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 October 11, 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 November 21, 1997, the number of shares outstanding of
the registrant's common stock was 81,648,569.
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENERAL NUTRITION COMPANIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share data)
October 11, February 1,
1997 1997
(unaudited)
ASSETS
Current Assets:
Receivables $ 69,944 $ 58,711
Inventories 217,923 198,361
Deferred tax assets 18,903 18,903
Other current assets 14,403 17,498
Total current assets 321,173 293,473
Property, plant and equipment, net 190,117 175,352
Other assets 53,980 44,891
Deferred financing fees, net of accumulated
amortization of $2,284 and $1,538 4,072 3,066
Goodwill, net of accumulated amortization
of $59,607 and $52,907 271,084 263,060
$ 840,426 $ 779,842
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 89,769 $ 79,958
Accrued salaries, wages, vacations and
related taxes 20,349 17,198
Accrued income taxes 23,194 7,008
Other current liabilities 62,452 54,637
Long-term debt, current portion 965 984
Total current liabilities 196,729 159,785
Long-term debt 345,978 377,885
Deferred tax liabilities 1,459 1,462
Commitments and contingencies - -
Minority interest 317 487
Put options 98,500 -
Shareholders' Equity:
Common stock, $.01 par value:
Authorized 200,000,000 shares,
issued and outstanding 81,283,204
shares at October 11, 1997 and
91,287,289 shares, including shares
in treasury, at February 1, 1997 813 913
Additional paid-in capital 143,480 319,297
Stock options outstanding 8,121 10,917
Subscriptions receivable (3,933) (3,295)
Currency translation adjustment (350) 483
Accumulated earnings 142,372 71,527
290,503 399,842
Treasury stock, at cost, 10,000,000
shares at February 1, 1997 - (159,619)
Put options (93,060) -
197,443 240,223
$ 840,426 $ 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 Ended 36 Weeks Ended
October 11, October 12, October 11, October 12,
1997 1996 1997 1996
Net revenue $277,970 $226,622 $816,633 $674,539
Cost of sales, including
costs of warehousing,
distribution and occupancy 170,625 139,723 498,500 417,707
Selling, general and
administrative 61,234 50,909 179,421 147,184
Amortization of goodwill 1,884 2,129 6,743 6,520
Restructuring charge - - - 80,243
Compensation expense - - 289 -
Operating earnings 44,227 33,861 131,680 22,885
Interest expense 5,309 4,438 15,966 10,761
Earnings before income taxes
and minority interest 38,918 29,423 115,714 12,124
Income taxes 15,042 11,553 45,039 25,955
Minority interest (56) - (170) -
Net earnings (loss) $ 23,932 $ 17,870 $ 70,845 $(13,831)
Primary earnings (loss)
per share $ 0.29 $ 0.21 $ 0.85 $ (0.16)
Primary weighted average
common shares 83,240 84,570 82,924 86,364
Fully diluted earnings (loss)
per share $ 0.29 $ 0.21 $ 0.85 $ (0.16)
Fully diluted weighted average
common shares 83,345 84,997 83,201 86,364
Notes to Consolidated Financial Statements are an integral part of these
statements.
GENERAL NUTRITION COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
36 Weeks Ended
October 11, October 12,
1997 1996
Cash flows from operating activities:
Net earnings (loss) $ 70,845 $ (13,831)
Adjustments to reconcile net earnings
(loss) to net cash provided
by operating activities
Depreciation and amortization 30,421 27,618
Amortization of deferred
financing fees 746 423
Restructuring charge - 80,243
Compensation expense 289 -
Other (228) 377
Change in operating assets and
liabilities:
Increase in receivables (10,105) (10,284)
Increase in inventories (19,562) (41,724)
Increase in other assets (1,209) (272)
Increase (decrease) in
accrued taxes 16,186 (561)
Increase in accounts payable
and accrued liabilities 14,795 11,085
Increase (decrease) in other
working capital items 6,680 (5,553)
Total adjustments 38,013 61,352
Net cash provided by operating
activities 108,858 47,521
Cash flows from investing activities:
Capital expenditures (39,155) (42,792)
Proceeds from disposal of assets 1,050 -
Increase in franchisee notes
receivable (2,417) (5,582)
Payments for franchise store
acquisitions (14,522) (4,529)
Payments made for acquisitions, net
of cash acquired - (10,636)
Loan to related party (7,662) (3,536)
Net cash used in investing activities (62,706) (67,075)
Cash flows from financing activities:
Net (payments) borrowings on
revolving credit facility (31,200) 126,401
Retirement of long-term debt - (34,001)
Book balance bank overdraft 2,694 5,825
Decrease in capital lease obligations (726) (1,222)
Redemption of redeemable preferred
stock (184) (31)
Net proceeds from issuance of common
stock 15,150 40,469
Proceeds from sale of put options 5,440 -
Stock subscriptions receivable 331 -
Net payments for treasury stock (35,072) (117,300)
Increase in deferred financing fees (1,752) (550)
Net cash (used in) provided by
financing activities (45,319) 19,591
Effect of exchange rate changes on cash (833) (37)
Net change in cash - -
Beginning balance, cash - -
Ending balance, cash $ - $ -
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 15,924 $ 10,277
Income taxes $ 31,130 $ 25,076
Non-cash transactions:
(a) On August 17, 1996, $9.2 million of common stock was issued in
connection with the acquisition of Nature's Fresh Northwest, Inc.
