SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the twelve weeks ended July 20, 1996
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number 0-19592
GENERAL NUTRITION COMPANIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 04-3056351
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
921 Penn Avenue 15222
Pittsburgh, Pennsylvania (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code:
(412) 288-4600
Indicate by a check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
As of August 19, 1996, the number of shares outstanding of the
registrant's common stock was 83,002,073.
<TABLE>
<CAPTION>
GENERAL NUTRITION COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 20, February 3,
(In thousands, except share data) 1996 1996
ASSETS (unaudited)
<S> <C> <C>
Current Assets:
Restricted cash $ 941 $ 961
Receivables 44,133 38,292
Inventories 174,380 147,723
Deferred taxes 9,647 9,647
Other current assets 16,631 13,699
Total current assets $ 245,732 $ 210,322
Property, plant and equipment, net 144,097 145,969
Other assets 33,442 28,515
Deferred financing fees, net of accumulated
amortization of $ 1,143 and $ 889 3,417 3,141
Goodwill, net of accumulated amortization of $51,058 and 242,390 295,865
$46,667
$ 669,078 $ 683,812
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 81,025 $ 75,905
Accrued salaries, wages, vacations and related taxes 14,101 18,225
Accrued income taxes -- 4,465
Accrued interest 1,224 492
Other current liabilities 48,396 36,127
Redeemable preferred stock 941 961
Long-term debt, current portion 920 21,466
Total current liabilities 146,607 157,641
Long-term debt 301,885 197,006
Deferred taxes on income 2,508 2,508
Commitments and contingencies -- --
Shareholders' Equity:
Common Stock, $.01 par value:
Authorized 200,000,000 shares, issued and outstanding
90,033,128 shares at July 20, 1996 and
87,744,019 shares at February 3, 1996 900 877
Additional paid-in capital 294,948 253,521
Stock options outstanding 3,769 4,769
Currency translation adjustment (130) (102)
Accumulated earnings 35,891 67,592
Treasury stock, at cost:
7,610,700 shares at July 20, 1996 (117,300) --
218,078 326,657
$ 669,078 $ 683,812
<FN>
<F1>
Notes to Consolidated Financial Statements are an integral part of these
statements.
</FN>
</TABLE>
GENERAL NUTRITION COMPANIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
12 Weeks Ended 24 Weeks Ended
July 20, July 22, July 20, July 22,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net revenue $ 217,750 $ 194,410 $ 447,917 $ 386,412
Cost of sales, including costs of
warehousing, distribution and occupancy 136,652 118,865 277,984 234,924
Selling, general and administrative 46,889 42,789 96,275 85,537
Amortization of goodwill 2,170 1,921 4,391 3,832
Restructuring charge 80,243 - 80,243 -
Operating earnings (loss) (48,204) 30,835 (10,976) 62,119
Interest expense 3,375 5,068 6,323 10,430
Earnings (loss) before income taxes (51,579) 25,767 (17,299) 51,689
Income taxes 300 10,620 14,402 21,441
Net earnings (loss) $ (51,879) $ 15,147 $ (31,701) $ 30,248
Primary earnings (loss) per share $ (0.60) $ 0.19 $ (0.36) $ 0.37
Average number of shares outstanding 86,681 81,428 88,122 81,406
Fully diluted earnings (loss) per share $ (0.60) $ 0.18 $ (0.36) $ 0.35
Average number of shares outstanding 86,681 89,624 88,122 89,602
<FN>
<F1>
Notes to Consolidated Financial Statements are an integral part of these
statements.
