GNC 2011 Annual Report Download - page 80

Table of Contents
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
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 GNC.com and www.drugstore.com. Franchise stores are located in the United States and 46 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 (the "FDA"), the Federal Trade Commission (the "FTC"), the Consumer Product Safety Commission, the 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 (the "Merger Agreement") 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 Parent (the "Merger"). The purchase equity contribution was made by Ares Corporate Opportunities Fund
II, L.P. ("Ares") 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 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 in additional consideration for total cash paid for the
Merger of $1,642.1 million. In 2010, 2009 and 2008, pursuant to the Merger Agreement, $3.1 million, $11.3 million, and $10.8 million of additional
consideration was paid, respectively. The Merger Agreement requires payments to former shareholders and optionholders in lieu of income tax payments
made for utilizing net operating losses ("NOL's") created as a result of the Merger.
Pursuant to the Merger Agreement, as amended, GNC Acquisition Inc. was merged with and into GNC Parent Corporation with GNC Parent
Corporation surviving the Merger. Subsequently on March 16, 2007, GNC Parent Corporation was converted into a Delaware limited liability company and
renamed GNC Parent LLC.
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