and rising healthcare costs;

	•		interest in, and demand for, condition-specific products based on scientific research;

	•		significant effects of favorable and unfavorable publicity on consumer demand;

	•		lack of a single product or group of products dominating any one product category;

	•		lack of long-term experience with human consumption of ingredients of some of our products;

	•		volatility in the diet category;

	•		rapidly evolving consumer preferences and demand for new products;

	•		costs associated with complying with new and existing governmental regulation; and

	•		a change in disposable income available to consumers, as a result of current economic conditions.

Executive Overview

Our recent results of operations continue the favorable trend seen in recent periods. In the retail segment, our domestic retail comparable sales, including e-commerce, increased 4.3% for the third quarter of 2009 as compared to the same period in 2008. Included in this increase is a 40.8% increase in our e-commerce business.

Our domestic franchise business is in line with our corporate operating standards, and key performance indicators of our domestic franchise stores are in line with our company store results. We continue to see growth in sales of our GNC brand products, particularly Pro Performance and Vitapaks which has helped to strengthen the franchise system. Our international franchise system also has continued to grow and strengthen our presence globally, with the addition of 112 net new locations in 2008 and 67 net new stores in the first nine months of 2009, with no capital funding requirement by us. Year to date the international franchise business recognized a 6.9% increase in revenue, compared with the same period in the prior year, primarily on the strength of higher product sales.

Our manufacturing strategy is designed to enhance our position in the contract manufacturing business, and maximize utilization of our available capacity to promote production efficiencies and to help offset any raw material price increases. Under this strategy, our contract manufacturing sales grew 38.7% and 5.8% in 2008 and the first nine months of 2009, respectively, over the prior year periods.

We believe that the strength of our company and its leadership position in the health and wellness sector provides significant future opportunities that should allow us to capitalize on favorable demographics and consumer trends. In our experience, our customers have continued to focus on their personal health and well-being during economic downturns; nonetheless, a continued downturn or an uncertain outlook in the economy may materially and adversely affect our business and financial results.

Our year to date performance has generated an overall revenue increase of 3.0% and an operating income increase of 6.2%. This is exceptional performance in the face of a recessionary environment and the Hydroxycut-influenced diet slump in the second quarter. To date we have seen good organic growth and financial leverage from our retail businesses, especially the Web, which itself has increased operating income by 38.8%. Collectively franchise and manufacturing/wholesale have generated operating income equal to last year’s performance.

While our results for the three and nine months ended September 30, 2009 do not reflect a negative impact of the general downturn of the economy, the downturn could affect our business and operating results in the future. Our results are dependent on a number of factors impacting consumer spending, including, but not limited to, general economic and business conditions, consumer confidence, consumer debt levels, availability

of consumer credit, and the level of customer traffic within malls and other shopping environments. Consumer purchases of products, including ours and those of our partners, may decline during recessionary periods.

If consumer purchases of products decline, we could be impacted in the following ways:

	•		retail sales at our company stores could decline;

	•		demand for our branded products produced at our manufacturing plant could decline;

	•		demand for products produced for distributors and other retailers / wholesalers could diminish;

	•		our domestic franchisees may opt not to renew their franchise licenses, which in turn would lower our franchise product revenue; and

	•		our international franchisees may experience decreased revenue resulting in lower royalties and product revenue to us; additionally, a strengthening of the U.S. dollar may impact us, as our international franchisees purchase inventory from us and pay royalties to us in U.S. dollars.

In May 2009, the FDA warned consumers to stop using certain Hydroxycut products, produced by Iovate Health Sciences, Inc., which were sold in our stores. Iovate issued a voluntary recall, with which we immediately fully complied. Sales of the recalled Hydroxycut products amounted to approximately $57.8 million, or 4.7% of our retail sales in 2008 and $18.8 million, or 4.2% of our retail sales in the first four months of 2009. We provided refunds or gift cards to consumers who returned these products to our stores. In the second quarter, we experienced a reduction in sales and margin due to the recall as a result of accepting returns of products from customers and a loss of sales as a replacement product was not available. Through September 30, 2009, we had refunded approximately $3.5 million to our retail customers and approximately $1.6 million to our wholesale customers for Hydroxycut product returns. A significant majority of the retail refunds occurred in our second quarter; the wholesale refunds were recognized in the early part of the third quarter. All returns of product by our customers were recognized as a reduction in sales in the period when the return occurred. At the end of June, Iovate launched new reformulated Hydroxycut products that we began to sell in our stores. Although third quarter sales of the new reformulated Hydroxycut trailed pre-recall levels, strong sales in our core sports, vitamins and herbs products, along with other new third party diet products, helped to mitigate the decrease in sales from the Hydroxycut recall.

In light of these matters, we have approached 2009 cautiously. In the near term, we will focus on our primary strategies, in particular:

	•		Driving top-line performance in each of our business segments by attracting new customers through product innovation, improved assortment, effective marketing and price competitiveness;

	•		Investing in key infrastructure areas for future growth, including e-commerce, international development, and manufacturing; and

	•		Generating efficiencies and cost savings in the everyday operations of the business that will allow us to leverage profit margins on modest revenue growth.

We will continue to seek improvements in each of the business segments and position ourselves for long term growth.

Related Parties

For the three and nine months ended September 30, 2009 and 2008, we had related party transactions with Ares and OTPP and their affiliates. For further discussion of these transactions, see Item 13, “Certain Relationships and Related Transactions” and the “Related Party Transactions” note in our annual report on Form 10-K.

Results of Operations

The following information presented for the three and nine months ended September 30, 2009 and 2008 was prepared by management and is unaudited. In the opinion of management, all adjustments necessary for a fair statement of our financial position and operating results for such periods and as of such dates have been included.

As discussed in the “Segments” note to our consolidated financial statements, we evaluate segment operating results based on several indicators. The primary key performance indicators are revenues and operating income or loss for each segment. Revenues and operating income or loss, as evaluated by management, exclude certain items that are managed at the consolidated level, such as warehousing and transportation costs, impairments, and other corporate costs. The following discussion compares the revenues and the operating income or loss by segment, as well as those items excluded from the segment totals.

Results of Operations
(Dollars in millions and percentages expressed as a percentage of total net revenues)


			Three Months Ended											Nine Months Ended
				September 30,											September 30,
	2009						2008					2009						2008
Revenues:
Retail	$	312.0			72.4	%	$	298.8		72.1	%	$	962.6			73.9	%	$	934.6		73.9	%
Franchise		67.3			15.6	%		67.5		16.3	%		201.0			15.4	%		197.5		15.6	%
Manufacturing / Wholesale		51.5			12.0	%		47.9		11.6	%		139.5			10.7	%		132.9		10.5	%

Total net revenues		430.8			100.0	%		414.2		100.0	%		1,303.1			100.0	%		1,265.0		100.0	%

Operating expenses:
Cost of sales, including warehousing, distribution and occupancy costs		282.6			65.6	%		270.0		65.2	%		849.2			65.2	%		823.1		65.1	%
Compensation and related benefits		65.5			15.2	%		63.3		15.3	%		196.3			15.1	%		187.8		14.8	%
Advertising and promotion		11.0			2.6	%		13.6		3.3	%		40.2			3.1	%		45.4		3.6	%
Other selling, general and administrative expenses		22.0			5.1	%		21.1		5.1	%		66.7			5.1	%		65.2		5.1	%
Amortization expense		2.3			0.5	%		2.6		0.6	%		7.3			0.5	%		8.3		0.7	%
Foreign currency (gain) loss		—			0.0	%		0.1		0.0	%		—			0.0	%		0.2		0.0	%

Total operating expenses		383.4			89.0	%		370.7		89.5	%		1,159.7			89.0	%		1,130.0		89.3	%

Operating income:
Retail		37.3			8.7	%		32.6		7.9	%		123.3			9.5	%		111.6		8.8	%
Franchise		22.5			5.2	%		22.6		5.4	%		61.2			4.7	%		61.1		4.9	%
Manufacturing / Wholesale		18.9			4.4	%		18.9		4.6	%		54.1			4.1	%		52.0		4.1	%
Unallocated corporate and other costs:
Warehousing and distribution costs		(13.5	)		-3.2	%		(13.5	)	-3.3	%		(40.5	)		-3.1	%		(41.1	)	-3.3	%
Corporate costs		(17.8	)		-4.1	%		(17.1	)	-4.1	%		(54.7	)		-4.2	%		(48.6	)	-3.8	%

Subtotal unallocated corporate and other costs, net		(31.3	)		-7.3	%		(30.6	)	-7.4	%		(95.2	)		-7.3	%		(89.7	)	-7.1	%


Total operating income		47.4			11.0	%		43.5		10.5	%		143.4			11.0	%		135.0		10.7	%

Interest expense, net		16.9						19.7					53.0						62.2


Income before income taxes		30.5						23.8					90.4						72.8

Income tax expense		11.0						7.5					33.5						26.1


Net income	$	19.5					$	16.3				$	56.9					$	46.7


		Note: The numbers in the above table have been rounded to millions. All calculations related to the Results of Operations for the year-over-year comparisons were derived from unrounded data and could occasionally differ immaterially if you were to use the table above for these calculations.

Comparison of the Three Months Ended September 30, 2009 and 2008

Revenues

Our consolidated net revenues increased $16.6 million, or 4.0%, to $430.8 million for the three months ended September 30, 2009 compared to $414.2 million for the same period in 2008. The increase was the result of increased sales in both of our Retail and Manufacturing/Wholesale segments.

Retail. Revenues in our Retail segment increased $13.2 million, or 4.4%, to $312.0 million for the three months ended September 30, 2009 compared to $298.8 million for the same period in 2008. The increase from 2008 to 2009 included an increase of $3.4 million of sales through www.gnc.com. Sales increases occurred primarily in the major product categories of VMHS and sports nutrition. Sales in the diet category continued to be negatively impacted by the Hydroxycut recall that occurred in May 2009, offset slightly by new products introduced in the third quarter. Our domestic company-owned same store sales, including our internet sales, improved for the quarter by 4.3%. In the third quarter of 2009, our Canadian company-owned stores had a same store sales decline of 0.4%, in local currency. In addition, sales were negatively impacted by the strengthening of the US dollar from 2008 to 2009. Our company-owned store base increased by 31 domestic stores to 2,640 compared to 2,609 at September 30, 2008, primarily due to new store openings and franchise store acquisitions, and by 11 Canadian stores to 166 at September 30, 2009 compared to 155 at September 30, 2008.

