Company Background

General Nutrition Companies Inc., was founded 65 years ago in Pittsburgh, Pennsylvania on the premise that Americans wanted to maintain control over their health. David Shakirian founded the company. In 1935 he launched a dream of his by establishing a little health food store in Pittsburgh, Pennsylvania. He called it Lackzoom. The products that were offered at his store included yogurt and healthy foods such as honey, grains and healthy sandwiches. The concept of being a health store and serving health food was thought to be a fad that would soon pass over back then. To the surprise of many of Shakarian\'s critics, many people embraced Lackzoom. David and his store came a long way from its first day’s receipts of 35 dollars to open a second store six months later. Since those first two stores, Lackzoom, which is now GNC, has grown to be the largest manufacturer of vitamins and mineral supplements in the United States (1998 Annual Report).

General Nutrition Companies, Inc., collectively with its subsidiaries, is the only nationwide specialty retailer of vitamin and mineral supplements, sports nutrition products and herbs, and is also a leading provider of personal care, and other health-related products. The products were sold through 3,757 General Nutrition Centers, 2,531 of which were owned and operated by the company and the other 1,226 stores were franchised. Much of the growth of GNC has occurred in the last 7 years. Since 1992, the Company has opened or acquired in the United States 2,593 new GNC stores (SEC 10k form). The company’s initial growth was through company-owned stores located primarily in regional malls. Many of the stores that were created in the past 7 years have been franchises. This franchise initiative has enabled GNC to expand into secondary locations as well as International markets. It appears that there is no end to the growth of GNC. At a Franchising meeting on February 6,1999 GNC awarded and agreed to open an additional 323 domestic and 428 international franchise locations. All of these stores report to GNC headquarters, which is located in Pittsburgh, Pennsylvania. Pittsburgh is also home to one of General Nutrition’s three distribution centers. The other two distribution centers are located in Atlanta and Phoenix. The products that are distributed through these channels are manufactured in Greenville, South Carolina. This facility is one of the largest and most modern vitamin and supplement manufacturing facilities in the United States. Within the coming months a new 600,000 sq.ft. manufacturing plant and distribution center in Anderson, SC will open which will double the capacity of the company (www.gnc.com/about/history).

The company has many products that it distributes from their first-class distribution centers. These products include vitamin and mineral supplements, herbs, diet products, food products, personal care, and miscellaneous health care products. These products are sold under the General Nutrition’s various proprietary brand names, including Ultra Mega, GNC, Pro Performance, Preventive Nutrition, and Harvest of Nature. In addition, the Company carries various third-party brand name products including Weider, Twin Lab, EAS, and Met-Rx. The company’s product mix focuses on high-margin, GNC proprietary brand, value-added products emphasizing vitamin and mineral supplements, sports nutrition and herbal products. The Company has seen amazing growth over the past 5 years. Below is a chart that exemplifies their revenue growth:

Company Growth
(dollars in thousands except per share data)

1994 1995 1996 1997 1998

Net Revenue.... $672,945 $845,952 $990,845 $1,193,485 $1,417,746

Operating earnings............. 97,750 137,116 60,347 191,171 183,337

Diluted earnings per share...... 0.44 0.78 0.05 1.24 1.18

Operating earnings as adjusted 98,425 138,699 152,413 195,254 194,548

Total Number of Stores 2,115 2,543 3,047 3,435 4,091

Comparable store sales (GNC owned stores, not franchise)

5.80% 10.30% 0.30% 7.90% -0.20%

As you can see net revenue increased to 1.4 billion dollars, an increase of 18.8 % over 1997. This increase was driven by the success of the Company’s store expansion program and increased demand for the Company’s products, as reflected by increased sales, across all business segments. During 1998, the Company developed a web site, GNC.com, to sell products via the Internet. Although still in the early stages of operation, the Company expects sales to increase based on the growth of the Internet. The history of GNC shows their excellence in planning and execution of these plans. Going into the next millennium, the Company must actively scan their environment for