Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
(Mark one)
[ X ]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  
 For the quarterly period ended September 30, 20172018
  
[     ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  
 
For the transition period from                     to                     .
 
Commission File Number:  001-35113
 
GNC Holdings, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware20-8536244
(State or other jurisdiction of(I.R.S. Employer
Incorporation or organization)Identification No.)
  
300 Sixth Avenue15222
Pittsburgh, Pennsylvania(Zip Code)
(Address of principal executive offices) 
 
Registrant’s telephone number, including area code:  (412) 288-4600
 
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.     [ X ] Yes [    ] No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 
X  ] Yes [    ] No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer [ X ]
Accelerated filer [   ]Non-accelerated filer [   ]Smaller reporting company [   ]
Emerging growth company [   ]

 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  [ ]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [      ] Yes
[ X ] No
 
As of October 20, 2017,31, 2018, there were 69,002,86783,884,711 outstanding shares of Class A common stock, par value $0.001 per share (the “common stock”), of GNC Holdings, Inc.

TABLE OF CONTENTS
 
 
   PAGE
  
  
  
  
  
  
  
  
    
 
 
 
 
 
 
 
 
 
 
  


PART I - FINANCIAL INFORMATION

Item 1. Financial Statements
 
GNC HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
(in thousands)

September 30, 2017 December 31, 2016September 30, 2018 December 31, 2017
Current assets:      
Cash and cash equivalents$40,118

$34,464
$33,348

$64,001
Receivables, net133,111

129,178
131,951

126,650
Inventory (Note 3)534,427

583,212
Inventory (Note 4)489,639

485,732
Prepaid and other current assets41,683

39,400
76,536

66,648
Total current assets749,339
 786,254
731,474
 743,031
Long-term assets: 
  
 
  
Goodwill (Note 4)165,231

176,062
Goodwill140,844

141,029
Brand name720,000

720,000
324,400

324,400
Other intangible assets, net (Note 4)101,485

111,229
Property, plant and equipment, net (Note 4)207,578

232,292
Other intangible assets, net94,461

99,715
Property, plant and equipment, net (Note 5)159,136

186,562
Other long-term assets25,398

30,005
29,272

25,026
Total long-term assets1,219,692
 1,269,588
748,113
 776,732
Total assets$1,969,031
 $2,055,842
$1,479,587
 $1,519,763
Current liabilities: 
  
 
  
Accounts payable$152,513

$179,933
$159,100

$153,018
Revolving credit facility (Note 5)48,000
 
Current portion of term loan facility (Note 5)

12,562
Current debt (Note 6)204,480


Deferred revenue and other current liabilities107,176

115,171
121,475

114,081
Total current liabilities307,689
 307,666
485,055
 267,099
Long-term liabilities: 
  
 
  
Long-term debt (Note 5)1,381,906

1,527,891
Deferred income taxes (Note 11)248,538

259,203
Long-term debt (Note 6)1,040,646

1,297,023
Deferred income taxes43,090

56,060
Other long-term liabilities55,607

56,129
81,479

85,502
Total long-term liabilities1,686,051
 1,843,223
1,165,215
 1,438,585
Total liabilities1,993,740
 2,150,889
1,650,270
 1,705,684
Contingencies (Note 7)

 

Contingencies (Note 8)

 

Stockholders’ deficit: 
  
 
  
Common stock115
 114
130
 130
Additional paid-in capital928,460

922,687
1,006,121

1,001,315
Retained earnings777,457

716,198
554,797

543,814
Treasury stock, at cost(1,725,349)
(1,725,349)(1,725,349)
(1,725,349)
Accumulated other comprehensive loss(5,392)
(8,697)(6,382)
(5,831)
Total stockholders’ deficit(24,709) (95,047)(170,683) (185,921)
Total liabilities and stockholders’ deficit$1,969,031
 $2,055,842
$1,479,587
 $1,519,763
 
The accompanying notes are an integral part of the consolidated financial statements.Consolidated Financial Statements.

GNC HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of IncomeOperations
(unaudited)
(in thousands, except per share amounts)

 Three months ended September 30, Nine months ended September 30,
 2017 2016 2017 2016
        
Revenue$609,469
 $627,964
 $1,895,301
 $1,970,087
Cost of sales, including warehousing, distribution and occupancy412,663
 412,556
 1,272,801
 1,280,136
Gross profit196,806
 215,408
 622,500
 689,951
Selling, general, and administrative150,961
 148,392
 465,575
 430,448
Gains on refranchising(230) (383) (384) (18,283)
Long-lived asset impairments (Note 4)3,861
 3,045
 23,217
 3,045
Other loss (income), net (Note 4)1,769
 (539) 274
 (441)
Operating income40,445
 64,893
 133,818
 275,182
Interest expense, net (Note 5)16,339
 15,360
 48,300
 45,078
Income before income taxes24,106
 49,533
 85,518
 230,104
Income tax expense (Note 11)2,643
 17,179
 24,544
 82,907
Net income$21,463
 $32,354
 $60,974
 $147,197
Earnings per share (Note 8):
 
  
    
Basic$0.31
 $0.47
 $0.89
 $2.11
Diluted$0.31
 $0.47
 $0.89
 $2.10
Weighted average common shares outstanding (Note 8):
 
  
    
Basic68,354
 68,190
 68,296
 69,808
Diluted68,569
 68,315
 68,411
 69,939
Dividends declared per share$
 $0.20
 $
 $0.60
 Three months ended September 30, Nine months ended September 30,
 2018 2017 2018 2017
        
Revenue (Note 3)
$580,185
 $612,953
 $1,805,662
 $1,918,139
Cost of sales, including warehousing, distribution and occupancy395,483
 411,661
 1,206,351
 1,277,202
Gross profit184,702
 201,292
 599,311
 640,937
Selling, general, and administrative149,903
 156,051
 469,164
 481,618
Long-lived asset impairments14,556
 3,861
 14,556
 23,217
Other loss (income), net282
 1,579
 357
 (40)
Operating income19,961
 39,801
 115,234
 136,142
Interest expense, net (Note 6)35,732
 16,339
 90,448
 48,300
Loss on debt refinancing (Note 6)
 
 16,740
 
(Loss) income before income taxes(15,771) 23,462
 8,046
 87,842
Income tax (benefit) expense (Note 11)(7,181) 2,406
 (2,895) 25,398
Net (loss) income$(8,590) $21,056
 $10,941
 $62,444
(Loss) earnings per share (Note 9):
 
  
    
Basic$(0.10) $0.31
 $0.13
 $0.91
Diluted$(0.10) $0.31
 $0.13
 $0.91
Weighted average common shares outstanding (Note 9):
 
  
    
Basic83,412
 68,354
 83,326
 68,296
Diluted83,412
 68,569
 83,431
 68,411
 
The accompanying notes are an integral part of the consolidated financial statementsConsolidated Financial Statements.


GNC HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive (Loss) Income
(unaudited)
(in thousands)
 
Three months ended September 30, Nine months ended September 30,Three months ended September 30, Nine months ended September 30,
2017 2016 2017 20162018 2017 2018 2017
              
Net income$21,463
 $32,354
 $60,974
 $147,197
Net (loss) income$(8,590) $21,056
 $10,941
 $62,444
Other comprehensive income (loss): 
  
     
  
    
Net change in interest rate swaps:       
Periodic revaluation of interest rate swap, net of tax (expense) benefit of ($0.4 million) and $0.1 million963
 
 (212) 
Reclassification adjustment for interest recognized in Consolidated Statement of Operations, net of tax expense of $0.3 million610
 
 623
 
Net change in unrecognized gain on interest rate swaps, net of tax1,573
 
 411
 
Foreign currency translation gain (loss)1,705
 (592) 3,305
 2,263
834
 1,705
 (962) 3,305
Comprehensive income$23,168
 $31,762
 $64,279
 $149,460
Other comprehensive income (loss)2,407
 1,705
 (551) 3,305
Comprehensive (loss) income$(6,183) $22,761
 $10,390
 $65,749
 
The accompanying notes are an integral part of the consolidated financial statementsConsolidated Financial Statements.


GNC HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ (Deficit) EquityDeficit
(unaudited)
(in thousands)

Common Stock Treasury Stock 
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 Total
Stockholders’
(Deficit) Equity
Common Stock Treasury Stock 
Additional Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 Total
Stockholders’
Deficit
Class A Class A 
Shares Dollars 
Balance at December 31, 201783,567
 $130
 $(1,725,349) $1,001,315
 $543,814
 $(5,831) $(185,921)
Comprehensive income
 
 
 
 10,941
 (551) 10,390
Dividend forfeitures on restricted stock
 
 
 
 42
 
 42
Restricted stock awards397
 
 
 
 
 
 
Minimum tax withholding requirements(79) 
 
 (296) 
 
 (296)
Stock-based compensation
 
 
 5,102
 
 
 5,102
Balance at September 30, 201883,885
 $130
 $(1,725,349) $1,006,121
 $554,797
 $(6,382) $(170,683)
Shares Dollars Treasury Stock 
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 Total
Stockholders’
(Deficit) Equity
             
Balance at December 31, 201668,399
 $114
 68,399
 $114
 $(1,725,349) $922,687
 $693,682
 $(8,697) $(117,563)
Comprehensive income
 
 
 
 
 
 62,444
 3,305
 65,749
Dividend forfeitures on restricted stock


 
 
 
 285
 
 285

 
 
 
 285
 
 285
Restricted stock awards636
 1
 
 
 
 
 1
636
 1
 
 
 
 
 1
Minimum tax withholding requirements(32) 
 
 (252) 
 
 (252)(32) 
 
 (252) 
 
 (252)
Stock-based compensation
 
 
 6,025
 
 
 6,025

 
 
 6,025
 
 
 6,025
Balance at September 30, 201769,003
 $115
 $(1,725,349) $928,460
 $777,457
 $(5,392) $(24,709)69,003
 $115
 $(1,725,349) $928,460
 $756,411
 $(5,392) $(45,755)
             
Balance at December 31, 201576,276
 $114
 $(1,496,180) $916,128
 $1,058,148
 $(9,649) $468,561
Comprehensive income
 
 
 
 147,197
 2,263
 149,460
Purchase of treasury stock(7,926) 
 (229,169) 
 
 
 (229,169)
Dividends declared
 
 
 
 (41,939) 
 (41,939)
Exercise of stock options23
 
 
 343
 
 
 343
Restricted stock awards72
 
 
 
 
 
 
Minimum tax withholding requirements(47) 
 
 (1,126) 
 
 (1,126)
Net excess tax benefits from stock-based compensation
 
 
 (742) 
 
 (742)
Stock-based compensation
 
 
 7,191
 
 
 7,191
Balance at September 30, 201668,398
 $114
 $(1,725,349) $921,794
 $1,163,406
 $(7,386) $352,579
 
The accompanying notes are an integral part of the consolidated financial statements.Consolidated Financial Statements.


GNC HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)

Nine months ended September 30,Nine months ended September 30,
2017 20162018 2017
Cash flows from operating activities: 

 
 

 
Net income$60,974

$147,197
$10,941

$62,444
Adjustments to reconcile net income to net cash provided by operating activities: 

 
 

 
Depreciation and amortization expense43,688

43,547
36,002

43,688
Amortization of debt costs9,893

9,419
14,583

9,893
Stock-based compensation6,025

7,191
5,102

6,025
Long-lived asset impairments23,217
 3,045
14,556
 23,217
Gains on refranchising(384)
(18,283)(276)
(314)
Loss on debt refinancing16,740
 
Third-party fees associated with refinancing(16,322) 
Changes in assets and liabilities:









Decrease in receivables1,204

3,519
Decrease (Increase) in inventory43,468

(71,760)
(Increase) in prepaid and other current assets(2,502)
(5,342)
(Decrease) Increase in accounts payable(19,732)
35,700
(Decrease) Increase in deferred revenue and accrued liabilities(18,769)
13,515
(Increase) decrease in receivables(6,080)
1,204
(Increase) decrease in inventory(5,794)
45,753
Increase in prepaid and other current assets(6,552)
(5,205)
Increase (decrease) in accounts payable6,860

(19,732)
Decrease in deferred revenue and accrued liabilities(10,565)
(19,891)
Other operating activities2,486

1,999
(3,506)
2,486
Net cash provided by operating activities149,568

169,747
55,689

149,568










Cash flows from investing activities: 

 
 

 
Capital expenditures(26,210)
(35,368)(13,355)
(26,210)
Refranchising proceeds3,410

30,306
2,136

3,410
Store acquisition costs(1,930)
(1,918)(220)
(1,930)
Net cash used in investing activities(24,730)
(6,980)(11,439)
(24,730)










Cash flows from financing activities: 

 
 

 
Borrowings under revolving credit facility177,500

197,000
261,500

177,500
Payments on revolving credit facility(256,500)
(103,000)(261,500)
(256,500)
Payments on term loan facility(40,853) (3,412)
Debt issuance costs

(1,712)
Proceeds from exercise of stock options

343
Gross excess tax benefit from stock-based compensation
 162
Payments on Tranche B-1 Term Loan(3,413) (40,853)
Payments on Tranche B-2 Term Loan(32,100) 
Original Issuance Discount and revolving credit facility fees(35,235)

Deferred fees associated with pending equity transaction(3,443) 
Minimum tax withholding requirements(252)
(1,126)(296)
(252)
Cash paid for treasury stock

(229,169)
Dividends paid to shareholders

(41,613)
Net cash used in financing activities(120,105)
(182,527)(74,487)
(120,105)










Effect of exchange rate changes on cash and cash equivalents921

501
(416)
921
Net increase (decrease) in cash and cash equivalents5,654

(19,259)
Net (decrease) increase in cash and cash equivalents(30,653)
5,654
Beginning balance, cash and cash equivalents34,464

56,462
64,001

34,464
Ending balance, cash and cash equivalents$40,118

$37,203
$33,348

$40,118
 
The accompanying notes are an integral part of the consolidated financial statements.Consolidated Financial Statements.


GNC HOLDINGS, INC. AND SUBSIDIARIES
Supplemental Cash Flow Information
(unaudited)
(in thousands)



 As of September 30,
 2017 2016
Non-cash investing activities:   
Accrued capital expenditures$2,141
 $3,432
Receivable related to sale of Lucky Vitamin7,117
 
 As of September 30,
 2018 2017
Non-cash investing activities:   
Capital expenditures in current liabilities$1,177
 $2,141
Receivable related to the sale of Lucky Vitamin
 7,117
Non-cash financing activities:   
Original issuance discount (Note 6)$13,231
 $

The accompanying notes are an integral part of the consolidated financial statements.Consolidated Financial Statements.


GNC HOLDINGS, INC. AND SUBSIDIARIES
Condensed Notes to the Unaudited Consolidated Financial Statements

NOTE 1.  NATURE OF BUSINESS
GNC Holdings, Inc., a Delaware corporation (“Holdings,” and collectively with its subsidiaries and, unless the context requires otherwise, its and their respective predecessors, the “Company”), is a global specialty retailerhealth and wellness brand with a diversified, multi-channel business. The Company's assortment of health, wellnessperformance and performance products, including protein, performance supplements, weight managementnutritional supplements, vitamins, herbs and greens, wellness supplements, health and beauty, food and drink and other general merchandise.merchandise features innovative private-label products as well as nationally recognized third-party brands, many of which are exclusive to GNC. 
The Company is vertically integrated as its operations consist of purchasing raw materials, formulating and manufacturing products and selling the finished products through its three reportable segments, U.S. and Canada, International, and Manufacturing / Wholesale. Corporate retail store operations are located in the United States, Canada, Puerto Rico, China and Ireland. In addition, the Company offers products on the internet through GNC.com, third-party websites, and LuckyVitamin.com,prior to the assetssale of which were soldits assets on September 30, 2017, (see Note 4, "Goodwill and Other Long-Lived Assets" for more information).LuckyVitamin.com. Franchise locations exist in the United States and approximately 50 other countries. The Company operates its primary manufacturing facility in South Carolina and distribution centers in Arizona, Indiana, Pennsylvania and South Carolina. The Company manufactures approximately half of its branded products and merchandises various third-party products. Additionally, the Company licenses the use of its trademarks and trade names. 
The processing, formulation, packaging, labeling and advertising of the Company’s products are subject to regulation by various federal agencies, including the Food and Drug Administration, the Federal Trade Commission, 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 the Company’s products are sold.
NOTE 2.  BASIS OF PRESENTATION  
The accompanying unaudited Consolidated Financial Statements, which have been prepared in accordance with the applicable rules of the Securities and Exchange Commission, include all adjustments (consisting of a normal and recurring nature) that management considers necessary to fairly state the Company's results of operations, financial position and cash flows. The December 31, 20162017 Consolidated Balance Sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”). These interim Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notesFootnotes included in the Company’s audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 20162017 ("20162017 10-K"). Interim results are not necessarily indicative of the results that may be expected for the remainder of the year ending December 31, 2017.2018.
Recently Adopted Accounting Pronouncements
In JanuaryDecember 2017, the Financial Accounting Standards Board (the "FASB"("FASB") issued Accounting Standards Update ("ASU") 2017-04,2017-12, which simplifies the subsequentapplication of certain hedge accounting guidance to better align hedge accounting with an organization’s risk management activities in the financial statements. This standard eliminated the separate measurement and reporting of goodwill by eliminating Step 2 fromhedge ineffectiveness. Mismatches between changes in value of the goodwill impairment test. Underhedged item and hedging instrument may still occur but they will no longer be separately reported. For cash flow and net investment hedges, all changes in value of the new guidance, an entityhedging instrument included in the assessment of effectiveness will recognize an impairment charge forbe deferred in other comprehensive income and recognized in earnings at the amount by whichsame time that the carrying value exceeds the fair value. Thishedged item affects earnings. The standard is effective for all entities for annual or anyperiods, and interim goodwill impairment tests in fiscal yearsperiods within those annual periods, beginning after December 15, 2019.2018. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.permitted. The Company has adopted this ASU instandard during the second quarter of 2017. Refer to Note 4, "Goodwill and Other Long-Lived Assets" for a description of the goodwill impairment recorded within the Company's Lucky Vitamin reporting unit in the second quarter of 2017.
In March 2016, the FASB issued ASU 2016-09,fiscal 2018, which includes multiple provisions intended to simplify various aspects of accounting and reporting for share-based payments. The difference between the deduction for tax purposes and the compensation cost of a share-based payment award results in either an excess tax benefit or deficiency. Formerly, these excess tax benefits were recognized in additional paid-in capital and tax deficiencies (to the extent there were previous tax benefits) were recognized as an offset to accumulated excess tax benefits. If no previous tax benefit existed, the deficiencies were recognized in the income statement as an increase to income tax expense. The changes require all excess tax benefits and tax deficiencies related to share-based payments be recognized as income tax expense or benefit in the income statement. Gross excess tax benefits in the cash flow statement have also changed from the prior presentation as a financing activity to being classified as an operating activity. Lastly, excess tax benefits are no longer included in the assumed proceeds of the diluted EPS calculation, which results in stock-based awards

being more dilutive. This standard is effective prospectively for annual reporting periods, and interim periods therein, beginning after December 15, 2016. The Company has adopted this ASU in the first quarter of 2017, which did not have a material impactwas applied to the Consolidated Financial Statements.
In November 2015, the FASB issued ASU 2015-17, which requires an entity to classify deferred tax assets and liabilities as noncurrent on the balance sheet. Thisinterest rate swaps entered into described below in Note 6 "Long-Term Debt / Interest Expense." The adoption of this standard is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2016. The Company has adopted this ASU during the first quarter of fiscal 2017, with retrospective application. The Company reclassified $12.9 million of current deferred income tax assets formerly presented within total current assets as a $12.8 million reduction to deferred income taxes presented within total long-term liabilities and a $0.1 million increase to other long-term assets at December 31, 2016 on the Consolidated Balance Sheet to conform to the current year presentation.
In July 2015, the FASB issued ASU 2015-11, which requires an entity that determines the cost of inventory by methods other than last-in, first-out and the retail inventory method to measure inventory at the lower of cost and net realizable value. This standard is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2016. Accordingly, the Company has adopted this ASU in the first quarter of 2017, which did not have a material effect on the Company’sCompany's Consolidated Financial Statements.
Recently Issued Accounting Pronouncements
In May 2017, the FASB issued ASU 2017-09, which amends the scope of modification accounting for share-based payment arrangements. This standard states that an entity should account for the effects of a modification unless all of the following are met: 1) Thethe fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified. Ifmodified (if the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification;modification); 2) Thethe vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and 3) Thethe classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The standard is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. The Company doesadopted this standard during the first quarter of fiscal 2018 which did not expect the impact of the new standard to have a materialan impact to the Consolidated Financial Statements.
In August 2016, the FASB issued ASU 2016-15, which addresses changes to the classification of certain cash receipts and cash payments within the statement of cash flows in order to address diversity in practice. In connection with the adoption of this ASU, the Company presented the third-party fees relating to the term loan refinancing as an operating cash flow on the Consolidated Statement of Cash Flows. In November 2016, the FASB issued ASU 2016-18, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash and restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The adoption of ASU 2016-18 did not have an impact to the Consolidated Statement of Cash Flows. Both standards arewere effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017.     The Company does not expect the impact
Adoption of these new standards to have a material impact to the Consolidated Statement of Cash Flows.     
In February 2016, the FASB issued ASU 2016-02, which requires lessees to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments for all leases with a term greater than 12 months. This standard is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2018 and is required to be applied using a modified retrospective approach for all leases existing at, or entered into after, the beginning of the earliest comparative period presented. The Company has a significant number of leases, and as a result, expects this guidance to have a material impact on its Consolidated Balance Sheet, the impact of which is currently being evaluated.
New Revenue Recognition UpdateStandard
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which updates revenue recognition guidance relating to contracts with customers. This standard states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This standard is in effecteffective for annual reporting periods, and interim periods therein, beginning after December 15, 2017. The standard may be applied retrospectively to each prior period presented (full retrospective method) or retrospectively withCompany adopted ASU 2014-09 and its related amendments (collectively known as "ASC 606") during the cumulative effect recognized asfirst quarter of the date of adoption (modified retrospective method). The Company currently expects to applyfiscal 2018 using the full retrospective method upon adoption.method.
The Companyadoption of ASC 606 does not believe the standard will impact its recognition of point-of-sale revenue in company-owned stores, most wholesale sales, royalties and sublease revenue, together which account for approximately 90%

of the Company’s revenue. While the Company continues to assess the potential impact of the new standard, management believes the following revenue transactions will be impacted. The new standard is not expected to have anyhas no impact on the timing or classification of the Company’s cash flows as reported in the Consolidated Statement of Cash Flows.Flows and is not expected to have a significant impact on the Company’s Consolidated Statement of Operations in future periods. The Company recorded a reduction to retained earnings, net of tax, at January 1, 2016 (opening balance) and December 31, 2016 of approximately $23 million primarily relating to an increase in deferred franchise fees. Below is a description of the changes that resulted from the new standard.
Franchise fees. The Company's currentprevious accounting policy for franchise fees and license fees received for new store openings and renewals iswas to recognize these fees when earned per the contract terms, which is when a new store opensopened or at the start of a new term. In accordance with the new guidance, these fees will beare now deferred and recognized over the applicable license term as the Company satisfies the performance obligation of granting the customer access to the rights of the Company’s intellectual property. This change will impactimpacted all of the Company’s reportable segments. In addition, franchise fees received as part of a sale of a company-owned store to a franchisee will beare now recorded as described above as part of revenue and will no longer be presented as part of gains on refranchising. The Company does not anticipate the impact of this change to be material to the Company’s Consolidated Statement of Income. The Company expects to have a larger deferred revenue amount on the Consolidated Balance Sheet in future periods after adoption of the new standard as a result of this change.