</FN>
</TABLE>
GENERAL NUTRITION COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
24 Weeks 24 Weeks
Ended Ended
July 20, July 22,
(In thousands) 1996 1995
Cash flows from operating activities:
Net earnings (loss) $ (31,701) $ 30,248
Adjustments to reconcile net (loss) earnings to
net cash provided by operating activities:
Depreciation and amortization 18,499 13,939
Amortization of deferred financing fees 254 266
Restructuring charge 80,243 --
Other, principally loss on disposal of fixed
assets 246 409
Change in operating assets and liabilities:
(Increase) decrease in receivables (5,347) 1,958
(Increase) decrease in inventories (33,776) 2,218
(Decrease) increase in accrued taxes (4,465) 275
Decrease in other assets 138 349
Increase in accounts payable and accrued
liabilities 11,819 78
(Decrease) increase in other working capital
items (6,679) 4,778
Total adjustments 60,932 24,270
Net cash provided by operating activities 29,231 54,518
Cash flows from investing activities:
Capital expenditures (26,934) (19,018)
Increase in franchisee notes receivable (3,524) (1,944)
Payments for store acquisitions (3,654) (2,795)
Loan to related party (1,750) --
Net cash used in investing activities (35,862) (23,757)
Cash flows from financing activities:
Net borrowings (payments) on revolving credit 119,201 (21,300)
facility
Retirement of long-term debt (34,001) (8,000)
Decrease in capital lease obligations (865) (2,726)
Redemption of redeemable preferred stock (20) (91)
Net proceeds from issuance of common stock 40,161 1,265
Net payments for treasury stock (117,300) --
Increase in deferred financing fees (536) --
Net cash provided by (used) in financing
activities 6,640 (30,852)
Effect of exchange rate changes on cash (29) --
Net decrease in cash (20) (91)
Beginning balance, cash 961 1,095
Ending balance, cash $ 941 $ 1,004
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 5,468 $ 9,487
Income taxes $ 24,919 $ 20,749
Non-cash transactions:
(a) On July 20, 1995, $25 million of junior subordinated debt was
converted into 2.6 million shares of common stock
Notes to Consolidated Financial Statements are an integral part of these
statements.
GENERAL NUTRITION COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Reporting. In the opinion of General Nutrition Companies,
Inc. (the "Company"), the information furnished includes all
adjustments necessary for fair presentation of the consolidated
financial position of the Company at July 20, 1996 and February 3,
1996 and the results of operations for the twelve and twenty-four
weeks ended July 20, 1996 and July 22, 1995. All such adjustments
are of a normal and recurring nature except for the restructuring
charge discussed in Note 7.
Certain information and footnote disclosures normally included in
the financial statements prepared in accordance with generally
accepted accounting principles have been either condensed or
omitted. It is suggested that these consolidated financial
statements be read in conjunction with the financial statements and
footnotes included in the Company's 1995 Annual Report and Annual
Report on Form 10-K for the fiscal year ended on February 3, 1996
filed with the Securities and Exchange Commission. The
Consolidated Financial Statements include the accounts of the
Company and its wholly-owned subsidiaries after the elimination of
intercompany balances and transactions. The results of operations
and cash flows for the twelve and twenty-four weeks ended July 20,
1996 and July 22, 1995 are not necessarily indicative of the
operating results for the full year.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2. Accounting Changes. In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This statement is effective beginning in 1996.
The new standard defines a fair value method of accounting for
stock options and similar equity instruments. Pursuant to the new
standard, companies are encouraged, but not required, to adopt the
fair value method of accounting for employee stock-based
transactions. Companies are also permitted to continue to account
for such transactions under Accounting Principles Board Opinion
("APBO") No. 25, "Accounting for Stock Issued to Employees," but
would be required to disclose in a note to the financial
statements pro forma net income and earnings per share as if the
Company had applied the new method of accounting. The Company has
elected not to adopt the fair value method of accounting for
employee stock-based transactions and will continue to account for
such transactions under the provisions of APBO No. 25.
3. Cash. The Company utilizes a cash management system under which a
book balance cash overdraft exists for the Company's primary
disbursement accounts. This overdraft represents uncleared checks
in excess of cash balances in bank accounts. The Company's funds
are borrowed on an as needed basis to pay for clearing checks. At
July 20, 1996, and February 3, 1996, cash overdrafts of $8.0
million and $8.9 million respectively, were included in accounts
payable. At July 20, 1996, the Company had $94.4 million
available on its revolving credit facility after excluding $5.0
million restricted for letters of credit.
