UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

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

Commission file number: 333-114396

General Nutrition Centers, Inc.

(Exact name of registrant as specified in its charter)

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

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

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

Securities registered pursuant to section 12(b) of the Act: None

Securities registered pursuant to section 12(g) of the Act: None

          Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes     þ No

          Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. þ Yes     o No

          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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

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

          As of March 1, 2010, all of the registrant’s common equity was privately held, and there was no public market for the registrant’s common equity nor any publicly available quotations for the registrant’s common equity. As a result, the registrant is unable to calculate the aggregate market value of the registrant’s common stock held by non-affiliates as of March 1, 2010. As of March 1, 2010, 100 shares of the registrant’s common stock, par value $0.01 per share (the “Common Stock”) were outstanding. All shares of our Common Stock are held by GNC Corporation.

 

 

TABLE OF CONTENTS

				Page
Part I
Item 1		Business			1
Item 1A		Risk Factors			19
Item 1B		Unresolved Staff Comments			28
Item 2		Properties			29
Item 3		Legal Proceedings			31
Item 4		Submission of Matters to a Vote of Security Holders			36
Part II
Item 5		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			37
Item 6		Selected Financial Data			39
Item 7		Management’s Discussion and Analysis of Financial Condition and Results of Operation			43
Item 7A		Quantitative and Qualitative Disclosures about Market Risk			65
Item 8		Financial Statements and Supplementary Data			66
Item 9		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			128
Item 9A		Controls and Procedures			128
Item 9B		Other Information			128
Part III
Item 10		Directors and Executive Officers of the Registrant and Corporate Governance			129
Item 11		Executive Compensation			134
Item 12		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			164
Item 13		Certain Relationships and Related Transactions and Director Independence			166
Item 14		Principal Accountant Fees and Services			169
Part IV
Item 15		Exhibits, Financial Statement Schedules			170
		Signatures			176
EX-3.4
EX-10.19.1
EX-10.19.2
EX-12.1
EX-31.1
EX-31.2
EX-32.1

FORWARD LOOKING STATEMENTS

          This Form 10-K Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results of operations and business. 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. Discussions containing such forward-looking statements may be found in Items 1, 2, 3, 7 and 7A hereof, as well as within this report generally. In addition, when used in this report, the words “subject to,” “believe,” “anticipate,” “plan,” “expect,” “intend,” “estimate,” “project,” “may,” “will,” “should,” “can,” or the negative thereof, or variations thereon, or similar expressions, or discussions of strategy, are intended to identify forward-looking statements, which are inherently uncertain.

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

          Consequently, such 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.

          Industry data used throughout this report was obtained from industry publications and our internal estimates. While we believe such information to be reliable, its accuracy has not been independently verified and cannot be guaranteed.

PART I

ITEM 1.		BUSINESS.

GNC

          With our worldwide network of over 6,900 locations and our www.gnc.com website, we are the leading global specialty retailer of health and wellness products, including vitamins, minerals and herbal supplements (“VMHS”) products, sports nutrition products, and diet products. We believe that the strength of our GNC® brand, which is distinctively associated with health and wellness, combined with our stores and website, give us broad access to consumers and uniquely position us to benefit from the favorable trends driving growth in the nutritional supplements industry and the broader health and wellness sector. We derive our revenues principally from product sales through our company-owned stores, franchise activities, and sales of products manufactured in our facilities to third parties. Our broad and deep product mix, which is focused on high-margin, value-added nutritional products, is sold under our GNC proprietary brands, including Mega Men®, Ultra Mega®, WELLbeING®, Pro Performance®, Pro Performance® AMP and Preventive Nutrition®, and under nationally recognized third-party brands.

          Our domestic retail network, which is approximately nine times larger than the next largest U.S. specialty retailer of nutritional supplements, provides a leading platform for our vendors to distribute their products to their target consumer. This gives us leverage with our vendor partners and has enabled us to negotiate product exclusives and first-to-market opportunities. In addition, our in-house product development capabilities enable us to offer our customers proprietary merchandise that can only be purchased through our stores or our website. As the nutritional supplement consumer often requires knowledgeable customer service, we also differentiate ourselves from mass and drug retailers with our well-trained sales associates. We believe that our expansive retail network, our differentiated merchandise offering, and our quality customer service result in a unique shopping experience.

          Our principal executive offices are located at 300 Sixth Avenue, Pittsburgh, Pennsylvania 15222, and our telephone number is (412) 288-4600. We also maintain a website at www.gnc.com. The contents of our website are not incorporated by reference in this report and shall not be deemed “filed” under the Exchange Act.

          In this report, unless the context requires otherwise, references to “we,” “us,” “our,” “Company” or “GNC” refer to General Nutrition Centers, Inc. and its subsidiaries.

Corporate History

          We are a holding company and all of our operations are conducted through our operating subsidiaries.

          On February 8, 2007, GNC Parent Corporation, our ultimate parent company at that time, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with GNC Acquisition Inc. and its parent company, GNC Acquisition Holdings Inc. (“Holdings” or our “Parent”). On March 16, 2007, the merger (the “Merger”) was consummated. Pursuant to the Merger Agreement, as amended, GNC Acquisition Inc. was merged with and into GNC Parent Corporation, with GNC Parent Corporation as the surviving corporation. Subsequently on March 16, 2007, GNC Parent Corporation was converted into a Delaware limited liability company and renamed GNC Parent LLC.

          As a result of the Merger, GNC Acquisition Holdings Inc. became the sole equity holder of GNC Parent LLC and the ultimate parent company of both GNC Corporation, our direct parent company, and us. The outstanding capital stock of GNC Acquisition Holdings Inc. is beneficially owned by Ares Corporate Opportunities Fund II L.P. (“ACOF”), an affiliate of Ares Management LLC (“Ares”) Ontario Teachers’ Pension Plan Board (“OTPP”), certain institutional investors, certain of our directors, and certain former stockholders of GNC Parent Corporation, including members of our management. Refer to Note 1, “Nature of Business,” and Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters,” to our consolidated financial statements included in this report for additional information.

          Holdings and each of its stockholders is party to a stockholders agreement. Among other things, the stockholders agreement contains certain restrictions on transfer of shares of Holdings’ capital stock, and gives each of ACOF and OTPP the right to designate four members of Holdings’ board of directors (or, at the option of each, five members of the board of directors, one of which shall be independent) for so long as they or their respective affiliates each own at least 10% of the outstanding common stock of Holdings. For additional information, see Item 13, “Certain Relationships and Related Transactions and Director Independence- Stockholders’ Agreement.”

          GNC Parent Corporation was formed as a Delaware corporation in November 2006 to acquire all the outstanding common stock of GNC Corporation.

          General Nutrition Centers, Inc. was formed in October 2003 and GNC Corporation was formed as a Delaware corporation in November 2003 by Apollo Management V, L.P. (“Apollo”), an affiliate of Apollo Management V, L.P. and members of our management to acquire General Nutrition Companies, Inc. from Numico USA, Inc., a wholly owned subsidiary of Koninklijke (Royal) Numico N.V. (collectively, “Numico”). In December 2003, we purchased all of the outstanding equity interests of General Nutrition Companies, Inc.

          General Nutrition Companies, Inc. was founded in 1935 by David Shakarian who opened its first health food store in Pittsburgh, Pennsylvania. Since that time, the number of stores has continued to grow, and General Nutrition Companies, Inc. began producing its own vitamin and mineral supplements as well as foods, beverages, and cosmetics. General Nutrition Companies, Inc. was acquired in August 1999 by Numico Investment Corp. and, prior to its acquisition, was a publicly traded company listed on the Nasdaq National Market.

Industry Overview

          We operate within the large and growing U.S. nutritional supplements retail industry. According to Nutrition Business Journal’s Supplement Business Report 2009, our industry generated an estimated $25.2 billion in sales in 2008 and an estimated $26.6 billion in 2009, and is projected to grow at an average annual rate of approximately 4% per year through 2017. Our industry is also highly fragmented, and we believe this fragmentation provides large operators, like us, the ability to compete more effectively due to scale advantages.

          We expect several key demographic, healthcare, and lifestyle trends to drive the continued growth of our industry. These trends include:

•

Increased Focus on Healthy Living. Consumers are leading more active lifestyles and becoming increasingly focused on healthy living, nutrition, and supplementation. According to the Nutrition Business Journal’s Supplement Business Report 2009, 15% of the U.S. adult population were regular or heavy users of vitamins in 2008, up from 13% in 2007. We believe that growth in the nutritional supplements industry will continue to be driven by consumers who increasingly embrace health and wellness as a critical part of their lifestyles.

•

Aging Population. The average age of the U.S. population is increasing. U.S. Census Bureau data indicates that the number of Americans age 65 or older is expected to increase by approximately 52% from 2000 to 2015. We believe that these consumers are significantly more likely to use nutritional supplements, particularly VMHS products, than younger persons, and have higher levels of disposable income to pursue healthier lifestyles.

•

Rising Healthcare Costs and Use of Preventive Measures. We believe that current economic conditions are affecting health related choices being made by consumers. A report released by the Kaiser Family Foundation and Health Research & Education Trust in 2009 found that, since 1999, the employee contribution for a family health insurance policy had risen 128%. Additionally, according to the Nutrition Business Journal’s Supplement Business Report 2009, a report by Information Resources Inc. reports that 25% of consumers indicate that they are cutting back on doctor visits. We believe that as more people lost their jobs and ability to pay for healthcare, many turned to supplements to remain healthy and ward off expensive doctor visits and pharmaceutical drugs. We believe that these measures, along with the rising cost of health care, will motivate consumers to purchase more supplements.

          Participants in our industry include specialty retailers, supermarkets, drugstores, mass merchants, multi-level marketing organizations, mail-order companies, and a variety of other smaller participants. The nutritional supplements sold through these channels are divided into four major product categories: VMHS; sports nutrition products; diet products; and other wellness products. Most supermarkets, drugstores, and mass merchants have narrow nutritional supplement product offerings limited primarily to simple vitamins and herbs, with less knowledgeable sales associates than specialty retailers. We believe that the market share of supermarkets, drugstores, and mass merchants over the last five years has remained relatively constant.

