GNC 2009 Annual Report Download - page 75

Table of Contents
GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS
General Nature of Business. General Nutrition Centers, Inc. ("GNC" or the "Company"), a Delaware corporation, is a leading specialty
retailer of nutritional supplements, which include: vitamins, minerals and herbal supplements ("VMHS"), sports nutrition products, diet products
and other wellness products.
The Company's organizational structure is vertically integrated as the operations consist of purchasing raw materials, formulating and
manufacturing products and selling the finished products through its retail, franchising and manufacturing/wholesale segments. The Company
operates primarily in three business segments: Retail; Franchising; and Manufacturing/Wholesale. Corporate retail store operations are located
in North America and Puerto Rico and in addition the Company offers products domestically through www.gnc.com and www.drugstore.com.
Franchise stores are located in the United States and 49 international markets. The Company operates its primary manufacturing facilities in
South Carolina and distribution centers in Arizona, Pennsylvania and South Carolina. The Company manufactures the majority of its branded
products, but also merchandises various third-party products. Additionally, the Company licenses the use of its trademarks and trade names.
The processing, formulation, packaging, labeling and advertising of the Company's products are subject to regulation by one or more federal
agencies, including the Food and Drug Administration ("FDA"), Federal Trade Commission ("FTC"), Consumer Product Safety Commission,
United States Department of Agriculture and the Environmental Protection Agency. These activities are also regulated by various agencies of
the states and localities in which the Company's products are sold.
Merger of the Company. On February 8, 2007, GNC Parent Corporation entered into an Agreement and Plan of Merger with GNC
Acquisition Inc. and its parent company, GNC Acquisition Holdings Inc. ("Parent"), pursuant to which GNC Acquisition Inc. agreed to merge with
and into GNC Parent Corporation, and as a result GNC Parent Corporation would continue as the surviving corporation and a wholly owned
subsidiary of GNC Acquisition Holdings Inc. (the "Merger"). The purchase equity contribution was made by Ares Corporate Opportunities Fund
II, L.P. ("ACOF") and Ontario Teachers' Pension Plan Board ("OTPP"), (collectively, the "Sponsors"), together with additional institutional
investors and certain management of the Company. The transaction closed on March 16, 2007 and was accounted for under the purchase
method of accounting. The transaction occurred between unrelated parties and no common control existed. The merger consideration
(excluding acquisition costs of $13.7 million) totaled $1.65 billion, including the repayment of existing debt and other liabilities, and was funded
with a combination of equity contributions and the issuance of new debt. The following reconciles the total merger consideration to the cash
purchase price:
March 16, 2007
(in thousands)
Merger consideration $ 1,650,000
Acquisition costs 13,732
Debt assumed by buyer (10,773)
Fair value of net assets acquired 1,652,959
Non-cash rollover of shares (36,709)
Cash paid at acquisition $ 1,616,250
The Company is subject to certain tax adjustments that will be settled upon filing of the predecessor's final tax return, and receipt of the tax
refund associated with that return. Also, pursuant to the Merger agreement, the Company agreed to pay additional consideration for amounts
refunded from tax returns. During the period from March 16 to December 31, 2007, the Company paid $25.9 million for total cash paid for the
Merger of $1,642.1 million. In September 2008, pursuant to the Merger agreement, $10.8 million of additional consideration was paid as a
result of the Company filing its March 16, 2007 to 69