UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                          to                                         

GNC CORPORATION

(Exact name of registrant as specified in its charter)

DELAWARE		72-1575170
(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 offices)

Registrant’s telephone number, including area code: (412) 288-4600

Securities registered pursuant to section 12(b) of the Act: None        

Securities registered pursuant to section 12(g) of the Act: None        

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
o Yes þ No

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. o Yes þ No

     Indicate by 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. þ Yes o No

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated þ

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes þ No

     As of June 30, 2005, all of the registrant’s common equity was privately held, and there was no public market for the registrant’s common equity nor any publicly available quotations for the registrant’s common equity. As a result, the registrant is unable to calculate the aggregate market value of the registrant’s common stock held by non-affiliates as of June 30, 2005. As of March 1, 2006, 29,546,538 shares of the registrant’s common stock, par value $0.01 per share (the “Common Stock”) were outstanding. All but 2,500 shares of Common Stock are held by affiliates of the registrant or employees of the registrant or its subsidiaries.

 

 

TABLE OF CONTENTS

					Page
Part I
Item 1		Business			4
Item 1A		Risk Factors			16
Item 1B		Unresolved Staff Comments			22
Item 2		Properties			23
Item 3		Legal Proceedings			24
Item 4		Submission of Matters to a Vote of Security Holders			25
Part II
Item 5		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			26
Item 6		Selected Financial Data			27
Item 7		Management’s Discussion and Analysis of Financial Condition and Results of Operation			31
Item 7A		Quantitative and Qualitative Disclosures about Market Risk			48
Item 8		Financial Statements and Supplementary Data			49
Item 9		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			92
Item 9A		Controls and Procedures			92
Item 9B		Other Information			92
Part III
Item 10		Directors and Executive Officers of the Registrant			93
Item 11		Executive Compensation			97
Item 12		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			105
Item 13		Certain Relationships and Related Transactions			107
Item 14		Principal Accountant Fees and Services			108
Part IV
Item 15		Exhibits, Financial Statement Schedules			109
		Signatures			113
EX-21.1
EX-31.1
EX-31.2
EX-32.1

FORWARD LOOKING STATEMENTS

     This Annual Report on Form 10-K (the “Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations and business of GNC Corporation, a Delaware corporation (“GNC” or “the “Company”) (formerly known as General Nutrition Centers Holding Company.) Forward-looking statements may relate to our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, and other information that is not historical information. Discussions containing such forward-looking statements may be found in Items 1, 2, 3, 7 and 7A hereof, as well as within this Report generally. In addition, when used in this Report, the words “subject to,” “believe,” “anticipate,” “plan,” “expect,” “intend,” “estimate,” “project,” “may,” “will,” “should,” “can,” or the negative thereof, or variations thereon, or similar expressions, or discussions of strategy, are intended to identify forward-looking statements, which are inherently uncertain.

     All forward-looking statements, including, without limitation, our examination of historical operating trends, are based upon our current expectations and various assumptions. We believe there is a reasonable basis for our expectations and beliefs, but we may not realize our expectations and our beliefs may not prove correct. Actual results could differ materially from those described or implied by such forward-looking statements. Factors that may materially affect such forward-looking statements include, among others:

	•		significant competition in our industry;
	•		unfavorable publicity or consumer perception of our products;
	•		the incurrence of material product liability and product recall costs;
	•		costs of compliance and our failure to comply with governmental regulations;
	•		the failure of our franchisees to conduct their operations profitably;
	•		economic, political and other risks associated with our international operations;
	•		our failure to keep pace with the demands of our customers for new products and services;
	•		disruptions in our manufacturing system or losses of manufacturing certifications;
	•		the lack of long-term experience with human consumption of some of our products with innovative ingredients;
	•		increases in the frequency and severity of insurance claims, particularly claims for which we are self-insured;
	•		loss or retirement of key members of management;
	•		increases in the cost of borrowings and unavailability of additional debt or equity capital;
	•		the impact of our substantial indebtedness on our operating income and our ability to grow; and
	•		the failure to adequately protect or enforce our intellectual property rights against competitors.

     Consequently, such forward-looking statements should be regarded solely as the Company’s current plans, estimates and beliefs. Readers are cautioned not to place undue reliance on forward-looking statements. The Company cannot guarantee future results, events, levels of activity, performance or achievements. The Company does not undertake and specifically declines any obligation to update, republish or revise forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrences of unanticipated events.

     Industry data used throughout this Report was obtained from industry publications and internal Company estimates. While the Company believes such information to be reliable, its accuracy has not been independently verified and cannot be guaranteed.

PART I

ITEM 1. BUSINESS

GNC Corporation

     We are the largest global specialty retailer of nutritional supplements, which include vitamins, minerals and herbal supplements (“VMHS“), sports nutrition products, diet products and other wellness products. We derive our revenues principally from product sales through our company-owned stores and gnc.com, franchise activities and sales of products manufactured in our facilities to third parties. We sell products through a worldwide network of more than 5,800 locations operating under the GNC® brand name. Our product mix, which is focused on high-margin, value-added nutritional products, is sold under our GNC proprietary brands, including Mega Men®, Ultra Mega®, Pro Performance®, Total Lean™ and Preventive Nutrition®, and under nationally recognized third-party brands.

     Our principal executive offices are located at 300 Sixth Avenue, Pittsburgh, Pennsylvania 15222, and our telephone number is (412) 288-4600. We also maintain a website at gnc.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available, free of charge on our website or upon written request to 300 Sixth Avenue, Pittsburgh, Pennsylvania 15222, Attention: Chief Legal Officer, as soon as reasonably practicable after the Company electronically files such materials with the Securities and Exchange Commission (the “SEC”). The contents of our website are not incorporated by reference in this Report and shall not be deemed “filed” under the Exchange Act.

     In this Report, unless the context requires otherwise, references to “we,” “us,” “our,” “Company” or “GNC” refer to GNC Corporation and its subsidiaries and, for the periods prior to December 5, 2003, our predecessor.

Company History

     We are a holding company and all of our operations are conducted through our operating subsidiaries. We were formed as a Delaware corporation in November 2003 by Apollo Management V, L.P. (“Apollo Management V”), an affiliate thereof and certain members of our management to acquire General Nutrition Companies, Inc. (“GNCI”) from Numico USA. GNCI was acquired in August 1999 by Numico Investment Corp. (‘‘NIC’’) which, subsequent to the acquisition, was merged into GNCI. NIC was a wholly owned subsidiary of an entity ultimately merged into Numico USA. Numico USA is a wholly owned subsidiary of Koninklijke (Royal) Numico N.V., a Dutch public company. Prior to the acquisition by NIC in 1999, GNCI was a publicly traded company, listed on the Nasdaq National Market.

     On December 5, 2003, our wholly owned subsidiary and operating company, General Nutrition Centers, Inc. (“Centers”) purchased 100% of the outstanding equity interests of GNCI from Numico (the “Acquisition”). Accordingly, the financial results described and presented below represent the Company’s results for the years 2005 and 2004 and the aggregate financial results of the Company for the 27 days ended December 31, 2003, and GNCI’s results from January 1, 2003 to December 4, 2003. Simultaneously with the closing of the Acquisition, Centers entered into credit facilities with a syndicate of lenders, consisting of a term loan facility and a revolving credit facility. Centers borrowed the full amount of the term loan facility to fund a portion of the Acquisition purchase price, but made no borrowings under the revolving credit facility. Our obligations under the credit facilities are guaranteed by our domestic subsidiaries. Centers also used the net proceeds from the offering of our 8 1/2% Senior Subordinated Notes due 2010 to fund a portion of the Acquisition purchase price. In addition, we received an equity contribution in exchange for our common and preferred stock from GNC Investors, LLC, its principal stockholder. We contributed the full amount of the equity contribution to Centers to fund a portion of the Acquisition purchase price. Our equity sponsor subsequently resold all of our preferred stock to other institutional investors.

     Our equity sponsor held approximately 97% of our outstanding common stock as of December 31, 2005. Apollo Investment Fund V, L.P. (“Apollo Investment V”), together with related co-investment entities (collectively, ‘Apollo Funds V’’) and other institutional investors own all of the equity interests of our equity sponsor, with Apollo Funds V owning approximately 76% of such equity interests.

     Business Overview

     The following charts illustrate, for the year ended December 31, 2005, the percentage of our net revenues generated by our three business segments and the percentage of our net U.S. retail supplement revenues generated by our product categories:

  Retail Locations

     Our retail network represents the largest specialty retail store network in the nutritional supplements industry according to the Nutritional Business Journal’s 2005 Supplement Business Report (the “2005 NBJ Report”). As of December 31, 2005, there were 5,813 GNC store locations globally, including: (1) 2,517 company-owned in the United States (all 50 states, the District of Columbia and Puerto Rico); (2) 133 company-owned in Canada; (3) 1,156 domestic franchises; (4) 858 international franchises; and (5) 1,149 GNC “store-within-a-store” locations under our strategic alliance with Rite Aid Corporation. Most of our company-owned and franchised U.S. stores are between 1,000 and 2,000 square feet and are located in shopping malls and strip shopping centers. In addition to our retail locations, on December 28, 2005, we also started selling products through our website, gnc.com.

  Franchise Activities

     We generate income from franchise activities primarily through product sales to franchisees, royalties on franchise retail sales and franchise fees. To assist our franchisees in the successful operation of their stores and to protect our brand image, we offer a number of services to franchisees including training, site selection, construction assistance and accounting services. We believe that our franchise program enhances our brand awareness and market presence and will enable us to expand our store base internationally with limited capital expenditures by us.

  Store-Within-a-Store Locations

     To increase brand awareness and promote access to customers who may not frequent specialty nutrition stores, we entered into a strategic alliance with Rite Aid to open our GNC “store-within-a-store” locations. Through this strategic alliance, we generate revenues from sales to Rite Aid of our products at wholesale prices, the manufacture of Rite Aid private label products and retail sales of certain consigned inventory. In May 2004, we extended our alliance with Rite Aid through April 30, 2009, with Rite Aid’s commitment to open 300 new store-within-a-store locations by December 31, 2006. At December 31, 2005, Rite Aid had opened 172 of these 300 new store-within-a-store locations.

  Products

          We offer a wide range of high-quality nutritional supplements sold under our GNC proprietary brand names and under nationally recognized third-party brand names. Sales of our proprietary brands at our company-owned stores represented approximately 47% of our net retail product revenues for the year ended December 31, 2005.

  Marketing

          We market our proprietary brands of nutritional products through an integrated marketing program that includes television, print and radio media, storefront graphics, direct mailings to members of our Gold Card program and point of purchase promotional materials.

  Manufacturing and Distribution

          With our technologically sophisticated manufacturing and distribution facilities supporting our retail stores, we are a low-cost, vertically integrated producer and supplier of high-quality nutritional supplements. By controlling the production and distribution of our proprietary products, we can protect product quality, monitor delivery times and maintain appropriate inventory levels.

Industry Overview

          According to the 2005 NBJ Report, which utilized data through the end of 2004, the U.S. nutritional supplements retail industry, which includes nutritional supplements sold through all channels, is large and highly fragmented, with no single industry participant accounting for a majority of total industry retail sales in 2004. Participants include specialty retailers, supermarkets, drugstores, mass merchants, multi-level marketing organizations, mail order companies and a variety of other smaller participants. The nutritional supplements sold through these channels are divided into four major product categories: VMHS; sports nutrition products; diet products; and other wellness products. Most supermarkets, drugstores and mass merchants have narrow nutritional supplement product offerings limited primarily to simple vitamins and herbs, with less knowledgeable sales associates than specialty retailers. We believe that these merchants’ shares of the nutritional supplements market over the last five years has remained relatively constant.

          According to the 2005 NBJ Report, “Sales of supplements grew fairly steadily on the strength of vitamins until the 1990s. Then the broader introduction of herbal, botanical and other alternative supplements—stimulated and supported further by the passage of DSHEA in 1994—caused the overall supplement category to break through for a high-growth period of five or six years until around 1998. During 1994-1998 supplement sales grew more rapidly than the overall nutrition industry, itself sustaining strong growth rates of near 10% during those years, thanks in part to supplements, but also consistent growth in natural foods. The year 1999 featured a turnaround when supplement sales first showed considerable signs of weakness and the business suddenly ‘matured’ with 4% growth. In 2004, supplements grew 2.6% and the total nutrition industry 7.8%. NBJ forecasts average annual growth in the supplement business of 4% for the period 2005-2013. Fluctuations resulting from new products, new science, new regulations, newly allowed claims and the ever-changing economy are expected, if not directly forecast.”

          Several demographic, healthcare and lifestyle trends are expected to drive the continued growth of the nutritional supplements industry. These trends include:

	•		Aging Population: The average age of the U.S. population is increasing. U.S. Census Bureau data indicates that the number of Americans age 65 or older is expected to increase by 54% from 2000 to 2010. We believe that these consumers are significantly more likely to use VMHS products than younger persons.
	•		Rising Healthcare Costs and Use of Preventive Measures: Healthcare related costs have increased substantially in the United States. A preliminary survey released by Mercer Human Resource Consulting in 2005 found that employers anticipate an almost 10% increase in health care costs in the next year, about three times the rate of general inflation, if they leave benefits unchanged. To reduce medical costs and avoid the complexities of dealing with the healthcare system, many consumers take preventive measures, including alternative medicines and nutritional supplements.
	•		Increasing Focus on Fitness: In total, U.S. health club membership increased 4.9% between January 2004 and January 2005, from 39.4 million members to a record 41.3 million and has grown 40% from 29.5 million in 2003, according to the International Health, Racquet & Sportsclub Association. We believe that fitness-oriented consumers are interested in taking sports nutrition products to increase energy, endurance and strength during exercise.

•

Increasing Incidence of Obesity: The Centers for Disease Control and The National Health and Nutrition Examination Survey estimates that 64% of adults in the United States are either overweight or obese. Obesity may lead to more serious health conditions, such as diabetes, heart disease and high blood pressure. At any one time, more than 25% of men and 45% of women are dieting.

Products

     We offer a wide range of high-quality nutritional supplements sold under our GNC proprietary brand names, including Mega Men, Ultra Mega, Pro Performance, Total Lean and Preventive Nutrition, and under nationally recognized third-party brand names. We operate in four major nutritional supplement categories: VMHS; sports nutrition products; diet products; and other wellness products. We offer an extensive mix of brands and products, including approximately 2,100 SKUs across multiple categories. This variety is designed to provide our customers with a vast selection of products to fit their specific needs. Sales of our proprietary brands at our company-owned stores represented approximately 47% of our net retail product revenues for the year ended December 31, 2005.

     Products are delivered to our retail stores through our distribution operations located in Leetsdale, Pennsylvania; Anderson, South Carolina; and Phoenix, Arizona. Our distribution centers support our company-owned stores as well as franchised stores and Rite Aid locations. Our distribution fleet delivers our finished goods and third-party products through our distribution centers to our company-owned and domestic franchise stores on a weekly or biweekly basis depending on the sales volume of the store. Each of our distribution centers has a quality control department that monitors products received from our vendors to ensure quality standards.

     Based on data collected from our point of sale systems (POS), excluding certain required accounting adjustments of $3.0, $3.4 and $0.4 million for the years ended December 31, 2005, 2004 and 2003, respectively, below is a comparison of our company-owned domestic store retail product sales by major product category and the respective percentage of our company-owned domestic store retail product sales for the period shown (previously this table contained a fifth category that is now collapsed and redistributed into the remaining four categories and the prior years have been adjusted to be comparable with the current year’s presentation):

		Year ended December 31,
U.S. Retail Product Categories:		2005								2004								2003 (1)
		(in thousands)
VMHS		$	377.7				40.6	%		$	362.6				38.4	%			364.5				36.1	%
Sports Nutrition Products			330.3				35.5	%			293.2				31.1	%			300.2				29.7	%
Diet and Weight Management Products			135.2				14.5	%			193.1				20.5	%			265.6				26.3	%
Other Wellness Products			87.8				9.4	%			95.1				10.0	%			79.6				7.9	%
Total U.S. Retail revenues		$	931.0				100.0	%		$	944.0				100.0	%		$	1,009.9				100.0	%

(1)

This data is shown on a combined basis for comparability purposes and represents the sum of the period from January 1, 2003 through December 4, 2003 and the 27 days ended December 31, 2003.

  VMHS

          We sell vitamins and minerals in single vitamin and multi-vitamin form and in different potency levels. Our vitamin and mineral products are available in liquid, tablets, soft gelatin and hard-shell capsules and powder forms. Many of our special vitamin and mineral formulations, such as Mega Men and Ultra Mega, are available only at GNC locations. In addition to our selection of VMHS products with unique formulations, we also offer the full range of standard “alphabet” vitamins. We sell herbal supplements in various solid dosage and soft gelatin capsules, tea and liquid forms. We have consolidated our traditional herbal offerings under a single umbrella brand, Herbal Plus^®. In addition to the Herbal Plus line, we offer a full line of whole food-based supplements and top selling herb and natural remedy products. Our target customers for VMHS products are women over the age of 35.

  Sports Nutrition Products

          Sports nutrition products are designed to be taken in conjunction with an exercise and fitness regimen. Our target consumer for sports nutrition products is the 18-49 year old male. We typically offer a broad selection of sports nutrition products, such as protein and weight gain powders, sports drinks, sports bars and high potency vitamin formulations, including GNC brands such as Pro Performance and popular third-party products.

  Diet Products

          Diet products consist of various formulas designed to supplement the diet and exercise plans of weight conscious consumers. Our target consumer for diet products is the 18-49 year old female. We typically offer a variety of diet products, including pills, meal replacements, shakes, diet bars and teas. Our retail stores offer our proprietary and third-party products suitable for different diet and weight management approaches, including low-carbohydrate and products designed to increase thermogenesis (a change in the body’s metabolic rate measured in terms of calories) and metabolism. We also offer several diet products, including our Total Lean and our Body Answers™ product lines.

  Other Wellness Products

          Other Wellness Products is a comprehensive category that consists of sales of our Gold Card preferred membership and sales of other nonsupplement products, including cosmetics, food items, health management products, books and video tapes.

  Product Development

          We believe a key driver of customer traffic and purchases is the introduction of new products. According to the GNC 2005 Awareness Tracking Study Report by Parker Marketing Research Innovators (the “2004 Parker Awareness Study”), approximately 50% of consumers surveyed rated the availability of “new, innovative products” as extremely or very important when making purchase decisions and rated this as one of our competitive strengths. We identify changing customer trends through interactions with our customers and leading industry vendors to assist in the development, manufacturing and marketing of our new products. We develop proprietary products independently and through the collaborative effort of our dedicated development team. During 2005, we targeted our product development efforts on sports nutrition products, diverse diet products and other wellness products.

  Research and Development

          We have an internal research and development group that performs scientific research on potential new products and enhancements to existing products, in part to assist our product development team in creating new products, and in part to support claims that may be made as to the purpose and function of the product. We incurred $0.8 million, $1.7 million, $0.1 million and $1.0 million in our internal research and development for the years ended December 31, 2005 and 2004, the 27 days ended December 31, 2003 and the period from January 1, 2003 to December 4, 2003, respectively. Additionally, prior to the Acquisition, Numico provided research and development services and allocated costs to us of $4.2 million, for the period from January 1, 2003 to December 4, 2003.