Business Overview

          The following charts illustrate the percentage of our net revenue generated by our three business segments and the percentage of our net U.S. retail supplement revenue generated by our product categories:

          Throughout 2009, we did not have a material concentration of sales from any single product or product line.

     Retail Locations

          Our retail network represents the leading specialty retail store network in the nutritional supplements industry according to Nutrition Business Journal’s Supplement Business Report 2009. As of December 31, 2009, there were 6,917 GNC store locations globally, including:

	•		2,665 company-owned stores in the United States (all 50 states, the District of Columbia, and Puerto Rico);
	•		167 company-owned stores in Canada;
	•		909 domestic franchised stores;
	•		1,307 international franchised stores in 47 countries; and
	•		1,869 GNC franchised “store-within-a-store” locations under our strategic alliance with Rite Aid Corporation (“Rite Aid”).

          Most of our company-owned and franchised U.S. stores are between 1,000 and 2,000 square feet and are primarily located in shopping malls and strip shopping centers. We have approximately nine times the domestic store base of our nearest U.S. specialty retail competitor.

          Website. In December 2005 we started selling products through our website, www.gnc.com. This additional sales channel has enabled us to market and sell our products in regions where we have limited or no retail operations. Some of the products offered on our website may not be available at our retail locations, enabling us to broaden the assortment of products available to our customers. The ability to purchase our products through the internet also offers a convenient method for repeat customers to evaluate and purchase new and existing products. To date, we believe that most of the sales generated by our website are incremental to the revenues from our retail locations.

     Franchise Activities

          We generate income from franchise activities primarily through product sales to franchisees, royalties on franchise retail sales, and franchise fees. To assist our franchisees in the successful operation of their stores and to protect our brand image, we offer a number of services to franchisees including training, site selection, construction assistance, and accounting services. We believe that our franchise program enhances our brand awareness and market presence and will enable us to continue to expand our store base internationally with limited capital expenditures. Over the last several years, we realigned our domestic franchise system with our corporate strategies and re-acquired or closed unprofitable or non-compliant franchised stores in order to improve the financial performance of the franchise system.

     Franchised Store-Within-a-Store Locations

          To increase brand awareness and promote access to customers who may not frequent specialty nutrition stores, we entered into a strategic alliance in December 1998 with Rite Aid to open our GNC franchised store-within-a-store locations. Through this strategic alliance, we generate revenues from fees paid by Rite Aid for new store-within-a-store openings, sales to Rite Aid of our products at wholesale prices, the manufacture of Rite Aid private label products, and retail sales of certain consigned inventory. In 2007, we extended our alliance with Rite Aid through 2014 with a five year option. At December 31, 2009, Rite Aid had opened 698 of an additional 1,125 stores that Rite Aid committed to open by December 31, 2014.

     Marketing

          We market our proprietary brands of nutritional products through an integrated marketing program that includes television, print, and radio media, storefront graphics, direct mailings to members of our Gold Card loyalty program, and point of purchase promotional materials.

     Manufacturing and Distribution

          With our technologically sophisticated manufacturing and distribution facilities supporting our retail stores, we are a vertically integrated producer and supplier of high-quality nutritional supplements. By controlling the production and distribution of our proprietary products, we can protect product quality, monitor delivery times, and maintain appropriate inventory levels.

Products

          We offer a wide range of high-quality nutritional supplements sold under our GNC proprietary brand names, including Mega Men, Ultra Mega, WELLbeING, Pro Performance, Pro Performance AMP and Preventive Nutrition, and under nationally recognized third-party brand names. We report our sales in four major nutritional supplement categories: VMHS; sports nutrition; diet; and other wellness. We offer an extensive mix of brands and products, including over 1,800 active SKUs across multiple categories. This variety is designed to provide our customers with a vast selection of products to fit their specific needs. Sales of our proprietary brands at our company-owned stores represented approximately 56% of our net retail product revenues for 2009, 51% for 2008, and 48% for 2007.

          Consumers may purchase a GNC Gold Card in any U.S. GNC store or at www.gnc.com for $15.00. A Gold Card allows a consumer to save 20% on all store and on-line purchases on the day the card is purchased and during the first seven days of every month for a year. Gold Card members also receive personalized mailings and e-mails with product news, nutritional information, and exclusive offers.

          Products are delivered to our retail stores through our distribution centers located in Leetsdale, Pennsylvania; Anderson, South Carolina; and Phoenix, Arizona. Our distribution centers support our company-owned stores as well as franchised stores and Rite Aid locations. Our distribution fleet delivers our finished goods and third-party products through our distribution centers to our company-owned and domestic franchised stores on a weekly or biweekly basis depending on the sales volume of the store. Each of our distribution centers has a quality control department that monitors products received from our vendors to ensure they meet our quality standards.

          Based on data collected from our point-of-sale systems, excluding certain required accounting adjustments of $5.7 million for 2009, $4.7 million for 2008, $5.0 million for the period from March 16 to December 31, 2007, and $(0.6) million for the period from January 1 to March 15, 2007, below is a comparison of our company-owned domestic store retail product sales by major product category and the percentages of our company-owned domestic store retail product sales for the periods shown:

		Successor																Combined
		Year ended December 31,
U.S Retail Product Categories:		2009								2008								2007
										(dollars in millions)
VMHS Products		$	496.4				42.7	%		$	465.2				41.3	%		$	441.2				40.7	%
Sports Nutrition Products			443.4				38.2	%			410.1				36.4	%			387.0				35.7	%
Diet Products			128.0				11.0	%			148.2				13.2	%			156.7				14.6	%
Other Wellness Products			94.3				8.1	%			102.0				9.1	%			98.0				9.0	%
Total U.S. Retail revenues		$	1,162.1				100.0	%		$	1,125.5				100.0	%		$	1,082.9				100.0	%

          The data above represents the majority of the revenue reported for the domestic portion of our retail segment. In addition to these sales, additional revenue and revenue adjustments are recorded to ensure conformity with GAAP. This includes wholesale sales revenue (to our military commissary locations), deferral of our Gold Card revenue to match the twelve month discount period of the card, and a reserve for customer returns. These items are recurring in nature, and we expect to record similar adjustments in the future.

     VMHS

          We sell vitamins and minerals in single vitamin and multi-vitamin form and in different potency levels. Our vitamin and mineral products are available in liquid, tablets, soft gelatin, and hard-shell capsules and powder forms, and are available in traditional bottle packaging form or in customized daily packet form (“Vitapak”). Many of our special vitamin and mineral formulations, such as Mega Men, Ultra Mega and WELLbeING are available only at GNC locations and on www.gnc.com. In addition to our selection of VMHS products with unique formulations, we also offer the full range of standard “alphabet”

vitamins. We sell herbal supplements in various solid dosage and soft gelatin capsules, tea, and liquid forms. We have consolidated our traditional herbal offerings under a single umbrella brand, Herbal Plus^®. In addition to the Herbal Plus line, we offer a full line of whole food-based supplements and top selling herb and natural remedy products.

          We also offer a variety of specialty products in our GNC and Preventive Nutrition product lines. These products emphasize third-party research and literature regarding the positive benefits from certain ingredients. These offerings include products designed to provide nutritional support to specific areas of the body, such as joints, the heart and blood vessels, and the digestive system.

     Sports Nutrition Products

          Sports nutrition products are designed to be taken in conjunction with an exercise and fitness regimen. We typically offer a broad selection of sports nutrition products, such as protein and weight gain powders, sports drinks, sports bars, and high potency vitamin formulations, including GNC brands such as Pro Performance, Pro Performance AMP and popular third-party products.

     Diet Products

          Diet products consist of various formulas designed to supplement the diet and exercise plans of weight conscious consumers. We typically offer a variety of diet products, including pills, meal replacements, shakes, diet bars, and teas. Our retail stores offer our proprietary and third-party products suitable for different diet and weight management approaches, including low-carbohydrate diets, and products designed to increase thermogenesis (a change in the body’s metabolic rate measured in terms of calories) and metabolism.

     Other Wellness Products

          Other wellness products is a comprehensive category that consists of sales of our Gold Card preferred membership and sales of other nonsupplement products, including cosmetics, food items, health management products, books, and DVD’s.

     Product Development

          We strongly believe that introduction of innovative, high quality, clinically proven, superior performing products is a key driver to the business. Customers widely credit us as being leaders in health products and rate the availability of a wide variety of products as one of our biggest strengths. We identify shifting consumer trends through market research and through interactions with our customers and leading industry vendors to assist in the development, manufacturing and marketing of our new products. Our dedicated Innovation team independently drives the development of proprietary products by collaborating with vendors to provide raw materials and clinical and product development support for proprietary GNC branded products. We also work with our vendors to ensure a steady flow of preferred products that are made available exclusively to our channel for a period of time. During 2009, we targeted our product development efforts on specialty vitamins, women’s nutrition, sports nutrition and condition specific products, resulting in the introduction of the WELLbeING and AMP lines.

     Research and Development

          We have an internal research and development group that performs scientific research on potential new products and enhancements to existing products, in part to assist our product development team in creating new products, and in part to support claims that may be made as to the purpose and function of the product. See Note 2, “Basis of Presentation and Summary of Significant Accounting Policies,” to our consolidated financial statements included in this report.

Business Segments

          We generate revenues from our three business segments, Retail, Franchise, and Manufacturing/Wholesale. The following chart outlines our business segments and the historical contribution to our consolidated revenues by those segments, after intercompany eliminations. For a description of operating income (loss) by business segment, our total assets by business segment, total revenues by geographic area, and total assets by geographic area, see Note 19, “Segments,” to our consolidated financial statements included in this report.

		Successor																Combined
						Year ended December 31,
		2009								2008								2007
										(dollars in millions)
Retail		$	1,256.3				73.6	%		$	1,219.3				73.6	%		$	1,168.6				75.3	%
Franchise			264.2				15.5	%			258.0				15.6	%			241.1				15.5	%
Manufacturing/Wholesale (Third Party)			186.5				10.9	%			179.4				10.8	%			143.1				9.2	%
Total		$	1,707.0				100.0	%		$	1,656.7				100.0	%		$	1,552.8				100.0	%

Retail

          Our Retail segment generates revenues primarily from sales of products to customers at our company-owned stores in the United States and Canada, and in the United States through our website, www.gnc.com.