Franchise. Revenues in our Franchise segment decreased $0.2 million, or 0.2%, to $67.3 million for the three months ended September 30, 2009 compared to $67.5 million for the same period in 2008. Domestic franchise revenue decreased by $0.8 million primarily due to a decrease in franchise fee revenues as a result of opening fewer stores in the third quarter of 2009 as compared to the same period in 2008, offset by increases in product sales. Domestic royalty income was flat for the quarter despite operating 40 fewer stores in the third quarter of 2009 compared to the same period in 2008. There were 919 stores at September 30, 2009 compared to 959 stores at September 30, 2008. International franchise revenue increased by $0.7 million primarily the result of increases in product sales. International royalty income was flat for the quarter as sales increases in our franchisees’ respective local currencies were offset by the strengthening of the U.S. dollar from 2008 to 2009. Our international franchise store base increased by 108 stores to 1,257 at September 30, 2009 compared to 1,149 at September 30, 2008.

Manufacturing/Wholesale. Revenues in our Manufacturing/Wholesale segment, which includes third-party sales from our manufacturing facilities in South Carolina, as well as wholesale sales to Rite Aid and www.drugstore.com, increased $3.6 million, or 7.6%, to $51.5 million for the three months ended September 30, 2009 compared to $47.9 million for the same period in 2008. Sales from the South Carolina plant increased by $2.2 million, and revenues associated with Rite Aid increased by $1.0 million. This increase was due to increases in product sales to Rite Aid of $2.2 million, offset by lower license fee revenue of $1.2 million as a result of Rite Aid opening 80 fewer franchise store-within-a-stores in the third quarter of 2009 as compared to the third quarter of 2008. In addition, sales to www.drugstore.com increased by $0.4 million in the third quarter of 2009 as compared to the third quarter of 2008.

Cost of Sales

Consolidated cost of sales, which includes product costs, costs of warehousing and distribution and occupancy costs, increased $12.6 million, or 4.7%, to $282.6 million for the three months ended September 30, 2009 compared to $270.0 million for the same period in 2008. Consolidated cost of sales, as a percentage of net revenue, was 65.6% and 65.2% for the three months ended September 30, 2009 and 2008, respectively.

Product costs. Product costs increased $12.1 million, or 6.0%, to $213.1 million for the three months ended September 30, 2009 compared to $201.0 million for the same period in 2008 as a result of increased sales volumes and rising product costs. Consolidated product costs, as a percentage of net revenue, were 49.5% and 48.5% for the three months ended September 30, 2009 and 2008, respectively.

Warehousing and distribution costs. Warehousing and distribution costs increased $0.2 million, or 1.1%, to $14.5 million for the three months ended September 30, 2009 compared to $14.3 million for the same period in 2008. The increase was primarily due to increases in wages offset by decreases in fuel costs in 2009 as compared to 2008. Consolidated warehousing and distribution costs, as a percentage of net revenue, were 3.4% and 3.5% for the three months ended September 30, 2009 and 2008, respectively.

Occupancy costs. Occupancy costs increased $0.3 million, or 0.7%, to $55.0 million for the three months ended September 30, 2009 compared to $54.7 million for the same period in 2008. This increase was the result of increases in lease-related costs of $0.8 million, partially offset by a decrease in other occupancy related expenses of $0.5 million. Consolidated occupancy costs, as a percentage of net revenue, were 12.8% and 13.2% for the three months ended September 30, 2009 and 2008, respectively.

Selling, General and Administrative (“SG&A”) Expenses

Our consolidated SG&A expenses, including compensation and related benefits, advertising and promotion expense, other selling, general and administrative expenses, and amortization expense, increased $0.2 million, or 0.2%, to $100.8 million, for the three months ended September 30, 2009 compared to $100.6 million for the same period in 2008. These expenses, as a percentage of net revenue, were 23.4% for the three months ended September 30, 2009 compared to 24.3% for the three months ended September 30, 2008.

Compensation and related benefits. Compensation and related benefits increased $2.2 million, or 3.3%, to $65.5 million for the three months ended September 30, 2009 compared to $63.3 million for the same period in 2008. An increase of $2.3 million occurred in base wages to support our increased store base and sales volume and to comply with the increase in the federal minimum wage rate.

Advertising and promotion. Advertising and promotion expenses decreased $2.6 million, or 18.6%, to $11.0 million for the three months ended September 30, 2009 compared to $13.6 million during the same period in 2008. Advertising expense decreased primarily as a result of decreases in media costs of $2.1 million and print advertising of $0.7 million. Other advertising costs account for the remaining $0.2 million increase.

Other SG&A. Other SG&A expenses, including amortization expense, increased $0.6 million, or 2.6%, to $24.3 million for the three months ended September 30, 2009 compared to $23.7 million for the same period in 2008. This increase was due to an increase in telecommunications expenses of $0.5 million, due to the installation of a new point of sale (“POS”) register system that occurred throughout all of 2008.

Foreign Currency (Loss) Gain

Foreign currency loss/gain for the three months ended September 30, 2009 and 2008, resulted primarily from accounts payable activity with our Canadian subsidiary. We recognized an immaterial loss for the three months ended September 30, 2009 and a loss of $0.1 million for the three months ended September 30, 2008.

Operating Income

As a result of the foregoing, consolidated operating income increased $3.9 million, or 8.8%, to $47.4 million for the three months ended September 30, 2009 compared to $43.5 million for the same period in 2008. Operating income, as a percentage of net revenue, was 11.0% and 10.5% for the three months ended September 30, 2009 and 2008, respectively.

Retail. Operating income increased $4.6 million, or 14.2%, to $37.2 million for the three months ended September 30, 2009 compared to $32.6 million for the same period in 2008. The increase was due to higher dollar margins on increased sales and reductions in advertising expenses.

Franchise. Operating income decreased $0.1 million, or 0.7%, to $22.5 million for the three months ended September 30, 2009 compared to $22.6 million for the same period in 2008.

Manufacturing/Wholesale. Operating income was $18.9 million for each of the three months ended September 30, 2009 and 2008 as all components of this segment returned consistent results when compared period over period.

Warehousing and Distribution Costs. Unallocated warehousing and distribution costs were $13.5 million for each of the three months ended September 30, 2009 and 2008 as all expenses were consistent when compared period over period.

Corporate Costs. Corporate overhead costs increased $0.7 million, or 4.1%, to $17.8 million for the three months ended September 30, 2009 compared to $17.1 million for the same period in 2008. The increase was primarily due to an increase in compensation expenses, partially offset by lower professional expenses in 2009.

Interest Expense

Interest expense decreased $2.8 million, or 14.4%, to $16.9 million for the three months ended September 30, 2009 compared to $19.7 million for the same period in 2008. This decrease was primarily attributable to decreases in interest rates on our variable rate debt in 2009 as compared to 2008.

Income Tax Expense

We recognized $11.0 million of income tax expense (or 36.0% of pre-tax income) during the three months ended September 30, 2009 compared to $7.5 million (or 31.5% of pre-tax income) for the same period of 2008. For the three months ended September 30, 2009, a $0.5 million discrete tax benefit was recorded while a $1.6 million discrete tax benefit was recorded for the three months ended September 30, 2008.

Net Income

As a result of the foregoing, consolidated net income increased $3.2 million to $19.5 million for the three months ended September 30, 2009 compared to $16.3 million for the same period in 2008.

Comparison of the Nine Months Ended September 30, 2009 and 2008

Revenues

Our consolidated net revenues increased $38.1 million, or 3.0%, to $1,303.1 million for the nine months ended September 30, 2009 compared to $1,265.0 million for the same period in 2008. The increase was the result of increased sales in all of our segments.

Retail. Revenues in our Retail segment increased $28.0 million, or 3.0%, to $962.6 million for the nine months ended September 30, 2009 compared to $934.6 million for the same period in 2008. The increase from 2008 to 2009 included an increase of $8.0 million of sales through www.gnc.com. Sales increases occurred in the major product categories of VMHS and sports nutrition. Sales in the diet category were negatively impacted by the Hydroxycut recall that occurred in May 2009. Our domestic company-owned same store sales, including our internet sales, improved by 3.3% for the nine months ended September 30, 2009. Our Canadian company-owned stores had improved same store sales of 2.2%, in local currency, for the nine months ended September 30, 2009 but were negatively impacted by the strengthening of the U.S. dollar from 2008 to 2009. Our company-owned store base increased by 31 domestic stores to 2,640 compared to 2,609 at September 30, 2008, primarily due to new store openings and franchise store acquisitions, and by 11 Canadian stores to 166 at September 30, 2009 compared to 155 at September 30, 2008.

Franchise. Revenues in our Franchise segment increased $3.5 million, or 1.8%, to $201.0 million for the nine months ended September 30, 2009 compared to $197.5 million for the same period in 2008. Domestic franchise revenue decreased by $0.5 million for the nine months ended September 30, 2009 as increased product sales were offset by lower franchise fee revenue. Domestic royalty income was flat despite operating 40 fewer stores in the first nine months of 2009 compared to the same period in 2008. There were 919 stores at September 30, 2009 compared to 959 stores at September 30, 2008. International franchise revenue increased by $4.0 million for the nine months ended September 30, 2009 as a result of increases in product sales, partially offset by lower franchise fee revenue. International royalty income decreased $0.3 million for the 2009 period compared to the 2008 period as sales increases in our franchisees’ respective local currencies were offset by the strengthening of the U.S. dollar from 2008 to 2009. Our international franchise store base increased by 108 stores to 1,257 at September 30, 2009 compared to 1,149 at September 30, 2008.

Manufacturing/Wholesale. Revenues in our Manufacturing/Wholesale segment, which includes third-party sales from our manufacturing facility in South Carolina, as well as wholesale sales to Rite Aid and www.drugstore.com, increased $6.6 million, or 5.0%, to $139.5 million for the nine months ended September 30, 2009 compared to $132.9 million for the same period in 2008. Sales increased in the South Carolina plant by $5.0 million, and revenues associated with Rite Aid increased by $0.8 million. This increase was due to increases in wholesale and consignment sales to Rite Aid of $4.7 million, partially offset by lower initial and renewal license fee revenue of $3.9 million as a result of Rite Aid opening 249 fewer franchise store-within-a-stores in the first nine months of 2009 as compared to 2008. In addition, sales to www.drugstore.com increased by $0.8 million in the first nine months of 2009 as compared to 2008.