Business Segments

          We generate revenues primarily from our three business segments, Retail, Franchise and Manufacturing/ Wholesale. The following chart outlines our business segments and the historical contribution to our consolidated revenues by those segments, after intercompany eliminations. For a description of operating income (loss) by business segment, our total assets by business segment, total revenues by geographic area and total assets by geographic area, see the “Segments” note to our consolidated financial statements included elsewhere in this Report.

		Successor																									Predecessor
																		27 Days ended									Period ended
		Year ended December 31,																December 31,									December 4,
		2005								2004								2003									2003
		(dollars in millions)
Retail		$	989.5				75.1	%		$	1,001.8				74.5	%		$	66.2				74.1	%			$	993.3				74.1	%
Franchise			212.8				16.1	%			226.5				16.8	%			14.2				15.9	%				241.3				18.0	%
Manufacturing/Wholesale (Third Party)			115.4				8.8	%			116.4				8.7	%			8.9				10.0	%				105.6				7.9	%
Total		$	1,317.7				100.0	%		$	1,344.7				100.0	%		$	89.3				100.0	%			$	1,340.2				100.0	%

Retail

     Our Retail segment generates revenues from sales of products to customers at our company-owned stores in the United States and Canada and on December 28, 2005 we started selling products through our website, gnc.com.

  Locations

     As of December 31, 2005, we operated 2,650 company-owned stores across 50 states and in Canada, Puerto Rico and Washington, D.C. Most of our U.S. company-owned stores are between 1,000 and 2,000 square feet and are located primarily in shopping malls and strip shopping centers. Traditional mall and strip center locations typically generate a large percentage of our total retail sales. With the exception of our downtown stores, all of our company-owned stores follow one of two consistent formats, one for mall locations and one for strip shopping center locations. Our store graphics are periodically redesigned to better identify with our GNC customers and provide product information to allow the consumer to make educated decisions regarding product purchases and usage. Our product labeling is consistent within our product lines and the stores are designed to present a unified approach to packaging with emphasis on added information for the consumer. As an on going practice, we continue to reset and upgrade all of our company-owned stores to maintain a more modern and customer-friendly layout, while promoting our GNC Live Well theme.

  Franchise

     Our Franchise segment is comprised of our domestic and international franchise operations. Our Franchise segment generates revenues from franchise activities primarily through product sales to franchisees, royalties on franchise retail sales and franchise fees.

     As a means of enhancing our operating performance and building our store base, we began opening franchised locations in 1988. As of December 31, 2005, there were 2,014 franchised stores operating, including 1,156 stores in the United States and 858 stores operating in international locations. Approximately 88% of our franchises in the United States are in strip shopping centers and are typically between 1,000 and 1,800 square feet. The international franchised stores are smaller, typically between 600 and 650 square feet and, depending upon the country and cultural preferences, are located in mall, strip shopping center, street or store-within-a-store locations. Typically, our international stores have a store format and signage similar to our U.S. franchised stores. To assist our franchisees in the successful operation of their stores and to protect our brand image, we offer site selection, construction assistance, accounting services and a three-part training program, which consists of classroom instruction, training in a company-owned location and actual on-site training after the franchised store opens. We believe we have good relationships with our franchisees, as evidenced by our franchisee renewal rate of over 93% between 2001 and 2005. In addition, we do not have heavy reliance on any single franchise operator in the United States, as the largest franchisee owns and/or operates 15 store locations.

     All of our franchised stores in the United States offer both our proprietary products and third-party products, with a product selection similar to that of our company-owned stores. Our international franchised stores offer a more limited product selection than our franchised stores in the United States. Products are distributed to our franchised stores in the United States through our distribution centers and transportation fleet in the same manner as our company-owned stores.

  Franchises in the United States

     Revenues from our franchisees in the United States accounted for approximately 78% of our total franchise revenues for the year ended December 31, 2005. In 2005, new franchisees in the United States were required to pay an initial fee of $40,000 for a franchise license. Existing GNC franchise operators may purchase an additional franchise license for a $30,000 fee. We typically offer limited financing to qualified franchisees in the United States for terms up to five years. Once a store begins operations, franchisees are required to pay us a continuing royalty of 6% of sales and contribute 3% of sales to a national advertising fund. Our standard franchise agreements for the United States are effective for a ten-year period with two five-year renewal options. At the end of the initial term and each of the renewal periods, the renewal fee is generally 33% of the franchisee fee that is then in effect. The franchisee renewal option is at our election for all franchise agreements executed after December 1995. Our franchisees in the United States receive limited geographical exclusivity and are required to follow the GNC store format.

     Franchisees must meet certain minimum standards and duties prescribed by our franchise operations manual and we conduct periodic field visit reports to ensure our minimum standards are maintained. Generally, we enter into a five-year lease with one five-year renewal option with landlords for our franchised locations in the United States. This allows us to secure space at cost-effective rates, which we sublease to our franchisees at cost. By subleasing to our franchisees, we have greater control over the location and have greater bargaining power for lease negotiations than an individual franchisee typically would have, and we can elect not to renew subleases for underperforming locations. If a

franchisee does not meet specified performance and appearance criteria, the franchise agreement outlines the procedures under which we are permitted to terminate the franchise agreement. In these situations, we may take possession of the location, inventory, and equipment, and operate the store as a company-owned store or re-franchise the location. Our U.S. franchise agreements and operations in the United States are regulated by the Federal Trade Commission (“FTC”). See “—Government Regulation” and “—Franchise Regulation”.

  International Franchises

     Revenues from our international franchisees accounted for approximately 22% of our total franchise revenues for the year ended December 31, 2005. In 2005, new international franchisees were required to pay an average initial fee of approximately $20,000 for a franchise license for each store and on average continuing royalty fees of approximately 5%, with fees and royalties varying depending on the country and the store type. Our franchise program has enabled us to expand into international markets with limited capital expenditures. We expanded our international presence from 457 international franchised locations at the end of 2001 to 858 international locations as of December 31, 2005, without incurring any capital expenditures related to this expansion. Our international franchised stores generate greater sales per square foot of store space than our domestic store locations. However, we typically generate less revenue from franchises outside the United States due to lower international royalty rates and due to the franchisees purchasing a smaller percentage of products from us compared to our domestic franchisees.

     Franchisees in international locations enter into development agreements with us for either full-size stores, a store-within-a-store at a host location, or wholesale distribution center operations. The development agreement grants the franchisee the right to develop a specific number of stores in a territory, often the entire country. The international franchisee then enters into a franchise agreement for each location. The full-size store franchise agreement has an initial ten-year term with two five-year renewal options. At the end of the initial term and renewal periods, the international franchisee has the option to renew the agreement at 33% of the franchise fee that is then in effect. Franchise agreements for international store-within-a-store locations have an initial term of five years, with two five-year renewal options. At the end of the initial term and each of the renewal periods, the international franchisee of a store-within-a-store location has the option to renew the agreement for 50% of the franchise fee that is then in effect. Our international franchisees often receive exclusive franchising rights to the entire country franchised, excluding military bases. Our international franchisee must meet minimum standards and duties similar to our U.S. franchisees and our international franchise agreements and international operations may be regulated by various state, local and international laws. See “—Government Regulation” and “—Franchise Regulation”.

Manufacturing/Wholesale

     Our Manufacturing/Wholesale segment is comprised of our manufacturing operations in South Carolina and Australia and our wholesale sales business. This segment supplies our Retail and Franchise segments as well as various third parties with finished products. Our Manufacturing/Wholesale segment generates revenues through sales of manufactured products to third parties, and the sale of our proprietary and third-party brand products to Rite Aid and drugstore.com. Our wholesale operations, including our Rite Aid and drugstore.com wholesale operations, are supported primarily by our Anderson, South Carolina distribution center.

  Manufacturing

     Our technologically sophisticated manufacturing and warehousing facilities support our Retail and Franchise segments and enable us to control the production and distribution of our proprietary products, to better control costs, to protect product quality, to monitor delivery times and to maintain appropriate inventory levels. We operate two main manufacturing facilities in the United States, one in Greenville, South Carolina and one in Anderson, South Carolina. We also operate a smaller facility in Australia. We utilize our plants in the United States primarily for the production of proprietary products. Our manufacturing operations are designed to allow low-cost production of a variety of products of different quantities, sizes and packaging configurations while maintaining strict levels of quality control. Our manufacturing procedures are designed to promote consistency and quality in our finished goods. We conduct sample testing on raw materials and finished products, including weight, purity and micro-bacterial testing. Our manufacturing facilities also service our wholesale operations, including the manufacture and supply of Rite Aid private label products for distribution to Rite Aid locations. We also use our available capacity at these facilities to produce products for sale to third-party customers.

     The principal raw materials used in the manufacturing process are natural and synthetic vitamins, herbs, minerals and gelatin. We maintain multiple sources for the majority of our raw materials, with the remaining being single-sourced due to the uniqueness of the material. As of December 31, 2005, no one vendor supplied more than 10% of our raw materials. Our distribution fleet delivers raw materials and components to our manufacturing facilities and also delivers our finished goods and third-party products to our distribution centers.

  Wholesale

          Store-Within-a-Store Locations

          To increase brand awareness and promote access to customers who may not frequent specialty nutrition stores, we entered into a strategic alliance with Rite Aid to open GNC store-within-a-store locations. As of December 31, 2005, we had 1,149 store-within-a-store locations. Through this strategic alliance, we generate revenues from sales to Rite Aid of our products at wholesale prices, the manufacture of Rite Aid private label products, retail sales of certain consigned inventory and license fees. We are Rite Aid’s sole supplier for the PharmAssure^® vitamin brand and a number of Rite Aid private label supplements. In May 2004, we extended our alliance with Rite Aid through April 30, 2009, with Rite Aid’s commitment to open 300 new store-within-a-store locations by December 31, 2006. At December 31, 2005, Rite Aid had opened 172 of these 300 new store-within-a-store locations.

          Distribution Agreement with drugstore.com

          We have an internet distribution agreement with drugstore.com, inc., the initial term of which expires in July 2009. Through this strategic alliance, drugstore.com became the exclusive internet retailer of our proprietary products, the PharmAssure^® vitamin brand and certain other nutritional supplements through June 2005, subject to early termination provisions. This alliance allows us to access a larger base of customer, who may not otherwise live close to, or have the time to visit, a GNC store. We generate revenues from the distribution agreement with drugstore.com through sales of our proprietary and third-party products on a wholesale basis and through retail sales of certain other products on a consignment basis.

Employees

          As of December 31, 2005, we had a total of 4,870 full-time and 7,545 part-time employees, of whom approximately 10,137 were employed in our Retail segment; 37 were employed in our Franchise segment; 1,145 were employed in our Manufacturing/Wholesale segment; 471 were employed in corporate support functions; and 625 were employed in Canada. None of our employees belongs to a union or is a party to any collective bargaining or similar agreement. We consider our relationships with our employees to be good.

Competition

          The U.S. nutritional supplements retail industry is a large, highly fragmented and growing industry, with no single industry participant accounting for a majority of total industry retail sales. Competition is based primarily on price, quality and assortment of products, customer service, marketing support and availability of new products. In addition, the market is highly sensitive to the introduction of new products.

          We compete with publicly owned and privately owned companies, which are highly fragmented in terms of geographical market coverage and product categories. We compete with other specialty retailers, supermarkets, drugstores, mass merchants, multi-level marketing organizations, mail order companies, other internet sites, and a variety of other smaller participants. In addition, the market is highly sensitive to the introduction of new products, including various prescription drugs, which may rapidly capture a significant share of the market. In the United States, we compete with supermarkets, drugstores and mass merchants with heavily advertised national brands manufactured by large pharmaceutical and food companies and other retailers. Most supermarkets, drugstores and mass merchants have narrow product offerings limited primarily to simple vitamins and herbs and popular third-party diet products. Our international competitors also include large international pharmacy chains and major international supermarket chains as well as other large U.S.-based companies with international operations. Our wholesale and manufacturing operations also compete with other wholesalers and manufacturers of third-party nutritional supplements.

Trademarks and Other Intellectual Property

          We believe trademark protection is particularly important to the maintenance of the recognized brand names under which we market our products. We own or have rights to material trademarks or trade names that we use in conjunction with the sale of our products, including the GNC brand name. We also rely upon trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain our competitive position. We protect our intellectual property rights through a variety of methods, including trademark, patent and trade secret laws, as well as confidentiality agreements and proprietary information agreements with vendors, employees, consultants and others who have access to our proprietary information. Protection of our intellectual property often affords us the opportunity to enhance our position in the marketplace by precluding our competitors from using or otherwise exploiting our technology and brands. We are also a party to several intellectual property license agreements relating to certain of

our products. For example, several of our products are covered by patents which we license from Numico. The scope and duration of our intellectual property protection varies throughout the world by jurisdiction and by individual product.

Insurance and Risk Management

          We purchase insurance to cover standard risks in the nutritional supplements industry, including policies to cover general products liability, workers compensation, auto liability and other casualty and property risks. Our insurance rates are dependent upon our safety record as well as trends in the insurance industry. We also maintain workers compensation insurance and auto insurance policies that are retrospective in that the cost per year will vary depending on the frequency and severity of claims in the policy year. Prior to the Acquisition, we were covered by some of Numico’s insurance policies. Following the consummation of the Acquisition, we obtained our own insurance policies to replace those Numico policies, including policies for general product liability. We currently maintain product liability insurance and general liability insurance.

          We face an inherent risk of exposure to product liability claims in the event that, among other things, the use of products sold by GNC results in injury. With respect to product liability coverage, we carry insurance coverage typical of our industry and product lines. Our coverage involves self-insured retentions with primary and excess liability coverage above the retention amount. We have the ability to refer claims to most of our vendors and their insurers to pay the costs associated with any claims arising from such vendors’ products. In most cases, our insurance covers such claims that are not adequately covered by a vendor’s insurance and provides for excess secondary coverage above the limits provided by our product vendors.

          We self-insure certain property and casualty risks due to our analysis of the risk, the frequency and severity of a loss and the cost of insurance for the risk. We believe that the amount of self-insurance is not significant and will not have an adverse impact on our performance. In addition, we may from time to time self-insure liability with respect to specific ingredients in products that we may sell.

Government Regulation

  Product Regulation

          Domestic

          The processing, formulation, manufacturing, packaging, labeling, advertising and distribution of our products are subject to regulation by one or more federal agencies, including the Food and Drug Administration (“FDA”), the FTC, the Consumer Product Safety Commission, the United States Department of Agriculture and the Environmental Protection Agency. These activities are also regulated by various agencies of the states and localities in which our products are sold. Pursuant to the Federal Food, Drug, and Cosmetic Act (“FDCA”), the FDA regulates the formulation, safety, manufacture, packaging, labeling and distribution of dietary supplements, (including vitamins, minerals and herbs) and over-the-counter drugs. The FTC has jurisdiction to regulate the advertising of these products.

          The FDCA has been amended several times with respect to dietary supplements, in particular by the Dietary Supplement Health and Education Act of 1994 (“DSHEA”). DSHEA established a new framework governing the composition, safety, labeling and marketing of dietary supplements. “Dietary supplements” are defined as vitamins, minerals, herbs, other botanicals, amino acids and other dietary substances for human use to supplement the diet, as well as concentrates, metabolites, constituents, extracts or combinations of such dietary ingredients. Generally, under DSHEA, dietary ingredients that were on the market prior to October 15, 1994 may be used in dietary supplements without notifying the FDA. “New” dietary ingredients (i.e., dietary ingredients that were “not marketed in the United States before October 15, 1994”) must be the subject of a new dietary ingredient notification submitted to the FDA unless the ingredient has been “present in the food supply as an article used for food” without being “chemically altered.” A new dietary ingredient notification must provide the FDA evidence of a “history of use or other evidence of safety” establishing that use of the dietary ingredient “will reasonably be expected to be safe.” A new dietary ingredient notification must be submitted to the FDA at least 75 days before the initial marketing of the new dietary ingredient. There is no certainty that the FDA will accept any particular evidence of safety for any new dietary ingredient. The FDA’s refusal to accept such evidence could prevent the marketing of such dietary ingredients.

          The FDA issued a consumer warning in 1996, followed by proposed regulations in 1997, covering dietary supplements that contain ephedra or an active substance, ephedrine alkaloids. In February 2003 the Department of Health and Human Services announced a series of actions that the Department of Health and Human Services and the FDA planned to execute with respect to products containing ephedra, including the solicitation of evidence regarding the significant or unreasonable risk of illness or injury from dietary supplements containing ephedra and the immediate execution of a series of actions against ephedra products making unsubstantiated claims about sports performance

enhancement. In addition, many states proposed regulations and three states enacted laws restricting the promotion and distribution of ephedra-containing dietary supplements. The botanical ingredient ephedra was formerly used in several third-party and private label dietary supplement products. In January 2003, we began focusing our diet category on products that would replace ephedra products. In early 2003, we instructed all of our locations to stop selling products containing ephedra that were manufactured by GNC or one of our affiliates. Subsequently, we instructed all of our locations to stop selling any products containing ephedra by June 30, 2003. Sales of products containing ephedra amounted to approximately $35.2 million or 3.3% of our retail sales in 2003 and $182.9 million, or 17.1% of our retail sales in 2002. In February 2004, the FDA issued a final regulation declaring dietary supplements containing ephedra illegal under the FDCA because they present an unreasonable risk of illness or injury under the conditions of use recommended or suggested in labeling, or if no conditions of use are suggested or recommended in labeling, under ordinary conditions of use. The rule took effect April 12, 2004 and banned the sale of dietary supplement products containing ephedra. Similarly, the FDA issued a consumer advisory in 2002 with respect to dietary supplements that contain the ingredient Kava, and the FDA is currently investigating adverse effects associated with ingestion of this ingredient. One of our subsidiaries, Nutra Manufacturing, Inc. (formerly known as Nutricia Manufacturing USA, Inc.) manufactured products containing Kava Kava from December 1995 until August 2002. All stores were instructed to stop selling products containing Kava Kava in December 2002. The FDA could take similar actions against other products or product ingredients which it determines present an unreasonable health risk to consumers.

          DSHEA permits “statements of nutritional support” to be included in labeling for dietary supplements without FDA pre-market approval. Such statements must be submitted to the FDA within 30 days of marketing and must bear a label disclosure that “This statement has not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure, or prevent any disease.” Such statements may describe how a particular dietary ingredient affects the structure, function or general well-being of the body, or the mechanism of action by which a dietary ingredient may affect body structure, function or well-being, but may not expressly or implicitly represent that a dietary supplement will diagnose, cure, mitigate, treat or prevent a disease. A company that uses a statement of nutritional support in labeling must possess scientific evidence substantiating that the statement is truthful and not misleading. If the FDA determines that a particular statement of nutritional support is an unacceptable drug claim or an unauthorized version of a “health claim,” or, if the FDA determines that a particular claim is not adequately supported by existing scientific data or is false or misleading, we would be prevented from using the claim.