     Locations

          As of December 31, 2009, we operated 2,832 company-owned stores across all 50 states and in Canada, Puerto Rico, and Washington, D.C. Most of our U.S. company-owned stores are between 1,000 and 2,000 square feet and are located primarily in shopping malls and strip shopping centers. Traditional shopping mall and strip shopping center locations typically generate a large percentage of our total retail sales. With the exception of our downtown stores, virtually all of our company-owned stores follow one of two consistent formats, one for mall locations and one for strip shopping center locations. Our store graphics are periodically redesigned to better identify with our GNC customers and provide product information to allow the consumer to make educated decisions regarding product purchases and usage. Our product labeling is consistent within our product lines and the stores are designed to present a unified approach to packaging with emphasis on added information for the consumer. As an ongoing practice, we continue to reset and upgrade all of our company-owned stores to maintain a more modern and customer-friendly layout, while promoting our GNC Live Well theme.

Franchise

          Our Franchise segment is comprised of our domestic and international franchise operations. Our Franchise segment generates revenues from franchise activities primarily through product sales to franchisees, royalties on franchise retail sales, and franchise fees.

          As a means of enhancing our operating performance and building our store base, we began opening franchised locations in 1988. As of December 31, 2009, there were 2,216 franchised stores operating, including 909 stores in the United States and 1,307 international franchised stores operating in 47 countries. Approximately 89% of our franchised stores in the United States are in strip shopping centers and are typically between 1,000 and 2,000 square feet. The international franchised stores are typically smaller and, depending upon the country and cultural preferences, are located in mall, strip center, street, or store-within-a-store locations. In addition, some international franchisees sell on the internet in their respective countries. Typically, our international stores have a store format and signage similar to our U.S. franchised stores. To assist our franchisees in the successful operation of their stores and to protect our brand image, we offer site selection, construction assistance,

accounting services, and a three-part training program, which consists of classroom instruction and training in a company-owned location, both of which occur prior to the franchised store opening, and actual on-site training during the first week of operations of the franchised store. We believe we have good relationships with our franchisees, as evidenced by our franchisee renewal rate of 93% between 2004 and 2009. We do not rely heavily on any single franchise operator in the United States, since the largest franchisee owns and/or operates 13 store locations.

          All of our franchised stores in the United States offer both our proprietary products and third-party products, with a product selection similar to that of our company-owned stores. Our international franchised stores are offered a more limited product selection than our franchised stores in the United States with the product selection heavily weighted toward proprietary products. Products are distributed to our franchised stores in the United States through our distribution centers and transportation fleet in the same manner as our company-owned stores. Products distributed to our international franchised stores are delivered to the franchisee’s freight forwarder at the U.S. port of deportation, at which point our responsibility for the delivery of the products ends.

          Franchises in the United States

          Revenues from our franchisees in the United States accounted for approximately 68% of our total franchise revenues for the year ended December 31, 2009. In 2009, new franchisees in the United States were required to pay an initial fee of $40,000 for a franchise license. Existing GNC franchise operators may purchase an additional franchise license for a $30,000 fee. We typically offer limited financing to qualified franchisees in the United States for terms up to five years. Once a store begins operations, franchisees are required to pay us a continuing royalty of 6% of sales and contribute 3% of sales to a national advertising fund. Our standard franchise agreements for the United States are effective for a ten-year period with two five-year renewal options. At the end of the initial term and each of the renewal periods, the renewal fee is generally 33% of the franchisee fee that is then in effect. The franchisee renewal option is at our election for all franchise agreements executed after December 1995. Franchisees must meet certain conditions in order to exercise the franchisee renewal option. Our franchisees in the United States receive limited geographical exclusivity and are required to follow the GNC store format.

          Franchisees must meet certain minimum standards and duties prescribed by our franchise operations manual and we conduct periodic field visit reports to ensure our minimum standards are maintained. Generally, we enter into a five-year lease with one five-year renewal option with landlords for our franchised locations in the United States. This allows us to secure space at cost-effective rates, which we sublease to our franchisees at cost. By subleasing to our franchisees, we have greater control over the location and have greater bargaining power for lease negotiations than an individual franchisee typically would have. In addition, we can elect not to renew subleases for underperforming locations. If a franchisee does not meet specified performance and appearance criteria, the franchise agreement outlines the procedures under which we are permitted to terminate the franchise agreement. In these situations, we may take possession of the location, inventory, and equipment, and operate the store as a company-owned store or re-franchise the location. The offering and sale of our franchises in the United States are regulated by the FTC and various state authorities. See Item 1, “—Government Regulation—Franchise Regulation.”

          International Franchises

          Revenues from our international franchisees accounted for approximately 32% of our total franchise revenues for the year ended December 31, 2009. In 2009, new international franchisees were required to pay an initial fee of approximately $25,000 for a franchise license for each full size store and average continuing royalty fees of approximately 5% of retail sales, with fees and royalties varying depending on the country and the store type. Our franchise program has enabled us to expand into international markets with limited capital expenditures. We expanded our international presence from 746 international franchised locations at the end of 2004 to 1,307 international locations as of December 31, 2009 without incurring any capital expenditures related to

this expansion. We typically generate less revenue from franchises outside the United States due to lower international royalty rates and the franchisees purchasing a smaller percentage of products from us compared to our domestic franchisees.

          Franchisees in international locations enter into development agreements with us for either full-size stores, a store-within-a-store at a host location, wholesale distribution center operations or internet distribution rights. The development agreement grants the franchisee the right to develop a specific number of stores in a territory, often the entire country. The international franchisee then enters into a franchise agreement for each location. The full-size store franchise agreement has an initial ten-year term with two five-year renewal options. At the end of the initial term and renewal periods, the international franchisee has the option to renew the agreement at 33% of the franchise fee that is then in effect. Franchise agreements for international store-within-a-store locations have an initial term of five years, with two five-year renewal options. At the end of the initial term and each of the renewal periods, the international franchisee of a store-within-a-store location has the option to renew the agreement for up to a maximum of 50% of the franchise fee that is then in effect. Our international franchisees often receive exclusive franchising rights to the entire country franchised, excluding U.S. military bases. Our international franchisees must meet minimum standards and duties similar to our U.S. franchisees. Our international franchise agreements and international operations may be regulated by various country, local and international laws. See Item 1, “—Government Regulation—Franchise Regulation.”

Manufacturing/Wholesale

          Our Manufacturing/Wholesale segment is comprised of our manufacturing operations in South Carolina and our wholesale sales business. This segment supplies our Retail and Franchise segments as well as various third parties with finished products. Our Manufacturing/Wholesale segment generates revenues through sales of manufactured products to third parties, and the sale of our proprietary and third-party brand products to Rite Aid and www.drugstore.com. Our wholesale operations, including our Rite Aid and www.drugstore.com wholesale operations, are supported primarily by our Anderson, South Carolina distribution center.

          Manufacturing

          Our technologically sophisticated manufacturing and warehousing facilities support our Retail and Franchise segments and enable us to control the production and distribution of our proprietary products, better control costs, protect product quality, monitor delivery times, and maintain appropriate inventory levels. We operate two manufacturing facilities, one in Greenville, South Carolina and one in Anderson, South Carolina. We utilize our plants primarily for the production of proprietary products. Our manufacturing operations are designed to allow low-cost production of a variety of products of different quantities, sizes, and packaging configurations while maintaining strict levels of quality control. Our manufacturing procedures are designed to promote consistency and quality in our finished goods. We conduct sample testing on raw materials and finished products, including weight, purity, and micro-bacterial testing. Our manufacturing facilities also service our wholesale operations, including the manufacture and supply of Rite Aid private label products for distribution to Rite Aid locations. We use our available capacity at these facilities to produce products for sale to third-party customers.

          The principal raw materials used in the manufacturing process are natural and synthetic vitamins, herbs, minerals, and gelatin. We maintain multiple sources for the majority of our raw materials, with the remaining being single-sourced due to the uniqueness of the material. During 2009, no one vendor supplied more than 10% of our raw materials. Our distribution fleet delivers raw materials and components to our manufacturing facilities and also delivers our finished goods and third-party products to our distribution centers.

          Wholesale

                    Franchised Store-Within-a-Store Locations

          To increase brand awareness and promote access to customers who may not frequent specialty nutrition stores, we entered into a strategic alliance with Rite Aid to open GNC franchised store-within-a-store locations. As of December 31, 2009, we had 1,869 store-within-a-store locations. Through this strategic alliance, we generate revenues from sales to Rite Aid of our products at wholesale prices, the manufacture of Rite Aid private label products, retail sales of certain consigned inventory and license fees. We are Rite Aid’s sole supplier for the PharmAssure vitamin brand and a number of Rite Aid private label supplements. In 2007, we extended our alliance with Rite Aid through 2014 with a five year option. At December 31, 2009, Rite Aid had opened 698 of an additional 1,125 stores that Rite Aid has committed to open by December 31, 2014.

                    Distribution Agreement with drugstore.com

          We are in the process of negotiating a three-year extension to our current internet distribution agreement with drugstore.com, inc. which was renewed through June 2010. Through this strategic alliance, www.drugstore.com was the exclusive internet retailer of our proprietary products, the PharmAssure vitamin brand, and certain other nutritional supplements until June 2005, when this exclusive relationship terminated. This continued alliance allows us to access a larger base of customers, who may not otherwise live close to, or have the time to visit, a GNC store and provides an internet distribution channel in addition to www.gnc.com. We generate revenues from the distribution agreement with drugstore.com, inc. through sales of third-party products on a wholesale basis and through retail sales of our proprietary products on a consignment basis.

Employees

          As of December 31, 2009, we had a total of 5,271 full-time and 7,522 part-time employees, of whom approximately 10,166 were employed in the domestic portion of our Retail segment; 40 were employed in our Franchise segment; 1,371 were employed in our Manufacturing/Wholesale segment; 507 were employed in corporate support functions; and 709 were employed in Canada. None of our employees belongs to a union or is a party to any collective bargaining or similar agreement. We consider our relationships with our employees to be good.

Competition

          The U.S. nutritional supplements retail industry is a large, highly fragmented, and growing industry, with no single industry participant accounting for a majority of total industry retail sales. Competition is based primarily on price, quality, and assortment of products, customer service, marketing support, and availability of new products. In addition, the market is highly sensitive to the introduction of new products.

