GNC 2009 Annual Report Download - page 55

Table of Contents
Other SG&A. Other SG&A expenses, including amortization expense, decreased $3.8 million, or 4.1%, to $88.6 million for the year ended
December 31, 2007 compared to $92.4 million for the same period in 2006. This decrease was due to reductions in: (1) professional expenses
of $5.2 million; (2) legal settlement expenses of $4.3 million; and (3) depreciation expense of $1.1 million. These were partially offset by
increases in (1) amortization expense of $5.4 million; (2) third-party commission selling expense of $1.9 million; (3) credit card fees of
$0.9 million; and (4) other SG&A expenses of $1.7 million. Additionally, in 2006, we paid $3.1 million in discretionary payments to our non-
employee option holders.
Foreign Currency Gain
We recognized a consolidated foreign currency gain of $0.6 million in the year ended December 31, 2007 compared to a gain of $0.7 million
for the year ended December 31, 2006. These gains resulted primarily from accounts payable activity with our Canadian subsidiary.
Other Expense / Income
Other expense for the year ended December 31, 2007 included costs related to the Merger, which were $34.6 million. These costs were
comprised of selling-related expenses of $26.4 million, a contract termination fee paid to our previous owner of $7.5 million, and other costs of
$0.7 million.
Other expense for the year ended December 31, 2006 was $1.2 million, as a result of the loss on the sale of our Australian subsidiary, which
was completed in the fourth quarter of 2006.
Operating Income
As a result of the foregoing, consolidated operating income decreased $11.1 million, or 11.1%, to $88.1 million for the year ended
December 31, 2007 compared to $99.2 million for the same period in 2006. Operating income, as a percentage of net revenue, was 5.7% for
the year ended December 31, 2007 compared to 6.7% for the year ended December 31, 2006.
Included in the 2007 operating income was (1) $15.4 million of amortization as a result of purchase accounting from the Merger; and (2)
$34.6 million of fees and expenses associated with the Merger and $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. The 2006 operating income
included $22.6 million in discretionary payments made to stock option holders and accruals for future payments in conjunction with a distribution
made to shareholders in March and December 2006, and $1.2 million of loss related to the sale of our Australian facility.
Retail. Operating income increased $7.3 million, or 5.7%, to $134.7 million for the year ended December 31, 2007 compared to
$127.4 million for the same period in 2006. Revenue and margin increases were offset by $9.6 million of amortization of inventory step up and
lease adjustments as a result of the Merger.
Franchise. Operating income increased $5.4 million, or 8.5%, to $69.5 million for the year ended December 31, 2007 compared to
$64.1 million for the same period in 2006. This increase is primarily attributable to an increase in margins related to wholesale sales to our
international and domestic franchisees, offset by amortization expense of $0.1 million for inventory step up as a result of the Merger.
Manufacturing/Wholesale. Operating income decreased $1.8 million, or 3.6%, to $49.2 million for the year ended December 31, 2007
compared to $51.0 million for the same period in 2006. This decrease was primarily the result of higher third-party contract sales volume and
margins offset by $5.7 million expense from amortization of inventory step up as a result of the Merger.
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