Cooperative advertising and other franchise support fees.The Company currently classifiespreviously classified advertising and other franchise support fees received from domestic franchisees as a reduction to selling, general and administrative expense.expense and cost of sales on the Consolidated Statement of Operations. In accordance with the new guidance, these fees will beare now required to be classified as revenue within the U.S. and Canada segment. The new standard isdoes not expected to have an impact on the timing of recognition of this income or on the Company’s Consolidated Balance Sheet.

Specialty manufacturing.The Company currently recognizespreviously recognized revenue for products manufactured and sold to customers at a point in time when risk of loss, title and insurable risks have transferred to the customer, net of estimated returns and allowances. Under the new standard, revenue is required to be recognized over time as manufacturing occurs if the customized goods have no alternative use to the manufacturer, and the manufacturer has an enforceable right to payment for performance completed to date. This change will impactimpacts contract manufacturing sales

to third-parties recorded in the Manufacturing / Wholesale segment and to a lesser extent, a portion of sales recorded in the International segment to international franchisees for certain country specific product formulations produced by the Company.segment. The Company does not anticipate the impact of this change will be material to the Company’s Consolidated Statement of Income. The Company will recordis now recording a reduction to inventory as applicable custom manufacturing services are completed with a corresponding contract asset including the applicable markup, recorded within prepaid and other current assets on the Consolidated Balance Sheet.

E-CommerceE-commerce revenues. The Company currently recordspreviously recorded revenue to its e-commerce customers upon delivery. Under the new guidance, the Company expects to recognizeis now recognizing revenue upon shipment based on meeting the transfer of control criteria. The Company expects to makehas made a policy election to treat shipping and handling as costs to fulfill the contract, and as a result, any fees received from customers will beare included in the transaction price allocated to the performance obligation of providing goods with a corresponding amount accrued within cost of sales for amounts paid to applicable carriers. The new standard isCompany has not expected to have a material impact onrevised prior period balances for e-commerce revenues because the timing of recognition of this income or on the Company’s Consolidated Balance Sheet.changes are not material.

Loyalty.Effective with the launch of the One New GNC on December 29, 2016, the Company introduced a free points-based myGNC Rewards loyalty program system-wide in the U.S. The Company utilized the new revenue recognition standard to account for this program in 2017, the difference of which was immaterial relative to the standard in effect at that time.

Refer to Note 3 "Revenue" for additional information relating to the impact of adopting ASC 606.

Revisions to Prior Periods
As a result of adopting ASC 606 on January 1, 2018, the Company has revised its comparative financial statements for the years ended December 31, 2016 and 2017, and applicable interim periods within those years, as if ASC 606 had been effective for those periods. Additionally, the cumulative effect of applying the new guidance to all contracts with customers that were not completed was recorded as an adjustment to retained earnings as of January 1, 2016.
The impact of the adoption of ASC 606 on the Company's Consolidated Balance Sheet as of December 31, 2017 was as follows:
  
 As Previously Reported Franchise FeesSpecialty ManufacturingTotal Adjustments As Revised
 
(in thousands)

Inventory$506,858
 $
$(21,126)$(21,126) $485,732
Prepaid and other current assets42,320
 
24,328
24,328
 66,648
Total current assets739,829
 
3,202
3,202
 743,031
Total assets$1,516,561
 $
$3,202
$3,202
 $1,519,763
        
Deferred revenue and other current liabilities$108,672
 $5,409
$
$5,409
 $114,081
Total current liabilities261,690
 5,409

5,409
 267,099
Deferred income taxes64,121
 (8,868)807
(8,061) 56,060
Other long-term liabilities55,721
 29,781

29,781
 85,502
Total long-term liabilities1,416,865
 20,913
807
21,720
 1,438,585
Total liabilities1,678,555
 26,322
807
27,129
 1,705,684
Retained earnings567,741
 (26,322)2,395
(23,927) 543,814
Total stockholders' deficit(161,994) (26,322)2,395
(23,927) (185,921)
Total liabilities and stockholders' deficit$1,516,561
 $
$3,202
$3,202
 $1,519,763







The impact of the adoption of ASC 606 on the Consolidated Statements of Operations for the three and nine months ended September 30, 2017 was as follows:
 Three months ended September 30, 2017
 As Previously Reported Franchise FeesSpecialty ManufacturingCooperative Advertising and Other Franchise Support FeesTotal Adjustments As Revised
 (in thousands, except per share amounts)
Revenue$609,469
 $(360)$(1,925)$5,769
$3,484
 $612,953
Cost of sales (1)
412,663
 
(1,681)679
(1,002) 411,661
Gross profit196,806
 (360)(244)5,090
4,486
 201,292
SG&A (2)
150,961
 

5,090
5,090
 156,051
Long-lived asset impairments3,861
 



 3,861
Other income, net1,539
 40


40
 1,579
Operating income40,445
 (400)(244)
(644) 39,801
Interest expense, net16,339
 



 16,339
Income before income taxes24,106
 (400)(244)
(644) 23,462
Income tax expense2,643
 (146)(91)
(237) 2,406
Net income$21,463
 $(254)$(153)$
$(407) $21,056
Earnings per share:        
Basic$0.31
 $
$
$
$
 $0.31
Diluted$0.31
 $
$
$
$
 $0.31
 Nine months ended September 30, 2017
 As Previously Reported Franchise FeesSpecialty ManufacturingCooperative Advertising and Other Franchise Support FeesTotal Adjustments As Revised
 (in thousands, except per share amounts)
Revenue$1,895,301
 $1,976
$2,703
$18,159
$22,838
 $1,918,139
Cost of sales (1)
1,272,801
 
2,285
2,116
4,401
 1,277,202
Gross profit622,500
 1,976
418
16,043
18,437
 640,937
SG&A (2)
465,575
 

16,043
16,043
 481,618
Long-lived asset impairments23,217
 



 23,217
Other income, net(110) 70


70
 (40)
Operating income133,818
 1,906
418

2,324
 136,142
Interest expense, net48,300
 



 48,300
Income before income taxes85,518
 1,906
418

2,324
 87,842
Income tax expense24,544
 701
153

854
 25,398
Net income$60,974
 $1,205
$265
$
$1,470
 $62,444
Earnings per share:        
Basic$0.89
 $0.02
$
$
$0.02
 $0.91
Diluted$0.89
 $0.02
$
$
$0.02
 $0.91
(1) Includes warehousing, distribution and occupancy.
(2) Defined as selling, general and administrative expense.




The impact of adoption of ASC 606 on the Company's reportable segments for the three and nine months ended September 30, 2017 was as follows:
 Three months ended September 30, 2017
 As Previously Reported Franchise FeesSpecialty ManufacturingCooperative Advertising and Other Franchise Support FeesTotal Adjustments As Revised
 (in thousands)
Revenue:      
  
U.S. and Canada$486,282
 $332
$
$5,769
$6,101
 $492,383
International49,057
 (599)

(599) 48,458
Manufacturing / Wholesale:        
Intersegment revenues58,037
 



 58,037
Third party53,304
 (93)(1,925)
(2,018) 51,286
Subtotal Manufacturing / Wholesale111,341
 (93)(1,925)
(2,018) 109,323
Total reportable segment revenues646,680
 (360)(1,925)5,769
3,484
 650,164
Other20,826
 



 20,826
Elimination of intersegment revenues(58,037) 



 (58,037)
Total revenue$609,469
 $(360)$(1,925)$5,769
$3,484
 $612,953
Operating income: 
  
   
  
U.S. and Canada$31,572
 $292
$
$
$292
 $31,864
International16,768
 (599)

(599) 16,169
Manufacturing / Wholesale19,505
 (93)(244)
(337) 19,168
Total reportable segment operating income67,845
 (400)(244)
(644) 67,201
Corporate costs(25,558) 



 (25,558)
Other(1,842) 



 (1,842)
Unallocated corporate and other(27,400) 



 (27,400)
Total operating income$40,445
 $(400)$(244)$
$(644) $39,801
 Nine months ended September 30, 2017
 As Previously Reported Franchise FeesSpecialty ManufacturingCooperative Advertising and Other Franchise Support FeesTotal Adjustments As Revised
 (in thousands)
Revenue:      
  
U.S. and Canada$1,537,265
 $1,394
$
$18,159
$19,553
 $1,556,818
International132,105
 (83)

(83) 132,022
Manufacturing / Wholesale:        
Intersegment revenues175,335
 



 175,335
Third party159,749
 665
2,703

3,368
 163,117
Subtotal Manufacturing / Wholesale335,084
 665
2,703

3,368
 338,452
Total reportable segment revenues2,004,454
 1,976
2,703
18,159
22,838
 2,027,292
Other66,182
 



 66,182
Elimination of intersegment revenues(175,335) 



 (175,335)
Total revenue$1,895,301
 $1,976
$2,703
$18,159
$22,838
 $1,918,139
Operating income: 
  
   
  
U.S. and Canada$133,520
 $1,324
$
$
$1,324
 $134,844
International46,908
 (83)

(83) 46,825
Manufacturing / Wholesale53,989
 665
418

1,083
 55,072
Total reportable segment operating income234,417
 1,906
418

2,324
 236,741
Corporate costs(79,839) 



 (79,839)
Other(20,760) 



 (20,760)
Unallocated corporate and other(100,599) 

 
 (100,599)
Total operating income$133,818
 $1,906
$418
$
$2,324
 $136,142

Recently Issued Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-15, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-used software. This standard is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of the new standard to have a material impact to the Consolidated Financial Statements.
In February 2016, the FASB issued ASU 2016-02, which requires lessees to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments for all leases with a term greater than 12 months. This standard is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2018 and is required to be applied using a modified retrospective approach. In July 2018, the FASB issued ASU 2018-11, which provides companies with the option to apply the new lease standard either at the beginning of the earliest comparative period presented or in the period of adoption. The Company will elect this optional transition relief amendment that allows for a cumulative-effect adjustment in the period of adoption and will not restate prior periods.  The Company has completed scoping of its lease portfolio, identified its significant leases and made progress in developing accounting policies and policy elections upon adoption of the new standard.  In addition, the Company is currently implementing a new lease management and accounting software to comply with the new standard and is evaluating its processes and internal controls to identify any resulting changes upon adoption.   The Company has a significant number of leases, and as a result, expects this guidance to have a material impact on its Consolidated Balance Sheet, the impact of which is currently being evaluated.

NOTE 3.  REVENUE
Revenue is recognized when obligations under the terms of a contract with the customer are satisfied; generally, this occurs with the transfer of control of products or services. The Company satisfies performance obligations either over time or at a point in time as discussed in further detail below. Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods or providing services. Applicable sales tax collected concurrent with revenue-producing activities are excluded from revenue.
U.S. and Canada Revenue
The following is a summary of revenue disaggregated by major source in the U.S. and Canada segment:
 Three months ended September 30, Nine months ended September 30,
 2018 2017 2018 2017
U.S. company-owned product sales: (1)
(in thousands)
   Protein$76,738
 $83,652
 $251,480
 $266,621
   Performance supplements68,809
 69,770
 217,525
 217,787
   Weight management29,575
 32,622
 108,048
 112,897
   Vitamins48,322
 51,015
 148,188
 154,363
   Herbs / Greens15,872
 16,817
 48,975
 49,552
   Wellness46,245
 47,888
 143,626
 147,484
   Health / Beauty43,332
 48,027
 138,911
 145,624
   Food / Drink28,325
 23,248
 82,394
 72,818
   General merchandise5,637
 6,732
 18,577
 21,941
Total U.S. company-owned product sales$362,855
 $379,771
 $1,157,724
 $1,189,087
Wholesale sales to franchisees58,199
 59,413
 176,034
 189,776
Royalties and franchise fees7,939
 8,649
 25,219
 27,472
Sublease income11,087
 12,170
 34,485
 37,128
Cooperative advertising and other franchise support fees4,739
 5,769
 16,245
 18,159
Gold Card revenue recognized in U.S.(2)

 
 
 24,399
Other (3)
31,700
 26,611
 96,543
 70,797
Total U.S. and Canada revenue$476,519
 $492,383
 $1,506,250
 $1,556,818
(1)Includes GNC.com sales.
(2)The Gold Card Member Pricing program in the U.S. was discontinued in December 2016 in connection with the launch of the One New GNC which resulted in $24.4 million of deferred Gold Card revenue being recognized in the first quarter of 2017, net of $1.4 million in applicable coupon redemptions.
(3)Includes revenue primarily related to Canada operations and loyalty programs, myGNC Rewards and PRO Access. The increase compared to the prior year period primarily relates to the Company's loyalty programs.

International Revenue
The following is a summary of the revenue disaggregated by major source in the International reportable segment:
 Three months ended September 30, Nine months ended September 30,
 2018 2017 2018 2017
 (in thousands)
Wholesale sales to franchisees$32,321
 $28,941
 $81,266
 $80,747
Royalties and franchise fees7,150
 6,509
 20,347
 19,360
Other (*)
11,936
 13,008
 38,494
 31,915
Total International revenue$51,407
 $48,458
 $140,107
 $132,022
(*) Includes revenue primarily related to China operations and company-owned stores located in Ireland.
Manufacturing / Wholesale Revenue
The following is a summary of the revenue disaggregated by major source in the Manufacturing / Wholesale reportable segment:
 Three months ended September 30, Nine months ended September 30,
 2018 2017 2018 2017
 (in thousands)
Third-party contract manufacturing$31,212
 $29,260
 $94,514
 $97,222
Intersegment sales63,695
 58,037
 193,596
 175,335
Wholesale partner sales21,047
 22,026
 64,791
 65,895
Total Manufacturing / Wholesale revenue$115,954
 $109,323
 $352,901
 $338,452
Revenue by Geography
The following is a summary of the revenue by geography.
 Three months ended September 30, Nine months ended September 30,
 2018 2017 2018 2017
Total revenues by geographic areas:(in thousands)
United States$545,332
 $574,053
 $1,696,887
 $1,808,745
Foreign34,853
 38,900
 108,775
 109,394
Total revenues (*)$580,185
 $612,953
 $1,805,662
 $1,918,139
(*) Prior year revenue includes revenue from Lucky Vitamin, which was sold on September 30, 2017.
Revenue Recognition Policies
Within the U.S. and Canada segment, retail sales in company-owned stores are recognized at the point of sale. Revenue related to e-commerce sales is recognized upon shipment based on meeting the transfer of control criteria. The Company has made a policy election to treat shipping and handling as costs to fulfill the contract, and as a result, any fees received from customers are included in the transaction price allocated to the performance obligation of providing goods with a corresponding amount accrued within cost of sales for amounts paid to applicable carriers. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenue. A provision for anticipated returns is recorded through a reduction of sales and cost of sales (for product that can be resold or returned to vendors) in the period that the related sales are recorded.
Effective with the launch of the One New GNC on December 29, 2016, the Company introduced myGNC Rewards, a free points-based loyalty program while discontinuing its Gold Card Member Pricing program system-

wide in the U.S. The loyalty program enables customers to earn points based on their purchases. Points earned by members are valid for one year and may be redeemed for cash discounts on any product the Company sells in domesticat both company-owned or franchise locations. The Company defers the estimated stand-alonestandalone selling price of points related to this program as a reduction to revenue as points are earned by allocating a portion of the transaction price the customer pays to a loyalty program liability within deferred revenue and other current liabilities on the Consolidated Balance Sheet. The estimated selling price of points earned areeach point is based on the estimated value of product for which the points arepoint is expected to be redeemed, net of points not expected to be redeemed, based on historical redemption.redemption rates. When a customer redeems earned points, revenue is recognized with a corresponding reduction to the program liability.
Also effective with the launch of the One New GNC, the Company began offering a paid membership program, PRO Access, for $39.99 per year, which provides members with the delivery of sample boxes throughout the membership year, as well as the offering of certain other benefits including the opportunity to earn triple points on a periodic basis. The boxes include sample merchandise and other materials. The Company allocates the transaction price of the membership to the sample boxes and other benefits based on estimated relative stand-alone prices. The membership price paid is utilizingrecorded within deferred revenue and other current liabilities on the newConsolidated Balance Sheet and recognized as revenue recognition standardas the underlying performance obligations are satisfied.
Revenue from gift cards is recognized when the gift card is redeemed. Gift cards do not have expiration dates and are not required to accountbe escheated to government authorities. Utilizing historical redemption rates, the Company recognizes revenue for thisamounts not expected to be redeemed proportionately as other gift card balances are redeemed.
Revenues from domestic and international franchisees include wholesale product sales, franchise fees and royalties, as well as cooperative advertising and other franchise support fees specific to domestic franchisees. Revenues are recorded within the U.S. and Canada segment for domestic franchisees and the International segment for international franchisees. The Company's franchisees purchase a significant amount of the products they sell in their retail stores from the Company at wholesale prices. Revenue on product sales to franchisees and other franchise support fees (including construction, equipment and other administrative fees) are recognized upon transfer of control to the franchisee, net of estimated returns and allowances. Franchise license fees, royalties and continuing services, such as cooperative advertising, are not separate and distinct performance obligations as they are highly dependent on each other in supporting the overall brand. Franchise fees for the license are paid in advance, and are deferred and recognized over the applicable license term as the Company satisfies the performance obligation of granting the customer access to the rights of its intellectual property. Franchise royalties and cooperative advertising contributions are variable consideration based on a percentage of the franchisees' retail sales, which are recognized in the period the franchisees' underlying sales occur, and are not included in the upfront transaction price for the overall performance obligation relating to providing access to the Company's intellectual property.
The Manufacturing / Wholesale segment sells product to the Company's other segments, which is eliminated in consolidation, and third-party customers. Revenue is recognized over time, net of estimated returns and allowances, as manufacturing occurs if the customized goods have no alternative use (specially made for the end customer) and the Company has an enforceable right to payment for performance completed to date (even if such right is not enforced in practice). The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. The Company uses the cost-to-cost measure of progress for its contracts because it best depicts the transfer of control to the customer which occurs as the Company incurs costs on its contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred. Costs to fulfill include labor, materials, other direct costs and an allocation of indirect costs, which are recognized as cost of sales as revenue is recognized. Services for specialty manufacturing contracts typically have an expected duration of less than one year.
Balances from Contracts with Customers
Contract assets relating to specialty manufacturing include amounts related to the Company's contractual right to consideration for completed performance obligations not yet invoiced, and were $27.9 million and $24.3 million at September 30, 2018 and December 31, 2017, respectively, recorded within prepaid and other current assets on the accompanying Consolidated Balance Sheets (with a corresponding reduction to inventory at cost). Contract liabilities include payments received in advance of performance under the contract.

The following table presents changes in the Company’s contract liabilities:
 Nine months ended September 30, 2018
 Balance at beginning of period Recognition of revenue included in beginning balance Contract liability, net of revenue recognized during the period Balance at end of period
 (in thousands)
Deferred franchise and license fees$38,011
 $(7,739) $4,128
 $34,400
PRO Access and loyalty program points24,464
 (22,942) 24,512
 26,034
Gift card liability (*)
4,172
 (2,430) 159
 1,901
(*) Net of estimated breakage
The Company's PRO Access and loyalty program points are recorded within deferred revenue and other current liabilities on the differenceConsolidated Balance Sheets. Deferred franchise and license fees are recorded within deferred revenue and other current liabilities and other long-term liabilities on the Consolidated Balance Sheets. As of September 30, 2018, the Company had deferred franchise and license fees with unsatisfied performance obligations extending throughout 2028 of $34.4 million, of which $7.2 million is immaterial relativeexpected to be recognized over the current standard.next 12 months. The Company has elected to use the practical expedient allowed under the rules of adoption to not disclose the duration of the remaining unsatisfied performance obligations for contracts with an original expected length of one year or less.