          In addition, DSHEA provides that so-called “third-party literature,” e.g., a reprint of a peer-reviewed scientific publication linking a particular dietary ingredient with health benefits, may be used “in connection with the sale of a dietary supplement to consumers” without the literature being subject to regulation as labeling. Such literature: (1) must not be false or misleading; (2) may not “promote” a particular manufacturer or brand of dietary supplement; (3) must present a balanced view of the available scientific information on the subject matter; (4) if displayed in an establishment, must be physically separate from the dietary supplements; and (5) should not have appended to it any information by sticker or any other method. If the literature fails to satisfy each of these requirements, we may be prevented from disseminating such literature with our products, and any dissemination could subject our product to regulatory action as an illegal drug.

          We expect that the FDA will adopt in the near future the final regulations, proposed on March 13, 2003, regarding Good Manufacturing Practice in manufacturing, packing or holding dietary ingredients and dietary supplements authorized by DSHEA. These regulations would require dietary supplements to be prepared, packaged and held in compliance with certain rules and might require quality control provisions similar to those in the Good Manufacturing Practice regulations for drugs. We or our third-party suppliers or vendors may not be able to comply with the new rules without incurring substantial additional expenses. In addition, if our third-party suppliers or vendors are not able to timely comply with the new rules, we may experience increased costs or delays in obtaining certain raw materials and third-party products.

          The FDA has broad authority to enforce the provisions of the FDCA applicable to dietary supplements, including powers to issue a public warning letter to a company, to publicize information about illegal products, to request a recall of illegal products from the market and to request the Department of Justice to initiate a seizure action, an injunction action or a criminal prosecution in the United States courts. The regulation of dietary supplements may increase or become more restrictive in the future.

          Legislation is pending in the Senate under S. 1137 and in the House of Representatives under H.R. 3156 which if passed would impose substantial new regulatory requirements for dietary supplements. S. 1137 seeks to subject the dietary ingredient, dehydroepiandrosterone (“DHEA”), to the requirements of the Controlled Substances Act, which would prevent our ability to sell products containing DHEA. H.R. 3156 seeks to impose adverse event reporting, product listing with the FDA and other requirements. Key members of Congress and the dietary supplement industry have indicated that they have reached agreement to support legislation requiring adverse event reporting related to serious adverse events. If enacted, S. 1137 and H.R. 3156 would raise our costs and hinder our business. In October 2004,

legislation was passed subjecting specified substances formerly used in some dietary supplements, such as androstenedione or ‘‘andro,’’ to the requirements of the Controlled Substances Act. Under the 2004 law, these substances can no longer be sold as dietary supplements.

          The FTC exercises jurisdiction over the advertising of dietary supplements. In recent years, the FTC has instituted numerous enforcement actions against dietary supplement companies for failure to have adequate substantiation for claims made in advertising or for the use of false or misleading advertising claims. We continue to be subject to three consent orders issued by the FTC. In 1984, the FTC instituted an investigation of General Nutrition, Incorporated, one of our subsidiaries, alleging deceptive acts and practices in connection with the advertising and marketing of certain of its products. General Nutrition, Incorporated accepted a proposed consent order which was finalized in 1989, under which it agreed to refrain from, among other things, making certain claims with respect to certain of its products unless the claims are based on and substantiated by reliable and competent scientific evidence. We also entered into a consent order in 1970 with the FTC, which generally addressed ‘‘iron deficiency anemia’’ type products. As a result of routine monitoring by the FTC, disputes arose concerning its compliance with these orders and with regard to advertising for certain hair care products. While General Nutrition, Incorporated believes that, at all times, it operated in material compliance with the orders, it entered into a settlement in 1994 with the FTC to avoid protracted litigation. As a part of this settlement, General Nutrition, Incorporated entered into a consent decree and paid, without admitting liability, a civil penalty in the amount of $2.4 million and agreed to adhere to the terms of the 1970 and 1989 consent orders and to abide by the provisions of the settlement document concerning hair care products. We do not believe that future compliance with the outstanding consent decrees will materially affect our business operations. In 2000, the FTC amended the 1970 order to clarify language in the 1970 order that was believed to be ambiguous and outmoded.

          The FTC continues to monitor our advertising and, from time to time, requests substantiation with respect to such advertising to assess compliance with the various outstanding consent decrees and with the Federal Trade Commission Act. Our policy is to use advertising that complies with the consent decrees and applicable regulations. We review all products brought into our distribution centers to assure that such products and their labels comply with the consent decrees. We also review the use of third-party point of purchase materials such as store signs and promotional brochures. Nevertheless, there can be no assurance that inadvertent failures to comply with the consent decrees and applicable regulations will not occur. Some of the products sold by franchised stores are purchased by franchisees directly from other vendors and these products do not flow through our distribution centers. Although franchise contracts contain strict requirements for store operations, including compliance with federal, state and local laws and regulations, we cannot exercise the same degree of control over franchisees as we do over our company-owned stores. As a result of our efforts to comply with applicable statutes and regulations, we have from time to time reformulated, eliminated or relabeled certain of our products and revised certain provisions of our sales and marketing program. We believe we are in material compliance with the various consent decrees and with applicable federal, state and local rules and regulations concerning our products and marketing program. Compliance with the provisions of national, state and local environmental laws and regulations has not had a material effect upon our capital expenditures, earnings, financial position, liquidity or competitive position.

          Foreign

          Our products sold in foreign countries are also subject to regulation under various national, local and international laws that include provisions governing, among other things, the formulation, manufacturing, packaging, labeling, advertising and distribution of dietary supplements and over-the-counter drugs. Government regulations in foreign countries may prevent or delay the introduction, or require the reformulation, of certain of our products.

          We cannot determine what effect additional domestic or international governmental legislation, regulations or administrative orders, when and if promulgated, would have on our business in the future. New legislation or regulations may require the reformulation of certain products to meet new standards, require the recall or discontinuance of certain products not capable of reformulation, impose additional record keeping or require expanded documentation of the properties of certain products, expanded or different labeling or scientific substantiation.

  Franchise Regulation

          We must comply with regulations adopted by the FTC and with several state laws that regulate the offer and sale of franchises. The FTC’s Trade Regulation Rule on Franchising and certain state laws require that we furnish prospective franchisees with a franchise offering circular containing information prescribed by the Trade Regulation Rule on Franchising and applicable state laws and regulations.

          We also must comply with a number of state laws that regulate some substantive aspects of the franchisor-franchisee relationship. These laws may limit a franchisor’s business practices in a number of ways, including limiting the ability to:

	•		terminate or not renew a franchise without good cause;
	•		interfere with the right of free association among franchisees;
	•		disapprove the transfer of a franchise;
	•		discriminate among franchisees with regard to charges, royalties and other fees; and
	•		place new stores near existing franchises.

     To date, these laws have not precluded us from seeking franchisees in any given area and have not had a material adverse effect on our operations. Bills intended to regulate certain aspects of franchise relationships have been introduced into Congress on several occasions during the last decade, but none have been enacted.

     Our international franchise agreements and franchise operations are regulated by various foreign laws, rules and regulations. To date, these laws have not precluded us from seeking franchisees in any given area and have not had a material adverse effect on our operations.

  Environmental Compliance

     We are subject to numerous federal, state, local and foreign environmental laws and regulations governing our operations, including the handling, transportation and disposal of our products and our non-hazardous and hazardous substances and wastes, as well as emissions and discharges into the environment, including discharges to air, surface water and groundwater. Failure to comply with such laws and regulations could result in costs for corrective action, penalties or the imposition of other liabilities. Changes in laws or the interpretation thereof or the development of new facts could also cause us to incur additional capital and operation expenditures to maintain compliance with environmental laws and regulations. We also are subject to laws and regulations that impose liability and cleanup responsibility for releases of hazardous substances into the environment without regard to fault or knowledge about the condition or action causing the liability. Under certain of these laws and regulations, such liabilities can be imposed for cleanup of previously owned or operated properties, or properties to which substances or wastes were sent by current or former operations at our facilities. The presence of contamination from such substances or wastes could also adversely affect our ability to sell or lease our properties, or to use them as collateral for financing. From time to time, we have incurred costs and obligations for correcting environmental noncompliance matters and for remediation at or relating to certain of our properties. We believe we have complied with, and are currently complying with, our environmental obligations to date and that such liabilities will not have a material adverse effect on our business or financial performance. However, it is difficult to predict future liabilities and obligations which could be material.

ITEM 1A. RISK FACTORS

     The following risk factors, among others, could cause our financial performance to differ significantly from the goals, plans, objectives, intentions and expectations expressed in this Report. If any of the following risks and uncertainties or other risks and uncertainties not currently known to us or not currently considered to be material actually occur, our business, financial condition or operating results could be harmed substantially.

Risks Relating to Our Business and Industry

We operate in a highly competitive industry. Our failure to compete effectively could adversely affect our market share, revenues and growth prospects.

     The U.S. nutritional supplements retail industry is a large, highly fragmented and growing industry, with no single industry participant accounting for majority of total industry retail sales. Participants include specialty retailers, supermarkets, drugstores, mass merchants, multi-level marketing organizations, on-line merchants, mail order companies and a variety of other smaller participants. The market is also highly sensitive to the introduction of new products, including various prescription drugs, which may rapidly capture a significant share of the market. In the United States, we also compete for sales with heavily advertised national brands manufactured by large pharmaceutical and food companies, as well as other retailers. In addition, as certain products become more mainstream, we experience increased competition for those products as more participants enter the market. For example, as the trend in favor of low-carbohydrate products has developed, we have experienced increased competition for our diet products from supermarkets, drug stores, mass merchants and other food companies, which has adversely affected sales of our diet products. Our international competitors also include large international pharmacy chains, major international supermarket chains and other large U.S.-based companies with international operations. Our wholesale and manufacturing operations also compete with other wholesalers and manufacturers of third-party nutritional supplements. We may not be able to compete effectively and our attempt to do so may require us to reduce our prices, which may result in lower margins. Failure to effectively compete could adversely affect our market share, revenues and growth prospects.

Unfavorable publicity or consumer perception of our products and any similar products distributed by other companies could cause fluctuations in our operating results and could have a material adverse effect on our reputation, the demand for our products and our ability to generate revenues.

     We are highly dependent upon consumer perception regarding the safety and quality of our products, as well as similar products distributed by other companies. Consumer perception of products can be significantly influenced by scientific research or findings, national media attention and other publicity about product use. A product may be received favorably, resulting in high sales associated with that product that may not be sustainable as consumer preferences change. Future scientific research or publicity could be unfavorable to our industry or any of our particular products and may not be consistent with earlier favorable research or publicity. A future research report or publicity that is perceived by our consumers as less favorable or that questions such earlier research or publicity could have a material adverse effect on our ability to generate revenues. For example, sales of some of our VMHS products, such as St. John’s Wort, Sam-e and Melatonin and more recently sales of Vitamin E, were initially strong, but decreased substantially as a result of negative publicity. As a result of the above factors, our operations may fluctuate significantly from quarter to quarter, which may impair our ability to make payments when due on our indebtedness. Period-to-period comparisons of our results should not be relied upon as a measure of our future performance. Adverse publicity in the form of published scientific research or otherwise, whether or not accurate, that associates consumption of our products or any other similar products with illness or other adverse effects, that questions the benefits of our or similar products or that claims that any such products are ineffective could have a material adverse effect on our reputation, the demand for our products and our ability to generate revenues.

We may incur material product liability claims, which could increase our costs and adversely affect our reputation, revenues and operating income.

     As a retailer, distributor and manufacturer of products designed for human consumption, we are subject to product liability claims if the use of our products is alleged to have resulted in injury. Our products consist of vitamins, minerals, herbs and other ingredients that are classified as foods or dietary supplements and are not subject to pre-market regulatory approval in the United States. Our products could contain contaminated substances, and some of our products contain innovative ingredients that do not have long histories of human consumption. Previously unknown adverse reactions resulting from human consumption of these ingredients could occur. In addition, many of the products we sell are produced by third-party manufacturers. As a distributor of products manufactured by third parties, we may also be liable for various product liability claims for products we do not manufacture. We have been in the past, and may be in the future, subject to various product liability claims, including, among others, that our products include inadequate

instructions for use or inadequate warnings concerning possible side effects and interactions with other substances. For example, as of December 31, 2005, we have been named as a defendant in 227 pending cases involving the sale of products that contain ephedra. See Item 3, “Legal Proceedings” in this Report. A product liability claim against us could result in increased costs and could adversely affect our reputation with our customers, which in turn could adversely affect our revenues and operating income. All claims to date have been tendered to the third-party manufacturer or to our insurer and we have incurred no expense to date with respect to litigation involving ephedra products. Furthermore, we are entitled to indemnification by Numico for certain losses arising from claims related to products containing ephedra sold prior to December 5, 2003. All of the pending cases relate to products sold prior to such time and, accordingly, we are entitled to indemnification from Numico for all of the pending cases.

Changes in our management team could affect our business strategy and adversely impact our performance and results of operations.

     In November 2005, our board of directors appointed Joseph Fortunato, our Chief Operating Officer, as our Chief Executive Officer and Robert Homler was promoted to Chief Operating Officer. In addition, during 2005, two of our then key officers resigned, including our former Chief Executive Officer, who served in that position for approximately five months. These and other changes in management could result in changes to, or impact the execution of, our business strategy. Any such changes could be significant and could have a negative impact on our performance and results of operations. In addition, if we are unable to successfully transition members of management into their new positions, management resources could be constrained.

Compliance with new and existing governmental regulations could increase our costs significantly and adversely affect our results of operations.

     The processing, formulation, manufacturing, packaging, labeling, advertising and distribution of our products are subject to federal laws and regulation by one or more federal agencies, including the FDA, the FTC, the Consumer Product Safety Commission, the United States Department of Agriculture and the Environmental Protection Agency. These activities are also regulated by various state, local and international laws and agencies of the states and localities in which our products are sold. Government regulations may prevent or delay the introduction, or require the reformulation, of our products, which could result in lost revenues and increased costs to us. In addition, we may be unable to market particular products or use certain statements of nutritional support on our products as a result of regulatory determinations, which could adversely affect our sales of those products. The FDA also could require us to remove a particular product from the market. For example, in April 2004, the FDA banned the sale of products containing ephedra. Sale of products containing ephedra amounted to approximately $35.2 million, or 3.3% of our retail sales, in 2003 and approximately $182.9 million, or 17.1% of our retail sales, in 2002. Any future recall or removal would result in additional costs to us, including lost revenues from any additional products that we are required to remove from the market, any of which could be material. Any such product recalls or removals could also lead to liability, substantial costs and reduced growth prospects.

     Additional or more stringent regulations of dietary supplements and other products have been considered from time to time. Such developments could require reformulation of certain products to meet new standards, recalls or discontinuance of certain products not able to be reformulated, additional record-keeping requirements, increased documentation of the properties of certain products, additional or different labeling, additional scientific substantiation, adverse event reporting or other new requirements. Any such developments could increase our costs significantly. For example, legislation has been introduced in Congress to impose substantial new regulatory requirements for dietary supplements including adverse event reporting and other requirements. Key members of Congress and the dietary supplement industry have indicated that they have reached an agreement to support legislation requiring adverse event reporting. If enacted, new legislation could raise our costs and negatively impact our business. In addition, we expect that the FDA soon will adopt the proposed rules on Good Manufacturing Practice in manufacturing, packaging or holding dietary ingredients and dietary supplements, which will apply to the products we manufacture. We may not be able to comply with the new rules without incurring additional expenses, which could be significant. See “Business— Government Regulation—Product Regulation” included elsewhere in this Report for additional information.

A substantial amount of our revenues are generated from our franchisees, and our revenues could decrease significantly if our franchisees do not conduct their operations profitably or if we fail to attract new franchisees.

     As of December 31, 2005 and December 31, 2004, approximately 35% and 36%, respectively, of our retail locations were operated by franchisees. Approximately 16% and 17% of our revenues were generated from our franchise operations for the years ended December 31, 2005 and December 31, 2004, respectively. Our revenues from franchised stores depend on the franchisees’ ability to operate their stores profitably and adhere to our franchise standards. The closing of unprofitable stores or the failure of franchisees to comply with our policies could adversely

affect our reputation and could reduce the amount of our franchise revenues. These factors could have a material adverse effect on our revenues and operating income.

     If we are unable to attract new franchisees or to convince existing franchisees to open additional stores, any growth in royalties from franchised stores will depend solely upon increases in revenues at existing franchised stores, which could be minimal. In addition, our ability to open additional franchised locations is limited by the territorial restrictions in our existing franchise agreements as well as our ability to identify additional markets in the United States and Canada that are not currently saturated with the products we offer. If we are unable to open additional franchised locations, we will have to sustain additional growth internally by attracting new and repeat customers to our existing locations. If we are unable to do so, our revenues and operating income may decline significantly.

Economic, political and other risks associated with our international operations could adversely affect our revenues and international growth prospects.

     As of December 31, 2005, we had 858 international franchised stores in 40 international markets. For the years ended December 31, 2005 and December 31, 2004, 8.2% and 7.1%, respectively, of our revenues were derived from our international operations. As part of our business strategy, we intend to expand our international franchise presence. Our international operations are subject to a number of risks inherent to operating in foreign countries, and any expansion of our international operations will exacerbate the effects of these risks. These risks include, among others:

	•		political and economic instability of foreign markets;
	•		foreign governments’ restrictive trade policies;
	•		inconsistent product regulation or sudden policy changes by foreign agencies or governments;
	•		the imposition of, or increase in, duties, taxes, government royalties or non-tariff trade barriers;
	•		difficulty in collecting international accounts receivable and potentially longer payment cycles;
	•		increased costs in maintaining international franchise and marketing efforts;
	•		difficulty in operating our manufacturing facility abroad and procuring supplies from overseas suppliers;
	•		exchange controls;
	•		problems entering international markets with different cultural bases and consumer preferences; and
	•		fluctuations in foreign currency exchange rates.
			Any of these risks could have a material adverse effect on our international operations and our growth strategy.

Our failure to appropriately respond to changing consumer preferences and demand for new products and services could significantly harm our customer relationships and product sales.

     Our business is particularly subject to changing consumer trends and preferences, especially with respect to the diet category. For example, the recent trend in favor of low-carbohydrate diets was not as dependent on diet products as many other dietary programs, which caused (and may continue to cause) a significant reduction in sales in our diet category. Our continued success depends in part on our ability to anticipate and respond to these changes, and we may not respond in a timely or commercially appropriate manner to such changes. If we are unable to do so, our customer relationships and product sales could be harmed significantly.

     Furthermore, the nutritional supplement industry is characterized by rapid and frequent changes in demand for products and new product introductions. Our failure to accurately predict these trends could negatively impact consumer opinion of our stores as a source for the latest products, which in turn could harm our customer relationships and cause losses to our market share. The success of our new product offerings depends upon a number of factors, including our ability to:

	•		accurately anticipate customer needs;
	•		innovate and develop new products;
	•		successfully commercialize new products in a timely manner;
	•		price our products competitively;
	•		manufacture and deliver our products in sufficient volumes and in a timely manner; and
	•		differentiate our product offerings from those of our competitors.