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 October
11, 1997 and February 1, 1997 and the results of operations
for the twelve and thirty-six weeks ended October 11, 1997 and
October 12, 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
consolidated statements of operations for the twelve and
thirty-six weeks ended October 11, 1997 and October 12, 1996
and the consolidated statements of cash flows for the thirty-
six weeks ended October 11, 1997 and October 12, 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 thirty-six weeks ended October 11, 1997 and October
12, 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 October 11, 1997 and February 1,
1997, cash overdrafts of $2.7 million and $3.9 million,
respectively, were included in accounts payable. At October
11, 1997, the Company had $353.1 million available on its
$700 million revolving credit facility after excluding $2.9
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 thirty-six weeks ended October 11,
1997, the Company sold put options on 4 million shares of the
Company's common stock and recorded proceeds of $5.4 million.
The amount related to the Company's potential obligation has
been recorded from shareholders' equity to put options. The 4
million options outstanding at October 11, 1997 expire in
November and December, 1997 and have an exercise price ranging
from $21 to $28 per share. On November 15, 1997, 1 million of
the outstanding put options, with a settlement value of $21
million, expired with no shares being repurchased.
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:
October 11, February 1,
1997 1997
(in thousands)
Product ready for sale $ 178,548 $ 158,800
Unpackaged bulk product and
raw materials 36,499 36,121
Packaging supplies 2,876 3,440
$ 217,923 $ 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.
9.Treasury Stock - During the quarter ended October 11, 1997,
the Company retired 11.7 million shares of common stock that
were held in treasury.
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 thirty-six week
periods ended October 11, 1997 was $278.0 million and $816.6
million, respectively, representing increases of 22.7% and 21.1%
from the same periods in 1996. Presented below is a comparison
of revenue for each of the Company's businesses for the twelve
and thirty-six week periods:
CONSOLIDATED REVENUE
12 Weeks Ended
October 11, % of Total October 12, % of Total
1997 Revenue 1996 Revenue
(in millions) (in millions)
Retail $ 198.6 71.4% $ 165.9 73.2%
Franchising 54.7 19.7% 42.7 18.9%
Manufacturing 24.7 8.9% 18.0 7.9%
Total $ 278.0 100.0% $ 226.6 100.0%
36 Weeks Ended
October 11, % of Total October 12, % of Total
1997 Revenue 1996 Revenue
(in millions) (in millions)
Retail $ 595.2 72.9% $ 493.9 73.2%
Franchising 158.9 19.4% 128.6 19.1%
Manufacturing 62.5 7.7% 52.0 7.7%
Total $ 816.6 100.0% $ 674.5 100.0%
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
October 11, % of Total October 12, % of Total
1997 Retail 1996 Retail
(in millions) Revenue (in millions) Revenue
General Nutrition
Centers $ 178.9 90.1% $ 149.5 90.1%
Other domestic
stores 14.9 7.5% 14.1 8.5%
International
stores 4.8 2.4% 2.3 1.4%
$ 198.6 100.0% $ 165.9 100.0%
36 Weeks Ended
October 11, % of Total October 12, % of Total
1997 Retail 1996 Retail
(in millions) Revenue (in millions) Revenue
General Nutrition
Centers $ 535.7 90.0% $ 455.4 92.2%
Other domestic
stores 46.3 7.8% 31.7 6.4%
International
stores 13.2 2.2% 6.8 1.4%
$ 595.2 100.0% $ 493.9 100.0%
Operating Store Locations
October 11, October 12,
1997 1996
General Nutrition Centers 1,908 1,656
Other domestic stores 54 91
International stores 61 20
2,023 1,767
Revenue at GNC increased 19.7% and 17.6% for the twelve and
thirty-six week periods ended October 11, 1997 when compared with
the same periods in 1996. The increase in revenue is
attributable to both the opening of 252 net new stores from
October 12, 1996 to October 11, 1997, and favorable comparable
store sales gains of 10.1% and 8.3% for the twelve and thirty-six
week period ending October 11, 1997, respectively.