NOTE 3.4.  INVENTORY
The net realizable value of inventory consisted of the following:
September 30, 2017 December 31, 2016September 30, 2018 
December 31, 2017 (*)
(in thousands)(in thousands)
Finished product ready for sale (*)
$454,032
 $509,209
Work-in-process, bulk product and raw materials (*)
73,757
 67,275
Finished product ready for sale$423,963
 $432,092
Work-in-process, bulk product and raw materials59,542
 51,225
Packaging supplies6,638
 6,728
6,134
 2,415
Inventory$534,427
 $583,212
$489,639
 $485,732
(*) The prior yearbalances as of December 31, 2016 balances2017 have been revised in connection with the adoption of ASC 606 to include a reduction to inventory as applicable custom manufacturing services are completed. Refer to Note 2, "Basis of Presentation" for an $18.0 million correction in classification of certain amounts between finished product ready for sale and work-in-process, bulk product and raw materials. The correction had no impact on total inventory.
more information.
NOTE 4. GOODWILL5. PROPERTY, PLANT AND OTHER LONG-LIVED ASSETSEQUIPMENT, NET
Lucky Vitamin
Second Quarter 2017 Impairment Charge
The Company’s long-term plan is focused on the strategic changes around the One New GNC, which was launched in December 2016. The focus of the One New GNC includes single-tier pricing and loyalty programs for the Company’s U.S. corporate and franchise stores as well as GNC.com. During the second quarter of 2017, in order forended September 30, 2018, the Company to focus onperformed a detailed review of its store portfolio and identified stores in the aforementioned strategic plan,U.S. and Canada that will be closed within the next three years at the end of their lease terms. This review also identified other stores in which the Company considered strategicis considering alternatives forsuch as seeking lower rent or a shorter term. In connection with the Lucky Vitamin e-commerce business, which was considered a triggering event requiring an interim goodwill impairment review of the Lucky Vitamin reporting unit asstore portfolio, the Company recorded $14.6 million of June 30, 2017. As previously disclosedimpairment charges in the Company's Annual Report on Form 10-K for the yearquarter ended December 31, 2016, the estimated fair value for the Lucky Vitamin reporting unit exceeded its carrying value by less than 20% as of December 31, 2016.

The goodwill impairment test is performed by computing the fair value of the reporting unit and comparing it to the carrying value, including goodwill. If the carrying amount exceeds the fair value, an impairment charge is recorded for the difference. As described in Note 2, “Basis of Presentation,” the Company adopted ASU 2017-04 in the second quarter of 2017, which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test.

The Company determined the fair value of the Lucky Vitamin reporting unit using a discounted cash flow method (income approach) and a guideline company method (market approach), each of which took into account the expectations regarding the potential strategic alternatives for the Lucky Vitamin business being explored in the second quarter of 2017. The key assumptions used under the income approach included, but were not limited to, the following:

Future cash flow assumptions - The Company's projections for Lucky Vitamin were based on organic growth and were derived from historical experience and assumptions regarding future growth and profitability trends. The Company's analysis incorporated an assumed period of cash flows of 8 years with a terminal value.
Discount rate - The discount rate was based on Lucky Vitamin’s estimated weighted average cost of capital ("WACC"). The components of WACC are the cost of equity and the cost of debt, each of which requires judgment by management to estimate. The Company developed its cost of equity estimate based on perceived risks and predictability of future cash flows. At JuneSeptember 30, 2017, the WACC used to estimate the fair value of the Lucky Vitamin reporting unit was 18.0%.
As a result of the review, the Company concluded that the carrying value of the Lucky Vitamin reporting unit exceeded its fair value, which resulted in a non-cash goodwill impairment charge of $11.5 million being recorded in the second quarter of 2017. There was no remaining goodwill balance on the Lucky Vitamin reporting unit after the impact of this charge.
As a result of the impairment indicator described above, the Company also performed an impairment analysis with respect to its definite-long-lived assets on the Lucky Vitamin reporting unit, consisting of a trade name and property and equipment. The fair value of the trade name was determined using a relief from royalty method (income approach) and the fair value of the property and equipment was determined using an income approach. Based on the results of

the analyses, the Company concluded that the carrying value of the Lucky Vitamin trade name and property and equipment exceed their fair values resulting in an impairment charge of $4.2 million and $3.7 million, respectively.
All of the aforementioned non-cash charges totaling $19.4 million are recorded in long-lived asset impairments in the Consolidated Statement of Income2018 within the U.S. and Canada segment, and together with the asset impairment charges described below recorded in the current quarter resulted in total long-lived asset impairments of $23.2which $9.5 million in the nine months ended September 30, 2017.
Asset Sale
The Company completed an asset sale of Lucky Vitamin on September 30, 2017, resulting in a loss of $1.7 million recorded within other loss, net on the Consolidated Statement of Income consisting of the net assets sold subtracted from the purchase price of $7.1 million and fees paidrelated to a third-party. The proceeds were received in October 2017.
Other Long-Lived Asset Impairments
Management evaluated its property, plant and equipment for certain underperforming stores and $5.1 million related to other store closing costs, presented as long-lived asset impairments in the accompanying Consolidated Statement of Operations. During the quarter ended September 30, 2017, the Company recorded $3.9 million in long-lived asset impairment charges in the quarter ended September 30, 2017 within the U.S. and Canada segment. This impairment related to certain of the Company's under-performingunderperforming stores and the impact of Hurricane Maria on the Company'sCompany’s stores located in Puerto Rico. For individual under-performingUnderperforming stores were generally defined as those with historical and expected future losses or stores that management intends on closing in the near term.
The impairment test was performed at the individual store level as this is the lowest level which identifiable cash flows are largely independent of other groups of assets and liabilities. Under-performing stores were generally defined as those with historical and expected future losses or stores that management intends on closing in the near term. If the undiscounted estimated cash flows were less than the carrying value of the asset group, an impairment charge was calculated by subtracting the estimated fair value of property and equipment from its carrying value. Fair value was estimated using a discounted cash flow method (income approach) utilizing the undiscounted cash flows computed in the first step of the test.












Goodwill Roll-Forward
The following table summarizes the Company's goodwill activity by reportable segment:
 U.S. and Canada International Manufacturing / Wholesale Total
 (in thousands)
Goodwill at December 31, 2016:

 

 

 

Gross$401,359
 $42,994
 $202,841
 $647,194
Accumulated impairments(380,644) 
 (90,488) (471,132)
Goodwill20,715
 42,994
 112,353
 176,062
2017 Activity:      

Impairment(11,464) 
 
 (11,464)
Translation effect of exchange rates
 633
 
 633
Total 2017 activity(11,464) 633
 
 (10,831)
Balance at September 30, 2017:       
Gross401,359
 43,627
 202,841
 647,827
Accumulated impairments(392,108) 
 (90,488) (482,596)
Goodwill$9,251
 $43,627
 $112,353
 $165,231
Intangible Assets
The following table reflects the gross carrying amount and accumulated amortization for each major definite-lived intangible asset:
 
Weighted-
Average
Life
 September 30, 2017 December 31, 2016
  Cost 
Accumulated
Amortization
 
Carrying
Amount
 Cost 
Accumulated
Amortization
 
Carrying
Amount
   (in thousands)
Retail agreements30.3 $31,000
 $(11,250) $19,750
 $31,000
 $(10,460) $20,540
Franchise agreements25.0 70,000
 (29,517) 40,483
 70,000
 (27,417) 42,583
Manufacturing agreements25.0 70,000
 (29,517) 40,483
 70,000
 (27,417) 42,583
Other intangibles6.8 673
 (347) 326
 10,201
 (5,467) 4,734
Franchise rights3.0 7,486
 (7,043) 443
 7,486
 (6,697) 789
Total  $179,159
 $(77,674) $101,485
 $188,687
 $(77,458) $111,229
The following table represents future amortization expense of definite-lived intangible assets at September 30, 2017:
Years ending December 31, 
Estimated
amortization
expense
  (in thousands)
   
2017 (remainder) $1,770
2018 6,964
2019 6,823
2020 6,760
2021 6,726
Thereafter 72,442
Total $101,485


NOTE 5.6.  LONG-TERM DEBT / INTEREST EXPENSE
Long-term debt consisted of the following: 
September 30,
2017
 December 31,
2016
September 30,
2018
 December 31,
2017
(in thousands)(in thousands)
Term Loan Facility (net of $1.1 million and $1.6 million discount)$1,130,148
 $1,170,486
Revolving Credit Facility48,000
 127,000
Tranche B-1 Term Loan (net of $0.1 million and $0.9 million discount)$148,402
 $1,130,320
Tranche B-2 Term Loan (net of $24.9 million discount)647,366
 
FILO Term Loan (net of $11.6 million discount)263,403
 
Unpaid original issuance discount13,231
 
Notes253,330
 245,273
173,591
 167,988
Debt issuance costs(1,572) (2,306)(867) (1,285)
Total debt1,429,906
 1,540,453
1,245,126
 1,297,023
Less: current maturities(48,000) (12,562)
Less: current debt(204,480) 
Long-term debt$1,381,906
 $1,527,891
$1,040,646
 $1,297,023
Refinancing of Senior Credit Facility
TheOn February 28, 2018, the Company maintainsamended and restated its Senior Credit Facility (the “Amendment”, and the Senior Credit Facility as so amended, the "Term Loan Agreement") formerly consisting of a $1.1 billion$1,131.2 million term loan facility that maturesdue in March 2019 (the "Term Loan Facility") and a $300.0$225.0 million revolving credit facility that matureswas scheduled to mature in September 2018. The Amendment included an extension of the maturity date for $704.3 million of the $1,131.2 million term loan facility from March 2019 to March 2021 (the “Tranche B-2 Term Loan"). However, if more than $50.0 million of the Company's Notes have not been repaid, converted or effectively discharged prior to such date (“Existing Indenture Discharge”), the maturity date becomes May 2020, subject to certain adjustments. The Amendment also terminated the existing $225.0 million revolving credit facility.
After the effectiveness of the Amendment, the remaining term loan of $151.9 million as of February 28, 2018 continues to have a maturity date of March 2019 (the “Revolving Credit Facility”"Tranche B-1 Term Loan"). The Tranche B-2 Term Loan requires annual aggregate principal payments of at least $43 million and togetherbears interest at a rate of LIBOR plus a margin of 9.25% per annum subject to change under certain circumstances (with a minimum and maximum possible interest rate of LIBOR plus a margin of 8.25% and 9.25%, respectively, per annum). Payments and interest associated with the Tranche B-1 Term Loan are consistent with past terms. The Term Loan Agreement is secured by a (i) first lien on certain assets of the Company primarily consisting of capital stock issued by General Nutrition Centers, Inc. ("Centers") and its subsidiaries, intellectual property and equipment (“Term Priority Collateral”) and (ii) second lien on certain assets of the Company primarily consisting of inventory and accounts receivable (“ABL Priority Collateral”). The Term Loan Agreement is guaranteed by all material, wholly-owned domestic subsidiaries of the Company (the “U.S. Guarantors”) and by General Nutrition Centres Company, an unlimited liability company organized under the laws of Nova Scotia (together with the U.S. Guarantors, the “Guarantors”).
On February 28 2018, the Company also entered into a new asset-based credit agreement (the "ABL Credit Agreement"), consisting of:
a new $100 million asset-based Revolving Credit Facility (the "Revolving Credit Facility") with a maturity date of August 2022 (which maturity date will become May 2020, subject to certain adjustments, if the Existing Indenture Discharge has not occurred); and
a $275.0 million asset-based Term Loan Facility advanced on a “first-in, last-out” basis (the "FILO Term Loan") with a maturity date of December 2022 (which maturity date will become May 2020, subject to certain adjustments, if the “Senior Credit Facility”)Existing Indenture Discharge has not occurred).
At September 30, 2017 and December 31, 2016,There are no scheduled amortization payments associated with the FILO Term Loan, which bears interest at a rate of LIBOR plus a margin of 7.00% per annum subject to decrease under certain circumstances (with a minimum possible interest rate of LIBOR plus a margin of 6.50% per annum). Outstanding borrowings under the Term Loan Facility was 3.7% and 3.3%, respectively. The Revolving Credit Facility hadbear interest at a weighted average interest rate of 3.7% and 2.7% at September 30, 2017 and December 31, 2016, respectively.LIBOR plus 1.50% or prime plus 0.50% (both subject to an increase of 0.25% to 0.50% based on the amount available to be drawn under the Revolving Credit Facility). The Company is also

required to pay an annual fee to revolving lenders equal to a maximum of 2.75%2.0% (subject to adjustment based on the amount available to be drawn under the Revolving Credit Facility) on outstanding letters of credit and an annual commitment fee of 0.5%0.375% on the undrawn portion of the Revolving Credit Facility subject to an increase to 0.5% based on the amount available to draw under the Revolving Credit Facility. The FILO Term Loan and Revolving Credit Facility are secured by a (i) first lien on ABL Priority Collateral and (ii) second lien on Term Priority Collateral. The FILO Term Loan and Revolving Credit Facility are guaranteed by the Guarantors.
In connection with the debt refinancing, the Company recognized a loss of $16.7 million in the first quarter of 2018, which primarily includes third-party fees relating to the Tranche B-2 Term Loan and the FILO Term Loan, and is presented as an operating outflow on the accompanying Consolidated Statement of Cash Flows. In addition, the Company incurred $43.4 million consisting of an original issuance discount (“OID”) to the Tranche B-2 Term Loan and the FILO Term Loan lenders, of which $30.2 million has been paid. The remaining $13.2 million is due to the Tranche B-2 Term Loan lenders at 2% of the outstanding balance the earlier of March 2019 or after a qualifying event in which the Company receives net cash proceeds as defined in the credit agreement, the amount of which is subject to change based on the timing and amount of such cash proceeds. The OID together with $5.1 million in fees incurred relating to the Revolving Credit Facility (included within other long-term assets on the Consolidated Balance Sheet) will be amortized through the applicable maturity dates as an increase to interest expense. The $30.2 million portion of OID paid together with the Revolving Credit Facility fees resulted in $35.2 million presented as a financing outflow on the accompanying Consolidated Statement of Cash Flows. Included within the current debt above is the Tranche B-1 Term Loan balance, scheduled amortization payments on the Tranche B-2 Term Loan over the next 12 months and the 2% OID that is due to the Tranche B-2 Term Loan lenders by March 2019.
Under the Company’s Term Loan Agreement and ABL Credit Agreement (collectively, the "Credit Facilities"), the Company is required to make certain mandatory prepayments, including a requirement to prepay first the Tranche B-2 Term Loan (until repaid in full), second the FILO Term Loan (until repaid in full, but only if such prepayment is permitted under the ABL Credit Agreement), and third the Tranche B-1 Term Loan, in each case annually with amounts based on excess cash flow, as defined in the Company’s Credit Facilities, based on the results of the Company for the prior fiscal year. The first such payment will be due with respect to the year ending December 31, 2018. The payment will be either 75% or 50% of excess cash flow for each such fiscal year, as determined by the Consolidated Net First Lien Leverage Ratio, and will be reduced by scheduled debt amortization payments and debt maturity payments that occur during the fiscal year and in the subsequent year up to the date the excess cash flow payment is required to be paid. The Company estimates the amount of excess cash flow payment to be between $0 and $25 million. The proceeds from the Harbin transaction, if received and used to pay down the debt prior to December 31, 2018, is expected to result in the Company's excess cash flow payment being at 50%.
At September 30, 2018, the contractual interest rates under the Tranche B-1 Term Loan, Tranche B-2 Term Loan, and the FILO Term Loan were 4.8%, 11.5% and 9.3%, respectively, which consist of LIBOR plus the applicable margin rate. At December 31, 2017, the contractual interest rate under the Tranche B-1 Term Loan was 4.1%. At September 30, 2018, the Company had $246.1$94.2 million available under the Revolving Credit Facility, after giving effect to $48.0 million of borrowings outstanding and $5.9$5.8 million utilized to secure letters of credit. Based onSee below under "Interest Rate Swaps" for discussion of the results for the year ended December 31, 2016, the ratio on the Company's Consolidated Net Senior Secured Leverage Ratio required an excess cash flow payment on the outstanding term loan debt. On April 10, 2017, the Company made the excess cash flow payment totaling $39.7 million, of which $28.2 million was paid with borrowings on the Revolving Credit Facility and $11.5 million was paid with cash on hand.interest rate swaps.
The SeniorCompany’s Credit Facility containsFacilities contain customary covenants, including incurrence covenants and certain other limitations on the ability of GNC Corporation, General Nutrition Centers, Inc. ("Centers"), and Centers' subsidiaries to, among other things, incur debt, grant liens on their assets, enter into mergers or liquidations, sell assets, make investments or acquisitions, make optional payments in respect of, or modify, certain other debt instruments, pay dividends or other payments on capital stock, andor enter into arrangements that restrict their ability to pay dividends or grant liens. In addition, the Term Loan Agreement requires compliance, as of the end of each fiscal quarter of the Company, with a maximum Consolidated Net First Lien Leverage Ratio initially set at 5.50 to 1.00 through December 31, 2018 and decreasing to 5.00 to 1.00 from March 31, 2019 to December 31, 2019 and 4.25 to 1.00 thereafter. Depending on the amount available to be drawn under the Revolving Credit Facility, the ABL Credit Agreement requires compliance as of the end of each fiscal quarter of the Company with a minimum Fixed Charge Coverage Ratio of 1.00 to 1.00. The Company is currently in compliance, and expects to remain in compliance over the next twelve months, with the terms of its Credit Facilities.
On November 7, 2018, The Company entered into an Amendment to the Securities Purchase Agreement with Harbin Pharmaceutical Group Holdings Co., Ltd. ("Harbin") for the purchase of 299,950 shares of Convertible Preferred Stock described in Note 12, "Subsequent Events". Harbin's $300 million investment will be funded in three separate tranches. On November 8, 2018, the Company received the initial $100 million investment for the purchase of 100,000 shares of Convertible Preferred Stock. The Company utilized the $100 million to pay a portion of the Tranche B-2 Term Loan due in March 2021 pursuant to the Amendment to its Senior Credit Facility.Facility and elected to use the payment to

satisfy the scheduled amortization payments on the Term Loan Facility through December 2020. The remaining net proceeds, after deducting legal and advisory fees, will be available to satisfy the amount due under the Tranche B-1 Term Loan in March 2019. There is no assurance that the remaining applicable closing conditions will be satisfied or waived prior to March 2019 when the obligation is due.
Management believes that the Company will have sufficient liquidity to meet its obligations, as they become due, for the next twelve months. In the event that the remaining payments anticipated from the Securities Purchase Agreement, are either delayed or not made at all, management believes that the Company will have adequate cash on hand, cash generated from operations and amounts available under the Revolving Credit Facility to satisfy the Tranche B-1 Term Loan repayment of $147.3 million due in March 2019, net of a $1.1 million principal payment expected in December 2018. To the extent that actual available cash differs materially from the current cash flow forecast, management has the ability to consider certain discretionary payments or asset sales to increase the amount of available cash.
Convertible Debt
The Company maintains a $287.5$188.6 million principal amount of 1.5% convertible senior notes due in 2020 (the "Notes"). The Notes consistedconsist of the following:following components:
September 30, 2017 December 31, 2016September 30, 2018 December 31, 2017
(in thousands)(in thousands)
Liability component      
Principal$287,500
 $287,500
$188,565
 $188,565
Conversion feature(30,023) (37,179)(13,167) (18,065)
Discount related to debt issuance costs(4,147) (5,048)(1,807) (2,512)
Net carrying amount$253,330
 $245,273
$173,591
 $167,988
Interest Rate Swaps
On June 13, 2018, the Company entered into two interest rate swaps with notional amounts of $275 million and $225 million to limit the exposure to its variable interest rate debt by effectively converting it to a fixed interest rate. The Company receives payments based on the one-month LIBOR and makes payments based on a fixed rate. The Company receives payments with a floor of 0.00% and 0.75%, respectively, on the $275 million and $225 million interest rate swaps, which aligns with the related debt instruments. The interest rate swap agreements had an effective date of June 29, 2018. The $225 million interest rate swap expires on February 28, 2021, and the $275 million interest rate swap expires on June 30, 2021. The notional amount of the $225 million interest rate swap is scheduled to decrease to $175 million on June 30, 2019, $125 million on June 30, 2020 and $75 million on December 31, 2020. The Company designated these instruments as cash flow hedges and deemed effective upon initiation. The interest rate swaps are recognized on the balance sheet at fair value. Changes in fair value are recorded within other comprehensive gain (loss) on the Consolidated Balance Sheet and reclassified into the Consolidated Statement of Operations as interest expense in the period in which the underlying transaction affects earnings.

At September 30, 2018, the fair value of the interest rate swaps was an asset of $0.6 million included within other long-term assets in the Company's accompanying Consolidated Balance Sheet with a corresponding cumulative unrealized gain of $0.4 million, net of tax, included in accumulated other comprehensive gain (loss). This gain would be immediately recognized in the Consolidated Statement of Operations if these instruments fail to meet certain cash flow hedge requirements. As of September 30, 2018, the amount included in accumulated other comprehensive gain related to the interest rate swaps to be reclassified into earnings during the next 12 months is not material. Refer to Note 7, "Fair Value Measurements of Financial Instruments" for more information on how the interest rate swaps are valued.