     If we do not introduce new products or make enhancements to meet the changing needs of our customers in a timely manner, some of our products could be rendered obsolete, which could have a material adverse effect on our revenues and operating results.

We rely on our manufacturing operations to produce nearly all of the proprietary products we sell. Disruptions in our manufacturing system or losses of manufacturing certifications could adversely affect our sales and customer relationships.

     For the years ended December 31, 2005 and 2004, our manufacturing operations produced approximately 35% of the products we sold. Other than powders and liquids, nearly all of our proprietary products are produced in our manufacturing facility located in Greenville, South Carolina. As of December 31, 2005, no one vendor supplied more than 10% of our raw materials. In the event any of our third-party suppliers or vendors were to become unable or unwilling to continue to provide raw materials in the required volumes and quality levels or in a timely manner, we would be required to identify and obtain acceptable replacement supply sources. If we are unable to obtain alternative suppliers, our business could be adversely affected. Any significant disruption in our operations at this facility for any reason, such as regulatory requirements and loss of certifications, power interruptions, fires, hurricanes, war or other force majeure, could disrupt our supply of products, adversely affecting our sales and customer relationships.

Our failure to comply with FTC regulations and existing consent decrees imposed on us by the FTC could result in substantial monetary penalties and could adversely affect our operating results.

     The FTC exercises jurisdiction over the advertising of dietary supplements and has instituted numerous enforcement actions against dietary supplement companies, including us, for failure to have adequate substantiation for claims made in advertising or for the use of false or misleading advertising claims. As a result of these enforcement actions, we are currently subject to three consent decrees that limit our ability to make certain claims with respect to our products and required us to pay civil penalties. Failures by us or our franchisees to comply with the consent decrees and applicable regulations could occur from time to time. Violations of these orders could result in substantial monetary penalties, which could have a material adverse effect on our financial condition or results of operations.

If we fail to protect our brand name, competitors may adopt trade names that dilute the value of our brand name.

     We have invested significant resources to promote our GNC brand name in order to obtain the public recognition that we have today. However, we may be unable or unwilling to strictly enforce our trademark in each jurisdiction in which we do business. In addition, because of the differences in foreign trademark laws concerning proprietary rights, our trademark may not receive the same degree of protection in foreign countries as it does in the United States. Also, we may not always be able to successfully enforce our trademark against competitors, or against challenges by others. For example, a third party is currently challenging our right to register in the United States certain marks that incorporate our “GNC Live Well” trademark. Our failure to successfully protect our trademark could diminish the value and efficacy of our past and future marketing efforts, and could cause customer confusion, which could, in turn, adversely affect our revenues and profitability.

Intellectual property litigation and infringement claims against us could cause us to incur significant expenses or prevent us from manufacturing, selling or using some aspect of our products, which could adversely affect our revenues and market share.

     We may be subject to intellectual property litigation and infringement claims, which could cause us to incur significant expenses or prevent us from manufacturing, selling or using some aspect of our products. Claims of intellectual property infringement also may require us to enter into costly royalty or license agreements. However, we

may be unable to obtain royalty or license agreements on terms acceptable to us or at all. Claims that our technology or products infringe on intellectual property rights could be costly and would divert the attention of management and key personnel, which in turn could adversely affect our revenues and profitability.

We are not insured for a significant portion of our claims exposure, which could materially and adversely affect our operating income and profitability.

     The Company has procured insurance independently for such areas as: (1) general liability; (2) product liability; (3) directors and officers liability; (4) property insurance; and (5) ocean marine insurance. The Company self-insurance for such areas as: (1) medical benefits; (2) worker’s compensation coverage in the State of New York, with a stop loss of $250,000; (3) physical damage to the Company’s tractors, trailers and fleet vehicles for field personnel use; and (4) physical damages that may occur at the corporate store locations. We are not insured for certain property and casualty risks due to the frequency and severity of a loss, the cost of insurance and the overall risk analysis. In addition, we carry product liability insurance coverage that requires us to pay deductibles/retentions with primary and excess liability coverage above the deductible/retention amount. Because of our deductibles and self-insured retention amounts, we have significant exposure to fluctuations in the number and severity of claims. We currently maintain product liability insurance with a retention of $1.0 million per claim with an aggregate cap on retained loss of $10.0 million. As a result, our insurance and claims expense could increase in the future. Alternatively, we could raise our deductibles/retentions, which would increase our already significant exposure to expense from claims. If any claim were to exceed our coverage, we would bear the excess expense, in addition to our other self-insured amounts. If the frequency or severity of claims or our expenses increase, our operating income and profitability could be materially adversely affected. See Item 3, “Legal Proceedings” in this Report.

Franchise regulations could limit our ability to terminate or replace under-performing franchises, which could adversely impact franchise revenues.

     As a franchisor, we are subject to federal, state and international laws regulating the offer and sale of franchises. These laws impose registration and extensive disclosure requirements on the offer and sale of franchises. These laws frequently apply substantive standards to the relationship between franchisor and franchisee and limit the ability of a franchisor to terminate or refuse to renew a franchise. We may, therefore, be required to retain an under-performing franchise and may be unable to replace the franchisee, which could adversely impact franchise revenues. In addition, the nature and effect of any future legislation or regulation on our franchise operations cannot be predicted.

Our controlling stockholder may take actions that conflict with other stockholders and investors interests. This control may have the effect of delaying or preventing changes of control or changes in management, or limiting the ability of other stockholders to approve transactions they may deem to be in their best interest.

     Pursuant to our stockholders’ agreement, each of our current stockholders, including GNC Investors, LLC (the “Principal Stockholder”), has irrevocably granted to, and has appointed, Apollo Investment V as its proxy and attorney-in-fact to vote all of the shares of our Common Stock held by such stockholder at any time for all matters subject to the vote of the stockholders in the manner determined by Apollo Investment V in its sole and absolute discretion, whether at any meeting of the stockholders or by written consent or otherwise. The proxy remains in effect for so long as Apollo Funds V and our Principal Stockholder in certain circumstances, own at least 2,100,000 shares of our Common Stock. As a result, Apollo Investment V, through Apollo Management V as its manager, will be able to exercise control over all matters requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation and approval of significant corporate transactions, and it will have significant control over our management and policies. This control may have the effect of delaying or preventing changes in control or changes in management, or limiting the ability of our other stockholders to approve transactions that they may deem to be in their best interest.

Risks Related to Our Substantial Indebtedness

Our substantial indebtedness could adversely affect our financial condition and otherwise adversely impact our operating income and growth prospects.

     As of December 31, 2005, our total indebtedness was approximately $473.4 million, and we had an additional $66.4 million available for borrowing on a secured basis under our $75.0 million revolving credit facility after giving effect to the use of $8.6 million of the revolving credit facility to secure letters of credit.

     Our substantial indebtedness could have important consequences. For example, it could:

	•		require us to use all or a large portion of our cash to pay principal and interest on our indebtedness, which could reduce the availability of our cash to fund working capital, capital expenditures and other business activities;
	•		increase our vulnerability to general adverse economic and industry conditions;
	•		limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
	•		restrict us from making strategic acquisitions or exploiting business opportunities;
	•		make it more difficult for us to satisfy our obligations with respect to our indebtedness;
	•		place us at a competitive disadvantage compared to our competitors that have less debt; and
	•		limit our ability to borrow additional funds, dispose of assets or pay cash dividends.

     Furthermore, all of our indebtedness under our credit facilities bears interest at variable rates. If these rates were to increase significantly, our ability to borrow additional funds may be reduced and the risks related to our substantial indebtedness would intensify.

     If we are unable to meet our obligations with respect to our indebtedness, we could be forced to restructure or refinance our indebtedness, seek equity financing or sell assets. If we are unable to restructure, refinance or sell assets in a timely manner or on terms satisfactory to us, we may default under our obligations. As of December 31, 2005, substantially all of our indebtedness described above was subject to acceleration clauses. A default on any of our indebtedness obligations could trigger these acceleration clauses and cause those and our other obligations to become immediately due and payable. Upon an acceleration of such indebtedness, we may not be able to make payments under our indebtedness.

We will require a significant amount of cash to service our indebtedness. Our ability to generate cash depends on many factors beyond our control and, as a result, we may not be able to make payments on our debt obligations.

     Our ability to make payments on and to refinance our indebtedness, and to fund planned capital expenditures, product development efforts and other business activities, will depend on our ability to generate cash in the future. This is subject, to a certain extent, to general economic, financial, competitive, legislative, regulatory and other factors, many of which are beyond our control.

     We may be unable to generate sufficient cash flow from operations, to realize anticipated cost savings and operating improvements on schedule or at all, to obtain future borrowings under our credit facilities or otherwise in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. If we do not have sufficient liquidity, we may need to refinance or restructure all or a portion of our indebtedness on or before maturity, sell assets or borrow more money. We may not be able to do so on terms satisfactory to us or at all.

Despite our and our subsidiaries’ current significant level of indebtedness, we may still be able to incur more indebtedness, which would increase the risks described above.

     We and our subsidiaries may be able to incur substantial additional indebtedness in the future, including secured indebtedness. Although our credit facilities, the indenture governing Centers’ 8 5/8% Senior Notes due 2011 (the “Senior Notes”) and the indenture governing Centers’ 8¹/2% Senior Subordinated Notes due 2010 (the “Senior Subordinated Notes”) contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and, under certain circumstances, indebtedness incurred in compliance with these restrictions could be substantial. If additional indebtedness is added to our or our subsidiaries’ current levels of indebtedness, the substantial risks described above would increase.

Our indebtedness imposes restrictions on us that may affect our ability to successfully operate our business and our ability to make payments on our indebtedness.

     The credit facilities and the indenture governing the Senior Notes and the indenture governing the Senior Subordinated Notes include certain covenants that, among other things, restrict our ability to:

	•		incur additional indebtedness and issue preferred stock;
	•		make restricted payments;
	•		waive restrictions on the ability of certain subsidiaries to make distributions;
	•		sell assets;
	•		enter into certain transactions with affiliates; and
	•		create liens.

     We are also required by our credit facilities to maintain certain financial ratios, including, but not limited to, fixed charge coverage and maximum total leverage ratios. These covenants in our debt instruments may restrict our ability to expand or to fully pursue our business strategies and opportunities. Our ability to comply with these and other provisions of the indenture governing the Senior Notes, the indenture governing the Senior Subordinated Notes and the credit facilities may be affected by changes in our operating and financial performance, changes in general business and economic conditions, adverse regulatory developments or other events beyond our control. The breach of any of these covenants could result in a default under our indebtedness, which could cause those and other obligations to become immediately due and payable. If any of our indebtedness is accelerated, we may not be able to repay it.

We are a holding company and therefore depend on our subsidiaries to service our debt. Earnings from our operating subsidiaries may not be sufficient to fund our operations and we may be unable to make payments on our debt obligations.

     We have no direct operations and no significant assets other than the stock of our subsidiaries. Because we conduct our operations through our operating subsidiaries, we depend on those entities for dividends and other payments to generate the funds necessary to meet our financial obligations, including payments on our debt. Under certain circumstances, legal and contractual restrictions, as well as the financial condition and operating requirements of our subsidiaries, may limit our ability to obtain cash from our subsidiaries. The earnings from, or other available assets of, these operating subsidiaries may not be sufficient to make distributions to enable us to pay interest on our debt obligations when due or the principal of such debt at maturity.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

     As of December 31, 2005, there were 5,813 GNC store locations globally, including: (1) 2,517 company-owned in the United States (all 50 states, the District of Columbia and Puerto Rico); (2) 133 company-owned in Canada; (3) 1,156 domestic franchises; (4) 858 international franchises; and (5) 1,149 GNC “store-within-a-store” locations under our strategic alliance with Rite Aid Corporation. All but one of our stores are located on leased premises that typically range in size from 1,000 to 2,000 square feet. In our Franchise segment, substantially all of our franchised stores in the United States and Canada are located on premises we lease and then sublease to our respective franchisees. All of our franchised stores in 40 international locations, except Canada, are owned or leased directly by our franchisees. No single store is material to our operations.

     In our Manufacturing/Wholesale segment, we lease facilities for manufacturing, packaging, warehousing and distribution operations. We manufacture a majority of our proprietary products at a 230,000 square foot facility in Greenville, South Carolina. We also lease a 630,000 square foot complex located in Anderson, South Carolina, for packaging, materials receipt, lab testing, warehousing and distribution. Both the Greenville and Anderson facilities are leased on a long-term basis pursuant to “fee-in-lieu-of-taxes” arrangements with the counties in which the facilities are located, but we retain the right to purchase each of the facilities at any time during the lease for $1.00, subject to a loss of tax benefits. We also lease a 210,000 square foot distribution center in Leetsdale, Pennsylvania and a 112,000 square foot distribution center in Phoenix, Arizona. We also lease space at a distribution center in Canada. We conduct additional manufacturing for wholesalers and retailers of third-party products, as well as warehouse certain third-party products at a leased facility located in New South Wales, Australia.

     We also lease four small regional sales offices in Clearwater, Florida; Fort Lauderdale, Florida; Tusin, California; and Mississauga, Ontario. None of the regional sales offices is larger than 5,000 square feet. Our 253,000 square foot corporate headquarters in Pittsburgh, Pennsylvania is owned by Gustine Sixth Avenue Associates, Ltd., a Pennsylvania limited partnership, of which General Nutrition, Incorporated, one of our subsidiaries, is a 50% limited partner. The partnership’s ownership of the land and buildings, and the partnership’s interest in the ground lease to General Nutrition, Incorporated, are all encumbered by a mortgage in the original principal amount of $17.9 million, with an outstanding balance of $12.2 million as of December 31, 2005. This partnership is included in our consolidated financial statements.

ITEM 3. LEGAL PROCEEDINGS

     We are from time to time engaged in litigation. We regularly review all pending litigation matters in which we are involved and establish reserves deemed appropriate by management for these litigation matters. However, some of these matters are material and an adverse outcome in these matters could have a material impact on our financial condition and operating results.

     As a manufacturer and retailer of nutritional supplements and other consumer products that are ingested by consumers or applied to their bodies, we have been and are currently subjected to various product liability claims. Although the effects of these claims to date have not been material to us, it is possible that current and future product liability claims could have a material adverse impact on our financial condition and operating results. We currently maintain product liability insurance with a deductible/retention of $1.0 million per claim with an aggregate cap on retained loss of $10.0 million. We typically seek and have obtained contractual indemnification from most parties that supply raw materials for our products or that manufacture or market products we sell. We also typically seek to be added, and have been added, as additional insured under most of such parties’ insurance policies. We are also entitled to indemnification by Numico for certain losses arising from claims related to products containing ephedra or Kava Kava sold prior to December 5, 2003. However, any such indemnification or insurance is limited by its terms and any such indemnification, as a practical matter, is limited to the creditworthiness of the indemnifying party and its insurer, and the absence of significant defenses by the insurers. See Item 1A, “Risk Factors” included in this Report for a discussion of important factors that could cause actual results to differ materially from those described or implied by the forward-looking statements contained herein. We may incur material products liability claims, which could increase our costs and adversely affect our reputation, revenues and operating income.

Ephedra (Ephedrine Alkaloids)

     As of December 31, 2005, we have been named as a defendant in 227 pending cases involving the sale of third-party products that contain ephedra. Of those cases, one involves a proprietary GNC product. Ephedra products have been the subject of adverse publicity and regulatory scrutiny in the United States and other countries relating to alleged harmful effects, including the deaths of several individuals. In early 2003, we instructed all of our locations to stop selling products containing ephedra that were manufactured by GNC or one of our affiliates. Subsequently, we instructed all of our locations to stop selling any products containing ephedra by June 30, 2003. In April 2004, the FDA banned the sale of products containing ephedra. All claims to date have been tendered to the third-party manufacturer or to our insurer and we have incurred no expense to date with respect to litigation involving ephedra products. Furthermore, we are entitled to indemnification by Numico for certain losses arising from claims related to products containing ephedra sold prior to December 5, 2003. All of the pending cases relate to products sold prior to such time and, accordingly, we are entitled to indemnification from Numico for all of the pending cases.

Pro-Hormone/Androstenedione

     On July 29, 2001, five substantially identical class action lawsuits were filed in the state courts of the States of Florida, New York, New Jersey, Pennsylvania and Illinois against us and various manufacturers of products containing pro-hormones, including androstenedione:

	•		Brown v. General Nutrition Companies, Inc., Case No. 02-14221-AB, Florida Circuit Court for the 15th Judicial Circuit Court, Palm Beach County;
	•		Rodriguez v. General Nutrition Companies, Inc., Index No. 02/126277, New York Supreme Court, County of New York, Commercial Division;
	•		Abrams v. General Nutrition Companies, Inc., Docket No. L-3789-02, New Jersey Superior Court, Mercer County;
	•		Toth v. Bodyonics, Ltd., Case No. 003886, Pennsylvania Court of Common Pleas, Philadelphia County; and
	•		Pio v. General Nutrition Companies, Inc., Case No. 2-CH-14122, Illinois Circuit Court, Cook County.

     On March 20, 2004, a similar lawsuit was filed in state court in Contra Costa County, California (Guzman v. General Nutrition Companies, Inc., Case No. 04-00283). Plaintiffs allege that we have distributed or published periodicals that contain advertisements claiming that the various pro-hormone products promote muscle growth. The complaints allege that we knew the advertisements and label claims promoting muscle growth were false, but nonetheless continued to sell the products to consumers. Plaintiffs seek injunctive relief, disgorgement of profits, attorney’s fees and the costs of suit. All of the products involved in the cases are third-party products. We have tendered these cases to the various manufacturers for defense and indemnification. Based upon the information available to us at the present time, we believe that these matters will not have a material adverse effect upon our liquidity, financial condition or results of operations.

Class Action Settlement

     Five class action lawsuits were filed against us in the state courts of Alabama, California, Illinois and Texas with respect to claims that the labeling, packaging and advertising with respect to a third-party product sold by the Company were misleading and deceptive. We deny any wrongdoing and are pursuing indemnification claims against the manufacturer. As a result of mediation, the parties have agreed to a settlement of the lawsuits, which has been preliminarily approved by the court. Notice to the class will be published in mass advertising media publications. Each person who purchased the third-party product and who is part of the class will receive a cash reimbursement equal to the retail price paid, net of sales tax, upon presentation to us of a cash register receipt as proof of purchase. If a person purchased the product, but does not have a cash register receipt, such a person may submit a signed affidavit and will then be entitled to receive one or more coupons. The number of coupons will be based on the total amount of purchases of the product subject to a maximum of five coupons per purchaser. Each coupon will have a cash value of $10.00 valid toward any purchase of $25.00 or more at a GNC store. The coupons will not be redeemable by any GNC Gold Card member during Gold Card Week and will not be redeemable for products subject to any other price discount. The coupons are to be redeemed at point of sale and are not mail-in rebates. The coupons will be redeemable for a 90-day period after the settlement is final. We will have available for issue a maximum of 5 million certificates with a combined face value of $50.0 million. In addition to the cash reimbursements and coupons, as part of the settlement, we will be required to pay legal and administrative fees of approximately $1.2 million and will incur $0.7 million in 2006 for advertising and postage costs related to the notification letters.

