GNC 2010 Annual Report Download - page 59

Table of Contents
Operating Income
As a result of the foregoing, consolidated operating income increased $62.7 million, or 58.5%, to $169.8 million for the year ended
December 31, 2008 compared to $107.1 million for the 2007 Successor Period. Operating income, as a percentage of net revenue, was 10.3%
for the year ended December 31, 2008 compared to 8.8% for the 2007 Successor Period.
Retail. Operating income increased $34.4 million, or 32.4%, to $140.9 million for the year ended December 31, 2008 compared to
$106.5 million for the 2007 Successor Period. Included in the 2007 Successor Period was $9.6 million of amortization of inventory and lease
step up adjustments as a result of the Merger. The increase in operating income was primarily the result of comparing a 366 day period to a
291 day period. Additionally, higher dollar margins on increased sales volumes and lower operating expenses, as a percentage of revenue,
contributed to the increase in operating income.
Franchise. Operating income increased $25.8 million, or 46.9%, to $80.8 million for the year ended December 31, 2008 compared to
$55.0 million for the 2007 Successor Period. Included in the 2007 Successor Period was $0.1 million of amortization of inventory step up
adjustments as a result of the Merger. The increase in operating income was primarily the result of comparing a 366 day period to a 291 day
period. Additionally, the increase was due 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 higher bad debt expense.
Manufacturing/Wholesale. Operating income increased $28.5 million, or 73.1%, to $67.4 million for the year ended December 31, 2008
compared to $38.9 million for the 2007 Successor Period. Included in the 2007 Successor Period was $5.7 million of amortization of inventory
step up adjustments as a result of the Merger. The increase in operating income was primarily the result of comparing a 366 day period to a
291 day period. Additionally, the increase in operating income was 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 $13.5 million, or 33.3%, to $54.2 million
for the year ended December 31, 2008 compared to $40.7 million for the 2007 Successor Period. The increase in costs was primarily the result
of comparing a 366 day period to a 291 day period. Additionally, 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 costs increased $12.5 million, or 23.8%, to $65.1 million for the year ended December 31, 2008 compared to
$52.6 million for the 2007 Successor Period. The increase in costs was primarily the result of comparing a 366 day period to a 291 day period.
Interest Expense
Interest expense increased $7.5 million, or 9.9%, to $83.0 million for the year ended December 31, 2008 compared to $75.5 million for
the 2007 Successor Period. This increase is primarily the result of comparing a 366 day period to a 291 day period.
Income Tax Expense
We recognized $32.0 million of consolidated income tax expense (or 36.9% of pre-tax income) during the year ended December 31,
2008 compared to $12.6 million (or 39.9% of pre-tax income) for the 2007 Successor Period. The effective tax rate for the year ended
December 31, 2008 was approximately 36.9%, which includes discrete tax benefits of $2.0 million. The effective tax rate for the 2007
Successor Period was approximately 39.9%. 53