Cost of Sales

Consolidated cost of sales, which includes product costs, costs of warehousing and distribution and occupancy costs, increased $26.1 million, or 3.2%, to $849.2 million for the nine months ended September 30, 2009 compared to $823.1 million for the same period in 2008. Consolidated cost of sales, as a percentage of net revenue, were 65.2% for the nine months ended September 30, 2009 as compared to 65.1% for the nine months ended September 30, 2008.

Product costs. Product costs increased $24.2 million, or 3.9%, to $641.9 million for the nine months ended September 30, 2009 compared to $617.7 million for the same period in 2008 as a result of increased sales volumes and raw materials costs. Consolidated product costs, as a percentage of net revenue, were 49.3% for the nine months ended September 30, 2009 as compared to 48.8% for the nine months ended September 30, 2008.

Warehousing and distribution costs. Warehousing and distribution costs decreased $0.1 million, or 0.3%, to $43.4 million for the nine months ended September 30, 2009 compared to $43.5 million for the same period in 2008. The decrease was primarily due to decreases in fuel costs that were offset by increased wages. Consolidated warehousing and distribution costs, as a percentage of net revenue, were 3.3% and 3.4% for the nine months ended September 30, 2009 and 2008, respectively.

Occupancy costs. Occupancy costs increased $2.0 million, or 1.2%, to $163.9 million for the nine months ended September 30, 2009 compared to $161.9 million for the same period in 2008. This increase was the result of increases in lease-related costs of $2.2 million, partially offset by a decrease in depreciation expense and other occupancy related expenses of $0.2 million. Consolidated occupancy costs, as a percentage of net revenue, were 12.6% and 12.8% for the nine months ended September 30, 2009 and 2008, respectively.

Selling, General and Administrative (“SG&A”) Expenses

Our consolidated SG&A expenses, including compensation and related benefits, advertising and promotion expense, other selling, general and administrative expenses, and amortization expense, increased $3.8 million, or 1.3%, to $310.5 million, for the nine months ended September 30, 2009 compared to $306.7 million for the same period in 2008. These expenses, as a percentage of net revenue, were 23.8% for the nine months ended September 30, 2009 compared to 24.2% for the nine months ended September 30, 2008.

Compensation and related benefits. Compensation and related benefits increased $8.5 million, or 4.5%, to $196.3 million for the nine months ended September 30, 2009 compared to $187.8 million for the same period in 2008. An increase of $5.6 million occurred in base wages to support our increased store base and sales volume and to comply with the increase in minimum wage rate; and commissions and incentive expense increased by $1.2 million. In addition, 2008 expenses include a $1.1 million reduction in base wages due to a change in our vacation policy effective March 31, 2008. Other wage related expenditures accounted for the remaining $0.6 million increase.

Advertising and promotion. Advertising and promotion expenses decreased $5.2 million, or 11.4%, to $40.2 million for the nine months ended September 30, 2009 compared to $45.4 million during the same period in 2008. Advertising expense decreased primarily as a result of decreases in media costs of $3.7 million and print advertising costs of $2.2 million, partially offset by increases in other advertising costs of $0.7 million.

Other SG&A. Other SG&A expenses, including amortization expense, increased $0.5 million or 0.7%, to $74.0 million for the nine months ended September 30, 2009 compared to $73.5 million for the nine months ended September 30, 2008. Increases in other SG&A include telecommunications expenses of $2.0 million due to the installation of a new POS register system in 2008, professional fees of $0.9 million, and other selling expenses of $0.3 million. These were partially offset by decreases in bad debt expense of $1.7 million and amortization expense of $1.0 million.

Foreign Currency (Loss) Gain

Foreign currency loss/gain for the nine months ended September 30, 2009 and 2008, resulted primarily from accounts payable activity with our Canadian subsidiary. We recognized an immaterial loss for the nine months ended September 30, 2009 and a loss of $0.2 million for the nine months ended September 30, 2008.

Operating Income

As a result of the foregoing, consolidated operating income increased $8.4 million or 6.2% to $143.4 million for the nine months ended September 30, 2009 compared to $135.0 million for the same period in 2008. Operating income, as a percentage of net revenue, was 11.0% for the nine months ended September 30, 2009 and 10.7% for the nine months ended September 30, 2008.

Retail. Operating income increased $11.7 million, or 10.5%, to $123.3 million for the nine months ended September 30, 2009 compared to $111.6 million for the same period in 2008. The increase was primarily the result of higher dollar margins on increased sales volumes and reduced advertising spending offset by increases in occupancy costs, compensation costs and other SG&A expenses.

Franchise. Operating income increased $0.1 million, or 0.2%, to $61.2 million for the nine months ended September 30, 2009 compared to $61.1 million for the same period in 2008.

Manufacturing/Wholesale. Operating income increased $2.1 million, or 4.0%, to $54.1 million for the nine months ended September 30, 2009 compared to $52.0 million for the same period in 2008. This increase was primarily the result of increased margins from our South Carolina manufacturing facility, offset by decreases in Rite Aid license fee revenue.

Warehousing and Distribution Costs. Unallocated warehousing and distribution costs decreased $0.6 million, or 1.7%, to $40.5 million for the nine months ended September 30, 2009 compared to $41.1 million for the same period in 2008. The decrease in costs was primarily due to decreases in fuel costs.

Corporate Costs. Corporate overhead costs increased $6.1 million, or 12.6%, to $54.7 million for the nine months ended September 30, 2009 compared to $48.6 million for the same period in 2008. The increase was primarily due to an increase in compensation expenses and professional fees in 2009. In addition, 2008 compensation expenses contain a $1.1 million reduction due to a change in our vacation policy effective March 31, 2008.

Interest Expense

Interest expense decreased $9.2 million, or 14.8%, to $53.0 million for the nine months ended September 30, 2009 compared to $62.2 million for the same period in 2008. This decrease was primarily attributable to decreases in interest rates on our variable rate debt in 2009 as compared to 2008.

Income Tax Expense

We recognized $33.5 million of income tax expense (or 37.0% of pre-tax income) during the nine months ended September 30, 2009 compared to $26.1 million (or 36.0% of pre-tax income) for the same period of 2008. For the nine months ended September 30, 2009, a $0.5 million discrete tax benefit was recorded while a $1.3 million discrete tax benefit was recorded for the nine months ended September 30, 2008.

Net Income

As a result of the foregoing, consolidated net income increased $10.2 million to $56.9 million for the nine months ended September 30, 2009 compared to $46.7 million for the same period in 2008.

Liquidity and Capital Resources

At September 30, 2009, we had $64.6 million in cash and cash equivalents and $362.2 million in working capital compared with $42.3 million in cash and cash equivalents and $305.1 million in working capital at December 31, 2008. The $57.1 million increase in our working capital was driven by increases in our inventory and cash and a decrease in our accrued interest, accounts payable and current portion of long-term debt. This was offset by an increase in our accrued payroll and a reduction in our prepaid income taxes.

We expect to fund our operations through internally generated cash and, if necessary, from borrowings under our $60.0 million revolving credit facility (the “Revolving Credit Facility”). At September 30, 2009, we had $52.2 million available under the Revolving Credit Facility, after giving effect to $7.8 million utilized to secure letters of credit. In September 2008, Lehman Brothers Holdings Inc. (“Lehman”), whose subsidiaries have a $6.3 million credit commitment under our Revolving Credit Facility, filed for bankruptcy. On October 6, 2008, we submitted a borrowing request for $6.0 million under our Revolving Credit Facility and received $5.4 million in net borrowing proceeds from the administrative agent. The difference between the borrowed amount and the requested amount reflects Lehman’s election to not fund its pro rata share of the borrowing as required under the facility. We do not expect that Lehman will fund its pro rata share of the borrowing as required under the facility. If other financial institutions that have extended credit commitments to us are adversely affected by the condition of the U.S. and international capital markets, they may become unable to fund borrowings under the Revolving Credit Facility, which could have a material and adverse impact on our financial condition and our ability to borrow additional funds, if needed, for working capital, capital expenditures, acquisitions, and other corporate purposes. We elected to repay the $5.4 million in May 2009.

We expect our primary uses of cash in the near future will be debt service requirements, capital expenditures and working capital requirements. In July 2009, our board of directors declared a $13.6 million dividend to our direct parent company, GNC Corporation, with a payment date of August 30, 2009. GNC Acquisition Holdings, Inc., our ultimate parent company, was the final recipient of this dividend. The dividend was paid with cash generated from operations.

We currently anticipate that cash generated from operations, together with amounts available under the Revolving Credit Facility (excluding Lehman’s commitment), will be sufficient for the term of the facility, which matures on March 15, 2012, to meet our operating expenses, capital expenditures and debt service obligations as they become due. However, our ability to make scheduled payments of principal on, to pay interest on, or to refinance our debt and to satisfy our other debt obligations will depend on our future operating performance, which will be affected by general economic, financial and other factors beyond our control. We are currently in compliance with our debt covenant reporting and compliance obligations under the Revolving Credit Facility.

The following table summarizes our cash flows for the three months ended September 30, 2009 and 2008:


	Nine months			Nine months
	ended September 30,			ended September 30,
(Dollars in millions)	2009			2008
Cash provided by operating activities	$	77.8		$	63.8
Cash used in investing activities		(22.0	)		(45.9	)
Cash used in financing activities		(33.9	)		(6.8	)

Cash Provided by Operating Activities

Cash provided by operating activities was $77.8 million for the nine months ended September 30, 2009 and $63.8 million for the nine months ended September 30, 2008. The primary reason for the increase in cash provided by operating activities was the increase in net income of $10.3 million for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. Our inventory increased by $11.0 million in support of the higher sales volume at the stores. Accounts payable decreased by $21.0 million due to the timing of disbursements; in addition, accrued interest decreased by $9.5 million, a result of the semi-annual interest payments on our Senior Toggle Notes and 10.75% Senior Subordinated Notes (each as defined below). These were offset by an increase in our accrued liabilities and a reduction in our prepaid income taxes.