Franklin Publications

     On October 26, 2005, one of our wholly owned subsidiaries was sued in the Common Pleas Court of Franklin County, Ohio by Franklin Publications, Inc. (“Franklin”). The lawsuit is based upon the GNC subsidiary’s termination, effective as of December 31, 2005, of two contracts for the publication of two monthly magazines mailed to certain GNC customers. Franklin is seeking a declaratory judgment as to its rights and obligations under the contracts and monetary damages for the GNC subsidiary’s alleged breach of the contracts. Franklin also alleges that the GNC subsidiary has interfered with Franklin’s business relationships with the advertisers in the publications, who are primarily GNC vendors, and has been unjustly enriched. Franklin does not specify the amount of damages sought, only that they are in excess of $25,000. We dispute the claims and intend to vigorously defend the lawsuit. We believe that the lawsuit will not have a material adverse effect on our liquidity, financial condition or results of operations.

Visa/MasterCard antitrust litigation

     The terms of a significant portion of the Visa/MasterCard antitrust litigation settlement were finalized during 2005. Accordingly, we have recognized a $1.2 million gain in December 2005 for our expected portion of the proceeds and we expect to collect this in 2006.

Pennsylvania Claim

     The Commonwealth of Pennsylvania has conducted an unclaimed property audit of General Nutrition, Inc., a wholly owned subsidiary of the Company for the period January 1, 1992 to December 31, 1997 generally and January 1, 1992 to December 31, 1999 for payroll and wages. As a result of the audit, the Pennsylvania Treasury Department has made an assessment of an alleged unclaimed property liability of the subsidiary in the amount of $4.1 million. The subsidiary regularly records normal course liabilities for actual unclaimed properties and does not agree with the assessment and intends to file a timely appeal and vigorously defend against the assessment.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF SECURITIES.

     There is no established public trading market for our Common Stock. As of March 1, 2006, there were 47 holders of our Common Stock. See Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” included in this Report.

Dividends

     We did not declare cash dividends on our Common Stock for the two most recent fiscal years. We are subject to certain restrictions on our ability to pay dividends under the terms of our senior credit facility, Senior Notes, Senior Subordinated Notes and our Parent’s Series A Preferred Stock. For a description of such restrictions, see Note 13 to our consolidated financial statements included elsewhere in this Report.

Securities Authorized for Issuance under Equity Compensation Plans

     The following table sets forth information about our Common Stock that may be issued upon exercise of options, warrants and rights under all of our equity compensation plans as of December 31, 2005.

Number of

Number of

securities remaining

securities to be

available for future

issued upon

Weighted-average

issuance under equity

exercise of

exercise price of

compensation plans

outstanding

outstanding

(excluding securities

options, warrants

options, warrants

reflected in first

Plan category

and rights

and rights

column)

Equity compensation plans approved by security holders (2003 Omnibus Stock Incentive Plan)

2,757,150

(1)

$

6.00

1,242,850

Equity compensation plans not approved by security holders

—

—

—

Total

2,757,150

(1)

$

6.00

1,242,850

2003 Omnibus Stock Incentive Plan

          In December 2003, our board of directors adopted the GNC Corporation (formerly known as General Nutrition Centers Holding Company) 2003 Omnibus Stock Incentive Plan (the “Plan”). The purpose of the Plan is to enable the Company to attract and retain highly qualified personnel who will contribute to the success of the Company. The Plan provides for the granting of stock options, stock appreciation rights, restricted stock, deferred stock and performance shares. Awards under the Plan may be granted to certain eligible employees, directors, consultants or advisors as determined by the administering committee of our board of directors. The total number of shares of Common Stock reserved and available under the Plan is 4.0 million shares. Stock options granted under the Plan generally are granted at not less than fair market value, vest over a four-year vesting schedule and expire after seven years from date of grant. If any shares reserved for an award are forfeited, repurchased or any such award otherwise terminates without a payment being made to the participant in the form of stock, such shares underlying such award will also become available for future awards under the Plan. No awards other than stock options have been granted under the Plan.

     ITEM 6. SELECTED FINANCIAL DATA

          The following selected consolidated financial data should be read together with the information under the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, including the notes thereto, included elsewhere in this Report. The years ended December 31, 2005 and 2004 and the 27 days ended December 31, 2003 are the periods subsequent to the Acquisition. The period January 1, 2003 to December 4, 2003 and the years ended 2002 and 2001 are the periods prior to the Acquisition when GNCI was owned by Numico.

		Successor													Predecessor
										27 Days Ended					Period ended
		Year Ended December 31,								December 31,					December 4,				Year Ended December 31,
(dollars in millions)		2005				2004				2003					2003				2002				2001
Statement of Operations Data:
Revenue:
Retail		$	989.5			$	1,001.8			$	66.2				$	993.3			$	1,068.6			$	1,123.1
Franchising			212.7				226.5				14.2					241.3				256.1				273.1
Manufacturing/Wholesale			115.5				116.4				8.9					105.6				100.3				112.9
Total revenue			1,317.7				1,344.7				89.3					1,340.2				1,425.0				1,509.1
Cost of sales, including costs of warehousing, distribution and occupancy			898.7				895.2				63.6					934.9				969.9				1,013.3
Gross profit			419.0				449.5				25.7					405.3				455.1				495.8
Compensation and related benefits			228.6				230.0				16.7					235.0				245.2				246.6
Advertising and promotion			44.7				44.0				0.5					38.4				52.1				41.9
Other selling, general and administrative			76.6				73.8				5.1					70.9				86.0				140.7
Other (income) expense (1)			(3.1	)			1.0				—					(10.1	)			(211.3	)			(3.4	)
Impairment of goodwill and intangible assets (2)			—				—				—					709.4				222.0				—
Operating income (loss)			72.2				100.7				3.4					(638.3	)			61.1				70.0
Interest expense, net			43.1				34.5				2.8					121.1				136.3				140.0
Gain on sale of marketable securities			—				—				—					—				(5.0	)			—
Income (loss) before income taxes			29.1				66.2				0.6					(759.4	)			(70.2	)			(70.0	)
Income tax expense (benefit)			10.7				24.5				0.2					(174.5	)			1.0				(14.1	)
Net income (loss) before cumulative effect of accounting change			18.4				41.7				0.4					(584.9	)			(71.2	)			(55.9	)
Loss from cumulative effect of accounting change, net of tax (3)			—				—				—					—				(889.7	)			—
Net income (loss)		$	18.4			$	41.7			$	0.4				$	(584.9	)		$	(960.9	)		$	(55.9	)

(1)		Other (income) expense includes foreign currency (gain) loss for all of the periods presented. Other income for the year ended December 31, 2005, included a $2.5 million transaction fee related to the transfer of our GNC Australian franchise rights to Global Active Limited. Other income for the year ended December 31, 2004, included a $1.3 million charge for costs related to the preparation of a registration statement for an offering of our Common Stock to the public. As this offering was not completed, these costs were expensed. Other income for the period ended December 4, 2003 and the years ended December 2002 and 2001, primarily represents $7.2 million, $214.4 million, and $3.6 million, respectively, received from legal settlement proceeds that we collected from a raw material pricing settlement.
(2)		On January 1, 2002, we adopted SFAS No. 142, which requires that goodwill and other intangible assets with indefinite lives no longer be subject to amortization, but instead, being tested at least annually for impairment. For the periods ended December 4, 2003 and December 31, 2002, we recognized impairment charges of $709.4 million (pre-tax), and $222.0 million (pre-tax), respectively, for goodwill and other intangibles as a result of decreases in expectations regarding growth and profitability; additionally in 2003 the impairment resulted from increased competition from the mass market, negative publicity by the media on certain supplements and increasing pressure from the FDA on the industry as a whole, each of which were identified in connection with a valuation related to the Acquisition.

(3)		Upon adoption of SFAS No. 142, we recognized a one-time impairment charge in the first quarter of 2002 of $889.7 million, net of tax to reduce the carrying amount of goodwill and other intangibles to their implied fair value.

		Successor													Predecessor
										27 Days Ended					Period ended
		Year Ended December 31,								December 31,					December 4,				Year Ended December 31,
(dollars in millions)		2005				2004				2003					2003				2002				2001
Balance Sheet Data:
Cash and cash equivalents		$	86.0			$	85.2			$	33.2				$	9.4			$	38.8			$	16.3
Working capital (4)			297.0				282.1				199.6					96.2				153.6				140.8
Total assets			1,023.8				1,031.3				1,024.9					1,038.1				1,878.3				3,071.8
Total debt			473.4				510.4				514.2					1,747.4				1,840.1				1,883.3
Cumulative redeemable exchangeable preferred stock			127.1				112.7				100.5					—				—				—
Stockholders’ equity (deficit)		$	212.1			$	208.3			$	177.3				$	(1,077.1	)		$	(493.8	)		$	469.0
Other Data:
Net cash provided by operating activities		$	64.2			$	83.5			$	4.7				$	92.9			$	111.0			$	75.8
Net cash used in investing activities			(21.5	)			(27.0	)			(740.0	)				(31.5	)			(44.5	)			(48.1	)
Net cash (used in) provided by financing activities			(41.7	)			(4.5	)			759.2					(90.8	)			(44.3	)			(21.6	)
EBITDA (5)			113.2				139.5				5.7					(579.2	)			(765.5	)			192.0
Capital expenditures (6)		$	20.8			$	28.3			$	1.8				$	31.0			$	51.9			$	29.2
Ratio of earnings to fixed charges (7)			1.35				1.92				1.11					—				—				—
Number of stores (at end of period):
Company-owned stores (8)			2,650				2,642				2,748					2,757				2,898				2,960
Franchised stores (8)			2,014				2,036				2,009					1,978				1,909				1,821
Store-within-a-store locations (8)			1,149				1,027				988					988				900				780

(4)		Working capital represents current assets less current liabilities.
(5)		EBITDA as used herein represents net income (loss) before interest expense (net), income tax expense (benefit) and depreciation and amortization. We present EBITDA because we consider it a useful analytical tool for measuring our ability to service our debt and generate cash for other purposes. The reconciliation of net cash provided by operating activities to EBITDA as presented below is different than that used for purposes of the covenants under the indentures governing the notes. EBITDA is not a measurement of our financial performance under Generally Accepted Accounting Principals (“GAAP”) and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of our profitability or liquidity. Some of the limitations of EBITDA are as follows:

	•		EBITDA does not reflect interest expense, or the cash requirement necessary to service interest or principal payments, on our debts;
	•		although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements; and
	•		although EBITDA is frequently used by securities analysts, lenders and others in their evaluation of companies, our calculation of EBITDA may differ from other similarly titled measures of other companies, limiting its usefulness as a comparative measure.

Because of these limitations, EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA only supplementally. See our consolidated statements of cash flows included elsewhere in this Report.

              The following table reconciles net cash provided by operating activities as determined in accordance with GAAP to EBITDA for the periods indicated:

		Successor													Predecessor
										27 Days Ended					Period ended
		Year Ended December 31,								December 31,					December 4,				Year Ended December 31,
(in millions)		2005				2004				2003					2003				2002				2001
Net cash provided by operating activities		$	64.2			$	83.5			$	4.7				$	92.9			$	111.0			$	75.8
Cash paid for interest (excluding deferred financing fees)			32.7				32.7				0.7					122.5				138.0				145.6
Cash paid for taxes			2.9				5.1				—					2.5				30.7				15.2
Changes in accounts receivable			4.4				(5.3	)			(2.9	)				(59.9	)			127.3				1.1
Changes in inventory			23.9				15.1				(3.8	)				(29.0	)			(22.2	)			(71.5	)
Changes in accounts payable			2.9				(3.9	)			5.3					3.3				(18.8	)			48.2
Changes in other assets and liabilities			(17.8	)			12.3				1.7					(2.1	)			(24.9	)			(22.4	)
Loss from cumulative effect of accounting change, net of tax			—				—				—					—				(889.7	)			—
Impairment of goodwill and intangible assets			—				—				—					(709.4	)			(222.0	)			—
Gain on sale of marketable securities			—				—				—					—				5.1				—
EBITDA (a)		$	113.2			$	139.5			$	5.7				$	(579.2	)		$	(765.5	)		$	192.0

(a)		Included in EBITDA are non-cash goodwill and other intangible impairment losses of $709.4 million (pre-tax) and $222.0 million (pre-tax) incurred for the period from January 1, 2003 to December 4, 2003 and the year ended December 31, 2002, respectively, and a loss from the cumulative effect of an accounting change of $889.7 million, net of tax, for the year ended December 31, 2002. The impairment charges were incurred upon the testing of goodwill and other intangibles, in accordance with SFAS No. 142. Impairment resulted from decreased expectations regarding growth and profitability due to increased competition from the mass market, negative publicity by the media on certain supplements and increasing pressure from the FDA on the industry as a whole.
(6)		Capital expenditures for 2002 included approximately $13.9 million incurred in connection with our store reset and upgrade program. For the full year ended December 31, 2003, capital expenditures were $32.8 million.
(7)		We have calculated the ratio of earnings to fixed charges by dividing earnings by fixed charges. For the purpose of computing the ratio of earnings to fixed charges, ‘‘earnings’’ is defined as income (loss) before income taxes and fixed charges. ‘‘Fixed charges’’ consist of interest cost, whether expensed or capitalized, amortization of debt expense and the portion of rental expense (approximately one-third) that we believe to be representative of the interest factor in those rentals. Earnings were insufficient to cover fixed charges by $759.4 million, $70.2 million and $70.0 million for the period ended December 4, 2003 and for the years ended December 31, 2002 and 2001, respectively.

		Successor													Predecessor
										27 Days Ended					Period ended
		Year Ended December 31,								December 31,					December 4,				Year Ended December 31,
		2005				2004				2003					2003				2002				2001
Company-owned stores
Beginning of period balance			2,642				2,748				2,757					2,898				2,960				2,842
Store openings			137				82				4					80				117				220
Store closings			(129	)			(188	)			(13	)				(221	)			(179	)			(102	)
End of period balance			2,650				2,642				2,748					2,757				2,898				2,960
Franchised stores
Beginning of period balance			2,036				2,009				1,978					1,909				1,821				1,718
Store openings			149				146				33					186				182				291
Store closings			(171	)			(119	)			(2	)				(117	)			(94	)			(188	)
End of period balance			2,014				2,036				2,009					1,978				1,909				1,821
Store-within-a-store (Rite Aid)
Beginning of period balance			1,027				988				988					900				780				544
Store openings			130				44				—					93				131				237
Store closings			(8	)			(5	)			—					(5	)			(11	)			(1	)
End of period balance			1,149				1,027				988					988				900				780
Total Stores			5,813				5,705				5,745					5,723				5,707				5,561

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

          The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with Item 6, “Selected Financial Data” and our consolidated financial statements and related notes included elsewhere in this Report. The discussion in this section contains forward looking statements that involve risks and uncertainties. See Item1A, “Risk Factors” in this Report for a discussion of important factors that could cause actual results to differ materially from those described or implied by the forward-looking statements contained herein.

          On October 16, 2003, we entered into a purchase agreement (the “Purchase Agreement”) with Numico and Numico USA, Inc. to acquire 100% of the outstanding equity interest of GNCI from Numico USA Inc. On December 5, 2003, Centers acquired 100% of the outstanding equity interests of GNCI from Numico for an aggregate purchase price of $747.4 million, consisting of $733.2 million in cash and the assumption of $14.2 million of mortgage indebtedness (the “Acquisition”). We subsequently received $15.7 million and paid $5.9 million to Numico related to working capital contingent purchase price adjustments. The results of operations and cash flows reflect our predecessor entity, on a carve-out basis, for the period from January 1, 2003 to December 4, 2003. See “—Basis of Presentation’’.

Business Overview

          We are the largest global specialty retailer of nutritional supplements, which include VMHS, sports nutrition products, diet products and other wellness products. We derive our revenues principally from product sales through our company-owned stores and gnc.com, franchise activities and sales of products manufactured in our facilities to third parties. We sell products through a worldwide network of more than 5,800 locations operating under the GNC brand name.

     Revenues from Business Segments

          Revenues are derived from our three business segments, Retail, Franchise and Manufacturing/Wholesale, primarily as follows:

	•		Retail revenues are generated by sales to consumers at our company-owned stores and through gnc.com. Although the Company believes that its retail and franchise businesses are not seasonal in nature, historically the Company has experienced, and expects to continue to experience, a substantial variation in its net sales and operating results from quarter to quarter, with the first half of the year being stronger than the second half of the year.
	•		Franchise revenues are generated primarily from:

(1) product sales to our franchisees;

(2) royalties on franchise retail sales; and

(3) franchise fees, which are charged for initial franchise awards, renewals and transfers of franchises.

•

Manufacturing/Wholesale revenues are generated through sales of manufactured products to third parties, generally for third-party private label brands, and the sale of our proprietary and third-party products to and through Rite Aid and drugstore.com.

Executive Overview of 2005 Results

          In 2005, the Company undertook major strategic initiatives to rebuild the business and to establish a foundation for stronger future performance. These initiatives included implementation of a national pricing structure, execution of a national and more diversified marketing program focused on competitive pricing on key products, improved cost control, and a realignment of the franchise system with Company strategies.

          We also implemented structural changes, aligning merchandising, marketing, store operations and product development in order to provide customers with a more consistent shopping experience and to establish a culture focused on merchandising.

Execution of these initiatives produced many improvements, including:

•

Broader customer reach: Our new advertising programs, which included newspaper inserts, traditional newspaper advertising and extensive television advertising, improved customer response. We also launched gnc.com as an e-commerce website late in the year and introduced a sales catalog through which customers

may order products directly from GNC. These direct marketing initiatives are further extending the reach of the GNC brand.

•

An improved franchise system: Initiatives intended to ensure franchisee compliance with the GNC Franchising operating system are leading to better franchise performance, as evidenced by the improving same-store sales at domestic franchise locations throughout the year.

	•		Better shopping experiences for our customers: We made significant progress in improving inventory management, vendor relationships, product development and store execution. These improvements created improved customer shopping experiences by providing a wide assortment of high-quality, innovative products and assuring that best-selling items were never out of stock.
	•		Stronger expense control: We met our cost control objectives by reducing overhead without impacting productivity.

          These and other strategies implemented in 2005 led to a reverse of the negative trends of the business. Domestic same-store sales improved with each successive quarter of the year, culminating with an 8.1% increase in company-owned stores and a 1.5% increase in franchise stores in the fourth quarter. We also realized steady improvement in every product category, highlighted by particular strength in the sports nutrition and vitamins, minerals and herbal supplements categories, and by an improvement in the diet business during the latter part of the year.