Interest Expense
Interest expense consisted of the following:
Three months ended September 30, Nine months ended September 30,Three months ended September 30, Nine months ended September 30,
2017 2016 2017 20162018 2017 2018 2017
(in thousands)(in thousands)
Senior Credit Facility:       
Term Loan Facility coupon$10,803
 $9,753
 $30,509
 $29,076
       
Tranche B-1 Term Loan coupon$1,755
 $10,803
 $11,496
 $30,509
Tranche B-2 Term Loan coupon20,447
 
 45,976
 
FILO Term Loan coupon6,901
 
 15,241
 
Revolving Credit Facility1,188
 1,359
 3,982
 3,420
285
 
 655
 
Terminated revolving credit facility
 1,188
 316
 3,982
Amortization of discount and debt issuance costs550
 591
 1,800
 1,775
3,659
 550
 8,954
 1,800
Total Senior Credit Facility12,541
 11,703
 36,291
 34,271
Subtotal33,047
 12,541
 82,638
 36,291
Notes:              
Coupon1,078
 1,078
 3,210
 3,234
707
 1,078
 2,121
 3,210
Amortization of conversion feature2,422
 2,294
 7,156
 6,778
1,655
 2,422
 4,898
 7,156
Amortization of discount and debt issuance costs321
 290
 938
 845
244
 321
 731
 938
Total Notes3,821
 3,662
 11,304
 10,857
2,606
 3,821
 7,750
 11,304
Other(23) (5) 705
 (50)79
 (23) 60
 705
Interest expense, net$16,339
 $15,360
 $48,300
 $45,078
$35,732
 $16,339
 $90,448
 $48,300


NOTE 6.7.  FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS
Accounting Standards Codification 820, Fair Value Measurements and Disclosuresdefines fair value as a market-based measurement that should be determined based on the assumptions that marketplace participants would use in pricing an asset or liability. As a basis for considering such assumptions, the standard establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:
Level 1 — observable inputs such as quoted prices in active markets for identical assets and liabilities;
Level 2 — observable inputs such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, other inputs that are observable, or can be corroborated by observable market data; and
Level 3 — unobservable inputs for which there are little or no market data, which require the reporting entity to develop its own assumptions.
The carrying amounts of cash and cash equivalents, receivables, accounts payable, accrued liabilities and the Revolving Credit Facility approximate their respective fair values. Based on the interest rates currently available and their underlying risk, the carrying value of franchise notes receivable recorded in prepaid and other current assets and other long-term assets approximates its fair value.
The carrying valuevalues and estimated fair valuevalues of the Term Loan Facility,interest rate swap assets and the term loans, net of discount, and Notes (net of the equity component classified in stockholders' equity and discount) were as follows:
September 30, 2017 December 31, 2016September 30, 2018 December 31, 2017
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
(in thousands)(in thousands)
Term Loan Facility$1,130,148
 $1,084,942
 $1,170,486
 $1,100,257
Assets:       
Interest rate swaps$596
 $596
 $
 $
Liabilities:       
Tranche B-1 Term Loan$148,402
 $146,176
 $1,130,320
 $930,592
Tranche B-2 Term Loan647,366
 642,511
 
 
FILO Term Loan263,403
 269,330
 
 
Notes253,330
 187,464
 245,273
 185,794
173,591
 135,184
 167,988
 85,044
The fair valuevalues of the Term Loan Facility wasterm loans were determined using the instrument’s trading value in markets that are not active, which are considered Level 2 inputs. The fair value of the Notes was determined based on quoted market prices and bond terms and conditions, which are considered Level 2 inputs. 

As described in Note 4, "Goodwill and Other Long-lived Assets," the Company recorded non-cash long-lived asset impairments in the current year period within its U.S. and Canada segment. These impairments resulted in goodwill, intangible assets and property and equipment for the Lucky Vitamin reporting unit as of June 30, 2017, and property and equipment for certain of theThe Company's stores as of September 30, 2017, being measuredinterest rate swaps are carried at fair value, which is based primarily on a non-recurring basis, which utilized a significant number of unobservable Level 32 inputs utilizing readily observable market data, such as future cash flow assumptions.LIBOR forward rates, for all substantial terms of the interest rate swap contracts and the assessment of nonperformance risk.
NOTE 7.8.  CONTINGENCIES
The Company is engaged in various legal actions, claims and proceedings arising in the normal course of business, including claims related to breach of contracts, product liabilities,liability matters, intellectual property matters and employment-related matters resulting from the Company's business activities.
The Company records accruals for outstanding legal matters when it believes it is probable that a loss will be incurred and the amount of such loss can be reasonably estimated. The Company evaluates, on a quarterly basis, developments in legal matters that could affect the amount of any accrual and developments that would make a loss contingency both probable and reasonably estimable. If a loss contingency is not both probable and estimable, the Company does not establish an accrued liability.
The Company's contingencies are subject to substantial uncertainties, including for each such contingency the following, among other factors: (i) the procedural status of the case; (ii) whether the case has or may be certified as a class action suit; (iii) the outcome of preliminary motions; (iv) the impact of discovery; (v) whether there are significant factual issues to be determined or resolved; (vi) whether the proceedings involve a large number of parties and/or parties and claims in multiple jurisdictions or jurisdictions in which the relevant laws are complex or unclear;

(vii) the extent of potential damages, which are often unspecified or indeterminate; and (viii) the status of settlement discussions, if any, and the settlement posture of the parties. Consequently, except as otherwise noted below with regard to a particular matter, the Company cannot predict with any reasonable certainty the timing or outcome of the legal matters described below, and the Company is unable to estimate a possible loss or range of loss. If the Company ultimately is required to make additionalany payments in connection with an adverse outcome in any of the matters discussed below, it is possible that it could have a material adverse effect on the Company's business, financial condition, results of operations or cash flows.
As a manufacturer and retailer of nutritional supplements and other consumer products that are ingested by consumers or applied to their bodies, the Company has been and is currently subjected to various product liability claims. Although the effects of these claims to date have not been material to the Company, it is possible that current and future product liability claims could have a material adverse effect on its business or financial condition, results of operations or cash flows. The Company currently maintains product liability insurance with a deductible/retention of $4.0 million per claim with an aggregate cap on retained loss of $10.0 million per policy year. The Company typically seeks and has obtained contractual indemnification from most parties that supply raw materials for its products or that manufacture or market products it sells. The Company also typically seeks to be added, and has been added, as an additional insured under most of such parties’parties' insurance policies. 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. Consequently, the Company may incur material product liability claims, which could increase its costs and adversely affect its reputation, revenue and operating income.
Litigation
DMAA / Aegeline Claims.  Prior to December 2013, the Company sold products manufactured by third parties that contained derivatives from geranium known as 1.3-dimethylpentylamine/ dimethylamylamine/ 13-dimethylamylamine, or "DMAA," which were recalled from the Company's stores in November 2013, and/or Aegeline, a compound extracted from bael trees. As of September 30, 2017,2018, the Company was named in 3227 personal injury lawsuits involving products containing DMAA and/or Aegeline.
As a general matter, the proceedings associated with these personal injury cases, which generally seek indeterminate money damages, are in the early stages, and any losses that may arise from these matters are not probable or reasonably estimable at this time.
The Company is contractually entitled to indemnification by its third-party vendors with regard to these matters, although the Company’s ability to obtain full recovery in respect of any such claims against it is dependent upon the creditworthiness of the vendors and/or their insurance coverage and the absence of any significant defenses available to their insurers.

its insurer.
California Wage and Break Claims. On February 29, 2012, former Senior Store Manager, Elizabeth Naranjo, individually and on behalf of all others similarly situated, sued General Nutrition Corporation ("GNC") in the Superior Court of the State of California for the County of Alameda. The class action complaint contains eight causes of action, alleging, among other matters, meal, rest break and overtime violations for which indeterminate money damages for wages, penalties, interest, and legal fees are sought. In June 2018, the Court granted in part and denied in part the Company's Motion for Decertification. In August 2018, the plaintiff voluntarily dismissed the class action claims alleging overtime violations. As of September 30, 2017,2018, an immaterial liability has been accrued in the accompanying financial statements. The Company intends to conduct further discovery and file a motion to decertifyvigorously defend against the remaining class action priorclaims asserted in this action, and to seek decertification as to some or all of the claims following additional discovery. It is expected that the trial which is scheduled for July 2018.will occur in 2019.
Pennsylvania Fluctuating Workweek. On September 18, 2013, Tawny Chevalier and Andrew Hiller commenced a class action in the Court of Common Pleas of Allegheny County, Pennsylvania. Plaintiff asserted a claim against the Company for a purported violation of the Pennsylvania Minimum Wage Act (PMWA)("PMWA"), challenging the Company’sCompany's utilization of the “fluctuating workweek”"fluctuating workweek" method to calculate overtime compensation, on behalf of all employees who worked for the Company in Pennsylvania and who were paid according to the fluctuating workweek method. In October 2014, the Court entered an order holding that the use of the fluctuating workweek method violated the PMWA. In September 2016, the Court entered judgment in favor of Plaintiffs and the class related to damages and ultimately legal fees for a combinedin an immaterial amount, which has been accruedrecorded as a charge in the accompanying interim Consolidated Financial Statements. Plaintiffs subsequently filed a petition for an award of attorney's fees, costs and incentive payment. The court awarded an immaterial amount in legal fees. The Company appealed from the adverse judgment. Thejudgment and the award of attorney's fees. On December 22, 2017, the Pennsylvania Superior Court held that the Company correctly determined the "regular rate" by dividing

weekly compensation by all hours worked (rather than 40), but held that the regular rate must be multiplied by 1.5 (rather than 0.5) to determine the amount of overtime owed. Taking accumulated interest into account, the net result of the Superior Court's decision was to reduce the Company's liability by an immaterial amount, which has been reflected in the accompanying Consolidated Financial Statements. The Company filed a petition for appeal to the Pennsylvania Supreme Court on January 22, 2018. The Pennsylvania Supreme Court accepted the Company's petition for appeal and the Company filed its appellant’s brief on August 27, 2018. The appellees filed their brief on September 26, 2018. It is anticipated that oral argument on the appealwill occur in September 2017 but has not announced a decision.early to mid-2019.
Jason Olive v. General Nutrition Corp. In April 2012, Jason Olive filed a complaint in the Superior Court of California, County of Los Angeles, for misappropriation of likeness in which he alleges that the Company continued to use his image in stores after the expiration of the license to do so in violation of common law and California statutes. Mr. Olive is seeking compensatory, punitive and statutory damages and attorneys’ fees and costs. The trial in this matter began on July 20, 2016 and concluded on August 8, 2016. The jury awarded plaintiff immaterial amounts for actual damages and emotional distress damages, which are accrued in the Company's accompanying Consolidated Financial Statements. The jury refused to award plaintiff any of the profits he sought to disgorge, or punitive damages. The court entered judgment in the case on October 14, 2016. In addition to the verdict, the Company and Mr. Olive sought attorneys’attorneys' fees and other costs from the Court. The Court refused to award attorney's fees to either side but awarded plaintiff an immaterial amount for costs. Plaintiff has appealed the judgment, and separately, the order denying attorney's fees. The Company has cross-appealed the judgment and the Court's denial of attorney fees. The appeals are currently pending.Argument occurred in October 2018. On November 2, 2018, the Court affirmed the trail court's decision in part and reversed in part, reversing the denial of Mr. Olive's motion for attorneys' fees and remanding the matter to the trial court for further proceedings regarding his attorneys' fees and costs.
Oregon Attorney General. On October 22, 2015, the Attorney General for the State of Oregon sued GNC in Multnomah County Circuit Court for alleged violations of Oregon’s Unlawful Trade Practices Act, in connection with its sale in Oregon of certain third-party products. The Company is vigorously defending itself against these allegations. Along with its Amended Answer and Affirmative Defenses, the Company filed a counterclaim for declaratory relief, asking the court to make certain rulings in favor of the Company.Company, and adding USPlabs, LLC and SK Laboratories have been joined toas counterclaim defendants.  In March 2018, the case as defendants to the Company's counterclaim but have yet to enter an appearance. In September 2017, SK LaboratoriesOregon Attorney General filed a motion for summary judgment relating to dismissits first claim for lack of personal jurisdiction. USP Laboratories alsorelief, which the Company contested.  The Company filed a cross motion to dismiss for improper venue orsummary judgment on the first claim for relief, which the Oregon Attorney General contested. Following oral argument in August 2018, the Court denied the State’s motion for summary judgment and granted in part and denied in part the Company’s motion for summary judgment. The parties are in the alternative motionprocess of exchanging discovery. Trial is currently scheduled to stay the litigation pending the criminal trial of USPlabs. The Company is contesting both motions, which are pending.begin in September 2019.
           As any losses that may arise from this matter are not probable or reasonably estimable at this time, no liability has been accrued in the accompanying Consolidated Financial Statements. Moreover, the Company does not anticipate that any such losses are likely to have a material impact on the Company, its business or results of operations. The Company is contractually entitled to indemnification and defense by its third-party vendors. Ultimately, however, the Company's ability to obtain full recovery in respect of any such claims against it is dependent upon the creditworthiness of its vendors and/or their insurance coverage and the absence of any significant defenses available to their insurers.
Holland and Barrett License Litigation. On September 18, 2014, the Company's wholly-owned affiliate General Nutrition Investment Company ("GNIC") commenced proceedings in the UKU.K. High Court to determine if the license agreement from March 2003 between GNIC and Holland & Barrett International Ltd and Health and Diet Centers Ltd. (“Defendants”) was validly terminated. GNIC alleged that termination of the entire agreement was warranted due to several material breaches by Defendants, and that the agreement should be terminated related to five licensed GNC trademarks for lack of use for more than five years. On April 7, 2017, the Court issued its judgment that found that GNIC's notice of termination was invalid and while there were several breaches of the agreement, none were sufficiently material to justify termination. Under UKU.K. procedural rules, GNIC is required to pay some portion of Defendant’s legal costs. As a result, the Company recorded a charge of $2.1 million in the first quarter of 2017.2017 and subsequently reached an agreement with the Defendants in relation to costs. The Defendants appealed part of the Court's judgment concerning findings in relation to the licensed GNIC trademarks, and that appeal was heard at the U.K.'s Court of Appeal in June 2018. In July 2018, the Court found in favor of the Defendants and GNIC was ordered to pay an immaterial amount for Defendants' costs related to the appeal.
E-Commerce Pricing MattersIn April 2016, Jenna Kaskorkis, et al. filed a complaint against General Nutrition Centers, Inc. followed by similar cases brought forth by Ashley Gennock in May 2016 and Kenneth Harrison in December

2016.  Plaintiffs allege that the Company's promotional pricing on its website was misleading and did not fairly represent promotions based on average retail prices over a trended period of time being consistent with prices advertised as

promotional.  The Company attended a mediation with counsel for all plaintiffs and has reached a tentative agreement in the third quarter of 2017 on many of the key terms of a settlement. The matters have been effectively stayed while the parties remain in discussions. The Company currently expects any settlement to be in a form that does not require the recording of a contingent liability, except an immaterial amount the Company has accrued in the accompanying financial statements in the third quarter of 2017.  Consolidated Financial Statements.
Government Regulation
In November 2013, the Company received a subpoena from the U.S. Department of Justice (“DOJ”("DOJ") for information related to its investigation of a third-partythird party product vendor, USPlabs, LLC. The Company fully cooperated with the investigation of the vendor and the related products, all of which were discontinued in 2013. In December 2016, the Company reached agreement with the DOJ in connection with the Company’s cooperation;Company's cooperation, which agreement acknowledges the Company relied on the representations and written guarantees of USPlabs LLC and the Company's representation that it did not knowingly sell products not in compliance with the FDCA. Under the agreement, which includes an immaterial payment to the federal government, the Company will take a number of actions to broaden industry-wide knowledge of prohibited ingredients and improve compliance by vendors of third-partythird party products. These actions are in keeping with the leadership role the Company has taken in setting industry quality and compliance standards, and the Company's commitment over the course of the agreement (60 months) to support a combination of its and industrythe industry's initiatives. Some of these actions include maintaining and continuously updating a list of restricted ingredients that will be prohibited from inclusion in any products that are sold by the Company.  Vendors selling products to the Company for the sale of such products by the Company will be required to warrant that the products sold do not contain any of these restricted ingredients.  In addition, the Company will develop and maintain a list of ingredients that the Company believes comply with the applicable provisions of the FDCA.
Environmental Compliance
In March 2008, the South Carolina Department of Health and Environmental Control (the "DHEC") requested that the Company investigate contamination associated with historical activities at its South Carolina facility. These investigations have identified chlorinated solvent impacts in soils and groundwater that extend offsite from the facility. The Company entered into a Voluntary Cleanup Contract with the DHEC regarding the matter on September 24, 2012. Pursuant to such contract, the Company has completed additional investigations with the DHEC's approval. The Company installed and began operating a pilot vapor extraction system under a portion of the facility in the second half of 2016, which was an immaterial cost to the Company, with DHEC’sDHEC's approval to assess the effectiveness of such a remedial system. TheAfter an initial period of monitoring, in October of 2017, the DHEC requested that the Company provideapproved a work plan for continuedextended monitoring of such system and the contamination which was sentinto 2021. The Company will continue to consult with the DHEC on the next steps in September 2017 for approval.the work after their review of the results of the extended monitoring is complete. At this stage of the investigation, however, it is not possible to estimate the timing and extent of any additional remedial action that may be required, the ultimate cost of remediation, or the amount of the Company's potential liability; thereforeliability. Therefore, no liability has been recorded in the accompanying interimCompany's Consolidated Balance Sheet.Financial Statements.
In addition to the foregoing, the Company is subject to numerous federal, state, local and foreign environmental and health and safety laws and regulations governing its operations, including the handling, transportation and disposal of the Company's non-hazardous and hazardous substances and wastes, as well as emissions and discharges from its operations into the environment, including discharges to air, surface water and groundwater. Failure to comply with such laws and regulations could result in costs for remedial actions, penalties or the imposition of other liabilities. New laws, changes in existing laws or the interpretation thereof, or the development of new facts or changes in their processes could also cause the Company to incur additional capital and operating expenditures to maintain compliance with environmental laws and regulations and environmental permits. The Company is also 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 for properties to which substances or wastes that were sent in connection with current or former operations at its facilities. The presence of contamination from such substances or wastes could also adversely affect the Company's ability to sell or lease its properties, or to use them as collateral for financing. From time to time, the Company has incurred costs and obligations for correcting environmental and health and safety noncompliance matters and for remediation at or relating to certain of the Company's properties or properties at which the Company's waste has been disposed. However, compliance with the provisions of national, state and local environmental laws and regulations has not had a material effect upon the Company's capital expenditures, earnings, financial position, liquidity or competitive position. The Company believes it has complied with, and is currently complying with, its environmental obligations pursuant to

environmental and health and safety laws and regulations and that any liabilities for noncompliance will not have a

material adverse effect on its business, financial performance or cash flows. However, it is difficult to predict future liabilities and obligations, which could be material.
NOTE 8.9. EARNINGS PER SHARE
The following table represents the Company's basic and dilutive weighted-average shares:
Three months ended September 30, Nine months ended September 30,Three months ended September 30, Nine months ended September 30,
2017 2016 2017 20162018 2017 2018 2017
(in thousands)(in thousands)
Basic weighted average shares68,354
 68,190
 68,296
 69,808
83,412
 68,354
 83,326
 68,296
Effect of dilutive stock-based compensation awards215
 125
 115
 131

 215
 105
 115
Diluted weighted average shares68,569
 68,315
 68,411
 69,939
83,412
 68,569
 83,431
 68,411
TheFor the three months and nine months ended September 30, 2018 and 2017, the following awards were not included in the computation of diluted EPS because the impacteffect of applying the treasury stock method was antidilutivedoing so would be anti-dilutive or because certain conditions have not been met with respect to the Company's performance and market-based awards.
 Three months ended September 30, Nine months ended September 30,
 2017 2016 2017 2016
 (in thousands)
Antidilutive: 
Time-based2,381
 1,120
 2,179
 1,011
Market-based
 
 
 56
Contingently issuable:       
Performance-based62
 130
 67
 133
Market-based387
 167
 416
 112
Total stock-based awards excluded from diluted EPS2,830
 1,417
 2,662
 1,312
 Three months ended September 30, Nine months ended September 30,
 
2018 (*)
 2017 2018 2017
 (in thousands)
Anti-dilutive: 
Time-based options and restricted stock awards3,076
 2,381
 3,022
 2,179
Performance-based restricted stock awards1,241
 
 1,013
 
Performance-based restricted stock awards with a market condition294
 
 
 
Contingently issuable:       
Performance-based restricted stock awards
 62
 
 67
Performance-based restricted stock awards with a market condition
 387
 308
 416
Total stock-based awards excluded from diluted EPS4,611
 2,830
 4,343
 2,662
The Company has the intent and ability to settle the principal portion of its Notes in cash, and as such, has applied the treasury stock method, which has resulted in all underlying convertible shares being anti-dilutive as the Company's average stock price in the current quarter is less than the conversion price.
NOTE 9.  STOCK-BASED COMPENSATION PLANS
Stock and Incentive Plans

The Company has outstanding stock-based compensation awards that were granted by the Compensation and Organizational Development Committee (the “Compensation Committee”(*) of Holdings’ board of directors (the "Board") under the following two stock-based employee compensation plans:

the GNC Holdings, Inc. 2015 Stock and Incentive Plan (the "2015 Stock Plan") amended and adopted in May 2015, formerly the GNC Holdings, Inc. 2011 Stock and Incentive Plan (the “2011 Stock Plan”) adopted in March 2011; and
the GNC Acquisition Holdings Inc. 2007 Stock Incentive Plan adopted in March 2007 (as amended, the “2007 Stock Plan”).

