GNC 2010 Annual Report Download - page 60

Table of Contents
Net Income
As a result of the foregoing, consolidated net income increased $35.8 million, or 188.5%, to $54.8 million for the year ended
December 31, 2008 compared to $19.0 million for the 2007 Successor Period.
Predecessor Period 2007 — January 1, 2007 to March 15, 2007
Because the basic operations of the Company did not change as a result of the Merger, there were no significant differences in the Company's
financial results of operations and operational trends for the predecessor period of January 1, 2007 to March 15, 2007, except for the following:
• Compensation and related benefits included $3.8 million of non-cash stock based compensation generated as a result of the
cancellation of all stock options at the merger date; $9.6 million in accelerated discretionary payments made to vested option holders
(including the associated payroll taxes), and $1.9 million in incentives related to the Merger.
• Merger related costs included costs incurred 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.
• Interest expense included the write-off of $34.8 million of call premiums and deferred fee write-offs as a result of the Merger.
As a result of the additional Merger related expenses described above, we recognized a $10.7 million tax benefit for the period from January 1,
2007 to March 15, 2007.
Liquidity and Capital Resources
At December 31, 2009, we had $75.1 million in cash and cash equivalents and $382.6 million in working capital compared with
$42.3 million in cash and cash equivalents and $305.1 million in working capital at December 31, 2008. The $77.5 million increase in our
working capital was driven by increases in our inventory and cash and a decrease in our accrued interest, accounts payable and current portion
of long-term debt. This was offset by a decrease in our deferred taxes.
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, 2009, we had $52.1 million available under the Revolving Credit Facility, after
giving effect to $7.9 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. We do not expect that Lehman will
fund its pro rata share of the borrowing as required under the facility. If other financial institutions that have extended credit commitments to us
are adversely affected by the condition of the U.S. and international capital markets, they may become unable to fund borrowings under the
Revolving Credit Facility, which could have a material and adverse impact on our financial condition and our ability to borrow additional funds, if
needed, for working capital, capital expenditures, acquisitions, and other corporate purposes.
We expect our primary uses of cash in the near future will be debt service requirements, capital expenditures and working capital
requirements. In July 2009, our board of directors declared a $13.6 million dividend to our direct parent company, GNC Corporation, with a
payment date of August 30, 2009. GNC Acquisition Holdings, Inc., our ultimate parent company, was the final recipient of this dividend. The
dividend was paid with cash generated from operations.
We currently anticipate that cash generated from operations, together with amounts available under the Revolving Credit Facility
(excluding Lehman's commitment), will be sufficient for the term of the facility, which matures on March 15, 2012, to meet our operating
expenses, capital expenditures and debt service obligations as they become due. However, our ability to make scheduled payments of principal
on, to pay interest on, or to refinance our debt and to satisfy our other debt obligations
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