For the nine months ended September 30, 2008, accrued liabilities decreased by $11.9 million primarily due to a $9.0 million legal settlement payment that was accrued at December 31, 2007; in addition, accrued interest decreased by $11.0 million, a result of the semi-annual interest payments on our Senior Toggle Notes and 10.75% Senior Subordinated Notes and our inventory increased by $33.4 million in support of the higher sales volume at the stores and manufacturing plant. These were partially offset by increases in our accounts payable and accrued income taxes.

Cash Used in Investing Activities

We used cash in investing activities of $22.0 million and $45.9 million for the nine months ended September 30, 2009 and 2008, respectively. Capital expenditures, which were primarily for new stores, and improvements to our retail stores and our South Carolina manufacturing facility, were $20.4 million and $35.0 million for the nine months ended September 30, 2009 and 2008, respectively. Additionally, in 2008 we paid $10.8 million in Merger consideration.

We currently have no material capital commitments for the remainder of 2009. Our capital expenditures typically consist of certain periodic updates in our company-owned stores and ongoing upgrades and improvements to our manufacturing facilities.

The Merger agreement requires payments to former shareholders and optionholders in lieu of income tax payments made for utilizing net operating losses (“NOLs”) created as a result of the Merger. Our 2005, 2006, and short period 2007 federal tax returns are under Internal Revenue Service (“IRS”) examination. The IRS issued an examination report in the second quarter of 2009, which was sent for review by the Joint Committee of Taxation (“JCT”). On September 23, 2009, the IRS notified us that the JCT had completed its review and had taken no exceptions to the conclusions reached by the IRS. As a result of this notification, we were able to utilize net operating losses upon filing our 2008 consolidated federal tax return. Pursuant to the Merger agreement, $11.2 million of additional consideration was paid in October 2009.

Cash Used in Financing Activities

For the nine months ended September 30, 2009, we used cash of $33.9 million primarily for payments on long-term debt, including $3.8 million for an excess cash payment in March 2009 under the requirements of the 2007 Senior Credit Facility. This payment was calculated based on 2008 financial results as defined by the 2007 Senior Credit Facility. In addition, we repaid the outstanding $5.4 million balance on the Revolving Credit Facility in May 2009 and made a $9.0 million optional repayment on the 2007 Senior Credit Facility in June 2009.

A $13.6 million dividend that was declared in July 2009 was paid in August 2009 to GNC Corporation, our direct parent. We used cash from financing activities of $6.8 million for the nine months ended September 30, 2008 primarily for required payments on long-term debt. A summary of this debt is as follows:

$735.0 Million 2007 Senior Credit Facility. The 2007 Senior Credit Facility consists of a $675.0 million term loan facility and the $60.0 million Revolving Credit Facility. The term loan facility will mature in September 2013. The Revolving Credit Facility will mature in March 2012. Interest on the 2007 Senior Credit Facility accrues at a variable rate and was 2.7% at September 30, 2009. As of September 30, 2009 and December 31, 2008, $7.8 million and $6.2 million of the Revolving Credit Facility were pledged to secure letters of credit, respectively.

Senior Toggle Notes. We have outstanding $300.0 million of Senior Floating Rate Toggle Notes due 2014 at 99% of par value (the “Senior Toggle Notes”). Interest on the Senior Toggle Notes is payable semi-annually in arrears on March 15 and September 15 of each year. Interest on the Senior Toggle Notes accrues at a variable rate and was 5.8% at September 30, 2009. To date, we have elected to make interest payments in cash.

10.75% Senior Subordinated Notes. We have outstanding $110.0 million of 10.75% Senior Subordinated Notes due 2015 (“10.75% Senior Subordinated Notes”). Interest on the 10.75% Senior Subordinated Notes accrues at the rate of 10.75% per year and is payable semi-annually in arrears on March 15 and September 15 of each year.

Contractual Obligations

There are no material changes in our contractual obligations as disclosed in our Form 10-K for the year ended December 31, 2008.

Off Balance Sheet Arrangements

As of September 30, 2009, we had no relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off balance sheet arrangements or other contractually narrow or limited purposes. We are, therefore, not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

We had a balance of unused barter credits on account with a third-party barter agency which were generated by exchanging inventory with a third-party barter vendor. In exchange, the barter vendor supplied us with barter credits. We did not record a sale on the transaction as the inventory sold was for expiring products that were previously fully reserved for on our balance sheet. In accordance with the standard on nonmonetary transactions, a sale is recorded based on either the value given up or the value received, whichever is more easily determinable. The value of the inventory was determined to be zero, as the inventory was fully reserved. Therefore, these credits were not recognized on the balance sheet and would only have been realized if we purchased services or products through the bartering company. The barter credits expired as of March 31, 2009.

Effect of Inflation

Inflation generally affects us by increasing costs of raw materials, labor and equipment. We do not believe that inflation had any material effect on our results of operations in the periods presented in our consolidated financial statements.

Critical Accounting Estimates

You should review the significant accounting policies described in the notes to our consolidated financial statements under the heading “Business and Presentation and Summary of Significant Accounting Policies” included elsewhere in this report.

Recently Issued Accounting Pronouncements

In September 2006, the FASB issued a standard on fair value measurements and disclosures. This standard defines fair value, establishes a framework for measuring fair value in U.S. GAAP, and expands disclosures about fair value measurements. The standard applies under other accounting pronouncements that require or permit fair value measurements and, accordingly, does not require any new fair value measurements. The original standard was initially effective as of January 1, 2008, but in February 2008 the FASB delayed the effectiveness date for applying this standard to nonfinancial assets and nonfinancial liabilities that are not currently recognized or disclosed at fair value in the financial statements. The standard is effective for fiscal years beginning after November 15, 2007, except for nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis, for which application has been deferred for one year. We adopted this standard in the first quarter of fiscal 2008 (See Note 12) for financial assets and liabilities. We evaluated the impact of the standard on the valuation of all nonfinancial assets and liabilities, including those measured at fair value in goodwill, brands, and indefinite lived intangible asset impairment testing; the adoption had no impact on our consolidated financial statements for the nine months ended September 30, 2009.

In December 2007, the FASB issued a standard on business combinations. This standard establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at the acquisition date fair value. The standard significantly changes the accounting for business combinations in a number of areas, including the treatment of contingent consideration, preacquisition contingencies, transaction costs, in-process research and development and restructuring costs. In addition, under this standard, changes in an acquired entity’s deferred tax assets and uncertain tax positions after the measurement period will impact the acquirer’s income tax expense. The standard provides guidance regarding what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The original standard became effective for fiscal years beginning after December 15, 2008 with early application prohibited and amends the standard on income taxes such that adjustments made to deferred taxes and acquired tax contingencies after January 1, 2009, even for business combinations completed before this date, will impact net income. We adopted this standard during the first quarter of fiscal 2009; the adoption did not have a material impact on our consolidated financial statements.

In December 2007, the FASB issued a standard on consolidation. The issuance of this standard changes the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity. This new consolidation method significantly changes the accounting for transactions with minority interest holders. The standard is effective for fiscal years beginning after December 15, 2008 with early application prohibited. We adopted this standard during the first quarter of fiscal 2009; the adoption did not have a material impact on our consolidated financial statements.

In March 2008, the FASB issued a standard on derivatives and hedging. The standard requires companies with derivative instruments to disclose information that should enable financial statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for and how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows. The standard is effective for interim and annual periods beginning on or after November 15, 2008. We adopted this standard during the first quarter of 2009; the adoption had no impact on our consolidated financial statements.

In April 2008, the FASB issued a standard on goodwill and intangibles which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible. The intent of this standard is to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset. We adopted this standard during the first quarter of fiscal 2009; the adoption did not have a material impact on our consolidated financial statements.

In April 2009, the FASB issued a standard on the disclosure of financial instruments This standard brings the interpretive guidance into alignment with the changes in U.S. GAAP. We adopted this standard during the second quarter of fiscal 2009; the adoption did not have a material impact on our consolidated financial statements.

originated as auditing standards into the body of authoritative literature issued by the FASB which is consistent with the FASB’s objective to codify all authoritative U.S. accounting guidance related to a particular topic in one place. We adopted this standard during the second quarter of 2009; the adoption did not have a material impact on our consolidated financial statements.

In June 2009, the SEC issued a Staff Accounting Bulletin that revises or rescinds portions of the interpretive guidance included in the codification of SABs in order to make the interpretive guidance consistent with U.S. GAAP. The principal revisions include deletion of material no longer necessary or that has been superseded because of the issuance of new standards. We adopted this Staff Accounting Bulletin during the second quarter of 2009; the adoption did not have a material impact on our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Market risk represents the risk of changes in the value of market risk sensitive instruments caused by fluctuations in interest rates, foreign exchange rates and commodity prices. Changes in these factors could cause fluctuations in the results of our operations and cash flows. In the ordinary course of business, we are primarily exposed to foreign currency and interest rate risks. We do not use derivative financial instruments in connection with commodity or foreign exchange risks.

We are exposed to market risks from interest rate changes on our variable rate debt. Although changes in interest rates do not impact our operating income the changes could affect the fair value of our interest rate swaps and interest payments. As of September 30, 2009, we had fixed rate debt of $117.5 million and variable rate debt of $947.5 million. In conjunction with the Merger, we entered into interest rate swaps, effective April 2, 2007, which effectively convert a portion of the variable LIBOR component of the effective interest rate on two $150.0 million notional portions of our debt under our $675.0 million 2007 Senior Credit Facility to a fixed rate over a specified term. Each of these $150.0 million notional amounts has a three month LIBOR tranche conforming to the interest payment dates on the term loan. During September 2008, we entered into two new forward agreements with start dates of the expiration dates of the pre-existing interest rate swap agreements (April 2009 and April 2010). In September 2008, we also entered into a new interest rate swap agreement with an effective date of September 30, 2008 that effectively converted an additional notional amount of $100.0 million of debt from a floating to a fixed interest rate. The $100.0 million notional amount has a three month LIBOR tranche conforming to the interest payment dates on the term loan. In June 2009 we entered into a new swap agreement which had an effective date of September 15, 2009. The $150.0 million notional amount has a six month LIBOR tranche conforming to the interest payment dates on the Senior Toggle Notes.