Both plans have provisions allowing for the granting of stock options, restricted stock and other stock-based awards and are available to eligible employees, directors, consultants or advisers as determined by the Compensation Committee. The Company will not grant any additional awards under the 2007 Stock Plan. Up to 11.5 million shares of common stock may be issued under the 2015 Stock plan (subject to adjustment to reflect certain transactions and events specified in the 2015 Stock Plan for any award grant), of which 4.2 million shares remain available for issuance as of September 30, 2017.

Non-Plan Inducement Awards
On September 11, 2017, in connection with the appointment of the Company's new Chief Executive Officer, Kenneth A. Martindale, the Company made the following non-plan inducement awards:
"make-whole" restricted stock awards consisting of the following:
$600,000, which are 67,000 fully vested restricted shares with transfer restrictions that lapse on the earliest to occur of a Change in Control of GNC, the third anniversary of grant or death, disability or other separation from service for any reason;
$950,000, which are 106,000 unvested restricted shares scheduled to vest on December 29, 2017 subject to acceleration to cover any applicable income and payroll tax withholding resulting from the recognition of ordinary income pursuant to a Section 83(b) election (“Section 83(b) Tax Liability”); and
$1,200,000, which are 134,000 unvested restricted shares scheduled to vest in three equal installments on each of the first three anniversaries of grant subject to acceleration to cover any applicable Section 83(b) Tax Liability; and
time-vested awards consisting of 212,000 restricted shares and 519,000 stock options in the amount of $1,900,000 each, which are scheduled to vest in three equal installments on each of the first three anniversaries of grant.     
The Company recorded $1.8 million in stock-based compensation inFor the quarter ended September 30, 2017, primarily relating to2018, all 4.6 million outstanding stock-based awards were excluded from the make-whole awards, which includescomputation of diluted EPS because the impact of acceleration of vesting associated with the Section 83(b) election that together with executive recruitment and other expenses resultedCompany was in a $2.8 million charge innet loss position and as a result, inclusion of the current quarter recorded within selling, general and administrative expenseawards would have been anti-dilutive.
The Company has applied the if-converted method to calculate dilution on the accompanying Consolidated Statement of Income.
Stock-Based Compensation Activity
The following table sets forth a summary of all stock-based compensation awards outstanding:
 September 30, 2017 December 31, 2016
 (in thousands)
Time-based stock options2,680
 914
Time-based restricted stock awards1,137
 312
Performance-based restricted stock awards62
 101
Market-based restricted stock awards387
 166
Total4,266
 1,493

DuringNotes in the nine months ended September 30, 2017, the Company granted the following stock-based compensation awards:
(in thousands)
Time-based stock options2,298
Time-based restricted stock awards1,295
Market-based restricted stock awards365
Total3,958

Time-based2018, which has resulted in all 2.9 million underlying convertible shares being anti-dilutive. The treasury stock options vest 25% per year over a period of four years except for the non-plan inducement awards as explained above and the fair valuemethod was determined using the Black-Scholes model. Key assumptions used for the options granted during the current year period include a dividend of 0%, an expected term of approximately 6 years, volatility between 38.2% and 40.8%, and a risk-free rate between 1.77%and 2.10%. Time-based restricted stock awards vest one-third per year over a period of three years.


Market-based awards vest at the end of a three-year period based upon total shareholder return compared with that of a selected group of peer companies. Total shareholder return is defined as share price appreciation plus the value of dividends paid during the three-year vesting period. Fair value of these awards was determined using a Monte Carlo simulation, which requires various inputs and assumptions, including the Company's common stock price. Compensation cost for these awards is recognized regardless of whether the market condition is achieved. Vested shares may range from 0% to 200% of the original target. Key assumptions used in the Monte Carlo simulation forprior year periods, which also resulted in the awards granted during the year include average peer group volatility of 34.6% and a risk-free rate of 1.46%.

The above awards granted during the nine months ended September 30, 2017 will result in compensation expense of $19.0 million, net of expected forfeitures, over the service period from the applicable grant date through the date of vesting.

The Company recognized $3.3 million and $4.2 million of total non-cash stock-based compensation expense for the three months ended September 30, 2017 and 2016, respectively, and $6.0 million and $7.2 million for the nine months ended September 30, 2017 and 2016. At September 30, 2017, there was approximately $19.1 million of total unrecognized compensation cost related to non-vested stock-based compensation, net of expected forfeitures, for all awards previously made that are expected to be recognized over a weighted-average period of approximately 1.8 years.
On July 28, 2016, the Company announced the departure from the Company and resignation from the Board of Michael G. Archbold, its former Chief Executive Officer, effective July 27, 2016. During the three months ended September 30, 2016 in connection with Mr. Archbold's departure, the Company recognized $4.5 million in severance expense of which $2.3 million relates to the acceleration of non-cash stock-based compensation.underlying shares being anti-dilutive.

NOTE 10.  SEGMENTS
The Company aggregates its operating segments into three reportable segments, which include U.S. and Canada, International and Manufacturing / Wholesale. The Company fully allocates warehousing and distribution costs to its reportable segments. The Company's chief operating decision maker evaluates segment operating results based primarily on performance indicators, including revenue and operating income. Operating income of each reportable segment excludes certain items that are managed at the consolidated level, such as corporate costs. The Manufacturing / Wholesale segment manufactures and sells productsproduct to the U.S. and Canada and International segments at cost with a markup, which is eliminated at consolidation. Included inIn connection with the U.S. and Canada segment are non-cash long-lived asset impairmentssale of $23.2 million recorded during the nine months endedLucky Vitamin on September 30, 2017, as well as gains on refranchising of $18.3 million recorded in the nine months ended September 30, 2016.their results are included within Other for applicable prior periods to ensure comparability.
The following table represents key financial information for each of the Company's reportable segments:
Three months ended September 30, Nine months ended September 30,Three months ended September 30, Nine months ended September 30,
2017 2016 2017 20162018 2017 2018 2017
(in thousands)(in thousands)
Revenue: 
  
     
  
    
U.S. and Canada$507,108

$525,505

$1,603,447

$1,671,048
$476,519

$492,383

$1,506,250

$1,556,818
International49,057

41,118

132,105

121,037
51,407

48,458

140,107

132,022
Manufacturing / Wholesale:





 








 


Intersegment revenues58,037

53,016

175,335

172,603
63,695

58,037

193,596

175,335
Third party53,304

61,341

159,749

178,002
52,259

51,286

159,305

163,117
Subtotal Manufacturing / Wholesale111,341

114,357

335,084

350,605
115,954

109,323

352,901

338,452
Total reportable segment revenues667,506

680,980

2,070,636

2,142,690
643,880

650,164

1,999,258

2,027,292
Other
 20,826
 
 66,182
Elimination of intersegment revenues(58,037)
(53,016)
(175,335)
(172,603)(63,695)
(58,037)
(193,596)
(175,335)
Total revenue$609,469

$627,964

$1,895,301

$1,970,087
$580,185

$612,953

$1,805,662

$1,918,139
Operating income: 
  
     
  
    
U.S. and Canada$29,730

$65,292

$112,336

$256,142
$11,466

$31,864

$100,559

$134,844
International16,768

14,676

46,908

41,428
16,468

16,169

46,624

46,825
Manufacturing / Wholesale19,505

17,395

53,989

53,719
16,869

19,168

47,722

55,072
Total reportable segment operating income66,003

97,363

213,233

351,289
44,803

67,201

194,905

236,741
Corporate costs(24,732) (25,558) (79,511) (79,839)
Other(110) (1,842) (160) (20,760)
Unallocated corporate costs and other(25,558)
(32,470)
(79,415)
(76,107)(24,842)
(27,400)
(79,671)
(100,599)
Total operating income40,445

64,893

133,818

275,182
19,961

39,801

115,234

136,142
Interest expense, net16,339
 15,360
 48,300
 45,078
35,732
 16,339
 90,448
 48,300
Income before income taxes$24,106
 $49,533
 $85,518
 $230,104
Loss on debt refinancing
 
 16,740
 
(Loss) income before income taxes$(15,771) $23,462
 $8,046
 $87,842

Refer to Note 3, "Revenue," for more information on the Company's reportable segments.

NOTE 11.  INCOME TAXES
The Company recognized $2.6$7.2 million of income tax expense (or 11.0% of pre-tax income)benefit during the three months ended September 30, 20172018 compared with $17.2$2.4 million (or 34.7% of pre-tax income)income tax expense in the prior year quarter. The Company recognized $24.5$2.9 millionof income tax expense (or 28.7% of pre-tax income)benefit during the nine months ended September 30, 20172018 compared with $82.9$25.4 million (or 36.0% of pre-tax income) forincome tax expense in the same period in 2016. The Company's tax rate is based on income, statutory tax rates and tax planning opportunities available in the jurisdictions in which it operates.2017. The effective tax rate infor the current quarter ended September 30, 2018 was significantly impacted by a reduction to a valuation allowance resulting$3.6 million in a deferreddiscrete tax benefitbenefits associated with finalization of $6.0 million. The valuation allowance was adjusted based on a change in circumstances which caused a change in judgment about the realizability of a deferredCompany's 2017 federal income tax asset related to net operating losses.return.
At September 30, 20172018 and December 31, 2016,2017, the Company had $5.4$6.4 million and $6.5$5.8 million of unrecognized tax benefits, respectively, excluding interest and penalties, which if recognized, would affect the effective tax rate. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company accrued $1.9 million at September 30, 20172018 and December 31, 20162017, for potential interest and penalties associated with uncertain tax positions. To the extent interest and penalties are not assessed with respect to the ultimate settlement of uncertain tax positions, amounts previously accrued will be reversed as a reduction to income tax expense.
On December 22, 2017, Staff Accounting Bulletin No. 118 was issued to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. The Consolidated Financial Statements for the year ended December 31, 2017 included an immaterial provisional tax impact related to deemed repatriated earnings. The ultimate impact may differ from these provisional amounts, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made and additional regulatory guidance that may be issued. Any subsequent adjustment will be recorded to current tax expense in the quarter of 2018 when the analysis is complete. 
GNC Holdings, Inc. files a consolidated federal tax return and various consolidated and separate tax returns as prescribed by the tax laws of the state, local and international jurisdictions in which it and its subsidiaries operate. The statutes of limitation for the Company’s U.S. federal income tax returns are closed for years through 2013. The Company has various state and local jurisdiction tax years open to possible examination (the earliest open period is generally 2011).
NOTE 12. SUBSEQUENT EVENTS
As previously disclosed in the Company’s 2017 10-K, on February 13, 2018, the Company entered into a Securities Purchase Agreement (as amended from time to time, the “Securities Purchase Agreement”) by and between the Company and Harbin Pharmaceutical Group Holdings Co., Ltd. (the “Investor”), pursuant to which the Company agreed to issue and sell to the Investor, 299,950 shares of a newly created series of convertible perpetual preferred stock of the Company, designated as “Series A Convertible Preferred Stock” (the “Convertible Preferred Stock”), for a purchase price of $1,000 per share, or an aggregate of approximately $300 million. The Convertible Preferred Stock is convertible into shares of the common stock of the Company (the “Common Stock”) at an initial conversion price of $5.35 per share, subject to customary antidilution adjustments. Pursuant to the terms of the Securities Purchase Agreement, the Investor assigned its interest in the Securities Purchase Agreement to Harbin Pharmaceutical Group Co., Ltd., a company incorporated in the People’s Republic of China. In addition, the Securities Purchase Agreement provides for the parties to use their respective reasonable best efforts to negotiate in good faith definitive documentation with respect to a commercial joint venture in China which would be controlled 65% by the Investor and 35% by the Company.
On November 7, 2018, the Company and Harbin entered into an Amendment to the Securities Purchase Agreement (the “SPA Amendment”) for the funding of the Convertible Preferred Stock purchase and entered into definitive documentation (the "JV Framework Agreement") with respect to joint ventures in Hong Kong and China (collectively, the "China JV").
Pursuant to the SPA Amendment, the Company and Harbin agreed to complete the securities purchase as follows: (i) 100,000 shares of Preferred Stock issued by November 9, 2018 for a total purchase price of $100 million (the “Initial Issuance”), (ii) 50,000 shares of Preferred Stock issued by December 28, 2018 for a total purchase price of $50 million (the “First Subsequent Issuance”) and (iii) 149,950 shares of Preferred Stock issued by February 13, 2019 for a total purchase price of approximately $150 million (the “Second Subsequent Issuance” and together with the Initial Issuance and the CompanyFirst Subsequent Issuance, the “Issuances”). The SPA Amendment also has certain state and local tax filings currently under audit.provides that Harbin will be entitled to designate two directors to the Company's board following the closing of the Initial Issuance,

and an additional three directors (including at least two independent directors) upon completion of the Second Subsequent Issuance.
The execution of the JV Framework Agreement satisfies the closing condition related to the definitive documentation of the China JV. In addition, Harbin has advised the Company that the required foreign exchange registration with the State Administration of Foreign Exchange (SAFE) for the People’s Republic of China has been completed.  The companies completed the Initial Issuance on November 8, 2018. Each of the First Subsequent Issuance and the Second Subsequent Issuance are subject to customary closing conditions. The formation and completion of the China JV is conditioned upon completion of the Second Subsequent Issuance.  There can be no assurance that the remaining applicable closing conditions will be satisfied or waived within the timeframes described above.
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q. The following information presented for the three and nine months ended September 30, 20172018 and 20162017 was prepared by management, is unaudited, and was derived from our unaudited Consolidated Financial Statements and accompanying notes. In the opinion of management, all adjustments necessary for a fair statement of our financial position and operating results for such periods and as of such dates have been included.

Forward-Looking Statements
This Quarterly Report on Form 10-Q and any documents incorporated by reference herein or therein include forward-looking statements within the meaning of federal securities laws. Forward-looking statements include statements that 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. Forward-looking statements can often be identified by the use of terminology such as “subject to,” “believe,“believes,“anticipate,“anticipates,“plan,“plans,“potential,“expects,“predict,“intends,“expect,“estimates,“intend,” “estimate,” “project,“projects,” “may,” “will,” “should,” “would,” “continue,” “seek,” “could,” “can,” “think,” the negatives thereof, variations thereon and similar expressions, or by discussions of strategy.regarding dividend, share repurchase plan, strategy and outlook.
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 they are inherently uncertain. We may not realize our expectations, and our beliefs may not prove correct. Many factors could affect future performance and cause actual results to differ materially from those matters expressed in or implied by forward-looking statements, including but not limited to unfavorable publicity or consumer perception of the our products; costs of compliance and any failure on our part to comply with new and existing governmental regulations governing our products; limitations of or disruptions in the manufacturing system or losses of manufacturing certifications; disruptions in the distribution network; conditions to the subsequent closings of the Harbin transaction may not be satisfied; the occurrence of any event, change or other circumstances that could give rise to the termination of the Securities Purchase Agreement with Harbin; other risks to consummation of the Harbin transaction, including the risk that the Harbin transaction, the first subsequent closing and/or the second subsequent closing will not be consummated within the expected time period or at all; or failure to successfully execute the our growth strategy, including any inability to expand franchise operations or attract new franchisees, any inability to expand company-owned retail operations, any inability to grow the international footprint, any inability to expand the e-commerce businesses, or any inability to successfully integrate businesses that are acquired. A detailed discussion of risk and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the section titled “Risk Factors” in our 20162017 10-K.
Consequently, forward-looking statements should be regarded solely as our current plans, estimates and beliefs. You should not place undue reliance on forward-looking statements. We cannot guarantee future results, events, levels of activity, performance or achievements. The forward-looking statements included in this Quarterly Report on Form 10-QForm10-Q are made as of the date of this filing. We do not undertake and specifically decline any obligation to update, republish or revise forward-looking statements to reflect future events or circumstances or to reflect the occurrences of unanticipated events.
Business Overview
We areGNC is a global specialty retailerhealth and wellness brand with a diversified, multi-channel business. Our assortment of health, wellnessperformance and performance products, including protein, performance supplements, weight managementnutritional supplements, vitamins, herbs and greens, wellness supplements, health and beauty, food and drink and other general merchandise.merchandise features innovative private-label products as well as nationally recognized third-party brands,

many of which are exclusive to GNC. We derive our revenues principally from: product sales through ourfrom company-owned stores; the internet through our websites, GNC.com and LuckyVitamin.com, the assets of which were sold on September 30, 2017, as well as third-party websites;retail locations, domestic and international franchise activities;activities, e-commerce, third-party contract manufacturing,  and sales of products manufacturedcorporate partnerships. We have approximately 8,500 locations in our facility to third parties. We sell products through a worldwide network of approximately 9,000 locations operating under the GNC brand name.50 countries.
We believe the competitive strengths that position us as a leader in the specialty nutritional supplement space include our: well-recognized brand; stable base of long-term customers; geographically diverse store base; vertically integrated operations;operations and differentiated service model designed to enhance the customer experience.
Our Current Strategy
Management is focused onIn the following three key areas to move the business forward:
Loyalty programs. As of October 25, 2017, we had 9.6 million members in our myGNC Rewards program, of which 585,000 members were enrolled in our PRO Access program.
Increasing average transaction amount. We noted positive comparable same store transactions of 12.4% in the thirdfirst quarter of 2017 for company-owned stores2018, we extended our debt maturity and GNC.comannounced a partnership with Harbin Pharmaceutical Group Co., Ltd., which includes the issuance of convertible preferred stock and positive same store salesa commercial joint venture. 
In November 2018, we also announced the completion of 1.3%.the funding of a $100 million investment by Harbin Pharmaceutical Group Co., Ltd. (“Harbin”) in GNC. We are focused on improving average transaction amount through associate traininghave issued 100,000 shares of convertible preferred stock to Harbin in connection with the funding of the first tranche of the previously announced $300 million strategic investment by Harbin. Harbin has agreed to fund an additional $50 million investment by December 28, 2018 and merchandisingthe final tranche of approximately $150 million by February 13, 2019. GNC and Harbin will complete the formation of the previously announced joint ventures in order to continue to increase same store salesHong Kong and China upon the funding of the final tranche of Harbin’s investment in the fourth quarter of 2017 and beyond.
GNC.
Proprietary products and innovation capabilities. We believe that product innovation is critical to our growth, brand image superiority and competitive advantage. Through market research, interactions with customers and partnerships with leading industry vendors, we work to identify shifting consumer trends that can inform our product development process. We believe that our brand portfolio of proprietary products, which are

available in our stores, on GNC.com, on our market place on Amazon.com and Amazon.com,other third-party websites, advances GNC's brand presence and our general reputation as a leading retailer of health and wellness products.  Year-to-dateGNC brand mix for domestic system-wide sales increased to 52% in the third quarter of 2018 compared with 45% in the third quarter of 2017.
During the third quarter, we have had successful launcheslaunched the nature-inspired Earth Genius product line that spans multiple categories and TamaFlex, an exclusive blend of both proprietary products, includingbotanicals proven effective for joint health.

