GNC 2009 Annual Report Download - page 56

Table of Contents
Warehousing and Distribution Costs. Unallocated warehousing and distribution costs increased $0.7 million, or 1.3%, to $51.4 million for the
year ended December 31, 2007 compared to $50.7 million for the same period in 2006. This increase was primarily a result of increased fuel
costs, as well as the cost of common carriers.
Corporate Costs. Corporate overhead cost decreased $12.1 million, or 13.2%, to $79.3 million for the year ended December 31, 2007
compared to $91.4 million for the same period in 2006. This decrease was primarily the result of Merger related compensation costs of
$15.3 million and an increase in self-insurance costs offset by reductions in (1) incentive compensation expense; (2) professional fees; and
(3) legal settlement expenses. Additionally, the 2006 costs included $22.6 million in discretionary payments made to stock option holders and
accruals for future payments in conjunction with distributions made to shareholders in March and December 2006.
Merger Related Costs. Merger related costs for the year ended December 31, 2007 included costs by our parent, and recognized by us, in
relation to the Merger, of $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/income. 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.
Interest Expense
Interest expense increased $78.9 million, to $118.5 million for the year ended December 31, 2007 compared to $39.6 million for the same
period in 2006. This increase was primarily attributable to the write-off of $34.8 million in call premiums and deferred fee write-offs, and an
increase in our debt and interest rates, as a result of the Merger.
Income Tax Expense
We recognized $1.9 million of consolidated income tax expense during the year ended December 31, 2007 compared to $22.2 million for the
same period of 2006. The effective tax rate for the year ended December 31, 2006 was 37.3%.
Net Income
As a result of the foregoing, consolidated net income decreased $69.7 million, to ($32.3) million for the year ended December 31, 2007
compared to $37.4 million for the same period in 2006. Net income, as a percentage of net revenue, was (2.1%) for the year ended
December 31, 2007 and 2.5% for the year ended December 31, 2006.
Liquidity and Capital Resources
At December 31, 2008, we had $42.3 million in cash and cash equivalents and $305.1 million in working capital compared with $28.9 million
in cash and cash equivalents and $258.1 million in working capital at December 31, 2007. The $47.0 million increase in working capital was
primarily driven by increases in cash, inventory and prepaid and other current assets offset by increases in accrued interest and current portion
of long-term debt.
We expect to fund our operations through internally generated cash and, if necessary, from borrowings under our $60.0 million revolving
credit facility (the "Revolving Credit Facility"). At December 31, 2008, we had $48.4 million available under the Revolving Credit Facility, after
giving effect to $6.2 million utilized to secure letters of credit. In September 2008, Lehman Brothers Holdings Inc. (Lehman), whose subsidiaries
have a $6.3 million credit commitment under our Revolving Credit Facility, filed for bankruptcy. On October 6, 2008, we submitted a borrowing
request for $6.0 million under our Revolving Credit Facility and received $5.4 million in net borrowing proceeds from the administrative agent.
The difference between 50