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 endedMarch 31, 20192020
[     ]☐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
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Class A common stock, par value $0.001 per shareGNCNew York Stock Exchange
 
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 every Interactive Data File required to be submitted 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 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 [ ]
☐
Accelerated filer [ X ]☒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 April 25, 2019,May 6, 2020, there were 83,969,31184,607,231 outstanding shares of Class A common stock, par value $0.001 per share (the “common stock”), of GNC Holdings, Inc.


Table of Contents
TABLE OF CONTENTS
 
 
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PART I - FINANCIAL INFORMATION

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PART II - OTHER INFORMATION
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Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
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Table of Contents
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

GNC HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
(in thousands)
March 31, 2019 December 31, 2018March 31, 2020December 31, 2019
Current assets: Current assets:
Cash and cash equivalents$137,117

$67,224
Cash and cash equivalents$137,444  $117,046  
Receivables, net119,352

127,317
Receivables, net of allowance of $27,390 and $22,648, respectively (Note 2)Receivables, net of allowance of $27,390 and $22,648, respectively (Note 2)83,932  101,234  
Receivables due from related parties (Note 8)Receivables due from related parties (Note 8)6,547  8,946  
Inventory (Note 4)410,951

465,572
Inventory (Note 4)367,402  387,655  
Forward contracts for the issuance of convertible preferred stock—
 88,942
Prepaid and other current assets17,528

55,109
Prepaid and other current assets34,348  24,880  
Total current assets684,948
 804,164
Total current assets629,673  639,761  
Long-term assets: 
  
Long-term assets:  
Goodwill79,111

140,764
Brand name300,720

300,720
Other intangible assets, net75,463

92,727
Property, plant and equipment, net95,574

155,095
Right-of-use assets (Note 8)401,456
 —
Equity method investments (Note 6)97,803
 —
Goodwill (Note 6)Goodwill (Note 6)73,552  79,109  
Brand name (Note 6)Brand name (Note 6)189,000  300,720  
Other intangible assets, net (Note 6)Other intangible assets, net (Note 6)69,891  71,298  
Property, plant and equipment, net (Note 5)Property, plant and equipment, net (Note 5)72,054  86,916  
Right-of-use assetsRight-of-use assets305,788  350,579  
Equity method investments (Note 8)Equity method investments (Note 8)42,520  97,930  
Deferred tax assetsDeferred tax assets12,389  —  
Other long-term assets35,062

34,380
Other long-term assets21,090  24,274  
Total long-term assets1,085,189
 723,686
Total long-term assets786,284  1,010,826  
Total assets$1,770,137
 $1,527,850
Total assets$1,415,957  $1,650,587  
Current liabilities: 
  
Current liabilities:  
Accounts payable$174,682

$148,782
Accounts payable$143,535  $150,742  
Current portion of long-term debt (Note 5)—

158,756
Current lease liabilities (Note 8)117,093
 —
Accounts payable due to related parties (Note 8)Accounts payable due to related parties (Note 8)21,136  11,720  
Current portion of long-term debt (Note 7)Current portion of long-term debt (Note 7)895,022  180,566  
Current lease liabilitiesCurrent lease liabilities106,704  112,005  
Deferred revenue and other current liabilities107,770

120,169
Deferred revenue and other current liabilities94,812  105,792  
Total current liabilities399,545
 427,707
Total current liabilities1,261,209  560,825  
Long-term liabilities: 
  
Long-term liabilities:  
Long-term debt (Note 5)888,353

993,566
Long-term debt (Note 7)Long-term debt (Note 7)—  681,999  
Deferred income taxes15,304

39,834
Deferred income taxes—  31,586  
Lease liabilities (Note 8)401,617
 —
Lease liabilitiesLease liabilities305,194  330,510  
Other long-term liabilities43,007

82,249
Other long-term liabilities40,549  41,535  
Total long-term liabilities1,348,281
 1,115,649
Total long-term liabilities345,743  1,085,630  
Total liabilities1,747,826
 1,543,356
Total liabilities1,606,952  1,646,455  
Contingencies (Note 9)


 


Contingencies (Note 10)Contingencies (Note 10)
   
Mezzanine equity:   Mezzanine equity:
Convertible preferred stock (Note 10)211,395
 98,804
Convertible preferred stock (Note 11) Convertible preferred stock (Note 11)211,395  211,395  
   
Stockholders’ deficit: 
  
Stockholders’ deficit:  
Common stock130
 130
Common stock131  131  
Additional paid-in capital1,009,041

1,007,827
Additional paid-in capital1,013,394  1,012,076  
Retained earnings538,439

613,637
Retained earnings318,519  518,605  
Treasury stock, at cost(1,725,349)
(1,725,349)Treasury stock, at cost(1,725,349) (1,725,349) 
Accumulated other comprehensive loss(11,345)
(10,555)Accumulated other comprehensive loss(9,085) (12,726) 
Total stockholders’ deficit(189,084) (114,310)Total stockholders’ deficit(402,390) (207,263) 
Total liabilities, mezzanine equity and stockholders’ deficit$1,770,137
 $1,527,850
Total liabilities, mezzanine equity and stockholders’ deficit$1,415,957  $1,650,587  
 
The accompanying notes are an integral part of the Consolidated Financial Statements.