The Company believes that the favorable increases in comparable
store sales is mainly attributable to the combination of
positive publicity relating to herbs and dietary supplements, the
changes made in the Company's marketing strategy during the
fourth quarter of 1996, as well as favorable scientific research.
The Company also believes that the combined efforts of these
attributes 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 5.7% for the twelve
week period, and 46.1% for the thirty-six week period ended
October 11, 1997 when compared to 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 28.1% and 23.6% for the twelve and thirty-six week
periods ended October 11, 1997 when compared with the same
periods in 1996. The increase continues to be driven by both new
store openings, 148 net new openings since October 12, 1996,
coupled with strong franchisee comparable store sales for the
twelve and thirty-six week period ended October 11, 1997 of 22.1%
and 16.2% domestically, and 13.8% and 12.0% internationally.
The Company believes that the increase in comparable store sales
for its franchise stores continues to be driven by i) the
benefit that an on-sight owner/operator has on the performance of
the store; ii) the positive publicity relating to herbs and
dietary supplements; iii) the changes made in the Company's
marketing strategy during the fourth quarter of 1996 and;
favorable scientific research.
Product sales at wholesale prices and royalties on retail sales,
representing the core of Franchising's ongoing revenues,
comprised 92.4% and 93.6% of total franchise revenue for the
twelve and thirty-six weeks ended October 11, 1997 versus 91% and
92.4% for the same period in 1996. 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 $106.2 million and $307.3
million for the twelve and thirty-six weeks ending October 11,
1997, an increase of $25.9 million and $68.4 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
October 11, 1997 October 12, 1996
Franchise Locations Domestic International Domestic International
At beginning of quarter 1,117 134 944 113
Added 65 5 73 5
Repurchased (50) - (14) -
Closed (2) (1) - (1)
At end of quarter 1,130 138 1,003 117
Stores awarded but not
yet open 252 1 192 1
Development agreements 50 395 42 381
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 21.3%, in the twelve weeks and 24.0%, in the
thirty-six weeks ended October 11, 1997 when compared with the
same periods in 1996.
Domestic intercompany sales increased 12.9% during the
current quarter and 24.9% on a year to date basis when compared
to the same periods in 1996. During the quarter, third-party
sales increased 36.6% or $5.6 million over the same quarter in
1996. The increase in third-party sales is the result of
additional capacity and improved production efficiencies at
manufacturing.
Analysis of Consolidated Operating Costs and Expenses
12 Weeks Ended 36 Weeks Ended
October 11, October 12, October 11, October 12,
1997 1996 1997 1996
(in thousands) (in thousands)
Cost of sales, including
cost of warehousing,
distribution and
occupancy $170,625 $139,723 $498,500 $417,707
Percent of net revenue 61.4% 61.7% 61.1% 61.9%
Selling, general and
administrative $ 63,118 $ 53,038 $186,453 $153,704
Percent of net revenue 22.7% 23.4% 22.8% 22.8%
Restructuring charge $ - $ - $ - $ 80,243
Percent of net revenue - - - 11.9%
Operating earnings $ 44,227 $ 33,861 $131,680 $ 22,885
Percent of net revenue 15.9% 14.9% 16.1% 3.4%
Cost of sales decreased as a percentage of net revenue by
.3% and .8% for the twelve and thirty-six week periods ended
October 11, 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. The Company was also successful in
leveraging its selling, general and administrative costs against
revenues during the quarter, decreasing .7% versus the same
period in 1996.