4. Reclassifications. Certain amounts reported in previously issued
financial statements have been reclassified to conform to the 1996
presentation.
5. Inventories. Inventories consist of the following:
July 20, February 3,
1996 1996
(In thousands)
Product ready for sale $ 139,130 $ 122,666
Unpackaged bulk product
and raw materials 32,151 21,678
Packaging supplies 3,099 3,379
$ 174,380 $ 147,723
6. Legal. Certain Company subsidiaries are named as defendants in
legal actions brought in federal and state courts by certain
parties seeking damages resulting from the ingestion of certain
products containing manufactured L-Tryptophan. No provision has
been made in the financial statements for any loss that may result
to the Company from these actions. See Note 13 in the Company's
Annual Report on Form 10-K for the fiscal year ended on February 3,
1996.
On June 24, 1996, an action was commenced against the Company in
the Court of Chancery of the State of Delaware entitled LaValla v.
Thomas H. Lee et al., Civil Action No. 15080. Plaintiff asserts
that the Company is liable for a violation of Section 11 of the
Securities Act of 1933, arising out of allegedly false and
misleading statements in the Prospectus and Registration Statement
for a public offering of common stock of the Company which took
place on February 7, 1996. Plaintiff also alleges that two
directors and shareholders of the Company, Thomas H. Lee and Thomas
R. Shepherd, are liable for a violation of Section 11 of the
Securities Act of 1933, arising out of the same allegedly false and
misleading statements in the Prospectus and Registration Statement.
Plaintiff seeks certification of the action as a class action,
purportedly on behalf of all persons other than defendants who
purchased shares of the Company's common stock during the public
offering. The Company disputes the allegations contained in the
complaint and intends to defend the action vigorously.
On August 2, 1996, an action was commenced against the Company in
the United States District Court for the Western District of
Pennsylvania entitled Klein et al. v. General Nutrition Companies,
Inc. et al., Civil Action No. 96-1455. Plaintiffs assert that the
Company is liable for violations of Sections 11 and 12(a)(2) of the
Securities Act of 1933 and Section 1-501(a) of the Pennsylvania
Securities Act, arising out of allegedly false and misleading
statements in the Prospectus and Registration Statement for a
public offering of common stock of the Company which took place on
February 7, 1996, and for violations of Section 10(b) of the
Securities Exchange Act of 1934 and for negligent misrepresentation
arising out of allegedly false and misleading public statements
during the period from the public offering through May 28, 1996.
Plaintiffs also allege that certain officers, directors and
shareholders of the Company, as well as the underwriters for the
public offering, are liable for other violations of the federal and
state securities laws and for negligent misrepresentation.
Plaintiffs seek certification of the action as a class action,
purportedly on behalf of all persons other than defendants who
purchased shares of the Company's common stock during the proposed
class period from February 7 through May 28, 1996. The Company
disputes the allegations contained in the complaint and intends to
defend the action vigorously.
7. Restructuring Charge. During the second quarter of 1996, the
Company recorded a restructuring charge of $80.2 million ($68.8
million after tax or $.79 per share). The charge recorded by the
Company related to the write-off of goodwill, property, and
equipment, inventories, and other assets associated with
management's decision to discontinue the Nature Food Centres (NFC)
retail concept. The charge for NFC of $66.7 million included $52.6
million of goodwill. The remaining $13.5 million of the recorded
charge relates to unproductive GNC assets, primarily inventory
relating to Natural Solutionsr, fitness and apparel products, all
of which will be discontinued, as well as excess costs resulting
from retrofitting certain stores, including the Alive prototype
store.
8. Subsequent Events. On August 17, 1996, the Company acquired
Nature's fresh Northwest (Nature's) for $17.5 million in cash and
stock in exchange for all of Nature's common stock. The
acquisition of Nature's was accounted for under the purchase method
of accounting. The operations of Nature's are immaterial to the
Company's revenue, net income and earnings per share at July 20,
1996.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue. Consolidated revenue for the twelve and twenty-four weeks
ended July 20, 1996 was $217.8 million and $447.9 million, respectively.