1
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GNC HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
(in thousands, except per share amounts)

 Three months ended March 31,
 20202019
Revenue (Note 3)
$472,581  $564,764  
Cost of sales, including warehousing, distribution and occupancy335,865  361,673  
Gross profit136,716  203,091  
Selling, general, and administrative144,542  148,303  
Long-lived asset impairments and other store closing costs157,515  —  
Loss on net asset exchange for the formation of the joint ventures (Note 8)1,655  19,514  
Other income, net(962) (208) 
Operating (loss) income(166,034) 35,482  
Interest expense, net (Note 7)47,444  32,956  
Loss on forward contracts for the issuance of convertible preferred stock—  16,787  
Loss before income from equity method investments and income taxes(213,478) (14,261) 
Income tax (benefit) expense (Note 14)(53,035) 1,956  
Loss before income from equity method investments(160,443) (16,217) 
(Loss) income from equity method investments (Note 8)(39,643) 955  
Net loss$(200,086) $(15,262) 
Loss per share (Note 12):
  
Basic$(2.45) $(0.23) 
Diluted$(2.45) $(0.23) 
Weighted average common shares outstanding (Note 12):
  
Basic83,897  83,510  
Diluted83,897  83,510  
 Three months ended March 31,
 2019 2018
  
Revenue (Note 3)
$564,764
 $607,533
Cost of sales, including warehousing, distribution and occupancy361,673
 400,659
Gross profit203,091
 206,874
Selling, general, and administrative148,303
 160,730
Loss on net asset exchange for the formation of the joint ventures (Note 6)19,514
 —
Other income, net(208) (245)
Operating income35,482
 46,389
Interest expense, net (Note 5)32,956
 21,773
Loss on debt refinancing—
 16,740
    Loss on forward contracts for the issuance of convertible preferred stock16,787
 —
(Loss) income before income taxes(14,261) 7,876
Income tax expense (Note 13)1,956
 1,686
(Loss) income before income from equity method investments(16,217) 6,190
Income from equity method investments (Note 6)955
 —
Net (loss) income$(15,262) $6,190
(Loss) earnings per share (Note 11):
 
  
Basic$(0.23) $0.07
Diluted$(0.23) $0.07
Weighted average common shares outstanding (Note 11):
 
  
Basic83,510
 83,232
Diluted83,510
 83,368
 
The accompanying notes are an integral part of the Consolidated Financial Statements.


2
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GNC HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive IncomeLoss
(unaudited)
(in thousands)
 
 Three months ended March 31,
 20202019
Net loss$(200,086) $(15,262) 
Other comprehensive gain (loss):  
 Net change in interest rate swaps:
Periodic revaluation of interest rate swap, net of tax(1)
(3,542) (1,464) 
Reclassification adjustment for interest recognized in Consolidated Statement of Operations, net of tax(2)
871  236  
 Net change in unrecognized loss on interest rate swaps, net of tax(2,671) (1,228) 
 Deferred loss recognized on interest rate swap, net of $3.4 million tax expense7,459  —  
 Foreign currency translation (loss) gain(1,147) 438  
Other comprehensive gain (loss)3,641  (790) 
Comprehensive loss$(196,445) $(16,052) 
 Three months ended March 31,
 2019 2018
  
Net (loss) income$(15,262) $6,190
Other comprehensive loss: 
  
 Net change in interest rate swaps:   
Periodic revaluation of interest rate swap, net of tax benefit of $0.7 million(1,464) —
Reclassification adjustment for interest recognized in Consolidated Statement of Operations, net of tax expense of $0.1 million236
 —
 Net change in unrecognized loss on interest rate swaps, net of tax(1,228) —
 Foreign currency translation gain (loss)438
 (846)
Other comprehensive loss(790) (846)
Comprehensive (loss) income$(16,052) $5,344

(1)Net of tax benefit of $1.6 million and $0.7 million, respectively, for the three months ended March 31, 2020 and 2019.
(2)Net of tax expense of $0.4 million and $0.1 million, respectively, for the three months ended March 31, 2020 and 2019.
 