Basis of Presentation

     Purchase Accounting

          The Acquisition was accounted for under the purchase method of accounting. As a result, the financial data presented for 2003 include a predecessor period from January 1, 2003 through December 4, 2003 and a successor period for the 27 days ended December 31, 2003. As a result of the Acquisition, the consolidated statements of operations for the successor periods include: interest and amortization expense resulting from Centers’ credit facility and the issuance of Centers’ Senior Notes and Senior Subordinated Notes; amortization of intangible assets related to the Acquisition; and management fees that did not exist prior to the Acquisition. Further, as a result of purchase accounting, the fair values of our assets on the date of the Acquisition became their new cost basis. Results of operations for the successor periods are affected by the newly established cost basis of these assets. We allocated the Acquisition consideration to the tangible and intangible assets acquired and liabilities assumed by us based upon their respective fair values as of the date of the Acquisition, which resulted in a significant change in our annual depreciation and amortization expenses.

          The accompanying financial statements for the periods prior to the Acquisition are labeled as “Predecessor” and the periods subsequent to the Acquisition are labeled as “Successor”.

          Successor. The accompanying financial statements for the calendar year ended December 31, 2005 and 2004 and for the 27 days ended December 31, 2003 include the accounts of the Company and its wholly owned subsidiaries. Included in this period are fair value adjustments to assets and liabilities, including inventory, goodwill, other intangible assets and property, plant and equipment. Also included is the corresponding effect these adjustments had to cost of sales, depreciation and amortization expenses.

          Predecessor. For the period from January 1, 2003 to December 4, 2003 the consolidated financial statements of GNCI were prepared on a carve-out basis and reflect the consolidated financial position, results of operations and cash flows in accordance with GAAP. The financial statements for this period reflected amounts that were pushed down from Nutricia and Numico in order to depict the financial position, results of operations and cash flows of GNCI based on these carve-out principles. In conjunction with the sale of GNCI to the Company, all related party term debt was settled in full. As a result of recording these amounts, the financial statements of GNCI may not be indicative of the results that would be presented if GNCI had operated as an independent, stand-alone entity.

     Related Parties

          In the years ended December 31, 2005 and 2004, the Company had related party transactions with Apollo Management V and its affiliates. GNCI had related party transactions with Numico and other affiliates during the period January 1, 2003 to December 4, 2003. For further discussion of these transactions, see the “Related Party Transactions” note to our consolidated financial statements included elsewhere in this Report.

Results of Operations

     The information presented below as of December 31, 2005 and 2004 and for the years ended December 31, 2005 and 2004, the 27 days ended December 31, 2003 and the period January 1, 2003 to December 4, 2003, was derived from our audited consolidated financial statements and accompanying notes. In the table below and in the accompanying discussion, the 27 days ended December 31, 2003 and the period January 1, 2003 to December 4, 2003 have been combined for discussion purposes.

     As discussed in the “Segment” note to our consolidated financial statements, we evaluate segment operating results based on several indicators. The primary key performance indicators are revenues and operating income or loss for each segment. Revenues and operating income or loss, as evaluated by management, exclude certain items that are managed at the consolidated level, such as warehousing and transportation costs, impairments, and other corporate costs. The following discussion compares the revenues and the operating income or loss by segment, as well as those items excluded from the segment totals.

     We calculate our comparable “same store” sales growth to exclude the net sales of a store for any period if the store was not open during the same period of the prior year. When a store’s square footage has been changed as a result of reconfiguration or relocation in the same mall, the store continues to be treated as a same store. Company-owned and domestic franchised same store sales have been calculated on a calendar basis for all periods presented.

Results of Operations and Comprehensive Income

(Dollars in millions and percentages expressed as a percentage of total net revenues)

		Successor																Combined								Successor									Predecessor
		Year Ended								Year Ended								Year Ended								27 days Ended									Period Ended
		December 31,								December 31,								December 31,								December 31,									December 4,
		2005								2004								2003								2003									2003
Revenues:
Retail		$	989.4				75.1	%		$	1,001.8				74.5	%		$	1,059.5				74.1	%		$	66.2				74.1	%			$	993.3				74.1	%
Franchise			212.8				16.1	%			226.5				16.8	%			255.5				17.9	%			14.2				15.9	%				241.3				18.0	%
Manufacturing / Wholesale			115.5				8.8	%			116.4				8.7	%			114.5				8.0	%			8.9				10.0	%				105.6				7.9	%
Total net revenues			1,317.7				100.0	%			1,344.7				100.0	%			1,429.5				100.0	%			89.3				100.0	%				1,340.2				100.0	%
Operating expenses:
Cost of sales, including costs of warehousing, distribution and occupancy			898.7				68.2	%			895.2				66.5	%			998.5				69.9	%			63.6				71.2	%				934.9				69.7	%
Compensation and related benefits			228.6				17.3	%			230.0				17.1	%			251.7				17.6	%			16.7				18.7	%				235.0				17.5	%
Advertising and promotion			44.7				3.4	%			44.0				3.3	%			38.9				2.7	%			0.5				0.6	%				38.4				2.9	%
Other selling, general and administrative expenses			72.6				5.5	%			69.8				5.2	%			68.9				4.8	%			4.8				5.4	%				64.1				4.8	%
Amortization expense			4.0				0.3	%			4.0				0.3	%			7.1				0.5	%			0.3				0.3	%				6.8				0.5	%
Income from legal settlement			—				—				—				—				(7.2	)			-0.5	%			—				—					(7.2	)			-0.5	%
Foreign currency gain			(0.6	)			—				(0.3	)			—				(2.9	)			-0.2	%			—				—					(2.9	)			-0.2	%
Impairment of goodwill and intangible assets			—				—				—				—				709.4				49.6	%			—				—					709.4				52.9	%
Other (income) expense			(2.5	)			-0.2	%			1.3				0.1	%			—				—	%			—				—					—				—
Total operating expenses			1,245.5				94.5	%			1,244.0				92.5	%			2,064.4				144.4	%			85.9				96.2	%				1,978.5				147.6	%
Operating income (loss):
Retail			77.2				5.9	%			107.7				8.0	%			85.7				6.0	%			6.6				7.3	%				79.1				5.9	%
Franchise			52.0				3.9	%			62.4				4.6	%			66.1				4.6	%			2.4				2.7	%				63.7				4.8	%
Manufacturing / Wholesale			46.0				3.5	%			38.6				2.9	%			25.7				1.8	%			1.4				1.6	%				24.3				1.8	%
Unallocated corporate and other (costs) income:
Warehousing and distribution costs			(50.0	)			-3.8	%			(49.3	)			-3.7	%			(44.1	)			-3.1	%			(3.4	)			-3.8	%				(40.7	)			-3.0	%
Corporate costs			(55.5	)			-4.2	%			(57.4	)			-4.2	%			(66.1	)			-4.6	%			(3.6	)			-4.0	%				(62.5	)			-4.7	%
Income from legal settlement			—				—				—				—				7.2				0.5	%			—				—					7.2				0.5	%
Impairment of goodwill and intangible assets			—				—				—				—				(709.4	)			-49.6	%			—				—					(709.4	)			-52.9	%
Other income (expense)			2.5				0.2	%			(1.3	)			-0.1	%			—				—				—				—					—				—
Subtotal unallocated corporate and other costs net			(103.0	)			-7.8	%			(108.0	)			-8.0	%			(812.4	)			-56.8	%			(7.0	)			-7.8	%				(805.4	)			-60.1	%
Total operating income (loss)			72.2				5.5	%			100.7				7.5	%			(634.9	)			-44.4	%			3.4				3.8	%				(638.3	)			-47.6	%
Interest expense, net			43.1								34.5								123.9								2.8									121.1
Income (loss) before income taxes			29.1								66.2								(758.8	)							0.6									(759.4	)
Income tax expense (benefit)			10.7								24.5								(174.3	)							0.2									(174.5	)
Net income (loss)			18.4								41.7								(584.5	)							0.4									(584.9	)
Other comprehensive income			0.1								0.9								1.9								0.3									1.6
Comprehensive income (loss)		$	18.5							$	42.6							$	(582.6	)						$	0.7								$	(583.3	)

     Note: The numbers in the above table have been rounded to millions. All calculations related to the Results of Operations for the year-over-year comparisons below were derived from the table above and could occasionally differ immaterially if you were to use the unrounded data for these calculations.

Comparison of the Years Ended December 31, 2005 and 2004

     Revenues

          Our consolidated net revenues decreased $27.0 million, or 2.0%, to $1,317.7 million for the year ended December 31, 2005 compared to $1,344.7 million for the same period in 2004. The decrease was primarily the result of decreased comparable same store sales in our Retail and Franchise segments, a reduced domestic franchise store base and decreased revenue in our manufacturing segment due to declining demand for Vitamin E soft-gel products.

          Retail. Revenues in our Retail segment decreased $12.4 million, or 1.2%, to $989.4 million for the year ended December 31, 2005 compared to $1,001.8 million for the same period in 2004. The revenue decrease occurred primarily in our diet category and was partially offset by increases in our sports nutrition and VMHS categories. The diet category experienced sales declines each quarter in 2005, with the first three quarters showing significant declines as a result of reduced demand for low-carb products. The fourth quarter diet sales, while remaining less than 2004, improved as a result of new product introductions. Our domestic company-owned comparable store sales improved each successive quarter during 2005, from a decline of 7.8% in the first quarter to an increase of 8.1% in the fourth quarter. For the total year 2005, our comparable store sales declined 1.5%. Our Canadian company-owned stores had similar trends in sales as our domestic company-owned stores, declining 11.0% in the first half of 2005 and increasing 0.3% in the second half of 2005. Our company-owned store base increased by 10 stores to 2,517 domestically, and declined by two stores to 133 in Canada at December 31, 2005.

          Franchise. Revenues in our Franchise segment decreased $13.7 million, or 6.0%, to $212.8 million for the year ended December 31, 2005, compared to $226.5 million for the same period in 2004. Our domestic franchise stores recognized lower retail sales for the year ended December 31, 2005, as evidenced by a decline in 2005 comparable same store sales for these stores of 4.8%. This decline in retail sales resulted in decreased wholesale product sales to the franchisees of $11.0 million and a decrease in franchise royalty revenue of $1.1 million. Additionally, other franchise revenue decreased by $1.6 million. Our domestic franchise store base declined by 134 stores to 1,156 stores at December 31, 2005, from 1,290 stores at December 31, 2004. Our international franchise store base increased by 112 stores to 858 stores at December 31, 2005 compared to 739 stores at December 31, 2004. Our international franchisees pay a lower royalty rate and purchase fewer products from us than the domestic franchisees.

          Manufacturing/Wholesale. Revenues in our Manufacturing/Wholesale segment, which includes third-party sales from our manufacturing facilities in South Carolina and Australia, as well as wholesale sales to Rite Aid and drugstore.com, decreased $0.9 million or 0.8%, to $115.5 million for the year ended December 31, 2005 compared to $116.4 million for the same period in 2004. This decrease occurred primarily in the Greenville, South Carolina plant, which had a decrease of $4.7 million as a result of declining demand for Vitamin E soft-gel products from third-party customers and a decrease in third-party sales at our Australian manufacturing facility of $0.5 million. These decreases were partially offset by increased sales to Rite Aid of $1.9 million and to drugstore.com of $2.4 million.

     Cost of Sales

          Consolidated cost of sales, which includes product costs, costs of warehousing and distribution and occupancy costs, increased $3.5 million, or 0.4%, to $898.7 million for the year ended December 31, 2005 compared to $895.2 million for the same period in 2004. Consolidated cost of sales, as a percentage of net revenue, were 68.2% compared to 66.5% for the years ended December 31, 2005 and 2004, respectively.

          Product costs. Product costs decreased $1.4 million, or 0.2%, to $655.7 million for the year ended December 31, 2005 compared to $657.1 million for the same period in 2004. Consolidated product costs, as a percentage of net revenue, were 49.8% compared to 48.8% for the years ended December 31, 2005 and 2004, respectively. This increase, as a percentage of net revenue, was the result of increased promotional pricing in our retail segment and increased discounts provided to our franchisees on wholesale sales in our franchise segment. Our vendors partially offset this increase by providing reductions in product costs for their products that were promotionally priced.

          Warehousing and distribution costs. Warehousing and distribution costs increased $0.6 million, or 1.2%, to $51.4 million for the year ended December 31, 2005 compared to $50.8 million for the same period in 2004. This increase was primarily a result of increased fuel costs that affected our private fleet, as well as the cost of outside carriers, offset by efficiency cost savings in wages and other warehousing costs. Consolidated warehousing and distribution costs, as a percentage of net revenue, were 3.9% compared to 3.8% for the years ended December 31, 2005 and 2004, respectively.

          Occupancy costs. Occupancy costs increased $4.3 million, or 2.3%, to $191.6 million for the year ended December 31, 2005 compared to $187.3 million for the same period in 2004. This increase was the result of increased store rental costs of $2.7 million and increased other occupancy costs including depreciation of $1.6 million. Consolidated occupancy costs, as a percentage of net revenue, were 14.5% compared to 13.9% for the years ended December 31, 2005 and 2004, respectively.

     Selling, General and Administrative (“SG&A”) Expenses

          Our consolidated SG&A, expenses including compensation and related benefits, advertising and promotion expense, other selling, general and administrative expenses, and amortization expense, increased $2.1 million, or 0.6%, to $349.9 million, for the year ended December 31, 2005 compared to $347.8 million for the same period in 2004. These expenses, as a percentage of net revenue, were 26.5% compared to 25.9% for the years ended December 31, 2005 and 2004, respectively.

          Compensation and related benefits. Compensation and related benefits decreased $1.4 million, or 0.6%, to $228.6 million for the year ended December 31, 2005 compared to $230.0 million for the same period in 2004. The decrease was the result of decreases in: (1) incentives and commission expense of $2.3 million; (2) 401(k) company paid matching expense of $1.1 million; and (3) other wage related expense of $0.4 million. The decreases were offset by increases in base wage expense, primarily in our retail stores, of $1.8 million and non-cash compensation expense of $0.6 million.

          Advertising and promotion. Advertising and promotion expenses increased $0.7 million, or 1.6%, to $44.7 million for the year ended December 31, 2005 compared to $44.0 million during the same period in 2004. Advertising expense increased as a result of an increase in product specific television advertising of $7.0 million and reduction of franchisee advertising contributions of $1.2 million, offset by decreases in: (1) print advertising of $3.1 million; (2) general marketing costs of $2.9 million; (3) store signage and merchandising costs of $1.0 million; and (4) other advertising related expenses of $0.5 million.

          Other SG&A. Other SG&A expenses, including amortization expense, increased $2.8 million, or 3.8%, to $76.6 million for the year ended December 31, 2005 compared to $73.8 million for the same period in 2004. This increase was due to (1) legal costs for certain products related to a third-party vendor of $1.9 million; (2) increases in commission expense on our consigned inventory sales of $1.1 million; (3) increases in other professional expenses of $0.9 million; and (4) a $1.3 million increase in various other SG&A costs. These increases were partially offset by a $1.2 million gain for our expected portion of the proceeds from the Visa/MasterCard antitrust litigation settlement and a decrease in general insurance expense of $1.2 million.

     Foreign Currency Gain

          We recognized a consolidated foreign currency gain of $0.6 million in year ended December 31, 2005 compared to $0.3 million for the year ended December 31, 2004. This gain resulted primarily from accounts payable activity with our Canadian subsidiary.

     Other Income and Expense

          Other income for the year ended December 31, 2005 includes a transaction fee of $2.5 million, which was recognized for the transfer of our Australian franchise business. For the year ended December 31, 2004, we incurred a $1.3 million charge for costs related to the preparation of a SEC filing to offer common stock to the public. As this offering was not completed, these costs were expensed.

     Operating Income

          As a result of the foregoing, operating income decreased $28.5 million or 28.3%, to $72.2 million for the year ended December 31, 2005 compared to $100.7 million for the same period in 2004. Operating income, as a percentage of net revenue, was 5.5% compared to 7.5% for the years ended December 31, 2005 and 2004, respectively.

          Retail. Operating income decreased $30.5 million, or 28.3%, to $77.2 million for the year ended December 31, 2005 compared to $107.7 million for the same period in 2004. The primary reason for the decrease was lower retail margin, due to lower diet sales and increased promotional retail pricing.

          Franchise. Operating income decreased $10.4 million, or 16.7%, to $52.0 million for the year ended December 31, 2005 compared to $62.4 million for the same period in 2004. This decrease is primarily attributable to a decrease in wholesale sales and margin, due to increases in discounts provided to our franchisees on wholesale sales and a reduced number of operating franchisees domestically.

          Manufacturing/Wholesale. Operating income increased $7.4 million, or 19.2%, to $46.0 million for the year ended December 31, 2005 compared to $38.6 million for the same period in 2004. This increase was primarily the result of an increase in license and other fee revenue from Rite Aid, increased wholesale sales volumes to drugstore.com, improved margins on third-party manufacturing sales and increased manufacturing efficiencies at our South Carolina manufacturing facility.

          Warehousing & Distribution Costs. Unallocated warehousing and distribution costs increased $0.7 million, or 1.4%, to $50.0 million for the year ended December 31, 2005 compared to $49.3 million for the same period in 2004. This increase was primarily a result of increased fuel costs, offset by reduced wages and other operating expenses in our distribution centers.

          Corporate Costs. Corporate overhead cost decreased $1.9 million, or 3.3%, to $55.5 million for the year ended December 31, 2005 compared to $57.4 million for the same period in 2004. This decrease was primarily the result of the recognition of a $1.2 million gain for our expected portion of the proceeds from the Visa/MasterCard antitrust litigation settlement and a decrease in our insurance expense, offset by the recognition of $1.9 million in legal costs for certain products related to a third-party vendor and increases in other professional fees.

          Other. Other income for the year ended December 31, 2005 was $2.5 million, which was the recognition of transaction fee income related to the transfer of our Australian franchise rights. For the year ended December 31, 2004, we incurred a $1.3 million charge for costs related to the preparation of a SEC filing to offer common stock to the public. As this offering was not completed, these costs were expensed.

     Interest Expense

          Interest expense increased $8.6 million, or 24.9%, to $43.1 million for the year ended December 31, 2005 compared to $34.5 million for the same period in 2004. This increase was primarily attributable to the write-off of $3.9 million of deferred financing fees, a result of the refinancing of our variable interest rate bank debt, which was replaced with $150.0 million of fixed interest rate Senior Notes in January 2005.

     Income Tax Expense

          We recognized $10.7 million of consolidated income tax expense during the year ended December 31, 2005 compared to $24.5 million for the same period of 2004. The decreased tax expense for the year ended December 31, 2005, was a result of a decrease in income before income taxes of $37.1 million. The effective tax rate for the year ended December 31, 2005 was 36.8%, compared to 37.0% for the year ended December 31, 2004.

     Net Income

          As a result of the foregoing, consolidated net income decreased $23.3 million to $18.4 million for the year ended December 31, 2005 compared to $41.7 million for the same period in 2004. Net income, as a percentage of net revenue, was 1.4% compared to 3.1% for the years ended December 31, 2005 and 2004, respectively.

     Other Comprehensive Income

          We recognized $0.1 million of foreign currency gain for the year ended December 31, 2005 compared to $0.9 million for the same period in 2004. The amounts recognized in each period resulted from foreign currency translation adjustments related to the investment in and receivables due from our Canadian and Australian subsidiaries.

