13
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 19, 1997.
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 01-19592
GENERAL NUTRITION COMPANIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 4-3056351
(state or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
300 Sixth Avenue 15222
Pittsburgh, Pennsylvania (Zip Code)
(Address of principal executive office)
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 27, 1997, the number of shares outstanding of
the registrant's common stock was 80,942,460.
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENERAL NUTRITION COMPANIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share data)
July 19, February 1,
1997 1997
(unaudited)
-----------------------
ASSETS
Current Assets:
Receivables $ 63,282 $ 58,711
Inventories 207,550 198,361
Deferred tax assets 18,904 18,903
Other current assets 12,430 17,498
Total current assets 302,166 293,473
Property, plant and equipment, net 180,199 175,352
Other assets 52,975 44,891
Deferred financing fees, net of
accumulated amortization of $2,013
and $1,538 4,343 3,066
Goodwill, net of accumulated amortization
of $57,736 and $52,907 263,071 263,060
$802,754 $779,842
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 68,935 $ 79,958
Accrued salaries, wages, vacations and
related taxes 19,115 17,198
Accrued income taxes 8,505 7,008
Other current liabilities 56,256 54,637
Long-term debt, current portion 970 984
Total current liabilities 153,781 159,785
Long-term debt 382,135 377,885
Deferred tax liabilities 1,479 1,462
Commitments and contingencies - -
Minority interest 373 487
Put options 42,500 -
Shareholders' Equity:
Common stock, $.01 par value:
Authorized 200,000,000 shares,
issued and outstanding, including
shares in treasury, 92,505,372
shares at July 19, 1997 and
91,287,289 shares at February 1, 1997 925 913
Additional paid-in capital 332,386 319,297
Stock options outstanding 8,387 10,917
Subscriptions receivable (3,703) (3,295)
Currency translation adjustment 162 483
Accumulated earnings 118,440 71,527
456,597 399,842
Treasury stock, at cost, 11,665,000
shares at July 19, 1997 and 10,000,000
shares at February 1,1997 (194,691) (159,619)
Put options (39,420) -
222,486 240,223
$ 802,754 $ 779,842
Notes to Consolidated Financial Statements are an integral part of these
statements.
GENERAL NUTRITION COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
12 Weeks 24 Weeks
Ended Ended
------------------- --------------------
July 19, July 20, July 19, July 20,
1997 1996 1997 1996
------------------- --------------------
Net revenue $ 265,604 $ 217,750 $ 538,663 $ 447,917
Cost of sales, including
costs of warehousing,
distribution and
occupancy 161,495 136,652 327,875 277,984
Selling, general and
administrative 58,333 46,889 118,187 96,275
Amortization of goodwill 2,455 2,170 4,859 4,391
Restructuring charge - 80,243 - 80,243
Compensation expense 248 - 289 -
Operating earnings (loss) 43,073 (48,204) 87,453 (10,976)
Interest expense 5,540 3,375 10,657 6,323
Earnings (loss) before income
taxes and minority interest 37,533 (51,579) 76,796 (17,299)
Income taxes 14,593 300 29,997 14,402
Minority interest (114) - (114) -
Net earnings (loss) $ 23,054 $ (51,879) $ 46,913 $ (31,701)
Primary earnings (loss) per
share $ 0.28 $ (0.60) $ 0.57 $ (0.36)
Primary weighted average
common shares 82,583 86,681 82,740 88,122
Fully diluted earnings
(loss) per share $ 0.28 $ (0.60) $ 0.57 $ (0.36)
Fully diluted weighted
average common shares 82,718 86,681 83,021 88,122
Notes to Consolidated Financial Statements are an integral part of these
statements.