These agreements are summarized in the following table:

Derivative

Total Notional Amount

Term

Counterparty Pays

Company Pays

Interest Rate Swap

$150.0 million

April 2007-April 2010

LIBOR

4.90

Interest Rate Swap

$150.0 million

April 2009-April 2011

LIBOR

3.07

Forward Interest Rate Swap

$150.0 million

April 2010-April 2011

LIBOR

3.41

Interest Rate Swap

$100.0 million

September 2008-September 2011

LIBOR

3.31

Interest Rate Swap

$150.0 million

September 2009-September 2012

LIBOR

2.69

Based on our variable rate debt balance as of September 30, 2009, a 1% change in interest rates would increase or decrease our annual interest cost by $4.0 million. At September 30, 2009 there were no other material changes in our market risks relating to interest and foreign exchange rates as of December 31, 2008.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Exchange Act has been appropriately recorded, processed, summarized and reported on a timely basis and are effective in ensuring that such information is accumulated and communicated to the Company’s management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our CEO and CFO have concluded that, as of September 30, 2009, our disclosure controls and procedures are effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There have not been any changes in our internal controls over financial reporting that occurred during the last fiscal quarter, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II — OTHER INFORMATION

Item 1. Legal Proceedings.

We are engaged in various legal actions, claims and proceedings arising in the normal course of business, including claims related to breach of contracts, products liabilities, intellectual property matters and employment-related matters resulting from our business activities. As with most actions such as these, an estimation of any possible and/or ultimate liability cannot always be determined. We continue to assess our requirement to account for additional contingencies in accordance with the standard on contingencies. If we are required to make a payment in connection with an adverse outcome in these matters, it could have a material impact on our financial condition and operating results.

As a manufacturer and retailer of nutritional supplements and other consumer products that are ingested by consumers or applied to their bodies, we have been and are currently subjected to various product liability claims. Although the effects of these claims to date have not been material to us, it is possible that current and future product liability claims could have a material adverse impact on our business or financial condition. We currently maintain product liability insurance with a deductible/retention of $3.0 million per claim with an aggregate cap on retained loss of $10.0 million. We typically seek and have obtained contractual indemnification from most parties that supply raw materials for our products or that manufacture or market products we sell. We also typically seek to be added, and have been added, as additional insured under most of such parties’ insurance policies. However, any such indemnification or insurance is limited by its terms and any such indemnification, as a practical matter, is limited to the creditworthiness of the indemnifying party and its insurer, and the absence of significant defenses by the insurers. We may incur material products liability claims, which could increase its costs and adversely affect our reputation, revenues and operating income.

As any liabilities that may arise from these cases are not probable or reasonably estimable at this time, no liability has been accrued in the accompanying financial statements.

California Wage and Break Claim (“Casarez Matter”). On April 24, 2007, Kristin Casarez and Tyler Goodell filed a lawsuit against the Company in the Superior Court of the State of California for the County of Orange. The Company removed the lawsuit to the U.S. District Court, Central District of California. Plaintiffs purported to bring the action on their own behalf, on behalf of a class of all current and former non-exempt employees of the Company throughout the California employed on or after August 24, 2004, and as private attorney general on behalf of the general public. Plaintiffs allege that they and members of the putative class were not provided all of the rest periods and meal periods to which they were entitled under California law, and further allege that the Company failed to pay them split shift and overtime compensation to which they were entitled under California law. On September 9, 2008, plaintiffs’ Motion for Class Certification was denied from which plaintiffs did not file an interlocutory appeal. Discovery closed on March 9, 2009, and GNC filed a partial Motion for Summary Judgment on that date. On April 28, 2009, the Court granted summary judgment to GNC on the private attorney general claim but denied summary judgment as to meal and rest break claims of the two individual plaintiffs. The trial on those claims was scheduled for July 2009, however, the parties instead negotiated a written settlement agreement. The settlement agreement, which required the Company’s payment of an immaterial amount, was approved by the court on August 14, 2009, and all required settlement payments were disbursed in September 2009.

Franchise Class Action. On November 7, 2006, Abdul Ahussain, on behalf of himself and all others similarly situated, sued GNC Franchising, LLC and General Nutrition Corporation in the U.S. District Court, Central District of California, Western Division. Plaintiff alleged that GNC engages in unfair business practices designed to earn a profit at its franchisees’ expense, among other things, in violation of California Business & Professions Code, §§ 17200 et seq. (the “CBPC”). These alleged practices include: (1) requiring its franchises to carry slow moving products, which cannot be returned to GNC after expiration, with the franchisee bearing the loss; (2) requiring franchised stores to purchase new or experimental products, effectively forcing the franchisees to provide free market research; (3) using the Company’s Gold Card program to collect information on franchised store customers and then soliciting business from such customers; (4) underselling its franchised stores by selling products through the GNC website at prices below or close to the wholesale price, thereby forcing franchises to sell the same products at a loss; and (5) manipulating prices at which franchised stores can purchase products from third-party suppliers, so as to maintain GNC’s favored position as a product wholesaler. Plaintiffs are seeking damages in an unspecified amount and equitable and injunctive relief. On March 19, 2008, the court certified a class as to only plaintiffs’ claim under the CBPC. The class consists of all persons or entities who are or were GNC franchisees in the State of California from November 13, 2002 to the date of adjudication. Plaintiff’s individual claims were settled and dismissed. On March 18, 2009, the Company’s motion for summary judgment was granted as to the CBPC class claim. In April 2009 GNC filed a motion for court costs and attorneys’ fees and the court ordered the plaintiffs to pay approximately $0.4 million to GNC for its fees and costs. Plaintiff’s full judgment has been satisfied.

Romero Claim. On April 27, 2009, plaintiff J.C. Romero, a professional baseball player, filed a complaint against, among others, General Nutrition Centers, Inc. in Superior Court of New Jersey (Law Division/ Camden County). Plaintiff alleges that he purchased from a GNC store and consumed 6-OXO Extreme, which is manufactured by a third party, and in August 2008, was alleged to have tested positive for a banned substance. Plaintiff served a 50 game suspension imposed by Major League Baseball. The seven count complaint asserts, among other things, claims for negligence, strict liability, misrepresentation, breach of implied warranty and violations of the New Jersey Consumer Fraud Act, and seeks unspecified monetary damages. GNC tendered the claim to the insurance company of the franchisee whose GNC store sold and allegedly misrepresented the product. On or about October 9, 2009, GNC answered plaintiff’s first amended complaint and cross-claimed against co-defendants Proviant Technologies and Ergopharm. Any liabilities that may arise from this matter are not probable or reasonably estimable at this time.

	•		Michael Owens and Donna Owens v. Iovate Health Sciences USA, Inc., et al., Superior Court of the State of California, County of Los Angeles;

	•		Eva M. Stasiak v. Iovate Health Sciences USA, Inc., et al., Superior Court of the State of California, County of Los Angeles;

	•		Jaime Ruben Perez v. Gerald Brandt, individually and d/b/a/ Breakthru Products, et al., 229^th Judicial District, Duval County, Texas;

	•		Juan A. Noyola, II v. Iovate Health Sciences USA, Inc., et al., U.S. District Court, Southern District of New York;

	•		Christopher and Dana Hamilton v. Iovate Health Sciences USA, Inc., et al., U.S. District Court, Northern District of Ohio;

	•		Hector Manuel Abarca and Diana Curiel v. Iovate Health Sciences USA, Inc., et al., U.S. District Court, Northern District of California; and

	•		Jessica Rogoff v. General Nutrition Centers, Inc., et al., Superior Court of the State of California, County of Los Angeles.

Plaintiffs in the Owens and Stasiak cases dismissed those cases without prejudice in June 2009.

The following six (6) putative class actions generally include claims of consumer fraud, misrepresentation, strict liability, and breach of warranty.

	•		Andrew Dremak, et al. v. Iovate Health Sciences Group, Inc., et al., U.S. District Court, Southern District of California;

	•		Enjoli Pennier, et al. v. Iovate Health Sciences, et al., U.S. District Court, Eastern District of Louisiana;

	•		Alejandro M. Jimenez, et al. v. Iovate Health Sciences, Inc., et al., U.S. District Court, Eastern District of California;

	•		Amy Baker, et al. v. Iovate Health Sciences USA, Inc., et al., U.S. District Court, Northern District of Alabama;

	•		Kyle Davis and Sara Carreon, et al. v. Iovate Health Sciences USA, Inc., et al., U.S. District Court, Northern District of Alabama; and,

	•		Lenny Charles Gunn, Tonya Rhoden, and Nicholas Atelevich, et al., v. Iovate Health Sciences Group, Inc., et al., U.S. District Court, Southern District of California.

By Court Order dated October 6, 2009, the United States Judicial Panel on Multidistrict Litigation consolidated pretrial proceedings of sixteen (16) pending actions (including the first five of six above- listed GNC class actions) in the Southern District of California (In re: Hydroxycut Marketing and Sales Practices Litigation. MDL No. 2087). Any liabilities that may arise from these matters are not probable or reasonably estimable at this time.

Bedell Claim. On May 1, 2009, plaintiff Eugene Bedell, Jr. filed a personal injury complaint against, among others, General Nutrition Centers, Inc. and GNC Corporation, in Circuit Court of Loudoun County, Virginia. Plaintiff alleges that his use and consumption of a non-GNC product called “Nitro T3” caused him to have a stroke. Plaintiff makes certain allegations regarding the risks of using and consuming Nitro T3 and GNC’s alleged failure to warn consumers of those risks. Plaintiff seeks unspecified monetary damages. Under its purchasing agreement with the vendor, WellNx, GNC tendered the matter to WellNx for defense and indemnification. WellNx has accepted GNC’s request for defense and indemnification. Any liabilities that may arise from this matter are not probable or reasonably estimable at this time.

for strict liability, negligence, and fraud and seek unspecified monetary damages. Any liabilities that may arise from this matter are not probable or reasonably estimable at this time.

	•		Michael Gonzales and Zia Nawabi, et al. v. Maximum Human Performance, Inc., et al., U.S. District Court, Central District of California (“Musclemeds”);

	•		Michael Campos and Michael Gonzales, et al. v. LG Sciences, LLC, et al., Superior Court of California, for the County of Orange (“LG Sciences”);

	•		Nicole Forlenza and Shaiden Monroe, et al. v. Dynakor Pharmacal, LLC, et al., U.S. District Court, Central District of California; and

	•		Vance Monroe and Mac Gonzales, et al. v. Biotab Nutraceuticals, Inc., et al., U.S. District Court, Southern District of California.