Loyalty programs. As of September 30, 2018, our Beyond Raw line,loyalty membership increased 10.7% to 16.2 million members compared with June 30, 2018.  Included in our loyalty membership at September 30, 2018 are approximately 1.0 million members enrolled in PRO Access.
Customer experience. Our goal is to create a consistent and third-party exclusive products.
In addition,satisfying experience for all of our customers, whether they find us in a retail store, online, or on a mobile device, and we have taken steps to improve the customer experience. We are continuing to work on improvementsinvesting in product availabilityomnichannel capabilities and the in-store shopping experience. We are investing in our online and omnichannel capabilities to better meet consumer demand without regard to the place and time a customer is interested in GNC. We believe that developing the capability to leverage all of our sales channels to deliver a consistent and high-quality customer experience will differentiate us from other competitors, particularly online-only options. Our store base is a competitive advantage over online-only competitors especially as we continue to develop our in-store associates to deliver thoughtful assistance throughout the shopping experience. Specifically,and advice.
International. Our international business is a growth opportunity and we have beenare focused on developing partnerships that can grow our reach in attractive global markets.  The partnership with Harbin will continue to strengthen our balance sheet and position us to fully leverage the following:opportunity in China through Harbin’s extensive distribution, marketing and sales infrastructure.
We made significant changes in
Store Optimization. As we focus on optimizing profitability, we performed a detailed review of our e-commerce pricingstore portfolio and promotion strategy in August 2016, which eliminated channel conflict and bulk sales. These changes allowed GNC to successfully launch on Amazon (sales from which are includedidentified approximately 700-900 stores in the GNC.com business unit)U.S. and Canada that will be closed within the next three years at the end of their lease terms. This review also identified other stores in January 2017, which continues to outperform expectations. In addition, the recently completed re-platforming of the website fromwe are considering alternatives such as seeking lower rent or a third-party to a cloud-based solution provides more flexibility and control for new features and enhancements including advanced personalization capability, improved merchandising and opportunity for omnichannel expansion, which is creating the ability to better optimize the e-commerce business;shorter term.
During the first quarter of 2017, we completed the roll-out of new point-of-sale terminals and tablets to all of our company-owned U.S. stores to address issues regarding speed of transactions and to support back-office needs and functionality;
Technology, training and incentives for store associates have been refocused on loyalty, building basket, and growing our proprietary GNC brand. For example, the tablets can now be used by store associates to enroll customers into the loyalty programs and facilitate product recommendations supporting customer regimens; and
Supply chain focus has been reducing overall enterprise inventory including lower weeks of supply while maintaining in-stocks. Our focus has been to reduce lead time, address slow moving items, and strengthen our forecasting practices.  Additional focus has also been placed on consistency of in-stocks across all channels and testing store service improvements. Our inventory decreased from $574.7 million at June 30, 2017 to $534.4 million at September 30, 2017. Going forward, management sees ongoing opportunity to optimize inventory.
Key Performance Indicators
The primary key performance indicators that senior management focusesfocus on include revenue and operating income for each segment, which are discussed in detail within "Results of Operations", as well as same store sales growth.
As fully defined below, we have clarified the definition of same store sales in the first quarter of 2017, which now excludes sales from our membership programs, including the Gold Card program discontinued in the U.S. in December 2016 and the new loyalty PRO Access program launched in connection with the One New GNC. Same store sales will now include only product sales.
The table below presents the key components of U.S Company-owned same store sales.

sales:
 2017 2016
U.S. Company-Owned Same Store Sales, including GNC.comQ1 3/31 Q2 6/30 Q3 9/30 Q1 3/31 Q2 6/30 Q3 9/30
Total same store sales(3.9)% (0.9)% 1.3 % (2.3)% (3.9)% (8.6)%
Drivers of same store sales:           
Number of transactions9.3 % 12.3 % 12.4 % (4.1)% (5.5)% (6.6)%
Average transaction amount(12.1)% (11.8)% (9.9)% 1.8 % 1.7 % (2.2)%
Contribution to same store sales:           
Domestic retail same store sales(3.6)% (0.5)% (1.2)% (1.9)% (3.4)% (6.5)%
GNC.com contribution to same store sales(0.3)% (0.4)% 2.5 % (0.4)% (0.5)% (2.1)%
Total same store sales(3.9)% (0.9)% 1.3 % (2.3)% (3.9)% (8.6)%
 2018 2017
 Q1 3/31 Q2 6/30 Q3 9/30 Q1 3/31 Q2 6/30 Q3 9/30
Contribution to same store sales           
Domestic Retail same store sales(1.2)% (4.2)% (3.4)% (3.6)% (0.5)% (1.2)%
GNC.com contribution to same store sales1.7 % 3.8 % 1.3 % (0.3)% (0.4)% 2.5 %
Total Same Store Sales0.5 % (0.4)% (2.1)% (3.9)% (0.9)% 1.3 %
Same store sales for company-owned stores include point-of-sale retail sales from all domestic stores which have been operating for twelve full months following the opening period. We are an omnichannel retailer with capabilities that allow a customer to use more than one channel when making a purchase, including in-store and through e-commerce channels, which include our wholly-owned website GNC.com and third-party websites, including Amazon (the sales from which are included in the GNC.com business unit) where product assortment and price are controlled by us, inand the purchases from which purchases are fulfilled by direct shipment to the customer from one of our distribution facilities as well as third-party e-commerce vendors. In-store sales are reduced by sales originally consummated online or through mobile devices and subsequently returned in-store. Sales of membership programs, including the new PRO Access loyalty program and former Gold Card program, which is no longer offered in the U.S., as well as the net change in the deferred points liability associated with the myGNC Rewards program, are excluded from same store sales. Excluding the impact of higher loyalty points redemption in the current year periods compared with the prior year periods as our program matures, same store sales decreased 1.3% in the three months ended September 30, 2018 and increased 0.8% in the nine months ended September 30, 2018 for U.S. company-owned stores including GNC.com.
Same store sales are calculated on a daily basis for each store and 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 or shopping center, the store continues to be treated as a same store. If, during the period presented, a store was closed, relocated to a different mall or shopping center, or converted to a franchise store or a company-owned store, sales from that store up to and including the closing day or the day immediately preceding the relocation or conversion are included as same store sales as long as the store was open during the same period of the prior year. Corporate stores are included in same store sales after the thirteenth month following a relocation or conversion to a company-owned store.
We also provide retail comparable same storesstore sales of our franchisees as well as our Canada business if meaningful to current results. While retail sales of franchisees are not included in the Consolidated Financial Statements, the metric serves as a key performance indicator of our franchisees, which ultimately impacts wholesale sales and royalties and fees received from franchisees. We compute same store sales for our franchisees and Canada business consistent with the description of corporate same store sales above. Same store sales for international franchisees and Canada exclude the impact of foreign exchange rate changes relative to the U.S. dollar.
Non-GAAP Measures
                We have included the year-over-year change in segment operating income as a percentage of revenue for our U.S. and Canada and International segments below under "Results of Operations" adjusted to exclude certain items because we believe it represents an effective supplemental means by which to measure our segment’s operating performance. We believe that this metric is useful to investors as it enables our management and our investors to evaluate and compare our segment’s results from operations in a more meaningful and consistent manner by excluding specific items that are not reflective of ongoing operating results. However, this metric is not a measurement of our segment’s performance under 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 GAAP cash flow from operating activities, or as a measure of our profitability or liquidity. Further, management believes that the presentation of adjusted SG&A, corporate costs, and other non-GAAP measures, presented herein are helpful to investors as they provide for greater comparability of the financial statements between periods.

Results of Operations
(ExpressedCalculated as a percentage of total consolidated revenue unless indicated otherwise)
Three months ended September 30, Nine months ended September 30,Three months ended September 30, Nine months ended September 30,
2017 2016 2017 20162018 2017 2018 2017
Revenues:              
U.S. and Canada83.2 % 83.7 % 84.6 % 84.8 %82.1 % 80.3 % 83.4 % 81.2 %
International8.1 % 6.5 % 7.0 % 6.1 %8.9 % 7.9 % 7.8 % 6.9 %
Manufacturing / Wholesale:              
Intersegment revenues9.5 % 8.4 % 9.3 % 8.8 %11.0 % 9.5 % 10.7 % 9.1 %
Third party8.7 % 9.8 % 8.4 % 9.1 %9.0 % 8.4 % 8.8 % 8.5 %
Subtotal Manufacturing / Wholesale18.2 % 18.2 % 17.7 % 17.9 %20.0 % 17.9 % 19.5 % 17.6 %
Other % 3.4 %  % 3.4 %
Elimination of intersegment revenue(9.5)% (8.4)% (9.3)% (8.8)%(11.0)% (9.5)% (10.7)% (9.1)%
Total net revenues100.0 % 100.0 % 100.0 % 100.0 %100.0 % 100.0 % 100.0 % 100.0 %
Operating expenses:              
Cost of sales, including warehousing, distribution and occupancy67.7 % 65.7 % 67.2 % 65.0 %68.2 % 67.2 % 66.8 % 66.6 %
Gross profit32.3 % 34.3 % 32.8 % 35.0 %31.8 % 32.8 % 33.2 % 33.4 %
Selling, general and administrative24.8 % 23.6 % 24.6 % 21.8 %25.8 % 25.5 % 26.0 % 25.1 %
Gains on refranchising % (0.1)%  % (0.9)%
Long-lived asset impairments0.6 % 0.5 % 1.2 % 0.2 %2.5 % 0.6 % 0.8 % 1.2 %
Other loss (income), net0.3 % (0.1)%  %  % % 0.3 %  %  %
Total operating expenses93.4 % 89.6 % 93.0 % 86.1 %96.5 % 93.6 % 93.6 % 92.9 %
Operating income:              
U.S. and Canada4.9 % 10.4 % 5.9 % 13.0 %
International2.8 % 2.3 % 2.5 % 2.1 %
Manufacturing / Wholesale3.2 % 2.8 % 2.8 % 2.8 %
U.S. and Canada (*)
2.4 % 6.5 % 6.7 % 8.7 %
International (*)
32.0 % 33.4 % 33.3 % 35.5 %
Manufacturing / Wholesale (*)
14.5 % 17.5 % 13.5 % 16.3 %
Unallocated corporate costs and other(4.2)% (5.2)% (4.1)% (3.9)%

 

    
Corporate costs(4.3)% (4.2)% (4.4)% (4.2)%
Other % (0.3)%  % (1.1)%
Subtotal unallocated corporate and other costs(4.3)% (4.5)% (4.4)% (5.3)%
Total operating income6.7 % 10.3 % 7.1 % 14.0 %3.4 % 6.5 % 6.4 % 7.1 %
Interest expense, net2.7 % 2.4 % 2.5 % 2.3 %6.2 % 2.7 % 5.0 % 2.5 %
Income before income taxes4.0 % 7.9 % 4.6 % 11.7 %
Income tax expense0.4 % 2.7 % 1.3 % 4.2 %
Net income3.6 % 5.2 % 3.3 % 7.5 %
Loss on debt refinancing %  % 0.9 %  %
(Loss) income before income taxes(2.7)% 3.8 % 0.4 % 4.6 %
Income tax (benefit) expense(1.2)% 0.4 % (0.2)% 1.3 %
Net (loss) income(1.5)% 3.4 % 0.6 % 3.3 %



(*) Calculated as a percentage of segment revenue.

The following table summarizes the number of our stores for the periods indicated:
Nine months ended September 30,Nine months ended September 30,
2017 20162018 2017
U.S. & Canada      
Company-owned(a):
 
  
 
  
Beginning of period balance3,513
 3,584
3,423
 3,513
Store openings47
 46
18
 47
Acquired franchise stores(b)
46
 16
20
 46
Franchise conversions(c)
(2) (96)(4) (2)
Store closings(136) (38)(174) (136)
End of period balance3,468
 3,512
3,283
 3,468
Domestic Franchise:      
Beginning of period balance1,178
 1,084
1,099
 1,178
Store openings22
 21
10
 22
Acquired franchise stores(b)
(46) (16)(20) (46)
Franchise conversions(c)
2
 96
4
 2
Store closings(30) (16)(45) (30)
End of period balance1,126
 1,169
1,048
 1,126
International(d):
      
Beginning of period balance1,973
 2,095
2,015
 1,973
Store openings (e)
207
 61
Store openings42
 207
Store closings(105) (165)(89) (105)
End of period balance2,075
 1,991
1,968
 2,075
Store-within-a-store (Rite Aid):    
  
Beginning of period balance2,358
 2,327
2,418
 2,358
Store openings62
 29
42
 62
Store closings(6) (9)
Store closings (e)
(218) (6)
End of period balance2,414
 2,347
2,242
 2,414
Total Stores9,083
 9,019
8,541
 9,083
   

(a) Includes Canada.
(b) Stores that were acquired from franchisees and subsequently converted into company-owned stores.
(c) Company-owned store locations sold to franchisees.
(d) Includes franchise locations in approximately 50 countries (including distribution centers where sales are made) and company-owned stores located in Ireland (The Health Store) and China.
(e) Includes 145 store-within-a-stores in South Africa not formerly included in theIn 2018, store count dueclosings primarily related to being distribution points. Effective at the endWalgreens acquisition of the third quarter of 2017, these stores were subject to royalties on retail sales and as a result, have been included in the store count.certain Rite Aid locations.








Comparison of the Three Months Ended September 30, 20172018 (current quarter) and 20162017 (prior year quarter)
Revenues 
Our consolidated net revenues decreased $18.5$32.8 million, or 2.9%5.3%, to $609.5$580.2 million for the three months ended September 30, 20172018 compared with $628.0$613.0 million for the same period in 2016.2017. The decrease was primarily attributable to the resultsale of Lucky Vitamin on September 30, 2017, which resulted in a $20.8 million reduction to revenue, and lower sales inassociated with store closures at the end of their lease term, which is a component of our U.S. and Canada and Manufacturing / Wholesale segments, partially offset by higher sales in our International segment.store portfolio optimization strategy.
U.S. and Canada. Revenues in our U.S. and Canada segment decreased $18.4$15.9 million, or 3.5%3.2%, to $507.1$476.5 million for the three months ended September 30, 20172018 compared with $525.5$492.4 million in the prior year quarter. E-commerce sales were 10.2% of U.S. and Canada revenue in the current quarter compared with 8.2% in the prior year quarter. The $18.4 million decrease in revenue in the current quarter as compared with the prior year quarter was primarily due to the following:
The changenet decrease in our loyalty programsthe number of U.S. corporate stores from September 30, 2017 to September 30, 2018 contributed an approximate $9 million decrease to revenue;
A decrease in U.S. company-owned same store sales of 2.1%, which includes GNC.com sales, resulted in a $7.7 million decrease to revenue in company-owned stores, including GNC.com, of $12.0 million primarily due to(excluding the impact of the discontinued Gold Card programhigher loyalty points redemption in the U.S;current quarter compared with the prior year quarter as the program matures, same store sales decreased 1.3%). E-commerce sales were 7.2% of U.S. and Canada revenue in the current quarter compared with 6.2% in the prior year quarter;
A decrease in domestic franchise revenue of $7.5$3.6 million to $78.3$79.7 million in the current quarter compared with $85.8$76.1 million in the prior year quarter due to the impact of a decrease in retail same store sales of 1.7%,4.1% and a decrease in the number of franchise stores from 1,169 at September 30, 2016 to 1,126 at September 30, 2017 and the discontinuation of the Gold Card program as discussed above;to 1,048 at September 30, 2018;
A decrease in our Canada business (not currently under the One New GNC)company-owned stores of $1.2$2.7 million compared withfrom $24.1 million in the prior year quarter wasperiod to $21.4 million in the current year period primarily due to a reduction innegative same store sales of 10.9%5.6%; and
Partially offsetting the above decreases in revenue was an increase in U.S. company-owned same store sales of 1.3%, which includes GNC.com sales, which resulted in a $4.8$7.5 million increase to revenue. GNC.com contributed 2.5% to the increase in same store sales due to an increase in sales through Amazon as well as the change to better align our web promotionsrelated to our storesloyalty programs, PRO Access paid membership fees and the myGNC Rewards change in August 2016. Same store sales for company-owned stores decreased 1.2% in the current quarter due to lower sales in the Vitamins, Protein, Food/Drink, Weight Management, and Wellness Supplement categories, partially offset by higher sales in the Performance Supplements, Health and Beauty, and Herbs/Greens categories and includes the impact of Hurricanes Harvey, Irma and Maria, which we estimate contributed a 0.7% decrease to same store sales.deferred points liability.
International. Revenues in our International segment increased $8.0$2.9 million, or 19.3%6.1%, to $49.1$51.4 million in the current quarter compared with $41.1$48.5 million in the prior year quarter. RevenuesRevenue from our China businessinternational franchisees increased by $4.8$3.9 million in the current quarter compared with the prior year quarter largely due to higher cross-border e-commerce sales. Revenuewith an increase in retail same store sales of 1.5%. Revenues from our international franchisees increasedChina business decreased by $2.8$0.8 million in the current quarter compared with the prior year quarter due in part to an increase of $1.7 million associated with the timing of shipments resulting from our annual franchise conference, which occurred later in the second quarter compared with the prior year. This increase is partially offset by the impact of a decrease in retail same store sales of 4.8%.lower wholesale sales.
Manufacturing / Wholesale. Revenues in our Manufacturing / Wholesale segment, excluding intersegment sales, decreased $8.0increased $1.0 million, or 13.1%1.9%, to $53.3$52.3 million for the three months ended September 30, 20172018 compared with $61.3$51.3 million in the prior year quarter. Third-party contract manufacturing sales decreased $5.4increased $1.9 million, or 14.9%6.7%, to $31.2 million for the three months ended September 30, 20172018 compared with $36.6$29.3 million in the prior year quarter primarily due to lower demand associated with decreased sales for certain customers.quarter. Sales to our wholesale partners decreased $2.6$1.0 million, or 10.5%4.4%, from $24.7$22.0 million in the prior year quarter to $22.1$21.0 million in the current quarter primarily due lower demand from certain customers and the termination of Drugstore.com that occurred in September 2016.quarter. Intersegment sales increased $5.0$5.7 million from $53.0$58.0 million in the prior year quarter to $58.0$63.7 million in the current quarter reflecting our increasing focus on proprietary products.
Cost of Sales and Gross Profit
Cost of sales, which includes product costs, warehousing, distribution and occupancy costs, of $412.7decreased $16.2 million to $395.5 million for the three months ended September 30, 2017, was relatively flat as2018 compared with $411.7 million in the prior year quarter. Gross profit decreased $18.6$16.6 million from $215.4$201.3 million infor the prior year quarter ended September 30, 2017 to $196.8$184.7 million in the current quarter, and as a percentage of revenue, decreased from 34.3% for32.8% in the prior year quarter ended September 30, 2016 to 32.3%31.8% in the current quarter. The decrease in gross profit rate was primarily due to lower domestic retail product margin rate dueas a result of adjustments to promotional pricing in response to the impactcompetitive environment in the early portion of the quarter, lower vendor funding and impacts from the new loyalty program, changes associated with the One New GNC,partially offset by a higher sales mix of proprietary product which includes the impact of the discontinuation of the Gold Card Member Pricing program in the U.S, and deleverage in occupancy associated with lower revenue.contribute higher margins relative to third-party sales.

Selling, General and Administrative (“SG&A”) Expense
SG&A expense, including compensation and related benefits, advertising and other expenses, increased $2.6decreased $6.2 million, or 1.7%3.9%, from $148.4$156.1 million in the prior year quarter to $151.0$149.9 million in the current quarter. SG&A expense, as a percentage of revenue, was 24.8%25.8% and 23.6%25.5% for the three months ended September 30, 2018 and 2017, and 2016, respectively.
During the three months ended September 30, 2018, we recognized $2.1 million in expense related to a retention program adopted in the first quarter of 2018 to retain senior executives and certain other key personnel below the executive level who are critical to the execution and success of our strategy. The total amount awarded was approximately $10 million, which vests in four installments of 25% each over the next two years on the earlier of February 2019 or the closing of the Harbin transaction, February 2019, August 2019 and February 2020. We also incurred $0.3 million related to China joint venture start-up costs in the current quarter. During the prior year quarter, we recorded $2.8 million of stock-based compensation and other executive placement costs associated with the hiring of our new Chief Executive Officer as well asOfficer. In addition, we incurred $1.3 million in legal-related charges in both the current quarter and duringthe prior year quarter.
Excluding the impact of these items, SG&A expense decreased $5.8 million in the current quarter compared with the prior year quarter we recorded severance expense of $4.5 million associated with the departure of our former Chief Executive Officer and, legal-related charges of $5.1 million.
Excluding these charges, SG&A expense increased $8.0 million, or 5.8%, and was 24.1% and 22.1% as a percentage of revenue, was 25.2% and 24.8% for the three months ended September 30, 2018 and 2017, respectively. The $5.8 million decrease in SG&A expense was primarily due to the sale of the Lucky Vitamin e-commerce business effective September 30, 2017 and lower marketing expense, partially offset by an increase in store commissions related to incremental associate commissions and higher sales mix of proprietary product.
Long-lived Asset Impairments
We recorded long-lived asset impairment and other store closing charges totaling $14.6 million for the three months ended September 30, 2018 associated with the store portfolio optimization. We recorded $3.9 million in long-lived asset impairment charges for the three months ended September 30, 2017. The charges in the current quarter and prior year quarter respectively. The increase in SG&A expense was primarily due to higher salaries and benefits of $3.8 million (excluding the charges described above) due in part to minimum wage rate increases, an increase in marketing expense of $2.9 million to support incremental online advertising and China cross-border e-commerce sales and higher commissions related to an increase in GNC.com sales, partially offset by the reduction of an incentive accrual.
Long-Lived Asset Impairments
We recorded long-lived asset impairment charges totaling $3.9 million in the three months ended September 30, 2017 compared with $3.0 million in the prior year quarter. These charges primarily relate to certain of our corporate stores offor which estimated future undiscounted cash flows could not support the carrying values of property and equipment. In addition, the currentprior year quarter charge includes the impact of Hurricane Maria on our stores located in Puerto Rico. Refer to Item 1, "Financial Statements," Note 4, "Goodwill and Other Long-lived Assets" for more information.
Other Loss, (Income), net
Other loss, net, was $1.8of $0.3 million in the current quarter includes a foreign currency loss partially offset by a refranchising gain. Other loss, net, of $1.6 million in the prior year quarter primarily consistingconsists of a $1.7 million loss attributable toas a result of the sale of substantially all of the assets of the Lucky Vitamin e-commerce business. Refer to Item 1, "Financial Statements," Note 4, "Goodwill and Other Long-lived Assets" for more information. Other income, net was $0.5 million in the prior year quarter primarily relating to a foreign currency gain.
Operating Income
As a result of the foregoing, consolidated operating income decreased $24.5$19.8 million, or 37.7%49.8%, to $40.4$20.0 million for the three months ended September 30, 20172018 compared with $64.9$39.8 million in the prior year quarter. Operating income, as a percentage of revenue, was 3.4% and 6.5% for the three months ended September 30, 2018 and 2017, respectively. Operating income in the current quarter was significantly impacted by long-lived asset impairment and other store closing charges as noted above.
U.S. and Canada. Operating income decreased $35.6$20.4 million to $29.7$11.5 million for the three months ended September 30, 20172018 compared with $65.3$31.9 million for the same period in 2016.2017. As explainedwe mentioned above, we recorded long-lived asset impairments and other store closing costs of $3.9 million and $3.0$14.6 million in the current quarter, and long-lived asset impairments of $3.9 million in prior year quarter, respectively, as well as a $1.7 million loss on the sale of the Lucky Vitamin e-commerce business in the current quarter. Excluding these items and immaterial gains on refranchising, operating income was $26.0 million or 5.5% of $0.2 million and $0.4 millionsegment revenue in the current quarter, and prior year quarter, respectively, operating income was $35.1compared with $35.6 million or 6.9%7.2% of segment revenue compared with $68.0 million or 13.0% of segment revenue.in the prior year quarter. The decrease compared with the prior year quarter was primarily due to lower domestic retail product margin rate as explained above under "Cost of Sales and Gross Profit" and expense deleverage associated with lower sales. Also contributing to the decrease were higher salaries and benefits of $5.2 million duean increase in part to minimum wage rate increases, higher marketing expense of $1.8 millionstore commissions related to incremental online advertising,associate commissions and commissions related toa higher e-commerce sales.sales mix of proprietary product, partially offset by comparative effect of lower marketing expense in the current quarter.
International.International. Operating income increased $2.1 million, or 14.3%, to $16.8of $16.5 million for the three months ended September 30, 20172018 was relatively flat compared with $14.7 million in the prior year quarter. Operating income decreased to 34.2% of segment revenue in the current quarter compared with 35.7% in the prior year quarter primarily due to higher marketing expense in our China business.
Manufacturing / Wholesale. Operating income increased $2.1 million, or 12.1% to $19.5 million for the three months ended September 30, 2017 compared with $17.4 million in the prior year quarter, and as a percentage of segment revenue was 17.5%32.0% in the current quarter compared with 33.4% in the prior year quarter. The current quarter included $1.0 million related to China joint venture start-up costs, of which $0.6 million related to costs incurred in the first six months of 2018 within corporate costs and 15.2%, respectively,was reclassified to International in the current quarter. Excluding the China joint venture start-up costs, operating