GENERAL NUTRITION COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
24 Weeks Ended
July 19, July 20,
1997 1996
(in thousands)
--------------------
Cash flows from operating activities:
Net earnings (loss) $ 46,913 $ (31,701)
Adjustments to reconcile net earnings
(loss) to net cash provided by
operating activities
Depreciation and amortization 20,370 18,499
Amortization of deferred financing fees 475 254
Restructuring charge - 80,243
Compensation expense 289 -
Increase in deferred taxes 16 -
Other, principally (gains) losses
on disposal of fixed assets (338) 246
Change in operating assets and
liabilities:
Increase in receivables (4,575) (5,347)
Increase in inventories (9,189) (33,776)
(Increase) decrease in other assets (971) 138
Increase (decrease) in accrued taxes 1,497 (4,465)
(Decrease) increase in accounts
payable and accrued liabilities (11,534) 4,821
Increase (decrease) in other
working capital items 7,565 (6,679)
Total adjustments 3,605 53,934
Net cash provided by operating activities 50,518 22,233
Cash flows from investing activities:
Capital expenditures (20,995) (26,934)
Proceeds from disposal of assets 1,050 -
Increase in franchisee notes receivable (1,386) (3,524)
Payments for store acquisitions (4,626) (3,654)
Loan to related party (6,698) (1,750)
Net cash used in investing activities (32,655) (35,862)
Cash flows from financing activities:
Net borrowings on revolving credit facility 4,700 119,201
Retirement of long-term debt - (34,001)
Book balance bank overdraft 1,832 7,018
Decrease in capital lease obligations (464) (865)
Redemption of redeemable preferred stock (168) (20)
Net proceeds from issuance of common stock 10,302 37,311
Proceeds from sale of put options 3,080 2,850
Net payments for treasury stock (35,072) (117,300)
Increase in deferred financing fees (1,752) (536)
Net cash (used in) provided by financing
activities (17,542) 13,658
Effect of exchange rate changes on cash (321) (29)
Net change in cash - -
Beginning balance, cash $ - $ -
Ending balance, cash $ - $ -
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 10,280 $ 5,468
Income taxes $ 30,998 $ 24,919
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 19,
1997 and February 1, 1997 and the results of operations for
the twelve and twenty-four weeks ended July 19, 1997 and July
20, 1996. All such adjustments are of a normal and recurring
nature except for the restructuring charge discussed in Note
8.
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 1996 Annual
Report on Form 10-K for the fiscal year ended on February 1,
1997 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 19, 1997 and July 20, 1996 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.Earnings Per Share. In February 1997, the Financial
Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share",
which establishes standards for computing and presenting
earnings per share and applies to entities with publicly held
common stock or potential common stock. This Statement is
effective for financial statements issued for periods ending
after December 15, 1997, including interim periods; earlier
application is not permitted. This Statement requires
restatement of all prior-period earnings per share data
presented. The basic earnings (loss) per share and diluted
earnings (loss) per share as defined by SFAS No. 128 for the
twelve and twenty-four weeks ended July 19, 1997 and July 20,
1996 approximates the historically presented primary and fully
diluted earnings (loss) per share.
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 19, 1997 and February 1, 1997,
cash overdrafts of $1.8 million and $3.9 million,
respectively, were included in accounts payable. At July 19,
1997, the Company had $315.6 million available on its
revolving credit facility after excluding $4.5 million
restricted for letters of credit.
4.Reclassifications. Certain amounts reported in previously
issued financial statements have been reclassified to conform
to the 1997 presentation.
5.Put Options. During the twenty-four weeks ended July 19,
1997, the Company sold put options on 2.0 million shares of
the Company's common stock and recorded proceeds of $3.1
million. The amount related to the Company's potential
obligation has been recorded from shareholders' equity to put
options. The 2.0 million options outstanding at July 19, 1997
expire in November and December, 1997 and have an exercise
price ranging from $21 to $21.50 per share.
6.Legal Proceedings. 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 Form 10-K for the
fiscal year ended February 1, 1997.
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 (a director at the time of the
offering) 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.
The LaValla case has been stayed in court pending resolution
of the Klein case summarized below.
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.
The Company is presently engaged in various other legal
actions and governmental proceedings, and, although ultimate
liability cannot be determined at the present time, the
Company is currently of the opinion that the amount of any
such liability from these other actions and proceedings when
taking into consideration the Company's product liability
coverage, will not have a material adverse impact on its
financial position, results of operations or liquidity.