This represents an increase of $23.4 million and $61.5 million or 12.0% and
15.9%, respectively, when compared with the same periods in 1995. Below is
a comparison of revenue for each of the Company's businesses for the twelve
and twenty-four week periods:
Consolidated Revenue
12 Weeks % of 12 Weeks % of
Ended Total Ended Total
July 20, 1996 Revenue July 22, 1995 Revenue
(In millions)
Retail $ 158.2 72.6% $ 152.3 78.3%
Franchising 42.6 19.6 33.2 17.1
Manufacturing 17.0 7.8 8.9 4.6
Total $ 217.8 100.0% $ 194.4 100.0%
24 Weeks % of 24 Weeks % of
Ended Total Ended Total
July 20, 1996 Revenue July 22, 1995 Revenue
(In millions)
Retail $ 328.1 73.3% $ 304.4 78.8%
Franchising 85.9 19.2 64.3 16.6
Manufacturing 33.9 7.5 17.7 4.6
Total $ 447.9 100.0% $ 386.4 100.0%
Retail Revenue. The retail segment includes revenue from General
Nutrition Centers (GNC) stores, Nature Food Centre (NFC) stores and Health
and Diet Centres (HDC) stores. Domestically, for the twelve and twenty-
four weeks ended July 20, 1996, GNC and NFC stores represented 98.6% of
total retail revenue, with the remaining 1.4% representing HDC, the
Company's United Kingdom retail stores. Comparable stores sales for the
second quarter decreased by 4.4% for GNC stores and increased 7.7% for HDC
stores when compared with the same period in 1995. The decrease in GNC
comparable store sales is attributed primarily to a significant decrease in
sales of third party diet products. The sale of these products was a
driving factor in the increase in comparable store sales of 16.2% in the
second quarter of 1995 versus the same period in 1994. In addition,
management believes that negative publicity concerning Ephedrine products,
along with regulations by certain states forbidding the sale of products
containing Ephedrine, reduced sales in the herb category in the second
quarter. Future regulatory actions concerning these products could further
affect comparable store sales in both Company and franchise stores. Total
retail sales of GNC increased 7.4% during the quarter, attributable to the
net opening of 33 new stores. At July 20, 1996, there were 1,566 GNC, 90
NFC and 20 HDC stores in operation.
Franchising Revenue. Revenue from the franchise segment increased 28.3%
and 33.6% respectively, for the twelve and twenty-four weeks ended July 20,
1996, when compared with the same periods in 1995. The increase in revenue
continued to be driven primarily from new store openings, coupled with
comparable store sales increases averaging 4.5% in the franchise retail
sales. Product sales at wholesale and royalties on retail sales,
representing the core of franchise ongoing revenue, comprised 92.2% of
total franchise revenue in the twelve and twenty-four weeks respectively
ended July 20, 1996. The remaining revenue included sales of stores,
fixtures, franchise award fees and interest income on franchise accounts
receivable. Franchise retail sales were $78.2 million and $158.7 million,
respectively, for the twelve and twenty-four weeks ending July 20, 1996, an
increase of 21.3% and 26.9% when compared with the same periods in 1995.
At July 20, 1996, there were 1,057 franchise stores operating compared with
839 franchise stores operating at July 22, 1995. In addition, at July 20,
1996, there were 148 franchise stores awarded and 438 development
agreements outstanding for which stores are not yet opened.
The franchise operating stores are categorized as follows:
July 20, July 22,
1996 1995
Operating Franchise Stores:
Domestic 944 753
International 113 86
1,057 839
Manufacturing Revenue. Total revenue from manufacturing, which
includes the Company's United Kingdom manufacturing business (HDF) and
intersegment sales, increased 60.4% and 51.0% in the twelve and twenty-four
weeks ended July 20, 1996 when compared with the same periods in 1995.
