GNC Holdings

On June 23rd, 2020 GNC Holdings filed for Chapter 11 (reorganization) bankruptcy. GNC had long struggled with its debt, raising capital by issuing about $100 million in preferred stock in both the 4th quarter of 2018 and 1st quarter of 2019. When the Covid-19 pandemic hit, it forced the company to close about 40 percent of its stores (at least temporarily) and to write down $157 million in assets and record a $200 million loss.

Five days prior to the bankruptcy filing GNC paid almost $4 million in cash bonuses to senior executives: $2.2 million to the CEO, $795,000 to the CFO, and a total of $918,000 to three other C-level executives. These individuals would have to return 25% of these bonuses if the company did not emerge from Chapter 11 within one year.

On October 7th, 2020 GNC was acquired by Harbin Pharmaceutical Group Holding Co., Ltd. For $770 million. About 7% of the ‘liabilities subject to compromise’ will be settled. This will reduce those liabilities to just under $81 million.

Required

Using only the material provided in this case:

I) For each quarter compute these ratios:
1) Operating Profit margin, 2) Asset turnover, and 3) Return on assets (using operating profit)

II) Compute the year-to-year (same-quarter to same-quarter) Percentage Change in:
1) Revenues, 2) Income, 3) Operating Profit margin, 4) Asset turnover, 5) Operating ROA, 6) Cash, 7) Total assets, and 8) Debt. Because there are many negative values, when calculating the % changes use the absolute values of the numbers in the denominator. The Excel function to return the absolute of a number is “=abs(cell reference)”

III) Assess and discuss the patterns you see. Do you think Hardin was wise to pay $760 million for GNC?

IV) Submit a spreadsheet with your detailed calculations and a document with your written analysis.

Double-clicking on the Excel object below should open a spreadsheet with the company’s balance sheets and income statements.