7.Inventories. Inventories consist of the following:
July 19, February 1,
1997 1997
(in thousands)
-------------------------
Product ready for sale $ 170,318 $ 158,800
Unpackaged bulk product and raw materials 34,692 36,121
Packaging supplies 2,540 3,440
$ 207,550 $ 198,361
8.Restructuring Charge. During the second quarter of 1996, the
Company recorded a restructuring charge of $80.2 million
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 $52.7
million of goodwill. The remaining $13.5 million of the
recorded charge related to unproductive General Nutrition
Centers (GNC) assets, primarily inventory relating to Natural
Solutions cosmetic and other products, fitness and apparel
products, all of which have been discontinued, as well as
excess costs resulting from retrofitting the Alive prototype
store.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains statements
relating to future results of the Company (including certain
projections and business trends) that are "forward-looking
statements" as defined in the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from
those projected as a result of certain risks and uncertainties,
including but not limited to changes in political and economic
conditions; demand for and market acceptance of new and existing
products, as well as other risks and uncertainties detailed from
time to time in the filings of the Company with the Securities
and Exchange Commission.
RESULTS OF OPERATIONS
Revenue
Consolidated revenue for the twelve and twenty-four week
periods ended July 19, 1997 was $265.6 and $538.7 million,
respectively, representing increases of 22.0% and 20.3% from the
same periods in 1996. Presented 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 Ended
------------------------------------------------------
July 19, July 20,
1997 % of Total 1996 % of Total
(in millions) Revenue (in millions) Revenue
------------------------------------------------------
Retail $ 195.1 73.5% $ 158.2 72.6%
Franchising 50.5 19.0% 42.6 19.6%
Manufacturing 20.0 7.5% 17.0 7.8%
Total $ 265.6 100.0% $ 217.8 100.0%
24 Weeks Ended
----------------------------------------------------
July 19, July 20,
1997 % of Total 1996 % of Total
(in millions) Revenue (in millions) Revenue
----------------------------------------------------
Retail $ 396.7 73.6% $ 328.1 73.3%
Franchising 104.2 19.4% 85.9 19.2%
Manufacturing 37.8 7.0% 33.9 7.5%
Total $ 538.7 100.0% $ 447.9 100.0%
Retail Revenue. Domestically, the Company's products
are sold through retail outlets operating primarily under the
General Nutrition Centers and GNC Live Well store names ("GNC").
The Company also operates retail stores under the Nature's Fresh,
Nature Food Centres, and Amphora names. Internationally,
products are sold through retail outlets operating under the
names of Health and Diet Centres, and General Nutrition Centres
in the United Kingdom, Canada, and New Zealand. Presented below
is a summary of revenue by operating retail entity and
corresponding store information:
Retail Revenue
12 Weeks Ended
--------------------------------------------------
July 19, % of Total July 20, % of Total
1997 Retail 1996 Retail
(in millions) Revenue (in millions) Revenue
------------------------ -----------------------
General Nutrition Centers $ 175.4 89.9% $ 147.8 93.4%
Other domestic stores 15.4 7.9% 8.1 5.1%
International stores 4.3 2.2% 2.3 1.5%
$ 195.1 100.0% $ 158.2 100.0%
24 Weeks Ended
-----------------------------------------------
July 19, % of Total July 20, % of Total
1997 Retail 1996 Retail
(in millions) Revenue (in millions) Revenue
---------------------- ----------------------
General Nutrition Centers $ 356.9 90.0% $ 306.0 93.2%
Other domestic stores 31.5 7.9% 17.6 5.4%
International stores 8.3 2.1% 4.5 1.4%
$ 396.7 100.0% $ 328.1 100.0%
Operating Store Locations
------------------------------------
July 19, 1997 July 20, 1996
----------------- ----------------
General Nutrition Centers 1,836 1,566
Other domestic stores 57 91
International stores 54 20
1,947 1,677
Revenue at GNC increased 18.7% and 16.6% for the twelve and
twenty-four week periods ended July 19, 1997 when compared with
the same periods in 1996. The increases were the result of 270
net new store openings, and favorable comparable store sales
gains of 9.3% and 7.4% for the twelve and twenty-four week period
ending July 19, 1997, respectively. The Company believes that
the favorable increase in comparable store sales is mainly
attributable to its new marketing efforts. The Company's
marketing emphasis has been significantly altered in an effort to
attract and retain both new and existing customers. Internally,
the Company has developed a new marketing strategy by: i)
creating a new chief marketing officer position; ii) contracting
a major New York advertising agency with strong retail and
strategic experience and; iii) assembling a scientific affairs
group to enhance scientific credibility for the Company and its
products. This new collective marketing group has focused its
efforts on mainstream health issues of targeted customer groups
such as men, women, senior citizens, etc. through the use of
major network TV, print media, and complementary in-store
fixtures and signage. The Company believes that the combined
efforts of these key marketing initiatives should continue to
have a positive impact on revenue through the remainder of the
year.