Third party sales increased 91.0% in the second quarter when compared with
1995. The sales increase is attributed to increased demand for commodity
vitamins and the addition of $2.4 million from HDF. The Health and Diet
Group, Ltd., was acquired in the 4th quarter of 1995, and therefore was not
part of the Company's consolidation in the second quarter. Intersegment
sales grew by 50.2% in the second quarter versus the second quarter of 1995
to support the continuing stores expansion program and the increased number
of new products developed in 1996 versus a year ago.
<TABLE>
<CAPTION>
Analysis of Operating Costs and Expenses
12 Weeks 12 Weeks 24 Weeks 24 Weeks
Ended Ended Ended Ended
July 20, July 22, July 20, July 22,
1996 1995 1996 1995
(In thousands)
<S> <C> <C> <C> <C>
Cost of sales, including
costs of warehousing,
distribution and occupancy $ 136,652 $ 118,865 $ 277,984 $ 234,924
Percent of net revenue 62.8% 61.1% 62.0% 60.8%
Selling, general and
administrative $ 49,059 $ 44,710 $ 100,666 $ 89,369
Percent of net revenue 22.5% 23.0% 22.5% 23.1%
Restructuring charge $ 80,243 -- $ 80,243 --
Percent of net revenue 36.8% -- 18.0% --
Operating earnings (loss) $ (48,204) $ 30,835 $ (10,976) $ 62,119
Percent of net revenue (22.1)% 15.9% (2.5)% 16.1%
</TABLE>
Cost of sales, including the cost of warehousing, distribution and
occupancy increased as a percentage of net revenue by 1.7% to 62.8% in the
second quarter of 1996, when compared with the same quarter in 1995. The
cost increase as a percentage of net revenue is a direct result of fixed
occupancy charges in retail coupled with lower retail sales volume. Total
retail sales increased 3.9% in the second quarter versus the same period in
1995 while occupancy costs increased 16.0%. In addition, consolidated
costs of sales will decrease as retail revenue, as a percentage of total
net revenue, decreases.
Selling, general and administrative costs decreased in the second
quarter as a percentage of net revenue when compared with the same quarter
in 1995 by .5%. The Company was able to control expenses and thereby
offset the slower growth in retail sales volume. Advertising expense was
$9.4 million for the second quarter of 1996 versus $7.9 million for the
same quarter in 1995.
During the second quarter of 1996, the Company recorded a restructuring
charge of $80.2 million ($68.8 million after tax or $.79 per share). The
charge recorded by the Company related to the write-off of goodwill,
property, and equipment, inventories, and other assets associated with the
decision to discontinue the Nature Food Centres (NFC) retail concept. The
charge recorded was to adjust for certain unproductive assets, the majority
of which are in the retail business segment. This charge was deemed
necessary after management's review of the recoverability of certain assets
as required by Financial Accounting Standard No. 121 "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of."
(See Note 7 of Notes to Consolidated Financial Statements)
Non-Operating Income (Expense) Analysis
Interest expense decreased to $3.4 million or 33.4% in the second
quarter of 1996 when compared to the same period in 1995. The decrease was
due to several factors. First, the Company's junior subordinated debt was
converted into common stock late in the second quarter of 1995. Secondly,
proceeds from the sale of the Company's common stock in February, 1996 was
used to reduce the outstanding bank debt. Lastly, the Company amended and
restated the existing credit agreement early in the first quarter of 1996,
providing for a revolving credit facility with interest based on prime or
Eurodollar rates plus an add on margin of .5%. Interest for the remainder
of the year will increase over current levels as a result of the additional
borrowings on the Company's revolving credit facility to repurchase the
Company's common stock in the second quarter of 1996.
Review of Financial Condition
Analysis of Liquidity and Capital Resources
In the first twenty-four weeks of 1996, the Company's business segments
continued to contribute to increased earnings from continuing operations.