          We compete with publicly owned and privately owned companies, which are highly fragmented in terms of geographical market coverage and product categories. We compete with other specialty retailers, supermarkets, drugstores, mass merchants, multi-level marketing organizations, mail-order companies, other internet sites, and a variety of other smaller participants. We believe that the market is 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, many of our competitors have heavily advertised national brands manufactured by large pharmaceutical and food companies and other retailers. Most supermarkets, drugstores, and mass merchants have narrow product offerings limited primarily to simple vitamins and herbs and popular third-party diet products. Our international competitors also include large international pharmacy chains and major international supermarket chains as well as other large U.S.-based companies with international operations. Our wholesale and manufacturing operations also compete with other wholesalers and manufacturers of third-party nutritional supplements.

Trademarks and Other Intellectual Property

          We believe trademark protection is particularly important to the maintenance of the recognized brand names under which we market our products. We own or have rights to material trademarks or trade names that we use in conjunction with the sale of our products, including the GNC brand name. We also rely upon trade secrets, know-how, continuing technological innovations, and licensing opportunities to develop and maintain our competitive position. We protect our intellectual property rights through a variety of methods, including trademark, patent, and trade secret laws, as well as confidentiality agreements and proprietary information agreements with vendors, employees, consultants, and others who have access to our proprietary information. Protection of our intellectual property often affords us the opportunity to enhance our position in the marketplace by precluding our competitors from using or otherwise exploiting our technology and brands. We are also a party to several intellectual property license agreements relating to certain of our products. For example, we are a party to license agreements entered into in connection with the Numico acquisition pursuant to which we license certain patent rights to Numico and Numico licenses to us specific patent rights and proprietary information. These license agreements generally continue until the expiration of the licensed patent, if applicable, or we elect to terminate the agreement, or upon the mutual consent of the parties. The patents we own generally have a term of 20 years from their filing date, although none of our owned or licensed patents are currently associated with a material portion of our business. The duration of our trademark registrations is generally 10, 15, or 20 years, depending on the country in which the marks are registered, and the registrations can be renewed by us. The scope and duration of our intellectual property protection varies throughout the world by jurisdiction and by individual product.

Insurance and Risk Management

          We purchase insurance to cover standard risks in the nutritional supplements industry, including policies to cover general products liability, workers’ compensation, auto liability, and other casualty and property risks. Our insurance rates are dependent upon our safety record as well as trends in the insurance industry. We also maintain workers’ compensation insurance and auto insurance policies that are retrospective in that the cost per year will vary depending on the frequency and severity of claims in the policy year. We currently maintain product liability insurance and general liability insurance.

          We face an inherent risk of exposure to product liability claims in the event that, among other things, the use of products sold by GNC results in injury. With respect to product liability coverage, we carry insurance coverage typical of our industry and product lines. Our coverage involves self-insured retentions with primary and excess liability coverage above the retention amount. We have the ability to refer claims to most of our vendors and their insurers to pay the costs associated with any claims arising from such vendors’ products. In many cases, our insurance covers such claims that are not adequately covered by a vendor’s insurance and provides for excess secondary coverage above the limits provided by our product vendors.

          We self-insure certain property and casualty risks based on our analysis of the risk, the frequency and severity of a loss, and the cost of insurance for the risk. We believe that the amount of self-insurance is not significant and will not have an adverse impact on our performance. In addition, we may from time to time self-insure liability with respect to specific ingredients in products that we may sell.

Government Regulation

     Product Regulation

          Domestic

          The processing, formulation, manufacturing, packaging, labeling, advertising, and distribution of our products are subject to regulation by one or more federal agencies, including the Food and Drug Administration (the “FDA”), the Federal Trade Commission (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 agencies of the states and localities in which our products are sold. Pursuant to the Federal Food, Drug, and Cosmetic Act (“FDCA”), the FDA regulates the formulation, safety, manufacture, packaging, labeling, and distribution of dietary supplements (including vitamins, minerals, and herbs), and over-the-counter drugs. The FTC has jurisdiction to regulate the advertising of these products.

          The FDCA has been amended several times with respect to dietary supplements. The Dietary Supplement Health and Education Act of 1994 (“DSHEA”) established a new framework governing the composition, safety, labeling and marketing of dietary supplements. “Dietary supplements” are defined as vitamins, minerals, herbs, other botanicals, amino acids, and other dietary substances for human use to supplement the diet, as well as concentrates, metabolites, constituents, extracts, or combinations of such dietary ingredients. Generally, under DSHEA, dietary ingredients that were marketed in the United States prior to October 15, 1994 may be used in dietary supplements without notifying the FDA. “New” dietary ingredients (i.e., dietary ingredients that were “not marketed in the United States before October 15, 1994”) must be the subject of a new dietary ingredient notification submitted to the FDA unless the ingredient has been “present in the food supply as an article used for food” without being “chemically altered.” A new dietary ingredient notification must provide the FDA evidence of a “history of use or other evidence of safety” establishing that use of the dietary ingredient “will reasonably be expected to be safe.” A new dietary ingredient notification must be submitted to the FDA at least 75 days before the initial marketing of the new dietary ingredient. The FDA may determine that a new dietary ingredient notification does not provide an adequate basis to conclude that a dietary ingredient is reasonably expected to be safe. Such a determination could prevent the marketing of such dietary ingredient. The FDA has announced that it plans to issue a guidance governing notification of new dietary ingredients. While it is not mandatory to comply with FDA guidance, it is a strong indication of the FDA’s current views on the topic of the guidance, including its position on enforcement. Depending upon the recommendations made in the guidance, particularly those relating to animal or human testing, such guidance could make it more difficult for us to successfully provide notification of new dietary ingredients.

          The FDA issued a consumer warning in 1996, followed by proposed regulations in 1997, covering dietary supplements that contain ephedrine alkaloids, which are obtained from the botanical species ephedra and are commonly referred to as ephedra. In February 2003, the Department of Health and Human Services announced a series of actions that the Department of Health and Human Services and the FDA planned to execute with respect to products containing ephedra, including the solicitation of evidence regarding the significant or unreasonable risk of illness or injury from dietary supplements containing ephedra and the immediate execution of a series of actions against ephedra products making unsubstantiated claims about sports performance enhancement. In addition, many states proposed regulations and three states enacted laws restricting the promotion and distribution of ephedra-containing dietary supplements. The botanical ingredient ephedra was formerly used in several third-party and private label dietary supplement products. In January 2003, we began focusing our diet category on products that would replace ephedra products. In early 2003, we instructed all of our locations to stop selling products containing ephedra that were manufactured by GNC or one of our affiliates. Subsequently, we instructed all of our locations to stop selling any products containing ephedra by June 30, 2003. Sales of products containing ephedra amounted to approximately $35.2 million or 3.3% of our retail sales in 2003 and $182.9 million, or 17.1% of our retail sales in 2002. In February 2004, the FDA issued a final regulation declaring dietary supplements containing ephedra illegal under the FDCA because they present an unreasonable risk of illness or injury under the conditions of use recommended

or suggested in labeling, or if no conditions of use are suggested or recommended in labeling, under ordinary conditions of use. The rule took effect April 12, 2004 and banned the sale of dietary supplement products containing ephedra. Similarly, the FDA issued a consumer advisory in 2002 with respect to dietary supplements that contain the ingredient Kava Kava, and the FDA is currently investigating adverse effects associated with ingestion of this ingredient. One of our then existing subsidiaries, Nutra Manufacturing, Inc., manufactured products containing Kava Kava from December 1995 until August 2002. All stores were instructed to stop selling products containing Kava Kava in December 2002. The FDA could take similar actions against other products or product ingredients that in its determination present an unreasonable health risk to consumers.

          DSHEA permits “statements of nutritional support” to be included in labeling for dietary supplements without FDA pre-market approval. Such statements must be submitted to the FDA within 30 days of marketing, and dietary supplements bearing such claims must include the following label disclosure: “This statement has not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure, or prevent any disease.” Such statements may describe how a particular dietary ingredient affects the structure, function, or general well-being of the body, or the mechanism of action by which a dietary ingredient may affect body structure, function, or well-being, but may not expressly or implicitly represent that a dietary supplement will diagnose, cure, mitigate, treat, or prevent a disease. A company that uses a statement of nutritional support in labeling must possess scientific evidence substantiating that the statement is truthful and not misleading. If the FDA determines that a particular statement of nutritional support is an unacceptable drug claim or an unauthorized version of a “health claim,” or, if the FDA determines that a particular claim is not adequately supported by existing scientific data or is false or misleading, we would be prevented from using the claim.

          In addition, DSHEA provides that so-called “third-party literature,” e.g., a reprint of a peer-reviewed scientific publication linking a particular dietary ingredient with health benefits, may be used “in connection with the sale of a dietary supplement to consumers” without the literature being subject to regulation as labeling. The literature: (1) must not be false or misleading; (2) may not “promote” a particular manufacturer or brand of dietary supplement; (3) must present a balanced view of the available scientific information on the subject matter; (4) if displayed in an establishment, must be physically separate from the dietary supplements; and (5) should not have appended to it any information by sticker or any other method. If the literature fails to satisfy each of these requirements, we may be prevented from disseminating such literature with our products, and any dissemination could subject our product to regulatory action as an illegal drug.

          On June 22, 2007, the FDA issued a final rule establishing regulations to require good manufacturing practices (“GMPs”) for dietary supplements. The regulations establish the GMPs to ensure quality throughout the manufacturing, packaging, labeling, and storing of dietary supplements. The final rule includes requirements for establishing quality control procedures, designing and constructing manufacturing plants, testing ingredients and the finished product, recordkeeping, and handling consumer product complaints. As a companion document, the FDA also issued an interim final rule that outlines a petition process for manufacturers to request an exemption to the GMPs requirements for 100 percent identity testing of specific dietary ingredients used in the processing of dietary supplements. Under the interim final rule, the manufacturer may be exempted from the dietary ingredient identity testing requirement if it can provide sufficient documentation that the reduced frequency of testing requested would still ensure the identity of the dietary ingredient. Companies with more than 500 employees had until June 2008 to comply with the new regulations, companies with less than 500 employees had until June 2009 to comply, and companies with fewer than 20 employees have until June 2010 to comply. Our third-party suppliers or vendors who are not already compliant may not be able to comply with the new rules without incurring substantial additional expenses. In addition, if our third-party suppliers or vendors are not able to timely comply with the new rules, we may experience increased costs or delays in obtaining certain raw materials and third-party products.