A tentative settlement has been reached in the Musclemeds case, subject to court approval. The LG Sciences matter was settled and dismissed in August 2009.

Environmental Compliance

In March 2008, the South Carolina Department of Health and Environmental Control (“DHEC”) requested that we investigate our South Carolina facility for a possible source or sources of contamination detected on an adjoining property. We have commenced the investigation at the facility as requested by DHEC. After several phases of the investigation the possible source or sources of contamination have not been precisely determined. We are continuing such investigation in 2009. The proceedings in this matter have not yet progressed to a stage where it is possible to estimate the timing and extent of any remedial action that may be required, the ultimate cost of remediation, or the amount of our potential liability.

In addition to the foregoing, we are subject to numerous federal, state, local, and foreign environmental and health and safety laws and regulations governing our operations, including the handling, transportation, and disposal of our non-hazardous and hazardous substances and wastes, as well as emissions and discharges from our operations into the environment, including discharges to air, surface water, and groundwater. Failure to comply with such laws and regulations could result in costs for remedial actions, penalties, or the imposition of other liabilities. New laws, changes in existing laws or the interpretation thereof, or the development of new facts or changes in our processes could also cause us to incur additional capital and operation expenditures to maintain compliance with environmental laws and regulations and environmental permits. We also are subject to laws and regulations that impose liability and cleanup responsibility for releases of hazardous substances into the environment without regard to fault or knowledge about the condition or action causing the liability. Under certain of these laws and regulations, such liabilities can be imposed for cleanup of previously owned or operated properties, or for properties to which substances or wastes that were sent in connection with current or former operations at our facilities. The presence of contamination from such substances or wastes could also adversely affect our ability to sell or lease our properties, or to use them as collateral for financing. From time to time, we have incurred costs and obligations for correcting environmental and health and safety noncompliance matters and for remediation at or relating to certain of our properties or properties at which our waste has been disposed. We believe we have complied with, and are currently complying with, our environmental obligations pursuant to environmental and health and safety laws and regulations and that any liabilities for noncompliance will not have a material adverse effect on our business or financial performance. However, it is difficult to predict future liabilities and obligations, which could be material.


Item 1A.		Risk Factors.

The following risk factors, among others, could cause our financial performance to differ significantly from the goals, plans, objectives, intentions and expectations expressed in this report. If any of the following risks and uncertainties or other risks and uncertainties not currently known to us or not currently considered to be material actually occur, our business, financial condition, or operating results could be harmed substantially.

Risks Relating to Our Business and Industry

General economic conditions, including continued weakening of the economy, may affect consumer purchases, which could adversely affect our sales and the sales of our business partners.

Our results, and those of our business partners to whom we sell, are dependent on a number of factors impacting consumer spending, including general economic and business conditions; consumer confidence; wages and employment levels; the housing market; consumer debt levels; availability of consumer credit; credit and interest rates; fuel and energy costs; energy shortages; taxes; general political conditions, both domestic and abroad; and the level of customer traffic within department stores, malls and other shopping and selling environments. Consumer product purchases, including purchases of our products, may decline during recessionary periods. A continued downturn or an uncertain outlook in the economy may materially adversely affect our business and our revenues and profits.

We operate in a highly competitive industry. Our failure to compete effectively could adversely affect our market share, revenues, and growth prospects.

The U.S. nutritional supplements retail industry is large and highly fragmented. Participants include specialty retailers, supermarkets, drugstores, mass merchants, multi-level marketing organizations, on-line merchants, mail-order companies and a variety of other smaller participants. We believe that the market is also highly sensitive to the introduction of new products, including various prescription drugs, which may rapidly capture a significant share of the market. In the United States, we also compete for sales with heavily advertised national brands manufactured by large pharmaceutical and food companies, as well as other retailers. In addition, as some products become more mainstream, we experience increased competition for those products as more participants enter the market. For example, when the trend in favor of low-carbohydrate products developed, we experienced increased competition for our diet products from supermarkets, drug stores, mass merchants and other food companies, which adversely affected sales of our diet products. Our international competitors include large international pharmacy chains, major international supermarket chains, and other large U.S.-based companies with international operations. Our wholesale and manufacturing operations compete with other wholesalers and manufacturers of third-party nutritional supplements. We may not be able to compete effectively and our attempt to do so may require us to reduce our prices, which may result in lower margins. Failure to effectively compete could adversely affect our market share, revenues, and growth prospects.

Unfavorable publicity or consumer perception of our products and any similar products distributed by other companies could cause fluctuations in our operating results and could have a material adverse effect on our reputation, the demand for our products, and our ability to generate revenues.

We are highly dependent upon consumer perception of the safety and quality of our products, as well as similar products distributed by other companies. Consumer perception of products can be significantly influenced by scientific research or findings, national media attention, and other publicity about product use. A product may be received favorably, resulting in high sales associated with that product that may not be sustainable as consumer preferences change. Future scientific research or publicity could be unfavorable to our industry or any of our particular products and may not be consistent with earlier favorable research or publicity. A future research report or publicity that is perceived by our consumers as less favorable or that questions earlier research or publicity could have a material adverse effect on our ability to generate revenues. For example, sales of some of our VMHS products, such as St. John’s Wort, Sam-e, and Melatonin, and more recently sales of Vitamin E, were initially strong, but we believe decreased substantially as a result of negative publicity. As a result of the above factors, our operations may fluctuate significantly from quarter to quarter, which may impair our ability to make payments when due on our debt. Period-to-period comparisons of our results should not be relied upon as a measure of our future performance. Adverse publicity in the form of published scientific research or otherwise, whether or not accurate, that associates consumption of our products or any other similar products with illness or other adverse effects, that questions the benefits of our or similar

products, or that claims that such products are ineffective could have a material adverse effect on our reputation, the demand for our products, and our ability to generate revenues.

Our failure to appropriately respond to changing consumer preferences and demand for new products could significantly harm our customer relationships and product sales.

Our business is particularly subject to changing consumer trends and preferences, especially with respect to our diet products. For example, the recent trend in favor of low-carbohydrate diets was not as dependent on diet products as many other dietary programs, which caused and may continue to cause a significant reduction in sales in our diet category. Our continued success depends in part on our ability to anticipate and respond to these changes, and we may not be able to respond in a timely or commercially appropriate manner to these changes. If we are unable to do so, our customer relationships and product sales could be harmed significantly.

Furthermore, the nutritional supplement industry is characterized by rapid and frequent changes in demand for products and new product introductions. Our failure to accurately predict these trends could negatively impact consumer opinion of our stores as a source for the latest products. This could harm our customer relationships and cause losses to our market share. The success of our new product offerings depends upon a number of factors, including our ability to:

	•		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.

If we do not introduce new products or make enhancements to meet the changing needs of our customers in a timely manner, some of our products could become obsolete, which could have a material adverse effect on our revenues and operating results.

We depend on the services of key executives and changes in our management team could affect our business strategy and adversely impact our performance and results of operations.

Some of our senior executives are important to our success because they have been instrumental in setting our strategic direction, operating our business, identifying, recruiting and training key personnel, identifying opportunities and arranging necessary financing. Losing the services of any of these individuals could adversely affect our business until a suitable replacement could be found. We believe that they could not quickly be replaced with executives of equal experience and capabilities. We do not maintain key person life insurance policies on any of our executives.

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

The processing, formulation, manufacturing, packaging, labeling, advertising, and distribution of our products are subject to federal laws and regulation by one or more federal agencies, including the FDA, the FTC, the Consumer Product Safety Commission, the United States Department of Agriculture, and the Environmental Protection Agency. These activities are also regulated by various state, local, and international laws and agencies of the states and localities in which our products are sold. Government regulations may prevent or delay the introduction, or require the reformulation, of our products, which could result in lost revenues and increased costs to us. For instance, the FDA regulates, among other things, the composition, safety, labeling, and marketing of dietary supplements (including vitamins, minerals, herbs, and other dietary ingredients for human use). The FDA may not accept the evidence of safety for any new dietary ingredient that we may wish to market, may determine that a particular dietary supplement or ingredient presents an unacceptable health risk, and may determine that a particular claim or statement of nutritional value that we use

to support the marketing of a dietary supplement is an impermissible drug claim, is not substantiated, or is an unauthorized version of a “health claim.” See “Business — Government Regulation — Product Regulation” included in our annual report on Form 10-K for additional information. Any of these actions could prevent us from marketing particular dietary supplement products or making certain claims or statements of nutritional support for them. The FDA could also require us to remove a particular product from the market. Any future recall or removal would result in additional costs to us, including lost revenues from any additional products that we are required to remove from the market, any of which could be material. Any product recalls or removals could also lead to liability, substantial costs, and reduced growth prospects.

Additional or more stringent regulations of dietary supplements and other products have been considered from time to time. These developments could require reformulation of some products to meet new standards, recalls or discontinuance of some products not able to be reformulated, additional record-keeping requirements, increased documentation of the properties of some products, additional or different labeling, additional scientific substantiation, adverse event reporting, or other new requirements. Any of these developments could increase our costs significantly. For example, the Dietary Supplement and Nonprescription Drug Consumer Protection Act (S3546) which was passed by Congress in December 2006, imposes significant new regulatory requirements on dietary supplements including reporting of “serious adverse events” to FDA and recordkeeping requirements. This legislation could raise our costs and negatively impact our business. In June 2007, the FDA adopted final regulations on GMPs in manufacturing, packaging, or holding dietary ingredients and dietary supplements, which apply to the products we manufacture. These regulations require dietary supplements to be prepared, packaged, and held in compliance with certain rules. These new regulations could raise our costs and negatively impact our business. Additionally, our third-party suppliers or vendors may not be able to comply with the new rules without incurring substantial expenses. If our third-party suppliers or vendors are not able to timely comply with the new rules, we may experience increased cost or delays in obtaining certain raw materials and third-party products. Also, the FDA has announced that it plans to publish a guidance governing the notification of new dietary ingredients. Although FDA guidance is not mandatory, it is a strong indication of the FDA’s current views on the topic discussed in the guidance, including its position on enforcement. Depending on its recommendations, particularly those relating to animal or human testing, such guidance could also raise our costs and negatively impact our business. We may not be able to comply with the new rules without incurring additional expenses, which could be significant.

Our failure to comply with FTC regulations and existing consent decrees imposed on us by the FTC could result in substantial monetary penalties and could adversely affect our operating results.