The Company's cash flows from operating, investing and financing activities
as reflected in the Consolidated Statements of Cash Flows is summarized as
follows:
24 Weeks 24 Weeks
Ended Ended
July 20, July 22,
1996 1995
(In thousands)
Cash provided by (used in)
Operating activities $ 29,231 $ 54,518
Investing activities (35,862) (23,757)
Financing activities 6,640 (30,852)
Operating Activities. Cash provided by operating activities, although
strong at $29.2 million for the twenty-four weeks ended July 20, 1996, was
46.4% less than the same period in 1995. For the twenty-four weeks ended
July 20, 1996, net earnings, adjusted for non-cash charges and before
changes in operating assets and liabilities, increased to $67.5 million or
50.3% when compared with the same period in 1995. Changes in operating
assets and liabilities include increases in accounts receivable of $5.3
million and inventories of $33.8 million. The increase in accounts
receivable is primarily due to product sales to franchisees. The inventory
increase was generated primarily as a result of volume purchases at
favorable prices, new store expansion requirements, an increase in raw
materials in preparation for the Company's September merchandising reset
which includes 200 new products manufactured by the Company, and the
initial stocking of the Company's new full line distribution center located
in Phoenix, Arizona.
Investing Activities. The primary use of funds in both 1995 and 1996
was for capital expenditures. The Company incurred capital expenditures of
approximately $26.9 million in the first two quarters of 1996 and $19.0
million in the first two quarters of 1995. In 1996, approximately $17.3
million of these expenditures were used to finance the Company's store
expansion program and $7.4 million was used to add additional capacity to
the distribution and manufacturing facilities. Notes receivable from the
sale of stores to franchisees and Company purchases of franchise or
independently owned stores were $7.2 million and $4.7 million, respectively
for the twenty-four weeks ended July 20, 1996 and July 22, 1995. The
Company anticipates total capital expenditures of approximately $66 million
in 1996.
Financing Activities. In the twenty-four weeks ended July 20,
1996, the Company repaid $34.0 million on its bank term loan with funds
received from the sale, in February 1996, of approximately 1.6 million
shares of its common stock at an average price of approximately $20.75 per
share. In addition, the Company borrowed approximately $117.3 million on
its revolving credit facility to repurchase approximately 7.6 million
shares of its common stock at an average of $15.412 per share. The Company
also sold European put options to purchase an additional 2.0 million shares
of its common stock at an average net price of $16.325 per share in October
1996. At July 20, 1996, the Company had $94.4 million available on its
revolving credit facility.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 6 to the Notes to Consolidated Financial Statements.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's Annual Meeting of Stockholders was held in
Pittsburgh, Pennsylvania on June 27, 1996.
(b) Jerry D. Horn was re-elected as a Class III Director for
a three-year term expiring in 1999 by a vote of 73,608,833
For; and 1,093,412 Withheld Authority and Thomas R. Shepherd
was re-elected as a Class III Director for a three-year term
expiring in 1999 by a vote of 73,619,100 For; and 1,083,145
Withheld Authority. Thomas H. Lee resigned as a Class I
director on June 27, 1996. His vacancy was filled by David
Lucas. The remaining directors continue in office with
their class and term as follows: Class II-William E. Watts
and Ronald L. Rossetti with terms expiring in 1997; Class I-
David Lucas and W. Harrison Wellford with terms expiring in
1998.
(c) In addition, at the meeting the following matters were
voted upon with the vote indicated below:
(i) A proposal to ratify the appointment of the
Company's independent auditors, Deloitte & Touche
LLP, for the current fiscal year
74,668,452 FOR 17,431 AGAINST 16,362 ABSTAIN
(d) Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(11.1) Computation of net earnings per share is attached.
(23) Interim review report of the Company's independent
accountants, Deloitte & Touche LLP, for the second fiscal
quarter ended July 20, 1996 is attached.
(23.1) Letter in lieu of consent of the Company's independent
accountants, Deloitte & Touche LLP, for the second fiscal
quarter ended July 20, 1996 is attached.
(27) Financial Data Schedule is attached.