Other domestic retail revenue, comprised of Nature's Fresh,
Nature Food Centres, and Amphora, increased 90.1% to $15.4
million for the twelve week period and 79.0% to $31.5 million for
the twenty-four week period ended July 19, 1997 when compared to
$8.1 and $17.6 million for the same periods in 1996. The net
increase in other domestic retail revenue is due to the Company's
acquisition of Nature's Fresh in the third quarter of 1996,
partially offset by NFC store closings related to the
discontinuance of the NFC retail concept. (See Note 8 of Notes to
Consolidated Financial Statements).
Franchising Revenue. Revenue from the franchise segment
increased 18.5% and 21.3% for the twelve and twenty-four week
periods ended July 19, 1997 when compared with the same periods
in 1996. The increase continues to be driven by both new store
openings, 194 net new openings since July 20, 1996, coupled with
strong franchisee comparable store sales for the twelve week
period ended July 19, 1997 of 15.0% domestically, and 11.3%
internationally.
Product sales at wholesale prices and royalties on retail sales,
representing the core of Franchising's ongoing revenues,
comprised 94.6% and 94.3% of total franchise revenue for the
twelve and twenty-four weeks ended July 19, 1997. Remaining
franchising revenue included sales of stores, fixtures, franchise
award fees and interest income on franchise accounts receivable.
Total system-wide franchise retail sales were $100.4 million and
$201.1 million for the twelve and twenty-four weeks ending July
19, 1997, an increase of $22.3 million and $42.5 million,
respectively when compared with the same periods in 1996.
Presented below are the number of operating franchise stores, the
number of franchises awarded but not yet open, and the number of
outstanding development agreements:
Number of Operating Franchise Locations
----------------------------------------------------
July 19, 1997 July 20, 1996
------------------------- ------------------------
Franchise Locations Domestic International Domestic International
- ------------------- ---------- ------------- --------- -------------
At beginning of quarter 1,086 127 894 114
Added during quarter 49 7 62 2
Closed or converted
during quarter (18) - (12) (3)
At end of quarter 1,117 134 944 113
Stores awarded but not
yet open 235 1 208 1
Development agreements 43 366 42 396
Manufacturing Revenue. Total revenue generated by the
Company's manufacturing segment, including sales to other
segments of the Company and sales to various other third-parties,
increased to $66.4 million, or 18.4%, in the twelve weeks and
$134.8 million, or 25.4%, in the twenty-four weeks ended July 19,
1997 when compared with $56.1 million and $107.5 million for the
same periods in 1996. Third-party revenues for the quarter
remained consistent with the same quarter of 1996 due to the
increasing demand on the manufacturing capacity for the Company's
own product.
Domestic intersegment sales, accounting for the majority of
the increase in total manufacturing revenue for the current
twelve and twenty-four week periods, increased 17.7% to $45.9
million, and 31.0% to $95.9 million, from $39.0 million and $73.2
million, respectively, in the same periods of 1996. The increase
in intersegment sales activity was due to the strong demand for
product by existing GNC stores, as well as product requirement
needs of new stores added through the Company's ongoing store
expansion program.
Internationally, the Company's manufacturing operations
contributed $3.5 million and $2.4 million in third-party revenue
for the twelve weeks and $7.0 million and $5.1 million for the
twenty-four week period ended July 19, 1997 and July 20, 1996,
respectively. The Company's international manufacturing
operations also contributed $.5 million and $.1 million in
intersegment revenue for the twelve week and $1.1 million and $.4
million for the twenty-four week period, respectively. The
increase in third-party revenue was attributable to the Company's
acquisition of DFC Thompson Pty. Ltd. in the third quarter of
1996.