          In December 2006, Congress passed the Dietary Supplement and Nonprescription Consumer Protection Act (S3546) (the “Act”). The Act, which became effective in December 2007, mandates reporting of “serious adverse events” associated with dietary supplements and over-the-counter drugs to FDA by a manufacturer, packer, or distributor whose name appears on the label of the product. Records must be maintained of all adverse events for six years after receipt. The Act also makes it illegal to submit a false report to the FDA.

          The FDA has broad authority to enforce the provisions of the FDCA applicable to dietary supplements, including powers to issue a public warning or notice of violation letter to a company, publicize information about illegal products, detain products intended for import, request a recall of illegal products from the market, and request the Department of Justice to initiate a seizure action, an injunction action, or a criminal prosecution in the U.S. courts. The regulation of dietary supplements may increase or become more restrictive in the future.

          Legislation may be introduced which, if passed, would impose substantial new regulatory requirements on dietary supplements. Although not yet reintroduced in this session of Congress, bills have been repeatedly proposed in past sessions of Congress which would subject the dietary ingredient dehydroepiandrosterone (“DHEA”) to the requirements of the Controlled Substances Act, which would prevent our ability to sell products containing DHEA. In October 2004, legislation was passed subjecting specified substances formerly used in some dietary supplements, such as androstenedione or “andro,” to the requirements of the Controlled Substances Act. Under the 2004 law, these substances can no longer be sold as dietary supplements. Also, in March 2009, the General Accounting Office (the “GAO”) issued a report that made four recommendations to enhance the FDA’s oversight of dietary supplements. The GAO recommended that the Secretary of the Department of Health and Human Services direct the Commissioner of the FDA to: (1) request authority to require dietary supplement companies to identify themselves as a dietary supplement company as part of the existing registration requirements and update this information annually, provide a list of all dietary supplement products they sell and a copy of the labels and update this information annually, and report all adverse events related to dietary supplements; (2) issue guidance to clarify when an ingredient is considered a new dietary ingredient, the evidence needed to document the safety of new dietary ingredients, and appropriate methods for establishing ingredient identity; (3) provide guidance to industry to clarify when products should be marketed as either dietary supplements or conventional foods formulated with added dietary ingredients; and (4) coordinate with stakeholder groups involved in consumer outreach to identify additional mechanisms for educating consumers about the safety, efficacy, and labeling of dietary supplements, implement these mechanisms, and assess their effectiveness. These recommendations could lead to increased regulation by the FDA or future legislation concerning dietary supplements.

          The Dietary Supplement Safety Act (S 3002) was introduced in February 2010. The bill would repeal a provision of DSHEA that permits the sale of all dietary ingredients sold in dietary supplements marketed in the United States prior to October 15, 1994, and instead permit the sale of only those dietary ingredients included on a list of Accepted Dietary Ingredients to be issued and maintained by the FDA. The bill also would allow the FDA to: impose a fine of twice the gross profits earned by a distributor on sales of any dietary supplement found to violate the law; require a distributor to submit a yearly report on all non-serious Adverse Event Reports (“AERs”) received during the year to the FDA; and allow the FDA to recall any dietary supplement it determines with “a reasonable probability” would cause serious adverse health consequences or is adulterated or misbranded. The bill also would require any dietary supplement distributor to register with the FDA and submit a list of the ingredients in and copies of the labels of its dietary supplements to the FDA and thereafter update such disclosures yearly and submit any new dietary supplement product labels to the FDA before marketing any dietary supplement product. If this bill becomes law, it could severely restrict the number of dietary supplements available for sale and increase our costs and potential penalties associated with selling dietary supplements.

          The FTC exercises jurisdiction over the advertising of dietary supplements and over-the-counter drugs. In recent years, the FTC has instituted numerous enforcement actions against dietary supplement companies for failure to have adequate substantiation for claims made in advertising or for the use of false or misleading advertising claims. We continue to be subject to three consent orders issued by the FTC. In 1984, the FTC instituted an investigation of General Nutrition, Incorporated,

one of our then existing subsidiaries, alleging deceptive acts and practices in connection with the advertising and marketing of certain of its products. General Nutrition, Incorporated accepted a proposed consent order which was finalized in 1989, under which it agreed to refrain from, among other things, making certain claims with respect to certain of its products unless the claims are based on and substantiated by reliable and competent scientific evidence, and paid an aggregate of $0.6 million to the American Diabetes Association, Inc., the American Cancer Society, Inc., and the American Heart Association for the support of research in the fields of nutrition, obesity, or physical fitness. We also entered into a consent order in 1970 with the FTC, which generally addressed “iron deficiency anemia” type products. As a result of routine monitoring by the FTC, disputes arose concerning its compliance with these orders and with regard to advertising for certain hair care products. While we believe that General Nutrition, Incorporated, at all times, operated in material compliance with the orders, it entered into a settlement in 1994 with the FTC to avoid protracted litigation. As a part of this settlement, General Nutrition, Incorporated entered into a consent decree and paid, without admitting liability, a civil penalty in the amount of $2.4 million and agreed to adhere to the terms of the 1970 and 1989 consent orders and to abide by the provisions of the settlement document concerning hair care products. We do not believe that future compliance with the outstanding consent decrees will materially affect our business operations. In 2000, the FTC amended the 1970 order to clarify language in it that was believed to be ambiguous and outmoded.

          The FTC continues to monitor our advertising and, from time to time, requests substantiation with respect to such advertising to assess compliance with the various outstanding consent decrees and with the Federal Trade Commission Act. Our policy is to use advertising that complies with the consent decrees and applicable regulations. We review all products brought into our distribution centers to assure that such products and their labels comply with the consent decrees. We also review the use of third-party point of purchase materials such as store signs and promotional brochures. Nevertheless, there can be no assurance that inadvertent failures to comply with the consent decrees and applicable regulations will not occur. Some of the products sold by franchised stores are purchased by franchisees directly from other vendors and these products do not flow through our distribution centers. Although franchise contracts contain strict requirements for store operations, including compliance with federal, state, and local laws and regulations, we cannot exercise the same degree of control over franchisees as we do over our company-owned stores. As a result of our efforts to comply with applicable statutes and regulations, we have from time to time reformulated, eliminated, or relabeled certain of our products and revised certain provisions of our sales and marketing program. We believe we are in material compliance with the various consent decrees and with applicable federal, state, and local rules and regulations concerning our products and marketing program. Compliance with the provisions of national, state, and local environmental laws and regulations has not had a material effect upon our capital expenditures, earnings, financial position, liquidity, or competitive position.

          Foreign

          Our products sold in foreign countries are also subject to regulation under various national, local, and international laws that include provisions governing, among other things, the formulation, manufacturing, packaging, labeling, advertising, and distribution of dietary supplements and over-the-counter drugs. Government regulations in foreign countries may prevent or delay the introduction, or require the reformulation, of certain of our products.

     New Legislation or Regulation

          We cannot determine what effect additional domestic or international governmental legislation, regulations, or administrative orders, when and if promulgated, would have on our business in the future. New legislation or regulations may require the reformulation of certain products to meet new standards, require the recall or discontinuance of certain products not capable of reformulation, impose additional record keeping, or require expanded documentation of the properties of certain products, expanded or different labeling, or scientific substantiation.

     Franchise Regulation

          We must comply with regulations adopted by the FTC and with several state laws that regulate the offer and sale of franchises. The FTC’s Trade Regulation Rule on Franchising and certain state laws require that we furnish prospective franchisees with a franchise offering circular containing information prescribed by the Trade Regulation Rule on Franchising and applicable state laws and regulations.

          We also must comply with a number of state laws that regulate some substantive aspects of the franchisor-franchisee relationship. These laws may limit a franchisor’s business practices in a number of ways, including limiting the ability to:

	•		terminate or not renew a franchise without good cause;
	•		interfere with the right of free association among franchisees;
	•		disapprove the transfer of a franchise;
	•		discriminate among franchisees with regard to franchise terms and charges, royalties, and other fees; and
	•		place new stores near existing franchises.

          To date, these laws have not precluded us from seeking franchisees in any given area and have not had a material adverse effect on our operations. Bills intended to regulate certain aspects of franchise relationships have been introduced into Congress on several occasions during the last decade, but none have been enacted. Revisions to the FTC rule have also been proposed by the FTC and currently are in the comment stage of the rulemaking process.

          Our international franchise agreements and franchise operations are regulated by various foreign laws, rules, and regulations. To date, these laws have not precluded us from seeking franchisees in any given area and have not had a material adverse effect on our operations.

     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 sufficiently identified. We are 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 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 a prolonged weakness in 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 prolonged 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 price 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. 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 Item 1, “Business — Government Regulation — Product Regulation” 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. For example, the Dietary Supplement Safety Act (S3002) was introduced in February 2010 and contains many restrictive provisions on the sale of dietary supplements, including, but not limited to, provisions that limit the dietary ingredients acceptable for use in dietary supplements, increased fines for violations of DSHEA, and increased registration and reporting requirements with the FDA. If enacted, this bill could severely restrict the number of dietary supplements available for sale and increase our costs and potential penalties associated with selling dietary supplements.

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 in the past to pay civil penalties and other amounts in the aggregate amount of $3.0 million. See Item 1, “Business — Government Regulation — Product Regulation” for more 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 from the insurer or any third party in respect of any claims against us in connection with products manufactured by such party, we could seek recovery directly from such party.

          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 January 25, 2010, we have been named as a defendant in twenty pending cases involving the sale of Hydroxycut diet products, including six putative class action cases and eight personal injury cases. See Item 3, “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. (“Iovate”), 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 December 31, 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 sales in the second half of 2009 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 sales decline.