Comparison of the Years Ended December 31, 2004 and 2003

     Revenues

          Our consolidated net revenues decreased $84.8 million, or 5.9%, to $1,344.7 million for the year ended December 31, 2004 compared to $1,429.5 million for the same period in 2003. The decrease was the result of decreases in our Retail and Franchise segments, offset by slight increases in our Manufacturing/ Wholesale segment.

          Retail. Revenues in our Retail segment decreased $57.7 million, or 5.4%, to $1,001.8 million for the year ended December 31, 2004 compared to $1,059.5 million for the same period in 2003. The revenue decrease occurred primarily in our diet category and, to a lesser extent, the sports nutrition category. The diet category experienced a sharp drop in sales from 2003 primarily due to the (1) discontinuation in June 2003 of sales of products containing ephedra and (2) a decrease in sales of low carb products. Sales from ephedra products were $35.2 million for the year ended December 31, 2003. This decrease was offset partially by the first quarter of 2004 sales of low-carb products and diet products intended to replace the ephedra products. However, beginning in the second quarter of 2004 and continuing for the remainder of 2004, sales of low-carb products decreased significantly from the prior year. Beginning in the second quarter of 2004, and especially for the second half of 2004, the sports nutrition category saw a decrease in sales of meal replacement bars (“bars”). We believe that these decreases are largely a result of low-carb products and bars having become more readily available in the marketplace since the prior year. Additionally, overall retail sales declined as a result of operating 2,642 company-owned stores as of December 2004 versus 2,748 as of December 2003. Comparable store sales in company-owned domestic stores declined 4.1% for the year ended December 31, 2004 compared with the same period in 2003. Comparable store sales in company-owned Canadian stores improved 3.6% for the year ended December 31, 2004 compared with the same period in 2003.

          Franchise. Revenues in our Franchise segment decreased $29.0 million, or 11.4%, to $226.5 million for the year ended December 31, 2004 compared to $255.5 million for the same period in 2003. These decreases were the result of: (1) a decrease in wholesale product sales to franchisees of $17.2 million, which was the result of lower retail sales at our franchise stores, as our franchise stores had similar decreases in sales of diet products as our company-owned; (2) the Company’s decision to limit sales of company-owned stores to franchisees (“conversions”) which resulted in a decline of $9.5 million, as there were nine such sales in 2004 compared with 65 in 2003; and (3) a decrease in franchise fee revenue of $1.2 million; and (4) a decrease in other revenue areas of $1.1 million.

          Manufacturing/Wholesale. Revenues in our Manufacturing/Wholesale segment increased $1.9 million, or 1.7%, to $116.4 million for the year ended December 31, 2004 compared to $114.5 million for the same period in 2003. This increase was the result of increases in: (1) third-party sales at our Australian manufacturing facility of $2.1 million; (2) sales to Rite Aid of $1.7 million; and (3) sales to drugstore.com of $1.0 million. These increases were partially offset by a decrease in third-party sales from our South Carolina manufacturing facility of $2.9 million.

     Cost of Sales

          Consolidated cost of sales, which includes product costs, costs of warehousing and distribution and occupancy costs, decreased $103.3 million, or 10.3%, to $895.2 million for the year ended December 31, 2004 compared to $998.5 million for the same period in 2003. Consolidated cost of sales, as a percentage of net revenue, was 66.5% for the year ended December 31, 2004, compared to 69.9% for the same period in 2003.

          Product costs. Product costs decreased $82.1 million, or 11.1%, to $657.1 million for the year ended December 31, 2004 compared to $739.2 million for the same period in 2003. Consolidated product costs as a percentage of net revenue dropped to 48.8% for the year ended December 31, 2004 from 51.7% for the same period in 2003. This decrease was a result of the following: (1) improved margins in the Retail segment as a result of increased sales of higher margin GNC proprietary products and decreased sales of lower margin third-party products; (2) improved management of inventory which resulted in lower product costs due to fewer inventory losses from expired product; and (3) improved efficiencies in our South Carolina manufacturing facility. Included in product costs in 2004 is $1.3 million of expense as a result of adjustments due to increased inventory valuation related to the Acquisition.

          Warehousing and distribution costs. Warehousing and distribution costs increased $3.9 million, or 8.3%, to $50.8 million for the year ended December 31, 2004 compared to $46.9 million for the same period in 2003. This increase in costs was primarily a result of a $7.7 million increase in unreimbursed expenses from trucking services provided to our vendors and former affiliates, which was partially offset by reduced wages of $2.3 million and operating expenses of $1.5 million for the year ended December 31, 2004 compared with the same period in 2003.

          Occupancy costs. Occupancy costs decreased $25.1 million, or 11.8%, to $187.3 million for the year ended December 31, 2004 compared to $212.4 million for the same period in 2003. This decrease was primarily due to a reduction in depreciation expense of $17.3 million as a result of the revaluation of our assets due to purchase accounting relating to the Acquisition. Reductions in rental expenses as a result of fewer stores operating and more favorable lease terms, accounted for another $3.5 million of the decrease. The remaining $4.3 million decrease occurred in other occupancy related expenses. This was offset by a one-time non-cash pre-tax rent charge of $0.9 million in the fourth quarter of 2004 related to a correction in our lease accounting policies. See the “Basis of Presentation and Summary of Significant Accounting Policies” note to our consolidated financial statements included elsewhere in this Report.

     Selling, General and Administrative Expenses

          Our consolidated SG&A expenses, including compensation and related benefits, advertising and promotion expense, other SG&A expenses, and amortization expense, decreased $18.8 million, or 5.1%, to $347.8 million, for the year ended December 31, 2004, compared to $366.6 million for the same period in 2003. Our consolidated SG&A expenses, including compensation and related benefits, advertising and promotion expense, other SG&A expenses, and amortization expense, as a percentage of net revenue, were 25.9% during the year ended December 31, 2004 compared to 25.6% for the same period in 2003.

          Compensation and related benefits. Compensation and related benefits decreased $21.7 million, or 8.6%, to $230.0 million for the year ended December 31, 2004 compared to $251.7 million for the same period in 2003. The decrease was the result of decreases in: (1) acquisition related charges for change in control and retention bonuses recognized in 2003 of $8.7 million; (2) incentives and commissions expense of $6.2 million; (3) stock based compensation expense recognized in 2003 of $4.3 million; (4) group health insurance and workers compensation expense of $1.2 million; (5) relocation costs of $1.0 million; and (6) other compensation and related benefit expenses of $0.3 million.

          Advertising and promotion. Advertising and promotion expenses increased $5.1 million, or 13.1%, to $44.0 million for the year ended December 31, 2004 compared to $38.9 million during the same period in 2003. Advertising expense increased during the year of 2004 compared to the same period in 2003 in the following areas: (1) direct marketing to our gold card customers increased $1.9 million; (2) general marketing costs increased $1.4 million; (3) product specific TV advertising increased $0.5 million; (4) store signage costs increased $0.6 million; and (5) other advertising expenses increased by $0.7 million.

          Other SG&A. Other SG&A expenses, including amortization expense, decreased $2.2 million, or 2.9%, to $73.8 million for the year ended December 31, 2004 compared to $76.0 million for the same period in 2003. The primary reasons for the decrease were: (1) a decrease of $3.6 million in research and development costs; (2) reduced bad debt expense of $4.0 million; (3) reduced amortization expense of $3.1 million; (4) reduced one time costs previously incurred as a result of the Acquisition of $2.4 million; and (5) a reduction of $1.3 million in credit card transaction expenses. These decreases were offset by: (1) a $4.6 million increase in insurance expense; (2) a $3.5 million increase in other professional fees, of which $0.8 million was related to our ongoing efforts to prepare for Sarbanes-Oxley requirements and $1.5 million related to the management service agreement with Apollo Management V; (3) an increase of $0.6 million in hardware and software maintenance costs; and (4) an increase of $3.5 million in other operating expenses.

     Foreign Currency Gain

          Consolidated foreign currency gain decreased $2.6 million, or 89.7%, for the year ended December 31, 2004 to $0.3 million compared to $2.9 million for the year ended December 31, 2003.

     Impairment of Goodwill and Intangible Assets

          Management initiated an evaluation of the carrying value of goodwill and indefinite-lived intangible assets as of October 1, 2004 and based on that evaluation found there to be no charge to impairment for 2004. In October 2003, Numico entered into an agreement to sell GNCI for a purchase price that indicated a potential impairment of our long-lived assets. Accordingly, management initiated an evaluation of the carrying value of goodwill and indefinite-lived intangible assets as of September 30, 2003. As a result of this evaluation, an impairment charge of $709.4 million (pre-tax) was recognized for goodwill and other indefinite-lived intangibles in accordance with SFAS No. 142.

     Other Income and Expense

          For the year ended December 31, 2003, we received $7.2 million in non-recurring legal settlement proceeds related to raw material pricing litigation. We received no proceeds from legal settlements for the year ended December 31, 2004.

          For the year ended December 31, 2004, we incurred a $1.3 million charge for costs related to the preparation of a registration statement for an offering of our Common Stock to the public. These costs were expensed, as this offering was not completed and the registration statement was withdrawn. There were no other expenses in this category for the year ended December 31, 2003.

     Operating Income (Loss)

          Consolidated. As a result of the foregoing, operating income increased $735.6 million, to $100.7 million for the year ended December 31, 2004 compared to $634.9 million operating loss for the same period in 2003. For the year ended December 31, 2003, we recognized a $709.4 million impairment charge relating to the write down of our goodwill and intangible assets, with no impairment charges in 2004. Operating income as a percentage of net revenue was 7.5% for the year ended December 31, 2004 compared to a 44.4% operating loss for the same period in 2003.

          Retail. Operating income increased $22.0 million, or 25.7%, to $107.7 million for the year ended December 31, 2004 compared to $85.7 million for the same period in 2003. The increase was a result of improved margins due to the sales shift to higher margin items, decreased depreciation expense and decreased rental costs due to operating fewer stores, offset by an increase in advertising and marketing expenses.

          Franchise. Operating income decreased $3.7 million, or 5.6%, to $62.4 million for the year ended December 31, 2004 compared to $66.1 million for the same period in 2003. The decrease was principally a result of fewer sales of company-owned stores to franchisees and decreased wholesale product sales.

          Manufacturing/Wholesale. Operating income increased $12.9 million, or 50.2%, to $38.6 million for the year ended December 31, 2004 compared to $25.7 million for the same period in 2003. This increase was primarily the result of increased revenues to our third-party customers, more favorable contract terms from a new agreement with Rite Aid, and decreased depreciation expense at our manufacturing facilities.

          Warehousing & Distribution Costs. Unallocated warehousing and distribution costs increased $5.2 million, or 11.8%, to $49.3 million for the year ended December 31, 2004 compared to $44.1 million for the same period in 2003. This increase in costs was primarily a result of decreased income from trucking services provided to our vendors and former affiliates, which was partially offset by reduced wages and related expenses.

          Corporate Costs. Operating expenses decreased $8.7 million, or 13.2%, to $57.4 million for the year ended December 31, 2004 compared to $66.1 million for the same period in 2003. This decrease was the result of decreases in: (1) research and development costs; (2) wage and benefit expense; and (3) one time transaction costs in preparing the Company for the Acquisition. These decreases were partially offset by increases in (1) insurance costs; (2) professional fees; and (3) other operating expenses.

          Other. Income from legal settlements decreased by $7.2 million for the year ended December 31, 2004, compared to the same period in 2003. The $7.2 million in non-recurring legal settlement proceeds related to raw material pricing litigation in the year ended December 31, 2003. For the year ended December 31, 2004, we incurred a $1.3 million charge for costs related to the preparation of a registration statement for an offering of our Common Stock to the public. These costs were expensed, as this offering was not completed and the registration statement has been withdrawn.

     Interest Expense

          Interest expense decreased $89.4 million, or 72.2%, to $34.5 million for the year ended December 31, 2004 compared to $123.9 million for the same period in 2003. This decrease was primarily attributable to the new debt structure after the Acquisition. The new debt structure consists of: (1) a $285.0 million term loan, with interest payable at an average rate of 5.42% for the year ended December 31, 2004; (2) $215.0 million of the Senior Subordinated Notes with interest payable at 8 1/2%; and (3) a $75.0 million revolving loan facility, with interest expense payable at an average rate of 0.79% for the year ended December 31, 2004, consisting of commitment fees and letter of credit fees, of which $8.0 million was used for letters of credit at December 31, 2004. Our new debt structure replaces our previous debt structure, which included intercompany debt of $1.8 billion, which was payable to Numico at an annual interest rate of 7.5%.

     Income Tax Expense (Benefit)

          We recognized $24.5 million of consolidated income tax expense during the year ended December 31, 2004 compared to a $174.3 million benefit for the same period of 2003. The increased tax expense for the year ended December 31, 2004, was a result of an increase in income before income taxes of $66.2 million. The effective tax rate for the year ended December 31, 2004 was a 37.0% expense, compared to an effective tax rate of a 39.2% expense for the 27 days ended December 31, 2003 and a 23.0% benefit, for the period January 1, 2003 to December 4, 2003, which was primarily the result of a valuation allowance on deferred tax assets associated with interest expense on the related party push down debt from Numico. We believed that as of December 4, 2003, it was unlikely that future taxable income would be sufficient to realize the tax assets associated with the interest expense on the related party push down debt from Numico. Thus, a valuation allowance was recognized. According to the Purchase Agreement, Numico has agreed to indemnify the Company for any subsequent tax liabilities arising from periods prior to the Acquisition.

     Net Income (Loss)

          As a result of the foregoing, consolidated net income increased $626.2 million to $41.7 million for the year ended December 31, 2004 compared to a loss of $584.5 million for the same period in 2003. For the year ended December 31, 2003, we recognized a $709.4 million (pre-tax) impairment charge relating to the write down of our goodwill and intangible assets, with no impairment in 2004. Although revenues decreased, these decreases were offset by improved margins, operating cost reductions, a decrease in impairment charges and a significant decrease in interest expense.

     Other Comprehensive Income (Loss)

          We recognized $0.9 million of foreign currency gain for the year ended December 31, 2004 compared to $1.9 million for the same period in 2003. The amounts recognized in each period resulted from foreign currency adjustments related to the investment in and receivables due from our Canadian and Australian subsidiaries.

Liquidity and Capital Resources

          At December 31, 2005, we had $86.0 million in cash and cash equivalents and $297.0 million in working capital compared with $85.2 million in cash and cash equivalents and $281.1 million in working capital at December 31, 2004. The $15.9 million increase in working capital was primarily driven by our increase in inventory.

     Cash Provided by Operating Activities

          Cash provided by operating activities was $64.2 million, $83.5 million and $97.6 million during the years ended December 31, 2005, 2004, and 2003, respectively. The primary reason for the decrease in each year was the reduction in net income (excluding the $709.4 million impairment in 2003) and changes in working capital accounts. Net income decreased $23.3 million for the year ended December 31, 2005 compared with the same period in 2004.

          For the year ended December 31, 2005, inventory increased $33.3 million, as a result of increases in our finished goods, bulk inventory and packaging supplies and a decrease in our reserves. This inventory increase supports our strategy of ensuring our top-selling products are always in stock. Franchise notes receivable decreased $6.7 million for the year ended December 31, 2005, as a result of payments on existing notes, fewer company-financed franchise store openings than in prior years and the closing of 171 franchises in 2005. Accrued interest for the year ended December 31, 2005 increased $6.0 million due to the 2005 issuance of the $150.0 million Senior Notes, which has interest payable semi-annually on January 15 and July 15 each year. Other assets decreased $6.7 million for the year ended December 31, 2005, primarily a result of a reduction in prepaids and long-term deposits.

          For the year ended December 31, 2004, inventory increased $24.7 million, a result of increasing our finished goods and bulk inventory and a decrease in our reserves. Franchise notes receivable decreased $11.6 million in 2004, a result of payments on existing notes and fewer franchise store openings than in prior years. Accrued liabilities decreased $28.9 million for the year ended December 31, 2004, primarily a result of reductions of: (1) class action wage accrual of $4.2 million; (2) incentives of $4.5 million; (3) change of control payments of $9.2 million; (4) store closings accruals of $4.3 million; (5) certain insurance accruals of $6.0 million; and (6) other accruals of $0.7 million. The $6.0 million change in certain insurance accruals related to our prepaid insurance premiums which were paid in cash at December 31, 2004 and at December 31, 2003 were recorded as a liability and prepaid through a financing arrangement. Net deferred taxes changed $24.2 million in the year ended December 31, 2004, a result of an increase in our deferred tax liability, which was due to book versus tax timing differences.

          For the year ended December 31, 2003, receivables decreased due to the receipt of $134.8 million of legal settlement proceeds in January 2003, relating to raw material pricing litigation. This was partially offset by the settlement of a $70.6 million receivable due from Numico at December 4, 2003, which was generated from periodic cash sweeps by our former parent during the period January 1, 2003 to December 4, 2003. Net deferred taxes changed $197.6 million in the period ended December 4, 2003, a result of the $709.4 million impairment creating the significant net loss position.

     Cash Used in Investing Activities

          We used cash from investing activities of $21.5 million, $27.0 million and $771.5 million for the years ended December 31, 2005, 2004 and 2003, respectively. We used $738.1 million to acquire GNCI from Numico in December 2003. This $738.1 million was reduced by approximately $12.7 million for a purchase price adjustment received in April 2004, and increased by $7.8 million for other acquisition costs, for a net purchase price of $733.2 million. Capital expenditures decreased $7.5 million from 2005 compared to 2004 and decreased $4.5 million from 2004 compared to 2003. Capital expenditures, which were primarily for improvements to our retail stores and our South Carolina manufacturing facility, were $20.8 million, $28.3 million and $32.8 million during the years ended December 31, 2005, 2004 and 2003, respectively.

     Cash Used in and Provided by Financing Activities

          In January 2005, Centers issued $150.0 million aggregate principal amount of its Senior Notes and used the net proceeds from this issuance, along with $39.4 million cash on hand, to pay down $185.0 million of Centers’ indebtedness under its term loan facility. For the year ended December 31, 2005, we also paid $4.7 million in fees related to the Senior Notes offering and paid down an additional $2.0 million of debt.

          We used cash in financing activities of approximately $4.5 million for the year ended December 31, 2004. The primary uses of cash for the year ended December 31, 2004 was for payments on long term debt of $3.8 million and for payment of financing fees related to the issuance of Centers’ Senior Subordinated Notes and a bank credit agreement amendment of $1.1 million. In addition, we subsequently sold shares of our Common Stock for net proceeds of approximately $1.6 million to certain members of our management.

          The primary use of cash in the period ended December 4, 2003 was principal payments on debt of Numico, of which we were a guarantor. For the 27 days ended December 31, 2003, the primary source of cash to fund the Acquisition was from borrowings under Centers senior credit facility of $285.0 million, proceeds from Centers issuance of the Senior Subordinated Notes of $215.0 million and proceeds from the issuance of shares of our Common Stock of $177.5 million and of our Series A Preferred Stock of $100.0 million.

