GNC 2010 Annual Report Download - page 80

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 47 international countries. 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, our ultimate parent company at the time, 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"), 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 was subject to certain tax adjustments that were 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 December 31, 2007 consolidated federal tax return. In the fourth quarter of 2009, pursuant
to the Merger 74