income was $17.4 million, or 33.9% of segment revenue, in the current quarter compared with $16.2 million, or 33.4% of segment revenue, for the same period in 2017. The increase in operating income percentage was primarily due to favorable manufacturing variances as a resulthigher mix of franchise sales, which contribute higher intersegmentmargins relative to China sales.
Corporate costs and other.Manufacturing / WholesaleCorporate costs and other. Operating income decreased $6.9$2.3 million, or 12.0%, to $25.6$16.9 million for the three months ended September 30, 20172018 compared with $32.5$19.2 million in the prior year quarter.  Operating income as a percentage of segment revenue decreased from 17.5% in the prior year quarter to 14.5% in the current quarter primarily due to a lower margin rate from third-party contract manufacturing, partially offset by higher intersegment sales, which contribute higher margins.
Corporate costs. Corporate costs decreased $0.9 million to $24.7 million for the three months ended September 30, 2018 compared with $25.6 million in the prior year quarter. The decrease was primarily duecurrent quarter includes retention of $2.1 million, as explained above, and a $1.3 million legal-related charge. Additionally, $0.6 million related to the comparative effect of severance expense of $4.5 million associated with the departure of our former Chief Executive Officer and legal-related charges of $5.1 millionChina joint venture start-up costs incurred in the prior year quarter as well as the

reductionfirst six month of an incentive accrual2018 was reclassified to International in the current quarter. The above decreases were partially offset byprior year quarter includes $2.8 million of stock-based compensation and other executive placement costs associated with the hiring of our new Chief Executive Officer and a $1.3 million legal-related charge recordedcharge. Excluding the above charges, corporate costs in the currentthree months ended September 30, 2018 were relatively flat compared to the prior year quarter.
Interest Expense, net
Interest expense was $16.3 million in the three month period ended September 30, 2017 compared with $15.4$35.7 million in the three months ended September 30, 2016.2018 compared with $16.3 million in the three months ended September 30, 2017 primarily due to a higher interest rate on the Tranche B-2 Term Loan and the FILO Term Loan in connection with the debt refinancing.
Income Tax (Benefit) Expense
We recognized $2.6$7.2 million of income tax expense (or 11.0% of pre-tax income)benefit during the three months ended September 30, 20172018 compared with $17.2$2.4 million (or 34.7% of pre-tax income)income tax expense for the same period in 2016.2017. The effective tax rate in the current quarter was significantly impacted by $3.6 million in discrete tax benefits associated with finalization of the Company’s 2017 federal income tax return. The effective tax rate in the prior year quarter was significantly impacted by a reduction to a valuation allowance of $6.0 million. The valuation allowance was adjusted based on a change in circumstances which caused a change in judgment about the realizability of a deferred tax asset related to net operating losses.
Net (Loss) Income
As a result of the foregoing, consolidated net income decreased $10.9 million to $21.5loss was $8.6 million for the three months ended September 30, 20172018 compared with $32.4a consolidated net income of $21.1 million for the same period in 2016.2017.
Diluted (Loss) Earnings perPer Share
Diluted loss per share was $0.10 for the three months ended September 31, 2018 compared with diluted earnings per share wasof $0.31 for the three months ended September 30, 2017 compared with $0.47 for the same period in the prior year due to a decrease in net income of 33.7%.2017.
Comparison of the Nine Months Ended September 30, 20172018 (current year period) and 20162017 (prior year period)

Revenues 
Our consolidated net revenues decreased $74.8 million, or 3.8%, to $1,895.3were $1,805.7 million for the nine months ended September 30, 20172018, a decrease of $112.4 million, or 5.9%, compared with $1,970.1$1,918.1 million for the same period in 2016.2017. The decrease was primarily the result of the sale of Lucky Vitamin on September 30, 2017, which resulted in a $66.2 million reduction to revenue, the termination of the U.S. Gold Card Member Pricing program in the prior year, which resulted in a $23.0 million decrease in revenue and lower sales inassociated with store closures at the U.S. and Canada and Manufacturing / Wholesale segments, partially offset by higher sales inend of their lease term, which is a component of our International segment.store portfolio optimization strategy.
U.S. and Canada. Revenues in our U.S. and Canada segment decreased $67.6$50.5 million, or 4.0%3.2%, to $1,603.4$1,506.3 million for the nine months ended September 30, 20172018 compared with $1,671.0$1,556.8 million in the prior year period. E-commerce sales were 9.7% of U.S. and Canada revenue in the nine months ended September 30, 2017 compared with 9.0% for the same period in 2016. The $50.5 million decrease in revenue in the current year period as compared with the prior year period was primarily due to the following:
The change in our loyalty programs resulted in a net decrease to revenue of $22.9 million. Gold Card sales decreased $20.9 million, which includes the impact of the recognition of $24.4 million in deferred revenue in the first quarter of 2017 and $1.4 million of applicable coupon redemptions. Also included in this decrease was a $2.0 million net reduction to revenue related to the new loyalty programs as the change in the free myGNC Rewards deferred points liability more than offset PRO Access membership fees;
The decrease in the number of corporateU.S. company-owned stores in the current year period from 3,512 at September 30, 2016 to 3,468 at September 30, 2017 to September 30, 2018 contributed an approximate $19$24 million decrease to revenue;

A decrease in domestic retailU.S. company-owned same store sales of 1.3%0.6%, which includes GNC.com sales, resulted in a $15.1$7.3 million decrease into revenue in the current year period. The decrease in same store sales was primarily due to lower sales in company-owned stores in the Protein, Vitamins, Weight Management, Food / Drink, and Wellness Supplement categories partially offset by improvement in the Performance Supplements, Health and Beauty, and Herbs / Greens categories. GNC.com contributed 0.5% to same store sales primarily due to increased sales made through Amazon, partially offset by(excluding the impact of better aligning our web promotions to our stores in the third quarter of 2016;
Canada revenue declined $5.8 million compared to the prior year period due to a decrease in same store sales; and

Domestic franchise revenue decreased $5.3 million to $248.8 millionhigher loyalty points redemption in the current year period compared with $254.1the prior year period as the program matures, same store sales increased 0.8%). E-commerce sales were 7.5% of U.S. and Canada revenue in the current year period compared with 5.7% in the prior year period;
A decrease in domestic franchise revenue of $19.4 million from $253.4 million in the prior year period to $234.0 million in the current year period primarily due to the impact of a decrease in retail same store sales decrease of 2.5%3.3% and a decrease in the number of franchise stores from 1,126 at September 30, 2017 to 1,048 at September 30, 2018;
A decrease in Canada company-owned stores of $5.4 million from $72.1 million in the prior year period to $66.7 million in the current year period partially offset by a higher averageprimarily due to negative same store count.sales of 7.9%;
A decrease of $23.0 million relating to the termination of the U.S. Gold Card Member Pricing program in the prior year period, which resulted in the recognition of domestic Gold Card deferred revenue of $24.4 million, net of $1.4 million of applicable coupon redemptions; and
Partially offsetting the above decreases in revenue was an increase of $30.3 million related to our loyalty programs, PRO Access paid membership fees and the myGNC Rewards change in deferred points liability.
International. Revenues in our International segment increased $11.1$8.1 million, or 9.1%6.1%, to $132.1$140.1 million in the current year period compared with $121.0$132.0 million in the prior year period, primarily due to an increase in our China business of $9.6$6.3 million largely from cross-borderdue to higher e-commerce sales and an increase in sales from our international franchisees of $1.0$1.2 million.
Manufacturing / Wholesale. Revenues in our Manufacturing / Wholesale segment, excluding intersegment sales, decreased $18.3$3.8 million, or 10.3%2.3%, to $159.7$159.3 million for the nine months ended September 30, 20172018 compared with $178.0$163.1 million in the prior year period. Third-party contract manufacturing sales decreased $6.2$2.7 million, or 6.1%2.8%, from $97.2 million in the prior year period to $94.5 million in the current year period. Sales to our wholesale partners decreased $1.1 million, or 1.7% from $65.9 million in the prior year period to $64.8 million in the current year period. Intersegment sales increased $18.3 million from $175.3 million in the prior year period to $193.6 million in the current year period reflecting our increasing focus on proprietary products.
Cost of Sales and Gross Profit
Cost of sales decreased $70.8 million to $1,206.4 million for the nine months ended September 30, 20172018 compared with $100.7 million in the prior year period due to lower demand associated with decreased sales for certain customers. Sales to our wholesale partners decreased $12.1 million, or 15.6%, from $77.3 million in the prior year period to $65.2 million in the current year period primarily due to lower demand and the termination of Drugstore.com that occurred in September 2016. Intersegment sales increased $2.7 million from $172.6 million in the prior year period to $175.3 million in the current year period.
Cost of Sales and Gross Profit
Cost of sales decreased $7.3 million to $1,272.8 million for the nine months ended September 30, 2017 compared with $1,280.1$1,277.2 million in the prior year period. Gross profit decreased by $67.5$41.6 million from $690.0$640.9 million in the prior year period to $622.5$599.3 million in the current year period. Gross profit, as a percentage of revenue, decreased slightly to 33.2% in the current year period compared with 33.4% in the prior year period. The gross profit rate change is primarily due to the comparative effect of the prior year period recognition of $23.0 million in net deferred Gold Card revenue as explained above and the impact of the new loyalty program in the current year period, partially offset by a higher domestic retail product margin rate reflecting a higher mix of proprietary sales which contribute higher margins relative to third-party sales.
Selling, General and Administrative Expense
SG&A expense decreased $12.4 million, or 2.6%, from 35.0%$481.6 million in the prior year period to $469.2 million in the current year period, and as a percentage of revenue, was 26.0% and 25.1% for the nine months ended September 30, 2016 to 32.8% in2018 and 2017, respectively.
During the nine months ended September 30, 2017 primarily due to lower domestic retail product margin rate and occupancy expense deleverage associated with lower sales. The decrease in domestic retail product margin rate was primarily due2018, we recognized $5.2 million related to the impactaforementioned retention program, $1.0 million related to China joint venture start-up costs and a legal-related charge of pricing and loyalty program changes associated with the One New GNC, partially offset by the favorable comparative effect of deep discounts on excess vitamins inventory nearing expiration in the first quarter of 2016.
SG&A Expense
SG&A expense increased $35.2 million, or 8.2%, to $465.6 million for$1.3 million. During the nine months ended September 30,31, 2017, compared with $430.4 million in the prior year period. SG&A expense, as a percentage of revenue, was 24.6% and 21.8% for the nine months ended September 30, 2017 and 2016, respectively. Wewe incurred legal-related charges of $3.4 million and $5.1 million in the current year and prior year periods, respectively, as well as $2.8 million executive placement and severance costs incurred in the current and prior year quarter as explained above.
Excluding the impact of these charges,items, SG&A expense increased $38.5decreased $13.7 million, or 9.1%2.9%, and was 24.2%25.6% and 21.4%24.8% as a percentage of revenue in the current year and prior year periods, respectively. The increasedecrease in SG&A expense was primarily due to higher salariesthe sale of our Lucky Vitamin e-commerce business effective September 30, 2017 and benefits of $19.8 million (excluding the charges described above) due in part to higher store and field wages and an increase inlower marketing expense in our U.S. and Canada segmentdue to the comparative effect of $18.3 million resulting from the prior year period media campaign to support the One New GNC, partially offset by an increase in store commissions associated with a higher sales mix of proprietary product and incremental online advertising.higher commissions to support e-commerce sales.
Gains on Refranchising
Gains on refranchising were $0.4Long-lived Asset Impairments
We recorded long-lived asset impairment and other store closing charges totaling $14.6 million in the nine months ended September 30, 2017 resulting from2018 associated with the sale of two company-owned stores. We sold 96 company-owned stores in the prior year period, of which 84 related to one franchisee, resulting in total refranchising gains of $18.3 million.
Long-Lived Asset Impairments
store portfolio optimization strategy. We recorded $23.2 million of non-cashin long-lived asset impairmentsimpairment charges in the current year periodnine months ended September 30, 2017 of which $19.4 million relates to the Lucky Vitamin e-commerce business, the assets of which were sold on September 30, 2017. The remaining amount relates to certain of our underperforming corporate stores of which future undiscounted cash flows could not support the carrying values of property and equipment, as well as the impact of Hurricane Maria on our stores located in Puerto Rico. We recorded $3.0 million in long-lived asset impairments in the prior year period. Refer to Item 1, "Financial Statements", Note 4, "Goodwill and Other Long-lived Assets" for more information.
Other Loss (income)(Income), net
Other loss, net, was $0.3of $0.4 million in the current year period includes a foreign currency loss partially offset by a refranchising gain. Other income, net, in the prior year period primarily consistingconsists of a $1.7 million loss attributableattributed to the sale of substantially all of the assets of the Lucky Vitamin e-commerce business, partiallyfully offset by immaterial

insurance and lease settlements. Other income, net, was $0.4 million in the prior year period primarily consisting ofsettlements, foreign currency gains.gains and a refranchising gain.
Operating Income
As a result of the foregoing, consolidated operating income decreased $141.4$20.9 million, or 51.4%15.4%, to $133.8$115.2 million for the nine months ended September 30, 20172018 compared with $275.2$136.1 million in the prior year period. The U.S.Operating income, as a percentage of revenue, was 6.4% and Canada segment was significantly impacted in7.1% for the current year period by impairment charges totaling $23.2 million as described above as well as $18.3 million of refranchising gains in the prior year period.nine months ended September 30, 2018 and 2017, respectively.
U.S. and Canada. Operating income decreased $143.8$34.2 million or 56.1%, to $112.3$100.6 million for the nine months ended September 30, 20172018 compared with $256.1$134.8 million for the same period in 2016. As explained above,2017. Operating income, as a percentage of segment revenue, was 6.7% in the current year period compared with 8.7% in the prior year period. In the current year period we recorded non-cashlong-lived asset impairments and other store closing costs totaling $14.6 million and immaterial refranchising gains, and in the prior year period we recorded long-lived asset impairments of $23.2$3.9 million and $3.0 millionimmaterial refranchising gains. Excluding these items and the comparative prior year impact of the recognition of deferred Gold Card revenue and marketing costs incurred in support of the One New GNC media campaign as described above, operating income was 7.6% as a percentage of segment revenue in the current year andperiod compared with 7.9% in the prior year periods, respectively, as well as a $1.7 million loss on the sale of the Lucky Vitamin e-commerce business in the current quarter. Excluding these items and gains on refranchising of $0.4 million and $18.3 million in the current year and prior year periods, respectively, operating income was $136.9 million, or 8.5%, of segment revenue compared with $240.9 million or 14.4% of segment revenue. The decrease compared with the prior year period was primarily due to lower domestic retail product margin rate as explained above under "Cost of Sales and Gross Profit." Also contributing to the decrease was higher marketing expense of $18.3 million related to the media campaign around the One New GNC and incremental online advertising, higher salaries and benefits of $13.3 million due to higher store and field wages and expense deleverage associated with lower sales. period.
International. Operating income increased $5.5decreased $0.2 million, or 13.2%0.4%, to $46.9$46.6 million for the nine months ended September 30, 20172018 compared with $41.4$46.8 million in the prior year period. Operating income increased from 34.2% of segment revenue in the prior year period to 35.5%was 33.3% of segment revenue in the current year period compared with 35.5% in the prior year period. Excluding joint venture start-up costs of $1.0 million in the current year period, operating income was $47.6 million, or 34.0% of segment revenue, compared with $46.8 million, or 35.5% of segment revenue, for the same period in 2017. The decrease in operating income percentage was primarily due to an increase in product margin rate primarily associated with a higher mix of proprietaryChina sales, andwhich contribute lower margins relative to franchise sales. In addition, as we invest to grow the comparative effect of a bad debt allowance associatedbrand in China, marketing expense increased in our China business compared with a franchisee that was recorded in the prior year period, partially offset with higher marketing expense in our China business.period.
Manufacturing / Wholesale. Operating income increased $0.3decreased $7.4 million, or 0.5%13.3%, to $54.0$47.7 million for the nine months ended September 30, 20172018 compared with $53.7$55.1 million in the prior year period. Operating income as a percentage of segment revenue increaseddecreased from 16.3% in the prior year period to 16.1%13.5% in the current year period from 15.3% in the prior year period primarily due to favorablea lower margin rate from third-party contract manufacturing, variances as a result ofpartially offset by higher intersegment sales.sales, which contributed higher margins.
Corporate costs and other.costs. Corporate costs and other increased $3.3decreased $0.3 million to $79.4$79.5 million for the nine months ended September 30, 20172018 compared with $76.1$79.8 million in the prior year period, primarily due to $3.4 million inperiod. Excluding the retention and a legal-related charges and $2.8 million of stock-based compensation and other executive placement costs associated with the hiring of our new Chief Executive Officer incurredcharge in the current year period higher wages and the comparative effect of aexecutive placements costs and legal-related charges in the prior year reduction of an incentive accrual. Theperiod as explained above, increases were partially offset by the comparative effect of legal-related charges of $5.1 million and $4.5corporate costs decreased $0.6 million in severance expense associatedthe current year period compared with the departure of our former Chief Executive Officer incurred in the prior year period.
Interest Expense, net
Interest expense was $48.3 million in the nine month period ended September 30, 2017 compared with $45.1$90.4 million in the nine months ended September 30, 2016.2018 compared with $48.3 million in the nine months ended September 30, 2017 primarily due to a higher interest rate on the Tranche B-2 Term Loan and the FILO Term Loan in connection with the debt refinancing.

Loss on Debt Refinancing
The refinancing of the Senior Credit Facility resulted in a loss of $16.7 million in the current year period, which primarily includes third-party fees relating to the Tranche B-2 Term Loan and the FILO Term Loan. Refer to Item 1, "Financial Statements," Note 6, "Long-Term Debt / Interest Expense" for more information.
Income Tax (Benefit) Expense
We recognized $24.5$2.9 million of income tax expense (or 28.7% of pre-tax income)benefit during the nine months ended September 30, 20172018 compared with $82.9$25.4 million (or 36.0% of pre-tax income)income tax expense for the same period in 2016.2017. The effective tax rate in the current year period was significantly impacted by $3.6 million in discrete tax benefits associated with finalization of the Company's 2017 federal income tax return. The effective tax rate in the prior year period was significantly impacted by a reduction to a valuation allowance of $6.0 million. The valuation allowance was adjusted based on a change in circumstances which caused a change in judgment about the realizability of a deferred tax asset related to net operating losses.
Net Income
As a result of the foregoing, consolidated net income decreased $86.2$51.5 million to $61.0$10.9 million for the nine months ended September 30, 2017, which includes the impact of $23.2 million in non-cash long-lived asset impairments,2018 compared with $147.2$62.4 million for the same period in 2016, which includes the impact of $18.3 million in refranchising gains.

2017.
Diluted Earnings perPer Share
Diluted earnings per share decreased from $2.10$0.91 for the nine months ended September 30, 20162017 to $0.89$0.13 for the same period in 20172018 due to a decrease toin net income and an increase in the weighted average diluted shares outstanding resulting from the exchange of 58.6%.the Company's Notes on December 20, 2017 for an aggregate 14.6 million newly issues shares of Class A common stock.
Liquidity and Capital Resources
Our ability to make required payments of principal and scheduled payments of interest or to refinance our debt 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 are currently in compliance with the terms ofOn February 28, 2018, we amended our Senior Credit Facility. Refer to Item 1, "Financial Statements," Note 6, "Long-Term Debt / Interest Expense" for a description of the Amendment to our Senior Credit Facility and our new Term Loan Agreement and ABL Credit Agreement.
On November 7, 2018, we entered into an Amendment to the Securities Purchase Agreement with Harbin for the purchase of 299,950 shares of Convertible Preferred Stock described in Item 1, "Financial Statements," Note 12, "Subsequent Events". Harbin's $300 million investment will be funded in three separate tranches. On November 8, 2018, we received the initial $100 million investment for the purchase of 100,000 shares of Convertible Preferred Stock. We currently anticipateutilized the $100 million to pay a portion of the Tranche B-2 Term Loan due in March 2021 pursuant to the Amendment to our Senior Credit Facility and elected to use the payment to satisfy the scheduled amortization payments on the Term Loan Facility through December 2020. The remaining net proceeds, after deducting legal and advisory fees, will be available to satisfy the amount due under the Tranche B-1 Term Loan in March 2019. There is no assurance that the remaining applicable closing conditions will be satisfied or waived prior to March 2019 when the obligation is due.
Management believes that we will have sufficient liquidity to meet our obligations, as they become due, for the next twelve months. In the event that the remaining payments anticipated from the Securities Purchase Agreement, are either delayed or not made at all, management believes that we will have adequate cash on hand, cash generated from operations together withand amounts available under the Revolving Credit Facility willto satisfy the Tranche B-1 Term Loan repayment of $147.3 million due in March 2019, net of a $1.1 million principal payment expected to be sufficientmade in December 2018. To the extent that actual available cash differs materially from the current cash flow forecast, management has the ability to meet our operating expenses, fund capital expenditures and remainconsider certain discretionary payments or asset sales to increase the amount of available cash. We are currently in compliance with our Senior Secureddebt covenant reporting and compliance obligations under our Credit Facility overFacilities and expect to remain in compliance during the next twelve months. At September 30, 2017,
We are focused on all opportunities to best position the business for long-term growth and success.  As such, we had $246.1 million available under the Revolving Credit Facility, after giving effectwill continue to $48.0 million of borrowings outstanding and $5.9 million utilizedproactively explore opportunities to secure letters of credit. We expectenhance our primary uses of cash in the near future will be for debt repayment, capital expenditures and working capital requirements.structure.