The FTC exercises jurisdiction over the advertising of dietary supplements and has instituted numerous enforcement actions against dietary supplement companies, including us, for failure to have adequate substantiation for claims made in advertising or for the use of false or misleading advertising claims. As a result of these enforcement actions, we are currently subject to three consent decrees that limit our ability to make certain claims with respect to our products and required us to pay civil penalties and other amounts in the aggregate amount of $3.0 million. See “Business — Government Regulation — Product Regulation” included in our annual report on Form 10-K for additional information. Failure by us or our franchisees to comply with the consent decrees and applicable regulations could occur from time to time. Violations of these orders could result in substantial monetary penalties, which could have a material adverse effect on our financial condition or results of operations.

We may incur material product liability claims, which could increase our costs and adversely affect our reputation, revenues, and operating income.

As a retailer, distributor, and manufacturer of products designed for human consumption, we are subject to product liability claims if the use of our products is alleged to have resulted in injury. Our products consist of vitamins, minerals, herbs and other ingredients that are classified as foods or dietary supplements and are not subject to pre-market regulatory approval in the United States. Our products could contain contaminated substances, and some of our products contain ingredients that do not have long histories of human consumption. Previously unknown adverse reactions resulting from human consumption of these ingredients could occur. In addition, third-party manufacturers produce many of the products we sell. As a distributor of products manufactured by third parties, we may also be liable for various product liability claims for products we do not manufacture. Although our purchase agreements with our third party vendors typically require the vendor to indemnify us to the extent of any such claims, any such indemnification is limited by its terms. Moreover, as a practical matter, any such indemnification is dependent on the creditworthiness of the indemnifying party and its insurer, and the absence of significant defenses by the insurers. To the extent we are unable to obtain full recovery inrespect of any claims against us in connection with products manufactured by third parties, we could seek recovery directly from third parties.

We have been and may be subject to various product liability claims, including, among others, that our products include inadequate instructions for use or inadequate warnings concerning possible side effects and interactions with other substances. For example, as of October 22, 2009, we have been named as a defendant in fourteen pending cases involving the sale of Hydroxycut diet products, including six putative class action cases and eight personal injury cases. See “Item 1, Legal Proceedings.” Any product liability claim against us could result in increased costs and could adversely affect our reputation with our customers, which in turn could adversely affect our revenues and operating income.

Compliance with the Iovate Hydroxycut recall has reduced our sales and margin and may adversely affect our results of operations.

In May 2009, the FDA warned consumers to stop using Hydroxycut diet products, which are produced by Iovate Health Sciences, Inc., which were sold in our stores. Iovate issued a voluntary recall, with which we fully complied. Sales of the recalled Hydroxycut products amounted to approximately $57.8 million, or 4.7% of our retail sales in 2008, and $18.8 million, or 4.2% of our retail sales in the first four months of 2009. We provided refunds or gift cards to consumers who returned these products to our stores. In the second quarter we experienced a reduction in sales and margin due to this recall as a result of accepting returns of products from customers and a loss of sales as a replacement product was not available. Through September 30, 2009, we had refunded approximately $3.5 million to our retail customers and approximately $1.6 million to our wholesale customers for Hydroxycut product returns. A significant majority of the retail refunds occurred in our second quarter; the wholesale refunds were recognized in the early part of the third quarter. At the end of June, Iovate launched new reformulated Hydroxycut products that we began to sell in our stores. Although third quarter sales of the new reformulated Hydroxycut trailed pre-recall levels, strong sales in our core sports, vitamins and herbs, along with other new third party diet products, helped to mitigate the Hydroxycut loss.

Our operations are subject to environmental and health and safety laws and regulations that may increase our cost of operations or expose us to environmental liabilities.

Our operations are subject to environmental and health and safety laws and regulations, and some of our operations require environmental permits and controls to prevent and limit pollution of the environment. We could incur significant costs as a result of violations of, or liabilities under, environmental laws and regulations, or to maintain compliance with such environmental laws, regulations, or permit requirements.

Because we rely on our manufacturing operations to produce nearly all of the proprietary products we sell, disruptions in our manufacturing system or losses of manufacturing certifications could adversely affect our sales and customer relationships.

Our manufacturing operations produced approximately 34% of the products we sold for both the nine months ended September 30, 2009 and the year ended December 31, 2008. Other than powders and liquids, nearly all of our proprietary products are produced in our manufacturing facility located in Greenville, South Carolina. For the nine months ended September 30, 2009, no one vendor supplied more than 10% of our raw materials. In the event any of our third-party suppliers or vendors become unable or unwilling to continue to provide raw materials in the required volumes and quality levels or in a timely manner, we would be required to identify and obtain acceptable replacement supply sources. If we are unable to obtain alternative supply sources, our business could be adversely affected. Any significant disruption in our operations at our Greenville, South Carolina facility for any reason, including regulatory requirements and loss of certifications, power interruptions, fires, hurricanes, war or other force of nature, could disrupt our supply of products, adversely affecting our sales and customer relationships.

If we fail to protect our brand name, competitors may adopt trade names that dilute the value of our brand name.

We have invested significant resources to promote our GNC brand name in order to obtain the public recognition that we have today. However, we may be unable or unwilling to strictly enforce our trademark in each jurisdiction in which we do business. In addition, because of the differences in foreign trademark laws concerning proprietary rights, our trademark may not receive the same degree of protection in foreign countries as it does in the United States. Also, we may not always be able to successfully enforce our trademark against

competitors or against challenges by others. For example, a third party is currently challenging our right to register in the United States certain marks that incorporate our “GNC Live Well” trademark. This third party initiated proceedings in the United States Patent and Trademark Office to cancel four registrations for our “GNC Live Well” mark. Subsequently, we permitted three of these registrations to lapse. Other third parties are also challenging our “GNC Live Well” trademark in foreign jurisdictions. Our failure to successfully protect our trademark could diminish the value and effectiveness of our past and future marketing efforts and could cause customer confusion. This could in turn adversely affect our revenues and profitability.

Intellectual property litigation and infringement claims against us could cause us to incur significant expenses or prevent us from manufacturing, selling, or using some aspect of our products, which could adversely affect our revenues and market share.

We are currently and may in the future be subject to intellectual property litigation and infringement claims, which could cause us to incur significant expenses or prevent us from manufacturing, selling or using some aspect of our products. Claims of intellectual property infringement also may require us to enter into costly royalty or license agreements. However, we may be unable to obtain royalty or license agreements on terms acceptable to us or at all. Claims that our technology or products infringe on intellectual property rights could be costly and would divert the attention of management and key personnel, which in turn could adversely affect our revenues and profitability.

A substantial amount of our revenues are generated from our franchisees, and our revenues could decrease significantly if our franchisees do not conduct their operations profitably or if we fail to attract new franchisees.

As of September 30, 2009 and December 31, 2008, approximately 32% of our retail locations were operated by franchisees. Our franchise operations generated approximately 15.4% of our revenues for each of the nine months ended September 30, 2009 and 2008. Our revenues from franchised stores depend on the franchisees’ ability to operate their stores profitably and adhere to our franchise standards. In the twelve months ending September 30, 2009, a net 40 domestic franchise stores were closed. The closing of unprofitable franchised stores or the failure of franchisees to comply with our policies could adversely affect our reputation and could reduce the amount of our franchise revenues. These factors could have a material adverse effect on our revenues and operating income.

If we are unable to attract new franchisees or to convince existing franchisees to open additional stores, any growth in royalties from franchised stores will depend solely upon increases in revenues at existing franchised stores, which could be minimal. In addition, our ability to open additional franchised locations is limited by the territorial restrictions in our existing franchise agreements as well as our ability to identify additional markets in the United States and other countries that are not currently saturated with the products we offer. If we are unable to open additional franchised locations, we will have to sustain additional growth internally by attracting new and repeat customers to our existing locations.

Our operating results and financial condition could be adversely affected by the financial and operational performance of Rite Aid.

As of September 30, 2009, Rite Aid operated 1,814 GNC “franchise store-within-a-store” locations and has committed to open additional “franchise store-within-a-store” locations. Revenue from sales to Rite Aid (including license fee revenue for new store openings) represented approximately 3.1% of total revenue for the nine months ended September 30, 2009 and approximately 3.4% of total revenues for the year ended December 31, 2008. Any liquidity and operational issues that Rite Aid may experience could impair its ability to fulfill its obligations and commitments to us, which would adversely affect our operating results and financial condition.

Economic, political, and other risks associated with our international operations could adversely affect our revenues and international growth prospects.

As of September 30, 2009, we had 166 company-owned Canadian stores and 1,257 international franchised stores in 47 international markets. We derived 9.8% of our revenues for the nine months ended September 30, 2009 and 10.1% of our revenues for the year ended December 31, 2008 from our international operations. As part of our business strategy, we intend to expand our international franchise presence. Our international operations are subject to a number of risks inherent to operating in foreign countries and any expansion of our international operations will increase the effects of these risks. These risks include, among others:

	•		political and economic instability of foreign markets;

	•		foreign governments’ restrictive trade policies;

	•		inconsistent product regulation or sudden policy changes by foreign agencies or governments;

	•		the imposition of, or increase in, duties, taxes, government royalties, or non-tariff trade barriers;

	•		difficulty in collecting international accounts receivable and potentially longer payment cycles;

	•		increased costs in maintaining international franchise and marketing efforts;

	•		difficulty in operating our manufacturing facility abroad and procuring supplies from overseas suppliers;

	•		exchange controls;

	•		problems entering international markets with different cultural bases and consumer preferences; and

	•		fluctuations in foreign currency exchange rates.

Any of these risks could have a material adverse effect on our international operations and our growth strategy.

Franchise regulations could limit our ability to terminate or replace under-performing franchises, which could adversely impact franchise revenues.

Our franchise activities are subject to federal, state, and international laws regulating the offer and sale of franchises and the governance of our franchise relationships. These laws impose registration, extensive disclosure requirements, and bonding requirements on the offer and sale of franchises. In some jurisdictions, the laws relating to the governance of our franchise relationship impose fair dealing standards during the term of the franchise relationship and limitations on our ability to terminate or refuse to renew a franchise. We may, therefore, be required to retain an under-performing franchise and may be unable to replace the franchisee, which could adversely impact franchise revenues. In addition, we cannot predict the nature and effect of any future legislation or regulation on our franchise operations.