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 increased $.9 million and $5.2 million for
the twelve and thirty-six week periods ended October 11, 1997
when compared to the same periods in 1996. The increase in
interest expense is primarily the result of $49.3 million of net
additional borrowings made under the Company's revolving credit
facility since the second quarter of 1996, the majority of which
was 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 thirty-six weeks ended October 11, 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 are summarized as
follows:
36 Weeks Ended
October 11, October 12,
1997 1996
(in thousands) i
Cash provided by (used in):
Operating activities $ 108,858 $ 47,521
Investing activities (62,706) (67,075)
Financing activities (45,319) 19,591
Effect of exchange rate
changes on cash (833) (37)
Net change in cash $ - $ -
Operating Activities. Cash provided by operating activities
for the thirty-six weeks ended October 11, 1997 was $108.9
million versus $47.5 million for the same period in 1996, an
increase of $61.4 million. This increase is primarily the result
of increased earnings and favorable changes in the Company's
operating assets and liabilities of $54.1 million.
Investing Activities. The Company's primary investing
activities have historically 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
for the thirty-six weeks ended October 11, 1997 have decreased
8.4% from the same period in 1996. The Company has made payments
for franchise store acquisitions of $14.5 million and $4.5 million
for the thirty-six weeks ended October 11, 1997 and October 12,
1996, respectively, the result of the Company's accelerated buyback
program of existing franchise store locations. The Company plans
to spend between $60 million and $80 million for the franchise
store buyback program.
Financing Activities. Cash used in financing activities
decreased $64.9 million for the thirty-six weeks ended October
11, 1997 versus the same period in 1996. For the thirty-six
weeks ended October 11, 1997 and October 12, 1996, the Company
repurchased $35.1 million and $117.3 million of treasury stock,
respectively. Additional funds generated by operating activities
were used to reduce debt under the Company's revolving credit
facility. For the thirty-six weeks ended October 12, 1996, the
Company's primary sources of cash were $126.4 million in net
borrowings on its revolving credit facility and $33.4 million
in funds received from the sale, in February 1996, of approximately
1.6 million shares of its common stock. The Company utilized
this $159.5 million of cash inflow to repurchase 7.6 million
shares of the Company's own stock for $117.3 million, as well
as to repay $34.0 million on its bank term loan. At October 11,
1997, the Company had $353.1 million available on its $700 million
revolving credit facility after excluding $2.9 million restricted
for letters of credit.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(11.1) Computation of net earnings (loss) per share is
attached.
(23) Interim review report of the Company's
independent accountants, Deloitte & Touche LLP, for
the fiscal quarter ended October 11, 1997 is
attached.
(23.1) Letter in lieu of consent of the Company's
independent accountants, Deloitte & Touche LLP, for
the fiscal quarter ended October 11, 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: November 21, 1997
2
.
Exhibit 11.1
GENERAL NUTRITION COMPANIES, INC. AND SUBSIDIARIES
Computation of Net Earnings (Loss) Per Share
12 Weeks Ended 36 Weeks Ended
October 11, October 12, October 11, October 12,
1997 1996 1997 1996
(in thousands except per share amounts)
Net earnings (loss) $ 23,932 $ 17,870 $ 70,845 $ (13,831)
available for common
shares
Common stock 81,040 82,853 80,896 86,364
Outstanding stock options 2,200 1,717 2,028 -
Primary weighted average
common shares 83,240 84,570 82,924 86,364
Common stock 81,040 82,853 80,896 86,364
Outstanding stock options 2,305 2,144 2,305 -
Fully diluted weighted
average common shares 83,345 84,997 83,201 86,364
Primary earnings (loss)
per share $ 0.29 $ 0.21 $ 0.85 $(0.16)
Fully diluted earnings
(loss) per share $ 0.29 $ 0.21 $ 0.85 $(0.16)
3
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 October
11, 1997, the related consolidated statements of operations for
the twelve and thirty-six weeks ended October 11, 1997 and
October 12, 1996 and the related consolidated statements of cash
flows for the thirty-six weeks ended October 11, 1997 and October
12, 1996. 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 1,
1997, and the related consolidated statements of operations,
shareholders 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
November 15, 1997
2
EXHIBIT 23.1
November 21, 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 thirty-six
weeks ended October 11, 1997 and October 12, 1996, as indicated
in our report dated November 15, 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 October 11, 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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