GNC 2009 Annual Report Download - page 52

Table of Contents
Foreign Currency (Loss) Gain
Foreign currency loss/gain for the years ended December 31, 2008 and 2007, resulted primarily from accounts payable activity with our
Canadian subsidiary. We incurred a loss of $0.7 million for the year ended December 31, 2008, and a gain of $0.5 million for the year ended
December 31, 2007.
Operating Income
As a result of the foregoing, consolidated operating income increased $81.7 million to $169.8 million for the year ended December 31, 2008
compared to $88.1 million for the same period in 2007. Operating income, as a percentage of net revenue, was 10.2% for the year ended
December 31, 2008 and 5.7% for the year ended December 31, 2007.
Included in the 2007 operating income was: (1) $15.4 million of non-cash expense from amortization of inventory step up and lease
adjustments to fair value due to the Merger; (2) $34.6 million of fees and expenses associated with the Merger and (3) $15.3 million of
compensation related costs associated with the Merger which included $9.6 million of option related payments and associated payroll taxes,
$3.8 million of non-cash compensation related to the cancellation of stock options at the merger date and $1.9 million of incentives paid at the
completion of the Merger.
Retail. Operating income increased $6.2 million, or 4.6%, to $140.9 million for the year ended December 31, 2008 compared to
$134.7 million for the same period in 2007. Included in the year ended December 31, 2007 are $9.6 million of amortization of inventory and
lease step up adjustments as a result of the Merger. The increase was primarily the result of higher dollar margins on increased sales volumes
and lower advertising spending, offset by increases in occupancy and compensation costs.
Franchise. Operating income increased $11.3 million, or 16.3%, to $80.8 million for the year ended December 31, 2008 compared to
$69.5 million for the same period in 2007. Included in the year ended December 31, 2007 are $0.1 million of amortization of inventory step up
adjustments as a result of the Merger. This increase was primarily attributable to an increase in margins related to higher wholesale sales to our
international and domestic franchisees offset by increases in intangible amortization as a result of the Merger, and bad debt expense.
Manufacturing/Wholesale. Operating income increased $18.2 million, or 37.0%, to $67.4 million for the year ended December 31, 2008
compared to $49.2 million for the same period in 2007. Included in 2007 operating income is $5.7 million of non-cash expense from
amortization of inventory step up to fair value due to the Merger. This increase was primarily the result of improved margins on our third-party
contract sales and increases in Rite Aid license fee revenue.
Warehousing and Distribution Costs. Unallocated warehousing and distribution costs increased $2.8 million, or 5.7%, to $54.2 million for the
year ended December 31, 2008 compared to $51.4 million for the same period in 2007. The increase in cost was due to increases in fuel and
shipping costs and additional wages to support our internet fulfillment business.
Corporate Costs. Corporate overhead costs decreased $14.2 million, or 18.0%, to $65.1 million for the year ended December 31, 2008
compared to $79.3 million for the same period in 2007. The decrease was due to the inclusion of $15.3 million of Merger related compensation
costs in 2007 offset by increases in normal compensation costs and other selling, general and administrative costs in 2008.
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