          Senior Credit Facility. In connection with the Acquisition, Centers entered into a senior credit facility with a syndicate of lenders. The Company and its domestic subsidiaries have guaranteed Centers’ obligations under the senior credit facility. The senior credit facility at December 31, 2004 consisted of a $285.0 million term loan facility and a $75.0 million revolving credit facility. Centers borrowed the entire $285.0 million under the original term loan facility to fund part of the Acquisition, with none of the $75.0 million revolving credit facility being utilized to fund the Acquisition. This facility was subsequently amended in December 2004. In January 2005, as a stipulation of the December 2004 amendment to the senior credit facility, Centers used the net proceeds of their Senior Notes offering of $145.6 million, together with $39.4 million of cash on hand, to repay a portion of the indebtedness under the prior $285.0 million term loan facility. At December 31, 2005, the amended credit facility consisted of a $96.2 million term loan facility and a $75.0 million revolving credit facility.

          The senior credit facility matures on December 5, 2009 and permits Centers to prepay a portion or all of the outstanding balance without incurring penalties. The revolving credit facility matures on December 5, 2008. The revolving credit facility allows for $50.0 million to be used as collateral for outstanding letters of credit, of which $8.6 million and $8.0 million was used at December 31, 2005 and December 31, 2004, respectively, leaving $66.4 million and $67.0 million, respectively, of this facility available for borrowing on such dates. Interest on the term loan facility is payable quarterly in arrears and at December 31, 2005 and 2004, carried an average interest rate of 7.4% and 5.4%, respectively. The senior credit facility contains customary covenants including financial tests, (including maximum total leverage, minimum fixed charge coverage ratio and maximum capital expenditures) and certain other limitations such as the Company’s and its subsidiaries ability to incur additional debt, guarantee other obligations, grant liens on assets, make investments, acquisitions or mergers, dispose of assets, make optional payments or modifications of other debt instruments, and pay dividends or other payments on capital stock. See the “Long-Term Debt” note to our consolidated financial statements included elsewhere in this Report.

          Senior Notes. In January 2005, Centers issued $150.0 million aggregate principal amount of Senior Notes, with an interest rate of 8 5/8%. The Senior Notes mature in 2011. Centers used the net proceeds of this offering of $145.6 million, together with $39.4 million of cash on hand, to repay $185.0 million of the indebtedness under its term loan facility.

          Senior Subordinated Notes. On December 5, 2003, Centers issued $215.0 million aggregate principal amount of the Senior Subordinated Notes in connection with the Acquisition. The Senior Subordinated Notes mature in 2010 and bear interest at the rate of 8¹/2% per annum.

          Common and Preferred Stock. In addition, our Principal Stockholder and certain of our directors and members of senior management of the Company made an equity contribution of $277.5 million in exchange for 29,566,666 shares of Common Stock and in the case of the Principal Stockholder, 100,000 shares of Series A Preferred Stock of the Company. The proceeds of the equity contribution were contributed to Centers to fund a portion of the Acquisition price. In addition, we subsequently sold shares of our Common Stock for net proceeds of approximately $1.6 million to certain members of our management. The proceeds of all of such sales were contributed by us to Centers.

          We expect to fund our operations through internally generated cash and, if necessary, from borrowings under our $75.0 million revolving credit facility. We expect our primary uses of cash in the near future will be debt service requirements, capital expenditures and working capital requirements. We anticipate that cash generated from operations, together with amounts available under our revolving credit facility, will be sufficient to meet our future operating expenses, capital expenditures and debt service obligations as they become due. However, our ability to make scheduled payments of principal on, to pay interest on, or to refinance our indebtedness and to satisfy our other debt obligations will depend on our future operating performance, which will be affected by general economic, financial and other factors beyond our control. We believe that we have complied with our covenant reporting and compliance in all material respects for the year ended December 31, 2005.

Contractual Obligations

          The following table summarizes our future minimum non-cancelable contractual obligations at December 31, 2005:

		Payments due by period
						Less than
(in millions)		Total				1 year				1 - 3 years				4 - 5 years				After 5 years
Long-term debt obligations (1)		$	473.4			$	2.1			$	4.4			$	311.1			$	155.8
Scheduled interest payments (2)			186.3				39.7				78.7				66.8				1.1
Operating lease obligations (3)			339.7				98.1				134.1				64.8				42.7
Purchase obligations (4)(5)			16.1				4.2				4.1				3.3				4.5
		$	1,015.5			$	144.1			$	221.3			$	446.0			$	204.1

          In addition to the obligations scheduled above, we have 100,000 shares of our Series A Preferred Stock that accrue dividends at a rate of 12%, with dividends in arrears of $27.8 million at December 31, 2005. See the “Preferred Stock” note to our consolidated financial statements included elsewhere in this Report.

          In addition to the obligations scheduled above, we have entered into employment agreements with certain executives that provide for compensation and certain other benefits. Under certain circumstances, including a change of control, some of these agreements provide for severance or other payments, if those circumstances would ever occur during the term of the employment agreement.

Off Balance Sheet Arrangements

          As of December 31, 2005 and 2004, we had no relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off balance sheet arrangements, or other contractually narrow or limited purposes. We are, therefore, not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

          We have a balance of unused advertising barter credits on account with a third-party advertising agency. We generated these barter credits by exchanging inventory with a third-party barter vendor. In exchange, the barter vendor supplied us with advertising credits. We did not record a sale on the transaction as the inventory sold was for expiring products that were previously fully reserved for on our balance sheet. In accordance with the Accounting Principles Board (”APB”) APB No. 29, a sale is recognized based on either the value given up or the value received, whichever is more easily determinable. The value of the inventory was determined to be zero, as the inventory was fully reserved. Therefore, these credits were not recognized on the balance sheet and are only realized when we advertise through the bartering company. The credits can be used to offset the cost of cable advertising. As of December 31, 2005 and 2004, the available credit balance was $9.5 million, and $11.3 million, respectively. The barter credits are effective through April 1, 2006.

Effect of Inflation

          Inflation generally affects us by increasing costs of raw materials, labor and equipment. We do not believe that inflation had any material effect on our results of operations in the periods presented in our consolidated financial statements.

Critical Accounting Estimates

          You should review the significant accounting policies described in the notes to our consolidated financial statements under the heading ‘‘Basis of Presentation and Summary of Significant Accounting Policies’’ included elsewhere in this Report.

     Use of Estimates

          Certain amounts in our financial statements require management to use estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Our accounting policies are described in the notes to our consolidated financial statements under the heading ‘‘Basis of Presentation and Summary of Significant Accounting Policies’’ included elsewhere in this Report. Our critical accounting policies and estimates are described in this section. An accounting estimate is considered critical if:

	•		the estimate requires management to make assumptions about matters that were uncertain at the time the estimate was made;
	•		different estimates reasonably could have been used; or
	•		changes in the estimate that would have a material impact on our financial condition or our results of operations are likely to occur from period to period.

Management believes that the accounting estimates used are appropriate and the resulting balances are reasonable. However, actual results could differ from the original estimates, requiring adjustments to these balances in future periods.

     Revenue Recognition

          We operate primarily as a retailer, through company-owned stores, franchised stores, and to a lesser extent, as a wholesaler. On December 28, 2005, we started recognizing revenue through product sales on our website, gnc.com. We apply the provisions of Staff Accounting Bulletin No. 104, ‘‘Revenue Recognition.’’ We recognize revenues in our Retail segment at the moment a sale to a customer is recorded. Gross revenues are reduced by actual customer returns and a provision for estimated future customer returns, which is based on management’s estimates after a review of historical customer returns. We recognize revenues on product sales to franchisees and other third parties when the risk of loss, title and insurable risks have transferred to the franchisee or third-party. We recognize revenues from franchise fees at the time a franchised store opens or at the time of franchise renewal or transfer, as applicable.

     Inventories

          Where necessary, we provide estimated allowances to adjust the carrying value of our inventory to the lower of cost or net realizable value. These estimates require us to make approximations about the future demand for our products in order to categorize the status of such inventory items as slow moving, obsolete or in excess of need. These future estimates are subject to the ongoing accuracy of management’s forecasts of market conditions, industry trends

and competition. We are also subject to volatile changes in specific product demand as a result of unfavorable publicity, government regulation and rapid changes in demand for new and improved products or services.

     Accounts Receivable and Allowance for Doubtful Accounts

          The majority of our retail revenues are received as cash or cash equivalents. The majority of our franchise revenues are billed to the franchisees with varying terms for payment. We offer financing to qualified domestic franchisees with the initial purchase of a franchise location. The notes are demand notes, payable monthly over periods of five to seven years. We generate a significant portion of our revenue from ongoing product sales to franchisees and third-party customers. An allowance for doubtful accounts is established based on regular evaluations of our franchisees’ and third-party customers’ financial health, the current status of trade receivables and any historical write-off experience. We maintain both specific and general reserves for doubtful accounts. General reserves are based upon our historical bad debt experience, overall review of our aging of accounts receivable balances, general economic conditions of our industry or the geographical regions and regulatory environments of our third-party customers and franchisees.

     Impairment of Long-Lived Assets

          Long-lived assets, including fixed assets and intangible assets with finite useful lives, are evaluated periodically by us for impairment whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. If the sum of the undiscounted future cash flows is less than the carrying value, we recognize an impairment loss, measured as the amount by which the carrying value exceeds the fair value of the asset. These estimates of cash flow require significant management judgment and certain assumptions about future volume, revenue and expense growth rates, foreign exchange rates, devaluation and inflation. As such, this estimate may differ from actual cash flows.

     Self-Insurance

          The Company has procured insurance for such areas as: (1) general liability; (2) product liability; (3) directors and officers liability; (4) property insurance; and (5) ocean marine insurance. The Company is self-insured for such areas as: (1) medical benefits; (2) worker’s compensation coverage in the State of New York with a stop loss of $250,000; (3) physical damage to the Company’s tractors, trailers and fleet vehicles for field personnel use; and (4) physical damages that may occur at the corporate store locations. We are not insured for certain property and casualty risks due to the frequency and severity of a loss, the cost of insurance and the overall risk analysis. The Company’s associated liability for this self-insurance was not significant as of December 31, 2005 and 2004. Prior to the Acquisition, GNCI was included as an insured under several of Numico’s global insurance policies.

          The Company carries product liability insurance with a retention of $1.0 million per claim with an aggregate cap on retained losses of $10.0 million. The Company carries general liability insurance with retention of $100,000 per claim with an aggregate cap on retained losses of $600,000. The majority of the Company’s workers’ compensation and auto insurance are in a deductible/retrospective plan. The Company reimburses the insurance company for the workers compensation and auto liability claims, subject to a $250,000 and $100,000 loss limit per claim, respectively.

          As part of the medical benefits program, the Company contracts with national service providers to provide benefits to its employees for all medical, dental, vision and prescription drug services. The Company then reimburses these service providers as claims are processed from Company employees. The Company maintains a specific stop loss provision of $250,000 per incident with a maximum limit up to $2.0 million per participant, per benefit year, respectively. The Company has no additional liability once a participant exceeds the $2.0 million ceiling. The Company’s liability for medical claims is included as a component of accrued benefits in the “Accrued Payroll and Related Liabilities” footnote and was $3.0 million and $2.6 million as of December 31, 2005 and 2004, respectively.

     Goodwill and Indefinite-Lived Intangible Assets

          On an annual basis, we perform a valuation of the goodwill and indefinite lived intangible assets associated with our operating segments. To the extent that the fair value associated with the goodwill and indefinite-lived intangible assets is less than the recorded value, we write down the value of the asset. The valuation of the goodwill and indefinite-lived intangible assets is affected by, among other things, our business plan for the future, and estimated results of future operations. Changes in the business plan or operating results that are different than the estimates used to develop the valuation of the assets may result in an impact on their valuation.

          Historically, we have recognized impairments to our goodwill and intangible assets based on declining financial results and market conditions. The most recent valuation was performed at October 1, 2005, and no impairment was found. There was no impairment found during 2004. At September 30, 2003, we evaluated the carrying value of our goodwill and intangible assets, and recognized an impairment charge accordingly. See the “Goodwill and Intangible Assets” note to our consolidated financial statements included elsewhere in this Report. Based upon our improved capitalization of our financial statements subsequent to the Acquisition, the stabilization of our financial condition, our anticipated future results based on current estimates and current market conditions, we do not currently expect to incur additional impairment charges in the near future.

     Leases

The Company has various operating leases for company-owned and franchised store locations and equipment. Store leases generally include amounts relating to base rental, percent rent and other charges such as common area maintenance fees and real estate taxes. Periodically, the Company receives varying amounts of reimbursements from landlords to compensate the Company for costs incurred in the construction of stores. These reimbursements are amortized by the Company as an offset to rent expense over the life of the related lease. The Company determines the period used for the straight-line rent expense for leases with option periods and conforms it to the term used for amortizing improvements.

     Income Taxes

          We utilize the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. At any point in time we have various tax audits in progress. As a result, we also record reserves for estimates of probable settlements of these audits. The results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues.

Recently Issued Accounting Pronouncements

          In October 2005, the Financial Accounting Standards Board (“FASB”) issued Staff Position FAS 13-1, “Accounting for Rental Costs Incurred during a Construction Period,” which requires rental costs associated with ground or building operating leases that are incurred during a construction period to be recognized as rental expense. This Staff Position is effective for reporting periods beginning after December 15, 2005, and retrospective application is permitted but not required. The adoption of this statement is not expected to have a significant effect on our consolidated financial position or results of operations since we currently expense such costs.

          In September 2005, the EITF No. 05-6, “Determining the Amortization Period for Leasehold Improvements Purchased after Lease Inception or Acquired in a Business Combination.” Effective for leasehold improvements (within the scope of this Issue) that are purchased or acquired in reporting periods beginning after June 29, 2005. Early application of the consensus was permitted in periods for which financial statements have not been issued. This Issue addresses the amortization period for leasehold improvements in operating leases that are either placed in service significantly after and not contemplated at or near the beginning of the initial lease term or acquired in a business combination. We had already adopted the practices effective for the year ended December 31, 2004 and the adoption did not have a significant effect on our consolidated financial position or results of operations.

          In May 2005, the FASB issued Statement of Financial account Standards (“SFAS”) No. 154, “Accounting Changes and Error Correction,” a replacement of APB Opinion No. 20 and FASB Statement No. 3. This statement replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting and reporting of a change in accounting principle. This statement requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. This statement defines retrospective application as the application of a different accounting principle to prior accounting periods as if that principle had always been used or as the adjustment of previously issued financial statements to reflect a change in the reporting entity. This statement also redefines restatement as the revising of previously issued financial statements to reflect the correction of an error. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We will adopt this standard beginning January 1, 2006.

     In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (“FIN 47”). FIN 47 provides guidance relating to the identification of and financial reporting for legal obligations to perform an asset retirement activity. The Interpretation requires recognition of a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated. FIN 47 also defines when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 was required to be applied no later than the end of fiscal years ending after December 15, 2005; with retrospective application for interim financial information being permitted but not required. We adopted FIN 47 for the year ended December 31, 2005. The adoption did not have a material impact on our consolidated financial statements or results of operations.

     In December 2004, the FASB issued SFAS No. 123 (Revised 2004) “Share-Based Payment: an Amendment of FASB Statements No. 123 and 95.” SFAS No. 123(R) sets accounting requirements for “share-based” compensation to employees and disallows the use of the intrinsic value method of accounting for stock compensation. We will be required to account for such transactions using a fair-value method and to recognize compensation expense over the period during which an employee is required to provide services in exchange for the stock options and other equity-based compensation issued to employees. SFAS No. 123(R) is applicable for all interim and fiscal periods beginning after June 15, 2005. This statement is effective for us on January 1, 2006 and we will use the modified prospective application method. The impact of this statement on our consolidated financial statements or results of operations has been historically disclosed on a pro-forma basis and will now be recognized as compensation expense on a prospective basis. Based on the equity awards outstanding as of December 31, 2005, we expect compensation expense, net of tax, of $1.0 million to $2.0 million in 2006.

     In November 2004, the FASB issued SFAS No. 151, “Inventory Costs,” an amendment of Accounting Research Bulletin (“ARB”) No. 43, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). This statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal”. In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. Companies are required to adopt the provisions of this statement for fiscal years beginning after June 15, 2005. We will adopt this standard starting January 1, 2006 and do not anticipate that the adoption will have a significant impact on our consolidated financial statements or results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Market risk represents the risk of changes in the value of market risk sensitive instruments caused by fluctuations in interest rates, foreign exchange rates and commodity prices. Changes in these factors could cause fluctuations in the results of our operations and cash flows. In the ordinary course of business, we are primarily exposed to foreign currency and interest rate risks. We do not use derivative financial instruments in connection with these market risks.

Foreign Exchange Rate Market Risk

     We are subject to the risk of foreign currency exchange rate changes in the conversion from local currencies to the U.S. dollar of the reported financial position and operating results of our non-U.S. based subsidiaries. We are also subject to foreign currency exchange rate changes for purchase and services that are denominated in currencies other than the U.S. dollar. The primary currencies to which we are exposed to fluctuations are the Canadian Dollar and the Australian Dollar. The fair value of our net foreign investments and our foreign denominated payables would not be materially affected by a 10% adverse change in foreign currency exchange rates for the periods presented.

Interest Rate Market Risk

     A portion of our debt is subject to changing interest rates. Although changes in interest rates do not impact our operating income, the changes could affect the fair value of such debt and related interest payments. As of December 31, 2005, we had fixed rate debt of $377.2 million and variable rate debt of $96.2 million. We have not entered into futures or swap contracts at this time. Based on our variable rate debt balance as of December 31, 2005, a 1% change in interest rates would increase or decrease our annual interest cost by $1.0 million.

ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

TABLE OF CONTENTS

			Page
Report of Independent Registered Public Accounting Firm			50
Consolidated Balance Sheets
As of December 31, 2005 and December 31, 2004			52
Consolidated Statements of Operations and Comprehensive Income
For years ended December 31, 2005 and 2004, the 27 days ended December 31, 2003 and the period from January 1, 2003 through December 4, 2003			53
Consolidated Statements of Stockholders’ (Deficit) Equity
For years ended December 31, 2005 and 2004, the 27 days ended December 31, 2003 and the period from January 1, 2003 through December 4, 2003			54
Consolidated Statements of Cash Flows
For years ended December 31, 2005 and 2004, the 27 days ended December 31, 2003 and the period from January 1, 2003 through December 4, 2003			55
Notes to Consolidated Financial Statements			56

Report of Independent Registered Public Accounting Firm

To the Supervisory Board of Royal Numico N.V.
and the Stockholder of General Nutrition Companies, Inc.:

In our opinion, the consolidated financial statements listed in the index appearing under item 15(a)(1) present fairly, in all material respects, the results of operations and cash flows of General Nutrition Companies, Inc., and its subsidiaries (the “Company”) for the period from January 1, 2003 through December 4, 2003, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under item 15(a)(2), presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
March 1, 2004

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of
GNC Corporation:

In our opinion, the consolidated financial statements listed in the index appearing under item 15(a)(1) present fairly, in all material respects, the financial position of GNC Corporation and its subsidiaries (the “Company”) at December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2005 and for the period from December 5, 2003 though December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under item 15(a)(2), presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
March 10, 2006