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 35% and 34% of the products we sold for years ended December 31, 2009 and 2008, respectively. Other than powders and liquids, nearly all of our proprietary products are produced in our manufacturing facility located in Greenville, South Carolina. During 2009, no one vendor supplied more than 10% of our raw materials. In the event any of our third-party suppliers or vendors becomes 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 both December 31, 2009 and December 31, 2008, approximately 32% of our retail locations were operated by franchisees. Our franchise operations generated approximately 15.5% and 15.6% of our revenues for the years ended December 31, 2009 and 2008, respectively. 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 ended December 31, 2009, a net 45 domestic franchise stores were closed. The closing of 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 December 31, 2009, Rite Aid operated 1,869 GNC franchised “store-within-a-store” locations and has committed to open additional franchised “store-within-a-store” locations. Revenue from sales to Rite Aid (including license fee revenue for new store openings) represented approximately 3.3% of total revenue for the year ended December 31, 2009. 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 December 31, 2009, we had 167 company-owned Canadian stores and 1,307 international franchised stores in 47 countries. We derived 10.2% of our revenues for the year ended December 31, 2009 and 10.1% of our revenues for 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 3, “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 Indebtedness

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 December 31, 2009, our total consolidated long-term debt (including current portion) was approximately $1,059.8 million, and we had an additional $52.1 million available for borrowing on a collateralized basis under our $60.0 million senior revolving credit facility after giving effect to the use of $7.9 million of the Revolving Credit Facility 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. 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. 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 senior credit facility bears interest at variable rates. Our unhedged debt is 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 material 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 existing debt, see Item 7, “Management 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 the 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 December 31, 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 Notes and the 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 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 1B. UNRESOLVED STAFF COMMENTS.

          None.

ITEM 2. PROPERTIES.

          As of December 31, 2009, there were 6,917 GNC store locations globally. In our Retail segment, all but one of our company-owned stores are located on leased premises that typically range in size from 1,000 to 2,000 square feet. In our Franchise segment, primarily all of our franchised stores in the United States and Canada are located on premises we lease and then sublease to our respective franchisees. All of our franchised stores in the remaining international markets are owned or leased directly by our franchisees. No single store is material to our operations.

As of December 31, 2009, our company-owned and franchised stores in the United States and Canada (excluding store-within-a-store locations) and our other international franchised stores consisted of:

          In our Manufacturing/Wholesale segment, we lease facilities for manufacturing, packaging, warehousing, and distribution operations. We manufacture a majority of our proprietary products at an approximately 300,000 square-foot facility in Greenville, South Carolina. We also lease an approximately 630,000 square-foot complex located in Anderson, South Carolina, for packaging, materials receipt, lab testing, warehousing, and distribution. Both the Greenville and Anderson facilities are leased on a long-term basis pursuant to “fee-in-lieu-of-taxes” arrangements with the counties in which the facilities are located, but we retain the right to purchase each of the facilities at any time during the lease for $1.00, subject to a loss of tax benefits. We lease a 210,000 square-foot distribution center in Leetsdale, Pennsylvania and a 112,000 square-foot distribution center in Phoenix, Arizona. We also lease space at a distribution center in Canada.

          We lease three small regional sales offices in Fort Lauderdale, Florida; Tustin, California; and Mississauga, Ontario. None of the regional sales offices is larger than 6,500 square feet. Our 253,000 square-foot corporate headquarters in Pittsburgh, Pennsylvania, is owned by Gustine Sixth Avenue Associates, Ltd., a Pennsylvania limited partnership, of which we are a limited partner entitled to share in 75% of the partnership’s profits or losses. The partnership’s ownership of the land and buildings, and the partnership’s interest in the ground lease to us, are all encumbered by a mortgage in the original principal amount of $17.9 million, with an outstanding balance of $7.2 million as of December 31, 2009. This partnership is included in our consolidated financial statements.

ITEM 3.		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 the 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 the Company, it is possible that current and future product liability claims could have a material adverse impact on its 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 an additional insured under most of such parties’ insurance policies. We are also entitled to indemnification by Numico for certain losses arising from claims related to products containing ephedra or Kava Kava sold prior to December 5, 2003. 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.

          Pro-Hormone/Androstenedione Cases. We are 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 us certain nutritional supplements alleged to contain one or more Andro Products.

          In April 2006, we 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, we 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. We were 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.

          On June 4, 2008, the U.S. District Court, Southern District of New York (on its own motion) set a hearing 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. In August 2008, plaintiffs appealed the dismissal of the four cases to U.S. Court of Appeals for the Second Circuit, and oral argument was heard on October 14, 2009. The Second Circuit reversed the dismissal and remanded the case to the U.S. District Court, Southern District of New York.

          In the Guzman case in California, plaintiffs’ Motion for Class Certification was denied on September 8, 2008. Plaintiffs appealed on October 31, 2008. Oral arguments took place on January 15, 2010 and the court reversed the order denying class certification.

          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. On November 4, 2008, ninety-eight plaintiffs filed 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. Each of the plaintiffs had previously been a member of a purported class in a lawsuit filed against the Company in 2007 and resolved in September 2009. The plaintiffs allege that they were not provided all of the rest and meal periods to which they were entitled under California law, and further allege that we failed to pay them split shift and overtime compensation to which they were entitled under California law. Discovery in this case is ongoing and we are vigorously defending these matters. The court has developed a mediation procedure for handling the pending claims and has ordered the parties to mediate with small groups of plaintiffs and stayed the case as to the plaintiffs not participating in the mediations. The first of the mediation sessions occurred February 10, 2010 and March 4, 2010 and did not result in any settlements. Any liabilities that may arise from these matters are not probable or reasonably estimable at this time.

          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 our 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, our 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 judgment was satisfied in full by October 6, 2009, and a Satisfaction of Judgment was filed with the court on that date.

          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 us 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. The court signed the stipulation of dismissal on October 27, 2009.

          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. In December 2009, a settlement was reached, contemplating payment of an immaterial amount by GNC.

          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. Discovery in this case is ongoing and we are vigorously defending the matter. 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 our 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.

          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 22 lawsuits in several states (note that prior to May 1, 2009, GNC was a co-defendant in one 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 23 lawsuits related to Hydroxycut: 17 individual, largely personal injury claims (including Ciavarra discussed above) and 6 putative class actions, generally inclusive of claims of consumer fraud, misrepresentation, strict liability, and breach of warranty.

          The following 16 personal injury matters were 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, BC413006 (filed May 1, 2009);
	•		Eva M. Stasiak v. Iovate Health Sciences USA, Inc., et al., Superior Court of the State of California, County of Los Angeles, BC413201 (filed May 11, 2009);
	•		Jaime Ruben Perez v. Gerald Brandt, individually and d/b/a/ Breakthru Products, et al., 229th Judicial District, Duval County, Texas (filed May 29, 2009);
	•		Juan A. Noyola, II v. Iovate Health Sciences USA, Inc., et al., U.S. District Court, Southern District of New York, 09CV6740 (filed July 29, 2009);
	•		Christopher and Dana Hamilton v. Iovate Health Sciences USA, Inc., et al., U.S. District Court, Northern District of Ohio, 09CV1944 (filed August 18, 2009);
	•		Hector Manuel Abarca and Diana Curiel v. Iovate Health Sciences USA, Inc., et al., U.S. District Court, Northern District of California, 09CV3861 (filed August 21, 2009);
	•		Jessica Rogoff v. General Nutrition Centers, Inc., et al., Superior Court of the State of California, County of Los Angeles, BC422842 (filed September 29, 2009);
	•		Pattie Greenwood, et al. v. Iovate Health Sciences, USA, Inc., et al., State Court of Oklahoma County, CJ-2009-10759 (filed October 30, 2009);
	•		Lucretia Ballou v. Muscletech Research and Development, Inc., et al., U.S. District Court, Western District of Louisiana, 09CV1996 (filed December 3, 2009);
	•		Clinton Davis v. GNC Corporation, et al., U.S. District Court, Eastern District of Pennsylvania, 09CV5055 (filed November 11, 2009);
	•		Michael Fyalka v. Iovate Health Sciences, et al., U.S. District Court, Southern District of Illinois, 09CV944 (filed November 10, 2009);
	•		Monica Fay Stepter v. Iovate Health Sciences, USA, Inc., et al., 17th Judicial District Court, Parish of LaFourche, Louisiana (filed November 25, 2009);

	•		Andrew Nolley v. Muscletech Research and Development, et al., U.S. District Court, Northern District of Mississippi, 09CV140 (filed December 18, 2009);
	•		Kerry Donald v. Iovate Health Sciences Group, et al., Supreme Court of the State of New York, Kings County (filed January 22, 2010);
	•		Casey Slyter v. GNC Corporation, et al., U.S. District Court, District of Kansas, 10CV2065 (filed January 29, 2010); and
	•		Debra Rutherford, et al. v. Muscletech Research and Development, Inc., U.S. District Court, Northern District of Alabama, 10CV370 (filed February 19, 2010).

Plaintiffs in the Owens and Stasiak cases dismissed those cases without prejudice in June 2009. Plaintiff Perez filed a Notice of Non-suit without prejudice which was granted by court order on November 18, 2009. Plaintiff Noyola amended the original complaint in December 2009 and did not identify GNC as a defendant.

          The following six 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, 09CV1088 (filed May 19, 2009);
	•		Enjoli Pennier, et al. v. Iovate Health Sciences, et al., U.S. District Court, Eastern District of Louisiana, 09CV3533 (filed May 13, 2009);
	•		Alejandro M. Jimenez, et al. v. Iovate Health Sciences, Inc., et al., U.S. District Court, Eastern District of California, 09CV1473 (filed May 28, 2009);
	•		Amy Baker, et al. v. Iovate Health Sciences USA, Inc., et al., U.S. District Court, Northern District of Alabama, 09CV872 (filed May 4, 2009);
	•		Kyle Davis and Sara Carreon, et al. v. Iovate Health Sciences USA, Inc., et al., U.S. District Court, Northern District of Alabama, 09CV896 (filed May 7, 2009); 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, 09CV2337 (filed October 24, 2009).

By court order dated October 6, 2009, the United States Judicial Panel on Multidistrict Litigation consolidated pretrial proceedings of many of the pending actions (including the 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.