No current reports on Form 8-K were filed during the
second fiscal quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
GENERAL NUTRITION COMPANIES, INC.
By: /s/ Edwin J. Kozlowski
Edwin J. Kozlowski
Executive Vice President, Chief
Financial Officer and Principal
Accounting Officer
DATE: August 23, 1996
COMPUTATION OF NET EARNINGS PER SHARE
General Nutrition Companies, Inc.
Primary earnings per share is computed by dividing net earnings by the
weighted average number of common shares and common stock equivalents
outstanding. Fully diluted earnings per share further assumes the
issuance of additional shares of common stock and the elimination of tax
effected interest expense for the conversion of convertible debentures.
The loss per share amounts do not include common stock equivalents since
that would reduce the net loss per share.
<TABLE>
<CAPTION>
12 Weeks 12 Weeks 24 Weeks 24 Weeks
Ended Ended Ended Ended
July 20, July 22, July 20, July 22,
1996 1995 1996 1995
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net earnings (loss) available for common shares $ (51,879) $ 15,147 $ (31,701) $ 30,248
Elimination of tax effected interest expense
on convertible debt for fully diluted per
share calculations $ -- $ 408 $ -- $ 816
Common stock 86,681 77,182 88,122 77,032
Outstanding warrants -- 1,450 -- 1,450
Outstanding options -- 2,796 -- 2,924
Primary weighted average common shares 86,681 81,428 88,122 81,406
Common stock 86,681 77,182 88,122 77,032
Outstanding warrants -- 1,450 -- 1,450
Outstanding options -- 2,796 -- 2,924
Conversion of convertible debt into common stock -- 8,196 -- 8,196
Fully diluted weighted average common shares 86,681 89,624 88,122 89,602
Primary earnings (loss) per share: $ (0.60) $ 0.19 $ (0.36) $ 0.37
Fully diluted earnings (loss) per share: $ (0.60) $ 0.18 $ (0.36) $ 0.35
</TABLE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
General Nutrition Companies, Inc.
Pittsburgh, Pennsylvania
We have reviewed the accompanying consolidated balance sheet
of General Nutrition Companies, Inc. and subsidiaries as of
July 20, 1996 and the related consolidated statements of
operations and cash flows for the twelve and twenty-four
weeks ended July 20, 1996 and July 22, 1995. These
financial statements are the responsibility of the
Corporation's management.
We conducted our review in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information
consists principally of applying analytical procedures to
financial data and of making inquiries of persons
responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we
do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to such consolidated
financial statements for them to be in conformity with
generally accepted accounting principles.
We have previously audited, in accordance with generally
accepted auditing standards, the consolidated balance sheet
of General Nutrition Companies, Inc. and subsidiaries as of
February 3, 1996, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the
year then ended (not presented herein); and in our report
dated March 21, 1996, we expressed an unqualified opinion on
those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated
balance sheet as of February 3, 1996 is fairly stated, in
all material respects, in relation to the consolidated
balance sheet from which it has been derived.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
August 5, 1996
August 23, 1996
General Nutrition Companies, Inc.
921 Penn Avenue
Pittsburgh, PA 15222
Dear Sirs:
We have made a review, in accordance with standards
established by the American Institute of Certified Public
Accountants, of the unaudited interim financial information
of General Nutrition Companies, Inc. and subsidiaries for
the twelve weeks and twenty-four weeks ended July 20, 1996
and July 22, 1995, as indicated in our report dated August
5, 1996; because we did not perform an audit, we expressed
no opinion on that information.
We are aware that our report referred to above, which was
included in your Quarterly Report on Form 10-Q for the
quarter ended July 20, 1996, is incorporated by reference in
Registration Statement Nos. 33-58096, 33-68590, 33-93370 and
333-0128 on Form S-8.
We also are aware that the aforementioned report, pursuant
to Rule 436(c) under the Securities Act of 1933, is not
considered a part of the Registration Statement prepared or
certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7
and 11 of that Act.
Yours truly,
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
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