Analysis of Consolidated Operating Costs and Expenses
12 Weeks Ended 24 Weeks Ended
---------------------- ---------------------
July 19, July 20, July 19, July 20,
1997 1996 1997 1996
(in thousands) (in thousands)
---------------------- ---------------------
Cost of sales, including costs
of warehousing, distribution
and occupancy $ 161,495 $136,652 $327,875 $277,984
Percent of net revenue 60.8% 62.7% 60.9% 62.1%
Selling, general and
administrative $ 61,036 $ 49,059 $ 123,335 $ 100,666
Percent of net revenue 23.0% 22.5% 22.9% 22.5%
Restructuring charge $ - $ 80,243 $ - $ 80,243
Percent of net revenue 0.0% 36.9% 0.0% 17.9%
Operating earnings $ 43,073 $(48,204) $ 87,453 $ (10,976)
Percent of net revenue 16.2% (22.1)% 16.2% (2.5)%
Cost of sales decreased as a percentage of net revenue by
1.9% and 1.2% for the twelve and twenty-four week periods ended
July 19, 1997 when compared with the same periods in 1996. The
favorable decrease in cost of sales as a percentage of net
revenue was attributable to the Company's ability to successfully
leverage expenses against both rising retail revenues and
comparable store sales, including occupancy costs which are
primarily fixed in nature.
Selling, general and administrative costs increased during
the quarter as well as on a year to date basis during 1997 as a
percentage of net revenue, when compared with the same periods in
1996 by .5% and by .4%, respectively, primarily the result of the
Company's retail segment. In retail, increases in selling,
general and administrative expenses were recognized as a result
of increased bonus accruals which are directly related to store
profits, increased advertising expenditures, and increased
expenses relating to the development of the marketing and
scientific affairs groups.
During the second quarter of 1996, the Company recorded a
restructuring charge of $80.2 million related to the write-off of
goodwill, property and equipment, inventories, and other assets
associated with the decision to discontinue the NFC retail
concept and to adjust for certain unproductive assets, the
majority of which were in the retail business segment. (See Note
8 of Notes to Consolidated Financial Statements).
Non-Operating Income (Expense) Analysis
Interest expense for the quarter increased $2.2 million to
$5.5 million, when compared to the same period in 1996. The
increase in interest expense is primarily the result of $77.4
million of additional borrowings made since the second quarter of
1996 to fund the Company's stock repurchase activity. Interest
expense for the remainder of the year should remain higher than
the previous year as a result of these additional borrowings.
Review of Financial Condition
Analysis of Liquidity and Capital Resources
During the twenty-four weeks ended July 19, 1997, 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 Ended
---------------------
July 19, July 20,
1997 1996
(in thousands)
--------- -----------
Cash provided by (used in):
Operating activities $ 50,518 $ 22,233
Investing activities (32,655) (35,862)
Financing activities (17,542) 13,658
Effect of exchange rate on cash (321) (29)
Net change in cash $ - $ -
Operating Activities. Cash provided by operating activities
for the twenty-four weeks ended July 19, 1997 was $50.5 million
versus $22.2 million for the same period in 1996, an increase of
$28.3 million or 127.5%. The increase in cash provided by
operating activities is primarily the result of favorable changes
in the Company's operating assets and liabilities of $28.1
million during the twenty-four week period ended July 19, 1997
when compared to the same period in 1996.
Investing Activities. The Company's primary investing
activities have traditionally been for capital expenditures made
in connection with new store construction, the remodeling of
existing stores, and expansion requirements at both the
manufacturing and distribution facilities. Capital expenditures
were $21.0 million and $26.9 million for the twenty-four week
periods ended July 19, 1997 and July 20, 1996, respectively. The
Company plans to accelerate the acquisition of existing franchise
store locations.