          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, 09CV532 (filed May 5, 2009) (“Musclemeds”);
	•		Michael Campos and Michael Gonzales, et al. v. LG Sciences, LLC, et al., Superior Court of California, for the County of Orange, removed to U.S. District Court, Central District of California, 09CV663 (filed May 20, 2009) (“LG Sciences”);
	•		Nicole Forlenza and Shaiden Monroe, et al. v. Dynakor Pharmacal, LLC, et al., U.S. District Court, Central District of California, 09CV3730 (filed May 26, 2009) (“Basic Research — Akävar”);
	•		Vance Monroe and Mac Gonzales, et al. v. Biotab Nutraceuticals, Inc., et al., U.S. District Court, Southern District of California, 09CV1207 (filed June 3, 2009);
	•		Richard Johnson, et al. v. Vianda, LLC, et al., Superior Court of California, for the County of Los Angeles, BC 423825 (filed October 20, 2009); and
	•		Michael Flores, et al. v. EP2. Inc., et al., U.S. District Court, Central District of California, 09CV7872 (filed October 28, 2009).

The LG Sciences matter was settled and dismissed in August 2009. A settlement was reached and approved by the Court in December 2009 in the Musclemeds case. Plaintiffs in the Basic Research - Akävar case dismissed GNC with prejudice in January 2010, after which a similar action, Shalena Dysthe, et al., v. Basic Research, et al., U.S. District Court, Central District of California, 09CV8013 (filed November 2, 2009) was filed by a different law firm.

While only seven lawsuits of this type have been filed to date, GNC expects the number of these types of cases to grow, as we have received four 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.

ITEM 4.		SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

          None.

PART II

ITEM 5.		MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF SECURITIES.

          There is no established public trading market for our common stock. As of March 1, 2010, 100 shares of our Common Stock were outstanding, all of which are held by our Parent. As of December 31, 2009, there was one holder of our common stock and there were 39 holders of our ultimate Parent’s common stock. See Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” included in this report.

Dividends

          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.

          Any dividends that we may pay in the future will be subject to the determination and approval of our board of directors. We are subject to certain restrictions on our ability to pay dividends under the terms of the Senior Credit Facility, Senior Notes, and Senior Subordinated Notes.

Securities Authorized for Issuance under Equity Compensation Plans

          Upon completion of the Merger, our Parent adopted the GNC Acquisition Holdings Inc. 2007 Stock Incentive Plan (the “2007 Plan”). The purpose of the 2007 Plan is to enable us to attract, retain, and reward highly qualified personnel who will contribute to our success. The 2007 Plan provides for the granting of stock options, restricted stock, and certain other stock-based awards. Awards under the 2007 Plan may be granted to certain eligible employees, directors, consultants, or advisors as determined by the administering committee of our ultimate Parent’s board of directors. As of December 31, 2009 the total number of shares of our ultimate Parent’s Class A common stock reserved and available under the 2007 Plan is 10,419,178 shares. Stock options granted under the 2007 Plan are granted at not less than fair market value (or, in the case of persons holding more than 10% of the voting power of us, our ultimate Parent, or our subsidiaries, less than 110% of fair market value), generally vest over a five-year vesting schedule, and expire after ten years from date of grant. If any award granted under the 2007 Plan expires, terminates, is canceled, or is forfeited for any reason, the number of shares underlying such award will become available for future awards under the 2007 Plan. No awards other than stock options have been granted under the 2007 Plan.

Number of

securities remaining

available for future

issuance under

equity

Number of securities

Weighted-average

compensation plans

to be issued upon

exercise price of

(excluding

exercise of

outstanding

securities

outstanding options,

options, warrants

reflected in first

Plan category

warrants and rights

and rights

column)

Equity compensation plans approved by security holders

9,263,640

1

$

7.27

1,155,538

Equity compensation plans not approved by security holders

12,750

$

5.00

2

—

Total

9,276,390

$

7.27

1,155,538

          On September 1, 2009, David Berg joined the Company as its Executive Vice President of Global Business Development and Chief Operating Officer, International. In connection with his employment, our Parent’s Compensation Committee granted Mr. Berg certain options (“Preferred Stock Options”) to purchase 12,750 shares of our ultimate Parent’s Series A Cumulative Preferred Stock, par value $0.001 per share (“Preferred Stock”), pursuant to the terms of a Preferred Stock Option Agreement. The Preferred Stock Options are not governed by the 2007 Plan, and the grant was not approved by our or our Parent’s security holders. The Preferred Stock Options have an exercise price equal to $5.00 per share (plus accrued and unpaid dividends through the date of exercise). A portion of the Preferred Stock Options vest on the first anniversary of employment; the balance vest on the second anniversary; provided, that Mr. Berg is permitted to exercise his vested Preferred Stock Options only within the seven day period following each vesting date. If Mr. Berg does not exercise his vested Preferred Stock Options within such exercise period, then such vested Preferred Stock Options terminate and expire. See Item 11, “Executive Compensation — Employment and Separation Agreements.”

ITEM 6. SELECTED FINANCIAL DATA.

          The selected consolidated financial data presented below as of and for the years ended December 31, 2009 and 2008 and as of December 31, 2007 (the Successor Periods), for the period March 16 to December 31, 2007, and for the period January 1, 2007 to March 15, 2007 (the Predecessor Period) are derived from our audited consolidated financial statements and their notes included in this report. The selected consolidated financial data presented below as of and for the years ended December 31, 2006 and 2005, are derived from our audited consolidated financial statements and their notes, which are not included in this report. The selected consolidated financial data as of March 15, 2007, December 31, 2006, and 2005 and for the period from January 1, 2007 to March 15, 2007 and for the years ended December 31, 2006 and 2005 represent the period during which General Nutrition Centers, Inc. was owned by Apollo.

          On February 8, 2007, our parent corporation entered into an Agreement and Plan of Merger with GNC Acquisition Inc. and its parent company, GNC Acquisition Holdings, Inc., 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 GNC Acquisition Holdings Inc. This Merger was accounted for under the purchase method of accounting. As a result, the financial data presented as of December 31, 2007, and for the period from March 16, 2007 to December 31, 2007 represents the period of operations after the Merger.

          As a result of the Merger, the consolidated statement of operations for the successor period includes the following: interest and amortization expense resulting from the issuance of the Senior Floating Rate Toggle Notes and the 10.75% Senior Subordinated Notes; and amortization of intangible assets related to the Merger. Further, as a result of purchase accounting, the fair values of our assets on the date of the Merger became their new cost basis.

          You should read the following financial information together with the information under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and their related notes.

		Successor													Predecessor
		Year Ended				Year Ended				March 16-					January 1-				Year Ended				Year Ended
		December 31,				December 31,				December 31,					March 15,				December 31,				December 31,
(dollars in millions)		2009				2008				2007					2007				2006				2005
Statement of Operations Data:
Revenue:
Retail		$	1,256.3			$	1,219.3			$	909.3				$	259.3			$	1,122.7			$	989.4
Franchising			264.2				258.0				193.9					47.2				232.3				212.8
Manufacturing/Wholesale			186.5				179.4				119.8					23.3				132.1				115.5
Total revenue			1,707.0				1,656.7				1,223.0					329.8				1,487.1				1,317.7
Cost of sales, including costs of warehousing, distribution and occupancy			1,116.4				1,082.6				814.2					212.2				983.5				898.7
Gross profit			590.6				574.1				408.8					117.6				503.6				419.0
Compensation and related benefits			263.0				249.8				195.8					64.3				260.8				228.6
Advertising and promotion			50.0				55.1				35.0					20.5				50.7				44.7
Other selling, general and administrative			96.5				98.7				71.3					17.3				92.4				76.2
Other expense(income)(1)			(0.1	)			0.7				(0.4	)				(0.1	)			0.5				(3.1	)
Merger related costs			—				—				—					34.6				—				—
Operating income (loss)			181.2				169.8				107.1					(19.0	)			99.2				72.6
Interest expense, net			70.0				83.0				75.5					43.0				39.6				43.1
Income (loss) before income taxes			111.2				86.8				31.6					(62.0	)			59.6				29.5
Income tax expense (benefit)			41.6				32.0				12.6					(10.7	)			22.2				10.9
Net income (loss)		$	69.6			$	54.8			$	19.0				$	(51.3	)		$	37.4			$	18.6

		Successor													Predecessor
		Year Ended				Year Ended				March 16-					January 1-				Year Ended				Year Ended
		December 31,				December 31,				December 31,					March 15,				December 31,				December 31,
(dollars in millions)		2009				2008				2007					2007				2006				2005
Balance Sheet Data:
Cash and cash equivalents		$	75.1			$	42.3			$	28.9				$	9.5			$	24.1			$	86.0
Working capital (2)			382.6				305.1				258.1					233.6				249.5				298.7
Total assets			2,303.6				2,292.0				2,239.6					974.1				968.8				1,025.6
Total current and non-current long-term debt			1,059.8				1,084.7				1,087.0					10.7				431.4				473.4
Stockholder’s equity			717.5				652.1				608.7					680.8				312.3				340.9
Other Data:
Net cash provided by (used in) operating activities			114.0				77.4				92.0					(50.9	)			73.6				65.1
Net cash used in investing activities			(42.2	)			(60.4	)			(1,671.4	)				(6.2	)			(23.4	)			(21.5	)
Net cash (used in) provided by financing activities			(39.3	)			(3.4	)			1,598.7					42.8				(112.2	)			(42.6	)
Capital expenditures		$	28.7			$	48.7			$	28.9				$	5.7			$	23.8			$	20.8
Number of stores (at end of period):
Company-owned stores (3)			2,832				2,774				2,745					2,699				2,688				2,650
Franchised stores (3)			2,216				2,144				2,056					2,018				2,007				2,014
Franchised store-within-a-store locations (3)			1,869				1,712				1,358					1,266				1,227				1,149

		Successor													Predecessor
		Year Ended				Year Ended				March 16-					January 1-				Year Ended				Year Ended
		December 31,				December 31,				December 31,					March 15,				December 31,				December 31,
		2009				2008				2007					2007				2006				2005
Company-owned stores
Beginning of period balance			2,774				2,745				2,699					2,688				2,650				2,642
New store openings			45				71				64					18				54				35
Franchise conversions (a)(b)			53				33				44					17				80				102
Store closings(b)			(40	)			(75	)			(62	)				(24	)			(96	)			(129	)
End of period balance			2,832				2,774				2,745					2,699				2,688				2,650
Franchised stores
Domestic
Beginning of period balance			954				978				1,022					1,046				1,156				1,290
Store openings (b)			31				41				16					4				5				17
Store closings (c)			(76	)			(65	)			(60	)				(28	)			(115	)			(151	)
End of period balance			909				954				978					1,022				1,046				1,156
International
Beginning of period balance			1,190				1,078				996					961				858				746
Store openings			187				198				115					44				169				132
Store closings			(70	)			(86	)			(33	)				(9	)			(66	)			(20	)
End of period balance			1,307				1,190				1,078					996				961				858
Store-within-a-store (Rite Aid)
Beginning of period balance			1,712				1,358				1,266					1,227				1,149				1,027
Store openings			177				401				101					39				80				130
Store closings			(20	)			(47	)			(9	)				—				(2	)			(8	)
End of period balance			1,869				1,712				1,358					1,266				1,227				1,149
Total Stores			6,917				6,630				6,159					5,983				5,922				5,813

ITEM 7.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

          You should read the following discussion in conjunction with Item 6, “Selected Financial Data” and our consolidated financial statements and accompanying notes included in this report. The discussion in this section contains forward-looking statements that involve risks and uncertainties. See Item 1A, “Risk Factors” in this report for a discussion of important factors that could cause actual results to differ materially from those described or implied by the forward-looking statements contained herein. Please refer to “Forward Looking Statements” included elsewhere in this report.