We are not insured for a significant portion of our claims exposure, which could materially and adversely affect our operating income and profitability.

We have procured insurance independently for the following areas: (1) general liability; (2) product liability; (3) directors and officers liability; (4) property insurance; (5) workers’ compensation insurance; and (6) various other areas. We are self-insured for other areas, including: (1) medical benefits; (2) workers’ compensation coverage in New York, with a stop loss of $250,000; (3) physical damage to our tractors, trailers, and fleet vehicles for field personnel use; and (4) physical damages that may occur at company-owned stores. We are not insured for some property and casualty risks due to the frequency and severity of a loss, the cost of insurance, and the overall risk analysis. In addition, we carry product liability insurance coverage that requires us to pay deductibles/retentions with primary and excess liability coverage above the deductible/retention amount. Because of our deductibles and self-insured retention amounts, we have significant exposure to fluctuations in the number and severity of claims. We currently maintain product liability insurance with a retention of $3.0 million per claim with an aggregate cap on retained loss of $10.0 million. As a result, our

insurance and claims expense could increase in the future. Alternatively, we could raise our deductibles/retentions, which would increase our already significant exposure to expense from claims. If any claim exceeds our coverage, we would bear the excess expense, in addition to our other self-insured amounts. If the frequency or severity of claims or our expenses increase, our operating income and profitability could be materially adversely affected. See “Item 1, Legal Proceedings.”

The controlling stockholders of our Parent may take actions that conflict with the interests of other stockholders and investors. This control may have the effect of delaying or preventing changes of control or changes in management.

An affiliate of Ares and OTPP, and certain of our directors and members of our management indirectly beneficially own substantially all of the outstanding equity of our Parent and, as a result, have the indirect power to elect our directors, to appoint members of management, and to approve all actions requiring the approval of the holders of our common stock, including adopting amendments to our certificate of incorporation and approving mergers, acquisitions, or sales of all or substantially all of our assets. The interests of our ultimate controlling stockholders might conflict with the interests of other stockholders or the holders of our debt. Our ultimate controlling stockholders also may have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their equity investment, even though such transactions might involve risks to the holders of our debt.

Risks Related to Our Substantial Debt

Our substantial debt could adversely affect our results of operations and financial condition and otherwise adversely impact our operating income and growth prospects.

As of September 30, 2009, our total consolidated long-term debt (including current portion) was approximately $1,065 million, and we had an additional $52.2 million available for borrowing on a collateralized basis under our Revolving Credit Facility after giving effect to the use of $7.8 million of the Revolving Credit Facility to secure letters of credit. In 2008, Lehman, whose subsidiaries have a $6.3 million credit commitment under our Revolving Credit Facility, filed for bankruptcy. On October 6, 2008, we submitted a borrowing request for $6.0 million under our Revolving Credit Facility and received $5.4 million in net borrowing proceeds from the administrative agent. The difference between the borrowed amount and the requested amount reflects Lehman’s election to not fund its pro rata share of the borrowing as required under the facility. As a result, we do not expect that Lehman will fund its pro rata share of any future borrowing requests. The borrowing proceeds were paid back in May 2009.

If other financial institutions that have extended credit commitments to us are adversely affected by the conditions of the U.S. and international capital markets, they may become unable to fund borrowings under the Revolving Credit Facility, which could have a material and adverse impact on our financial condition and our ability to borrow additional funds, if needed, for working capital, capital expenditures, acquisitions, and other corporate purposes.

All of the debt under our 2007 Senior Credit Facility bears interest at variable rates. We are subject to additional interest expense if these rates increase significantly, which could also reduce our ability to borrow additional funds.

Our substantial debt could have important consequences on our financial condition. For example, it could:

	•		make it more difficult for us to satisfy our obligations with respect to the Senior Toggle Notes and the 10.75% Senior Subordinated Notes;

	•		increase our vulnerability to general adverse economic and industry conditions;

	•		require us to use all or a large portion of our cash flow from operations to pay principal and interest on our debt, thereby reducing the availability of our cash flow to fund working capital, research and development efforts, capital expenditures, and other business activities;

	•		increase our vulnerability to general adverse economic and industry conditions;

	•		limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

	•		restrict us from making strategic acquisitions or exploiting business opportunities;

	•		place us at a competitive disadvantage compared to our competitors that have less debt; and

	•		limit our ability to borrow additional funds, dispose of assets, or pay cash dividends.

For additional information regarding the interest rates and maturity dates of our debt, see “Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources”.

Despite our current significant level of debt, we may still be able to incur additional debt, which could increase the risks described above, adversely affect our financial health, or prevent us from fulfilling our obligations under the Senior Toggle Notes and the 10.75% Senior Subordinated Notes.

We and our subsidiaries may be able to incur additional debt in the future, including collateralized debt. Although the 2007 Senior Credit Facility and the indentures governing the Senior Toggle Notes and 10.75% Senior Subordinated Notes contain restrictions on the incurrence of additional debt, these restrictions are subject to a number of qualifications and exceptions. If additional debt is added to our current level of debt, the risks described above would increase.

We require a significant amount of cash to service our debt. Our ability to generate cash depends on many factors beyond our control and, as a result, we may not be able to make payments on our debt obligations.

We may be unable to generate sufficient cash flow from operations, to realize anticipated cost savings and operating improvements on schedule or at all, or to obtain future borrowings under our credit facilities or otherwise in an amount sufficient to enable us to pay our debt or to fund our other liquidity needs. In addition, because we conduct our operations through our operating subsidiaries, we depend on those entities for dividends and other payments to generate the funds necessary to meet our financial obligations, including payments on our debt. Under certain circumstances, legal and contractual restrictions, as well as the financial condition and operating requirements of our subsidiaries, may limit our ability to obtain cash from our subsidiaries. If we do not have sufficient liquidity, we may need to refinance or restructure all or a portion of our debt on or before maturity, sell assets, or borrow more money. We may not be able to do so on terms satisfactory to us or at all.

If we are unable to meet our obligations with respect to our debt, we could be forced to restructure or refinance our debt, seek equity financing, or sell assets. If we are unable to restructure, refinance, or sell assets in a timely manner or on terms satisfactory to us, the trading price of the Senior Toggle Notes and the 10.75% Senior Subordinated Notes could decline and we may default under our obligations. As of September 30, 2009, substantially all of our debt was subject to acceleration clauses. A default on any of our debt obligations could trigger these acceleration clauses and cause those and our other obligations to become immediately due and payable. Upon an acceleration of any of our debt, we may not be able to make payments under our debt.

We may not have the ability to raise the funds necessary to finance the change of control offer required by the indentures, which could cause us to default on our debt obligations, including the Senior Toggle Notes and the 10.75% Senior Subordinated Notes.

Upon certain “change of control” events, as that term is defined in the indentures governing the Senior Toggle Notes and the 10.75% Senior Subordinated Notes, we will be required to make an offer to repurchase all or any part of each holder’s notes at a price equal to 101% of the principal thereof, plus accrued interest to the date of repurchase. Because we do not have access to the cash flow of our subsidiaries, we will likely not have sufficient funds available at the time of any change of control event to repurchase all tendered notes pursuant to this requirement. Our failure to offer to repurchase notes or to repurchase notes tendered following a change of control would result in a default under the indentures. Accordingly, prior to repurchasing the notes upon a change of control event, we must refinance all of our outstanding indebtedness. We may be unable to refinance

all of our outstanding indebtedness on terms acceptable to us or at all. If we were unable to refinance all such indebtedness, we would remain effectively prohibited from offering to repurchase the notes.

Restrictions in the agreements governing our existing indebtedness may prevent us from taking actions that we believe would be in the best interest of our business.

The agreements governing our existing indebtedness contain customary restrictions on us or our subsidiaries, including covenants that restrict us or our subsidiaries, as the case may be, from:

	•		incurring additional indebtedness and issuing preferred stock;

	•		granting liens on our assets;

	•		making investments;

	•		consolidating or merging with, or acquiring, another business;

	•		selling or otherwise disposing our assets;

	•		paying dividends and making other distributions to our parent entities;

	•		entering into transactions with our affiliates; and

	•		incurring capital expenditures in excess of limitations set within the agreement.

Our ability to comply with these covenants and other provisions of the 2007 Senior Credit Facility and the indentures governing the Senior Toggle Notes and the 10.75% Senior Subordinated Notes may be affected by changes in our operating and financial performance, changes in general business and economic conditions, adverse regulatory developments, or other events beyond our control. The breach of any of these covenants could result in a default under our debt, which could cause those and other obligations to become immediately due and payable. If any of our debt is accelerated, we may not be able to repay it.

The 2007 Senior Credit Facility also requires that we meet specified financial ratios, including, but not limited to, maximum total leverage ratios. These restrictions may prevent us from taking actions that we believe would be in the best interest of our business and may make it difficult for us to successfully execute our business strategy or effectively compete with companies that are not similarly restricted.


Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds.

There were no sales of the Company’s equity securities.


Item 3.		Defaults Upon Senior Securities.

None.


Item 4.		Submission of Matters to a Vote of Security Holders.

None.


Item 5.		Other Information.

On September 29, 2009, the Company received a comment letter from the staff of the Division of Corporation Finance of the Securities and Exchange Commission (“SEC”). The comments from the staff were issued with respect to its review of our Annual Report on Form 10-K for the year ended December 31, 2008 (the “10-K”) and review of our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009 following the staff’s routine periodic review of our filings. We responded to the SEC comment letter on October 14, 2009 and provided proposed revised disclosures for these comments. The Company has included its proposed revised disclosures in this Form 10-Q. On November 5, 2009, the Company received a second comment letter from the SEC staff, relating primarily to the 10-K. The Company is preparing a response.


Item 6.		Exhibits.


Exhibit
No.		Description
31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the persons undersigned thereunto duly authorized.


	GENERAL NUTRITION CENTERS, INC. (Registrant)
November 5, 2009	/s/ Joseph M. Fortunato
	Joseph M. Fortunato
	Chief Executive Officer (Principal Executive Officer)


November 5, 2009	/s/ Michael M. Nuzzo
	Michael M. Nuzzo
	Chief Financial Officer (Principal Financial Officer)

GENERAL NUTRITION CENTERS, INC. - FORM 10-Q - November 5, 2009

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