Financing Activities. Cash used in financing activities
increased $31.2 million for the twenty-four weeks ended July 19,
1997 versus the same period in 1996. In 1997, the Company's net
borrowings on its revolving credit facility was $4.7 million,
$35.1 million of which was used to repurchase 1.7 million shares
of its own stock. In 1996, net borrowings on the facility were
$119.2 million, $117.3 million of which was used to repurchase
7.6 million shares of its own stock. The Company also 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 July 19, 1997, the Company had $315.6
million available on its revolving credit facility after
excluding $4.5 million restricted for letters of credit.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
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 26, 1997.
(b) William E. Watts was re-elected as a Class II
Director for a three-year term expiring in 2000 by a
vote of 68,917,423 For; and 500,718 Withheld Authority
and Ronald L. Rossetti was re-elected as a Class II
Director for a three-year term expiring in 2000 by a
vote of 68,896,241 For; and 521,900 Withheld
Authority. The remaining directors continue in office
with their class and term as follows: Class I - David
Lucas and W. Harrison Wellford with terms expiring in
1998; Class III - Jerry D. Horn and Thomas R. Shepherd
with terms expiring in 1999.
(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
69,352,931 FOR 44,380 AGAINST 20,830 ABSTAIN
(d) Not applicable.
ITEM 5. OTHER INFORMATION
GNCI Shareholder:
On August 21, 1997, the Bank of New York became the
transfer agent and shareholder recordkeeper for General
Nutrition Companies, Inc. The Bank of New York is one of
the leading providers of securities processing and
recordkeeping in the country and offers a state-of-the-
art shareholder services system. The Bank's staff can be
reached at 1-800-524-4458 between the hours of 8 a.m. and
8 p.m. Monday through Friday. Please retain this
information that you may find helpful.
Address transfer agent related shareholder inquiries to:
The Bank of New York
Shareholder Relations Department - 11E
P.O. Box 11258
Church Street Station
New York, NY 10286
Send certificates for transfer and address changes to:
The Bank of New York
Receive and Deliver Department - 11W
P.O. Box 11802
Church Street Station
New York, NY 10286
E-Mail address for Bank of New York:[email protected]
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 fiscal quarter ended July 19, 1997 is attached.
(23.1) Letter in lieu of consent of the Company's
independent accountants, Deloitte & Touche LLP, for
the fiscal quarter ended July 19, 1997 is attached.
(27) Financial Data Schedule is attached.
No current reports on Form 8-K were filed during the
current 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 27, 1997
3
Exhibit
11.1
GENERAL NUTRITION COMPANIES, INC. AND SUBSIDIARIES
Computation of Net Earnings (Loss) Per Share
12 Weeks Ended 24 Weeks Ended
----------------------------------------------
July 19, July 20, July 19, July 20,
1997 1996 1997 1996
(in thousands except per share amounts)
---------------------- --------------------
Net earnings (loss) for
common shares $ 23,054 $ (51,879) $ 46,913 $ (31,701)
Common stock 80,520 86,681 80,823 88,122
Outstanding stock options 2,063 - 1,917 -
Primary weighted average
common shares 82,583 86,681 82,740 88,122
Common stock 80,520 86,681 80,823 88,122
Outstanding stock options 2,198 - 2,198 -
Fully diluted weighted
average common shares 82,718 86,681 83,021 88,122
Primary earnings (loss)
per share $ 0.28 $ (0.60) $ 0.57 $ (0.36)
Fully diluted earnings
(loss) per share $ 0.28 $ (0.60) $ 0.57 $ (0.36)
EXHIBIT 23
INDEPENDENT ACCOUNTANTS' REPORT
To The Board of Directors and Shareholders' 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 19, 1997 and the
related consolidated statements of operations and cash flows for the
twelve and twenty-four weeks ended July 19, 1997 and July 20, 1996.
These financial statements are the responsibility of the Company'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 1, 1997, 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 31, 1997, 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 1, 1997 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 4, 1997
3
EXHIBIT 23.1
August 27, 1997
General Nutrition Companies, Inc.
300 Sixth Avenue
Pittsburgh, Pennsylvania, 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 and twenty-four
weeks ended July 19, 1997 and July 20, 1996, as indicated in our
report dated August 4, 1997; 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 19, 1997, is incorporated by reference in Registration
Statement Nos. 33-58096, 33-68590, 33-93370, 333-00128 and 333-
21397 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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