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 6,900 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 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 grow substantially, 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.

          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 years. In the retail segment, our domestic retail comparable store sales, including e-commerce, increased 2.8% for 2009 as compared to 2008. Included in this increase is a 29.9% increase in our www.gnc.com business. We achieved these results in a difficult economic environment, when many other retailers were posting negative comparable store sales, and despite a short-term reduction in revenue that we experienced in 2009 due to the Hydroxycut recall. Our core product categories of VMHS and Sports Nutrition have delivered strong consistent performance. Another reason for our strong results is the emphasis we place on innovation and the introduction of new products. For example, clinical testing and research provided the framework for the 2009 introduction of Pro Performance AMP, a product line targeted at avid athletes. Additionally, the WELLbeING product line launched in early 2009 provides formulations and vitamin products uniquely designed for women. These products were introduced with the intention of attracting new customers to our stores.

          Our www.gnc.com business continues to grow, with a 29.9% increase in revenue in 2009 compared with 2008. We redesigned our website in the latter part of 2009, enhancing the site’s functionality through improved search capabilities, navigation and expanded content. We expect these enhancements to allow us to continue to grow our revenue through increased traffic and conversion rates.

          Our domestic franchise business is aligned with our corporate operating standards, and key performance indicators to our domestic franchise stores are consistent with our company store results. We continue to see growth in sales of our GNC brand products, particularly in the higher margin Pro Performance brand and in sales of our proprietary Vitapaks, which has helped to strengthen the franchise system. Without committing our own capital resources, our international franchise system has continued

to grow and strengthen our presence globally, with the addition of 117 and 112 net new locations in 2009 and 2008, respectively. For 2009, the international franchise business recognized a 9.8% increase in revenue, compared with 2008, primarily on the strength of higher product sales.

          Our manufacturing strategy is designed to provide our stores with proprietary products at the lowest possible cost, and utilize additional capacity to promote production efficiencies and enhance our position in the third party contract business. Under this strategy, our third party manufacturing sales grew 38.7% and 3.8% in 2008 and 2009, respectively, over the prior year periods. We expect continuing steady performance from our manufacturing plant utilizing this strategy.

          We believe that the strength of our brand and our leadership position in the health and wellness sector provide significant future opportunities 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.

          While our 2009 results do not reflect a negative impact due to the general downturn of the economy, the downturn could affect our business and operating results in the future. Our results depend 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 and through our website 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 choose 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 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 Hydroxycut replacement product was not available. Through December 31, 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 post-recall 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 product line.

          In light of these matters, we continue to focus on our core strategies. In the near term, we will concentrate on our primary strategies, in particular:

	•		Driving top-line performance in each of our business segments by attracting new customers through product innovation and the introduction of new, scientifically backed products, improved product assortment, effective marketing campaigns designed to increase traffic and awareness of the GNC brand, and price competitiveness;
	•		Investing in key infrastructure areas for future growth, including e-commerce and international development; 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

          Management Services Agreement. Upon consummation of the Merger, the Company entered into a management services agreement with our Parent. Under the agreement, our 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 our 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 our Parent for services rendered in connection with the Merger. For each of the years ended December 31, 2008 and 2009, $1.5 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 December 31, 2009, certain affiliates of Ares held approximately $62.1 million of term loans under the Company’s Senior Credit Facility.

          Lease Agreements. General Nutrition Centres Company, a wholly owned subsidiary of the Company, is party to 21 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 years ended December 31, 2009 and 2008, the Company paid $2.4 million and $2.5 million, respectively, under the Lease Agreements. Each lease was negotiated in the ordinary course of business on an arm’s length basis.

          Product Purchases. During our 2009 fiscal year, we purchased certain fish oil and probiotics products manufactured by Lifelong Nutrition, Inc. (“Lifelong”) for resale under our proprietary brand name WELLbeING. Carmen Fortino, who serves as one of our directors, is the Managing Director, a member of the Board of Directors and a stockholder of Lifelong. The aggregate value of the products we purchased from Lifelong was $3.3 million for the 2009 fiscal year.

Results of Operations

          The following information presented as of December 31, 2009, 2008, and 2007 and for the years ended December 31, 2009 and 2008, for the period March 16, 2007 to December 31, 2007, and for the period January 1 to March 15, 2007 was derived from our audited consolidated financial statements and accompanying notes.

          The following information may contain financial measures other than in accordance with generally accepted accounting principles, and should not be considered in isolation from or as a substitute for our historical consolidated financial statements. In addition, the adjusted combined operating results may not reflect the actual results we would have achieved absent the adjustments and may not be predictive of future results of operations. We present this information because we use it to monitor and evaluate our ongoing operating results and trends, and believe it provides investors with an understanding of our operating performance over comparative periods.

          As discussed in the “Segment” 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.

          Same store sales growth reflects the percentage change in same store sales in the period presented compared to the prior year period. Same store sales are calculated on a daily basis for each store and exclude the net sales of a store for any period if the store was not open during the same period of the prior year. Beginning in the first quarter of 2006, we also included our internet sales, as generated through www.gnc.com and www.drugstore.com, in our domestic company-owned same store sales calculation. When a store’s square footage has been changed as a result of reconfiguration or relocation in the same mall or shopping center, the store continues to be treated as a same store. If, during the period presented, a store was closed, relocated to a different mall or shopping center, or converted to a franchised store or a company-owned store, sales from that store up to and including the closing day or the day immediately preceding the relocation or conversion are included as same store sales as long as the store was open during the same period of the prior year. We exclude from the calculation sales during the period presented from the date of relocation to a different mall or shopping center and from the date of a conversion. In the second quarter of 2006, we modified the calculation method for domestic franchised same store sales consistent with this description, which has been the method historically used for domestic company-owned same store sales.

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

		Successor																								Predecessor
		Year Ended December 31,								Year Ended December 31,								March 16 - December 31,								January 1 - March 15,
		2009								2008								2007								2007
Revenues:
Retail		$	1,256.3				73.6	%		$	1,219.3				73.6	%		$	909.3				74.3	%		$	259.3				78.6	%
Franchise			264.2				15.5	%			258.0				15.6	%			193.9				15.9	%			47.2				14.3	%
Manufacturing / Wholesale			186.5				10.9	%			179.4				10.8	%			119.8				9.8	%			23.3				7.1	%
Total net revenues			1,707.0				100.0	%			1,656.7				100.0	%			1,223.0				100.0	%			329.8				100.0	%
Operating expenses:
Cost of sales, including warehousing, distribution and occupancy costs			1,116.4				65.4	%			1,082.6				65.3	%			814.2				66.5	%			212.2				64.4	%
Compensation and related benefits			263.0				15.4	%			249.8				15.1	%			195.8				16.0	%			64.3				19.5	%
Advertising and promotion			50.0				2.9	%			55.1				3.3	%			35.0				2.9	%			20.5				6.2	%
Other selling, general and administrative expenses			86.7				5.1	%			87.8				5.3	%			62.1				5.1	%			16.5				5.0	%
Amortization expense			9.8				0.6	%			10.9				0.7	%			9.2				0.7	%			0.8				0.2	%
Foreign currency loss (gain)			(0.1	)			0.0	%			0.7				0.0	%			(0.4	)			0.0	%			(0.1	)			0.0	%
Transaction related costs			—				0.0	%			—				0.0	%			—				0.0	%			34.6				10.5	%
Total operating expenses			1,525.8				89.4	%			1,486.9				89.7	%			1,115.9				91.2	%			348.8				105.8	%
Operating income:
Retail			153.1				9.0	%			140.9				8.5	%			106.5				8.8	%			28.2				8.6	%
Franchise			80.8				4.7	%			80.8				4.9	%			55.0				4.5	%			14.5				4.4	%
Manufacturing / Wholesale			73.5				4.3	%			67.4				4.1	%			38.9				3.2	%			10.3				3.1	%
Unallocated corporate and other costs:
Warehousing and distribution costs			(53.6	)			-3.1	%			(54.2	)			-3.3	%			(40.7	)			-3.3	%			(10.7	)			-3.2	%
Corporate costs			(72.6	)			-4.3	%			(65.1	)			-3.9	%			(52.6	)			-4.4	%			(26.7	)			-8.2	%
Merger related costs			—				0.0	%			—				0.0	%			—				0.0	%			(34.6	)			-10.5	%
Subtotal unallocated corporate and other costs, net			(126.2	)			-7.4	%			(119.3	)			-7.2	%			(93.3	)			-7.7	%			(72.0	)			-21.9	%
Total operating income (loss)			181.2				10.6	%			169.8				10.3	%			107.1				8.8	%			(19.0	)			-5.8	%
Interest expense, net			70.0								83.0								75.5								43.0
Income (loss) before income taxes			111.2								86.8								31.6								(62.0	)
Income tax expense (benefit)			41.6								32.0								12.6								(10.7	)
Net income (loss)		$	69.6							$	54.8							$	19.0							$	(51.3	)