Cash Provided by Operating Activities
Cash provided by operating activities decreased by $20.1was $55.7 million from $169.7 million infor the nine months ended September 30, 2016 to2018 compared with $149.6 million infor the nine months ended September 30, 2017. The decrease in cash flow from operations was primarily due to the comparative effect of a $48.8 million inventory reduction in the prior year as part of the supply chain optimization which was launched at the end of 2016. The remaining decrease was primarily related to reduced operating performance, the refinancing of our long-term debt, which resulted in $16.3 million in fees paid to third-parties and higher interest payments, partially offset by favorable working capital changes primarily within inventory resulting from supply chain optimization as explained above under "Our Current Strategy."lower tax payments.
Cash Used in Investing Activities
Cash used in investing activities was $24.7$11.4 million and $7.0$24.7 million for the nine months ended September 30, 20172018 and 2016,2017, respectively, and includes capital expenditures of $13.4 million and $26.2 million, and $35.4 million. The prior year period includes the refranchising of 84 stores to one franchisee for $28.6 million of net proceeds. We completed an asset sale of Lucky Vitamin on September 30, 2017 for a purchase price of $7.1 million, the proceeds of which were received in October 2017 and will be classified as an investing inflow in the fourth quarter of 2017.respectively.
We expect capital expenditures to be approximately $35 million to $40$20 million in 2017,2018, which includes investments for store development, IT infrastructure and maintenance. We anticipate funding our 2018 capital requirements with cash flows from operations and, if necessary, borrowings under the Revolving Credit Facility.
Cash Used in Financing Activities
For the nine months ended September 30, 2018, cash used in financing activities was $74.5 million, primarily consisting of $35.2 million in an OID paid to lenders and fees associated with our new Revolving Credit Facility associated with the debt refinancing. In addition, we made $35.5 million in amortization payments on our term loan balances. The OID on the Tranche B-2 Term Loan includes $13.2 million, which will be paid the earlier of March 2019 or after a qualifying event in which we receive net cash proceeds as defined in the credit agreement, and has been included in Item 1, "Financial Statements," as a non-cash financing activity within the "Supplemental Cash Flow Information" of the Consolidated Statements of Cash Flows.
For the nine months ended September 30, 2017, cash used in financing activities was $120.1 million, primarily consisting of net payments under our Revolving Credit Facility of $79.0 million. In addition, based on the results for the year ended December 31, 2016, our Consolidated Net Senior Secured Leverage Ratio required us to make anApril 19, 2017 excess cash flow payment on our outstanding term loan debt. On April 10, 2017, we made a payment of $39.7 million, ofthe Tranche B-1 Term Loan and net payments under the old revolving credit facility, which $28.2 million was paidterminated in connection with borrowings from the RevolvingAmendment to the Senior Credit Facility and $11.5 million was paid with cash on hand. The excess cash flow payment described above satisfies the $1.1 million quarterly principal amount owed through the maturity date of the Term Loan.
For the nine months ended September 30, 2016, cash used in financing activities was $182.5 million, primarily consisting of the repurchase of an aggregate $229.2 million in shares of common stock under the repurchase programs and dividends paid to stockholders of $41.6 million, partially offset with $94.0 million in net borrowings under our Revolving Credit Facility.February 2018.
Contractual Obligations
During the nine months ended September 30, 2017,On February 28, 2018, we made net paymentsamended and restated our Senior Credit Facility formerly consisting of $40.9a $1,131.2 million in payments under our term loan facility due in March 2019 and neta $225.0 million revolving credit facility that matured in September 2018. The Amendment included an extension of the maturity date for $704.3 million of the $1,131.2 million term loan facility from March 2019 to March 2021 (the "Tranche B-2 Term Loan"). However, if more than $50.0 million of the Company's Notes have not been repaid, converted or effectively discharged prior to such date (“Existing Indenture Discharge”), the maturity date becomes May 2020, subject to certain adjustments. The Amendment also terminated the existing $225.0 million revolving credit facility.
After the effectiveness of the Amendment, the remaining term loan of $151.9 million as of February 28, 2018 continues to have a maturity date of March 2019 (the "Tranche B-1 Term Loan"). The Amendment requires annual aggregate principal payments of $79.0at least $43 million related to the Tranche B-2 Term Loan and bears interest at a rate of LIBOR plus a margin of 9.25% per annum subject to change under ourcertain circumstances (with a minimum and maximum possible interest rate of LIBOR plus a margin of 8.25% and 9.25%, respectively, per annum). Payments and interest associated with the Tranche B-1 Term Loan are consistent with past terms.
On February 28, 2018, we also entered into a new asset-based credit agreement, consisting of:
a new $100 million asset-based Revolving Credit Facility. ReferFacility with a maturity date of August 2022 (which maturity date will become May 2020, subject to Item 1, "Financial Statements," Note 5, "Long-Term Debt / Interest Expense" for more information. certain adjustments, if the Existing Indenture Discharge has not occurred); and
a $275.0 million asset-based Term Loan Facility advanced on a “first-in, last-out” basis (the "FILO Term Loan") with a maturity date of December 2022 (which maturity date will become May 2020, subject to certain adjustments, if the Existing Indenture Discharge has not occurred).    
There are no scheduled amortization payments associated with the FILO Term Loan, which bears interest at a rate of LIBOR plus a margin of 7.00% per annum subject to decrease under certain circumstances (with a minimum and possible interest rate of LIBOR plus a margin of 6.50%, per annum).

On June 13, 2018, we entered into two interest rate swaps with notional amounts of $275 million and $225 million to limit our exposure to our variable interest rate debt. The interest rate swaps effectively converted a portion of the variable interest rate on the Tranche B-2 Term Loan and FILO Term Loan to a fixed rate. We receive payments based on the one-month LIBOR and make payments based on a fixed rate. We receive payments with a floor of 0.00% and 0.75%, respectively, on the $275 million and $225 million interest rate swaps, which aligns with the related debt instruments. The interest rate swap agreements had an effective date of June 29, 2018. The $225 million interest rate swap expires on February 28, 2021, and the $275 million interest rate swap expires on June 30, 2021. The notional amount of the $225 million interest rate swap is scheduled to decrease to $175 million on June 30, 2019, $125 million on June 30, 2020 and $75 million on December 31, 2020.
There have been no other material changes in our contractual obligations as disclosed in the 20162017 10-K.

Critical Accounting Estimates
We adopted ASU 2014-09, Revenue from Contracts with Customers, during the first quarter of fiscal 2018 using the full retrospective method. Refer to Item 1, "Financial Statements," Note 3, "Revenue" for more information.
In addition, we entered into two interest rate swaps in June 2018, which were designated as cash flow hedges. Because the interest rate swap agreements are deemed effective, changes in fair value will be recorded within other comprehensive income/loss on the Consolidated Balance Sheet. Refer to Item 1, "Financial Statements," Note 6, "Long-Term Debt / Interest Expense" and Note 7, "Fair Value Measurements and Financial Instruments" for more information.
There have been no other material changes to the application of critical accounting policies and significant judgments and estimates since those disclosed in our 20162017 10-K. As described in Item 1, "Financial Statements," Note 4, "Goodwill and Other Long-lived Assets," we recorded $23.2 million in long-lived asset impairments relating to goodwill and other long-lived assets. The calculation of these charges required the use of judgment and estimates that involve inherent uncertainties.
Recent Accounting Pronouncements
Refer to Item 1, "Financial Statements," Note 2, "Basis"Basis of Presentation." 
Item 3.  Quantitative and Qualitative Disclosures about Market Risk

In June 2018, we entered into two interest rate swaps with notional amounts of $275 million and $225 million to limit our exposure to our variable interest rate debt. The interest rate swaps effectively converted a portion of the variable-rate debt to a fixed interest rate. See Part I, Item 1 "Financial Statements," Note 6, "Long-Term Debt / Interest Expense" for additional information.
There have been no other significant changes to our market risk since December 31, 2016.those disclosed in our 2017 10-K. For a discussion of our exposure to market risk, refer to Part II, Item 7A "Quantitative and Qualitative Disclosures About Market Risk" of our 20162017 10-K.
Item 4.  Controls and Procedures 
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and our Chief Financial Officer ("CFO"), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Exchange Act has been appropriately recorded, processed, summarized and reported on a timely basis and are effective in ensuring that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our CEO and CFO have concluded that, as of September 30, 2017,2018, our disclosure controls and procedures are effective at the reasonable assurance level.effective.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)) that occurred during the last fiscal quarter, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION 
Item 1.   Legal Proceedings
DMAA / Aegeline Claims. Prior to December 2013, we sold products manufactured by third parties that contained derivatives from geranium known as 1,3-dimethylpentylamine/1.3-dimethylpentylamine/ dimethylamylamine/ 1,3-dimethylamylamine,13-dimethylamylamine, or "DMAA," which were recalled from our stores in November 2013, and/or Aegeline, a compound extracted from bael trees. As of September 30, 20172018 we were named in the following 3227 personal injury lawsuits involving products containing DMAA and/or Aegeline:
Susan Straub individually and as Administratrix of the Estate of Shane Staub v. USPlabs, LLC and General Nutrition Holdings, Inc, Common Pleas Court of Philadelphia County, Pennsylvania (Case No. 140502403), filed May 20, 2014
Justin Carolyne, et al. v. USPlabs, LLC, GNC Corporation, et al. Superior Court of California, County of Los Angeles (Case No. BC508212), filed May 22, 2013
Jeremy Reed, Timothy Anderson, Dan Anderson, Nadia Black, et al. v. USPlabs, LLC, et al., GNC, Superior Court for California, County of San Diego (Case No. 37-2013-00074052-CU-PL-CTL), filed November 1, 2013
Kenneth Waikiki v. USPlabs, LLC, Doyle, Geissler, USPlabs OxyElite, LLC, et al. and GNC Corporation, et al., United States District Court for the District of Hawaii (Case No. 3-00639 DMK), filed November 21, 2013
Nicholas Akau v. USPlabs, LLC, GNC Corporation, et al., United States District Court for the District of Hawaii (Case No. CV 14-00029), filed January 23, 2014

Melissa Igafo v. USPlabs, LLC, GNC Corporation, et al., United States District Court for the District of Hawaii (Case No. CV 14-00030), filed January 23, 2013
Calvin Ishihara v. USPlabs, LLC, GNC Corporation, et al., United States District Court for the District of Hawaii (Case No. CV 14-00031), filed January 23, 2014
Gaye Anne Mattson v. USPlabs, LLC, GNC Corporation, et al., United States District for the District of Hawaii (Case No. CV 14-00032), filed January 23, 2014
Thomas Park v. GNC Holdings, Inc., USPlabs, LLC, Superior Court of California, County of San Diego (Case No. 37-2014-110924), filed September 8, 2014
Nicholas Olson, Adrian Chavez, Rebecca Fullerton, Robert Gunter, Davina Maes and Edwin Palm v. GNC Corporation, USPlabs, LLC, Superior Court of California, County of Orange (Case No. 2014-00740258) filed August 18, 2014
Mereane Carlisle, Charles Paio, Chanelle Valdez, Janice Favella and Christine Mariano v. USPlabs, LLC et al., United states District Court for the District of Hawaii (Case No. CV14-00029), filed January 23, 2014.2014
Nichole Davidson, William Dunlao, Gina Martin, Lee Ann Miranda, Yuka Colescott, Sherine Cortinas, and Shawna Nishimoto v. GNC Corporation and USPlabs, LLC, United States District Court for the District of Hawaii (Case No. 14-cv-00364) filed October 24, 2014
Rodney Ofisa, Christine Mosca, Margaret Kawamoto as guardian for Jane Kawamoto (a minor), Ginny Pia, Kimberlynne Tom, Faituitasi Tuioti, Ireneo Rabang, and Tihane Laupola v. GNC Corporation and USPlabs, LLC, United States District Court for the District of Hawaii (Case No. CV14-00365) filed October 24, 2014
Palani Pantohan, Deborah Cordiero, J. Royal Kanamu, Brent Pascula, Christie Shiroma, Justan Chun, Kasey Grace and Adam Miyasato v. USPlabs, LLC. et al., United States District Court for the District of Hawaii (Case No. CV14-00366) filed August 15, 2014
Keahi Pavao, Derek Kamiya, as personal representative of the Estate of Sonnette Marras, Gary Powell, on behalf of and as conservator for M.P.C.F.S.M., a minor child, R.P.O.C.S.S.M., a minor child, M.P.C.I.H.S.M., a minor child, M.K.C.S.M., a minor child, Michael Soriano, and Lance Taniguchi v. USPlabs, LLC, et al. United States District Court for the District of Hawaii (Case No. 14-cv-00367) filed October 24, 2014
Kai Wing Tsui and John McCutchen v. GNC Corporation, USPlabs, LLC, Superior Court of California, County of Los Angeles (Case No. BC559542), filed October 6, 2014
Dennis Balila, Melinda Jean Collins, Janice Samson, Mia Fagley, Clayton Goo, Joliana Kurtz and Mae Kwan v. USPlabs, LLC et al., California Superior Court, San Diego County (Case No. 37-2015-00008455), filed March 13, 2015
Cuong Bahn, Ismael Flores, Chue Xiong, Leilani Groden, Trudy Jenkins, and Mary Hess v. USPlabs, LLC et al., California Superior Court, Orange County (Case No. 30-2015-00776749), filed March 12, 2015

Alexis Billones, Austin Ashworth, Karen Litre, Nancy Murray, Wendy Ortiz, Edward Pullen, and Corazon Vu v. USPlabs, LLC et al., California Superior Court, Los Angeles County (Case No. BC575264), filed March 13, 2015
Asofiafia Morales, Richard Ownes, Lynn Campbell, Joseph Silzgy, Delphone Smith-Dean, Nicole Stroud, Barrett Mincey and Amanda Otten v. USPlabs, LLC et al., California Superior Court, Los Angeles County (Case No. BC575262), filed March 13, 2015
Laurie Nadura, Angela Abril-Guthmiller, Sarah Rogers, Jennifer Apes, Ellen Beedie, Edmundo Cruz, and Christopher Almanza v. USPlabs, LLC et al., California Superior Court, Monterey County (Case No. M131321), filed March 13, 2015
Cynthia Novida, Demetrio Moreno, Mee Yang, Tiffone Parker, Christopher Tortal, David Patton and Raymond Riley v. USPlabs, LLC et al., California Superior Court, San Diego County (Case No. 37-2015-00008404), filed March 13, 2015

Johanna Stussy, Lai Uyeno, Gwenda Tuika-Reyes, Zeng Vang, Kevin Williams, and Kristy Williams v. USPlabs, LLC, et al., California Superior Court, Santa Clara County (Case No. 115CV78045), filed March 13, 2015
Natasiri Tali, Tram Dobbs, Mauela Reyna-Perez, Kimberly Turvey, Meagan Van Dyke, Hang Nga Tran, Shea Steard, and Jimmy Tran v. USPlabs, LLC et al., California Superior Court, Los Angeles County (Case No. BC575263), filed March 13, 2015
Issam Tnaimou, Benita Rodriguez, Marcia Rouse, Marcel Macy, Joseph Worley, Joanne Zgrezepski, Crystal Franklin, Deanne Fry, and Caron Jones, in her own right, o/b/h Joshua Jones and o/b/o The Estate of James Jones v. USPlabs, LLC et al., California Superior Court, Monterey County (Case No. M131322), filed March 13, 2015
Kuulei Hirota v. USPlabs, LLC et al., First Circuit Court, State of Hawaii (Case No. 15-1-0847-05), filed May 1, 2015
Roel Vista v. USPlabs, LLC, GNC Corporation et al., California Superior Court, County of Santa Clara (Case No. CV-14-0037), filed January 24, 2014
Larry Tufts v. USPlabs, LLC, GNC Corporation et al., Court of Common Pleas for the County of Jasper, South Carolina (Case No. 2016-CP-27-0257), filed June 16, 2016
Dominic Little, David Blake Allen, Jeff Ashworth, Naomi Book and Stanley Book as Conservators of the Estate of Justin Book, Martin Sanchez, John Bainter, Rich Wolnik, Brian Norris, Joseph Childs, Jimi Hernandez and Novallie Hill v. USPlabs, LLC, et al., California Superior Court, Los Angeles County (Case No. BC534065), filed January 23, 2014
David Ramirez, Michelle Sturgill, Joseph losefa, Yanira Bernal, Jacob Michels, Cynthia Gaona and Tamara Gandara v. USPlabs, LLC, et al., California Superior Court Orange County (Case No. 30-2015-00783256-CU-PL-CXC), filed April 16, 2015
Thad Estrada v. USPlabs, LLC, et al., United States District Court for the District of Hawaii (Case No. CV-15-00228), filed June 17, 2016
Calwin Williams v. USPlabs, LLC, et al., Circuit Court of Jackson County, State of Missouri at Independence (Case No. 1716-CV-23399), filed September 28, 2017
The proceedings associated with the majority of these personal injury cases, which generally seek indeterminate money damages, are in the early stages, and any liabilities that may arise from these matters are not probable or reasonably estimable at this time.
We are contractually entitled to indemnification by our third-party vendor with regard to these matters, although our ability to obtain full recovery in respect of any such claims against us is dependent upon the creditworthiness of our vendor and/or its insurance coverage and the absence of any significant defenses available to its insurer.
Other Legal Proceedings.    For additional information regarding certain other legal proceedings to which we are a party, see Item 1 "Financial Statements" Note 7, "Contingencies" to the accompanying financial statements.8, "Contingencies."
Item 1A.   Risk Factors
There have been no material changes to the disclosures relating to this item from those set forth in the 20162017 10-K.





Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table sets forth information regarding Holdings’ purchases of shares of common stock during the quarter ended September 30, 2017:2018:
Period (1)
Total Number of
Shares Purchased(2)
 
Average
Price Paid
per Share
 
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or Programs (3)
 
Dollar Value of Shares that
May Yet Be Purchased
under the Plans or
Programs
        
July 1 to July 31, 2017
 $
 
 $197,795,011
August 1 to August 31, 2017219
 $9.60
 
 $197,795,011
September 1 to September 30, 2017
 $
 
 $197,795,011
Total219
 $9.60
 
  
Period (1)
Total Number of
Shares Purchased(2)
 
Average
Price Paid
per Share
 
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or Programs (3)
 
Dollar Value of Shares that
May Yet Be Purchased
under the Plans or
Programs
        
July 1 to July 31, 2018
 $
 
 $197,795,011
August 1 to August 31, 2018
 $
 
 $197,795,011
September 1 to September 30, 201821,576
 $2.90
 
 $197,795,011
Total21,576
 $2.90
 
  
 
(1)Other than as set forth in the table above, we made no purchases of shares of Class A common stock for the quarter ended September 30, 2017.2018.

(2)Includes 21921,576 shares withheld from employees to satisfy minimum tax withholding obligations associated with the vesting of restricted stock during the period.

(3)In August 2015, the Board approved a $500.0 million multi-year repurchase program in addition to the $500.0 million multi-year program approved in August 2014, bringing the aggregate share repurchase program to $1.0 billion of Holdings' common stock. Holdings has utilized $802.2 million of the current repurchase program. As of September 30, 2017,2018, $197.8 million remains available for purchase under the program.

Item 3.   Defaults Upon Senior Securities
None.
Item 4.   Mine Safety Disclosures
Not applicable. 
Item 5.  Other Information
None.


Item 6.   Exhibits
Exhibit  
No. Description
10.13.1 Employment Agreement by
10.23.2 Form
10.3Form of Inducement Non-Qualified Stock Option Award Agreement between GNC Holdings, Inc. and Ken Martindale, incorporated herein by reference to Exhibit 10.3 of Form 8-K filed September 12, 2017 (File No.001-35113)No. 001-35113)).
31.1* 
31.2* 
32.1* 
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation Linkbase
101.LAB XBRL Taxonomy Extension Label Linkbase
101.PRE XBRL Taxonomy Extension Presentation Linkbase
101.DEF XBRL Taxonomy Extension Definition Linkbase
   
* Filed herewith.


SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the personpersons undersigned thereunto duly authorized.
 
 
 GNC HOLDINGS, INC.
 (Registrant)
  
 /s/ Tricia K. Tolivar
Date: October 26, 2017November 9, 2018Tricia K. Tolivar
 Chief Financial Officer
 (Principal Financial Officer and Duly Authorized Officer)


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