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


3
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GNC HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Deficit
(unaudited)
(in thousands)

Common StockTreasury StockPaid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Loss		Total
Stockholders’
Deficit
Class A
SharesDollars
Balance at December 31, 2019Balance at December 31, 201984,564  $131  $(1,725,349) $1,012,076  $518,605  $(12,726) $(207,263) 
Comprehensive incomeComprehensive income—  —  —  —  (200,086) 3,641  (196,445) 
Restricted stock awardsRestricted stock awards68  —  —  —  —  —  —  
Minimum tax withholding requirementsMinimum tax withholding requirements(24) —  —  (54) —  —  (54) 
Stock-based compensationStock-based compensation—  —  —  1,372  —  —  1,372  
Balance at March 31, 2020Balance at March 31, 202084,608  131  (1,725,349) 1,013,394  318,519  (9,085) (402,390) 
Balance at December 31, 2018Balance at December 31, 201883,886  $130  $(1,725,349) $1,007,827  $613,637  $(10,555) $(114,310) 
Impact of the adoption of ASC 842Impact of the adoption of ASC 842—  —  —  —  (59,936) —  (59,936) 
Comprehensive incomeComprehensive income—  —  —  —  (15,262) (790) (16,052) 
Restricted stock awardsRestricted stock awards121  —  —  —  —  —  —  
Minimum tax withholding requirementsMinimum tax withholding requirements(41) —  —  (120) —  —  (120) 
Stock-based compensationStock-based compensation—  —  —  1,334  —  —  1,334  
Balance at March 31, 2019Balance at March 31, 201983,966  130  (1,725,349) 1,009,041  538,439  (11,345) (189,084) 
Common Stock Treasury Stock 
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 Total
Stockholders’
Deficit
Class A 
Shares Dollars 
Balance at December 31, 201883,886
 $130
 $(1,725,349) $1,007,827
 $613,637
 $(10,555) $(114,310)
Impact of the adoption of ASC 842—
 —
 —
 —
 (59,936) —
 (59,936)
Comprehensive income—
 —
 —
 —
 (15,262) (790) (16,052)
Dividend forfeitures on restricted stock—
 —
 —
 —
 —
 —
 —
Restricted stock awards121
 —
 —
 —
 —
 —
 —
Minimum tax withholding requirements(41) —
 —
 (120) —
 —
 (120)
Stock-based compensation—
 —
 —
 1,334
 —
 —
 1,334
Balance at March 31, 201983,966
 $130
 $(1,725,349) $1,009,041
 $538,439
 $(11,345) $(189,084)
             
Balance at December 31, 201783,567
 $130
 $(1,725,349) $1,001,315
 $543,814
 $(5,831) $(185,921)
Comprehensive income—
 —
 —
 —
 6,190
 (846) 5,344
Dividend forfeitures on restricted stock—
 —
 —
 —
 42
 —
 42
Restricted stock awards149
 —
 —
 —
 —
 —
 —
Minimum tax withholding requirements(54) —
 —
 (223) —
 —
 (223)
Stock-based compensation—
 —
 —
 1,512
 —
 —
 1,512
Balance at March 31, 201883,662
 $130
 $(1,725,349) $1,002,604
 $550,046
 $(6,677) $(179,246)
 
The accompanying notes are an integral part of the Consolidated Financial Statements.


4
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GNC HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)

 Three months ended March 31,
 20202019
Cash flows from operating activities:
Net loss$(200,086) $(15,262) 
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:  
Depreciation and amortization expense7,858  10,190  
Loss (income) from equity method investments39,643  (955) 
Amortization of debt costs16,814  7,988  
Stock-based compensation1,372  1,334  
Long-lived asset impairments and other store closing costs157,515  —  
Loss on forward contracts related to the issuance of convertible preferred stock—  16,787  
Loss on net asset exchange for the formation of the joint ventures1,655  19,514  
Interest expense recognized on interest rate swap10,810  —  
Deferred income tax benefit(47,677) (5,064) 
Other(2,107) (21) 
Changes in assets and liabilities:
Decrease (increase) in receivables17,824  (12,567) 
Decrease (increase) in inventory17,578  (6,886) 
Increase in prepaid and other current assets(8,401) (3,658) 
Increase in accounts payable3,346  57,722  
Decrease in deferred revenue and accrued liabilities(22,686) 4,437  
Decrease in net lease liabilities(7,035) (8,485) 
Other operating activities1,492  3,637  
Net cash (used in) provided by operating activities(12,085) 68,711  
Cash flows from investing activities:  
Capital expenditures(3,858) (3,017) 
Refranchising proceeds, net of store acquisition costs180  667  
Proceeds from net asset exchange18,211  101,000  
Capital contribution to the newly formed joint ventures—  (13,079) 
Net cash provided by investing activities14,533  85,571  
Cash flows from financing activities:  
Borrowings under revolving credit facility30,000  22,000  
Payments on revolving credit facility—  (22,000) 
Proceeds from the issuance of convertible preferred stock—  199,950  
Payments on Tranche B-1 Term Loan—  (147,312) 
Payments on Tranche B-2 Term Loan(11,719) (114,000) 
Original issuance discount and revolving credit facility fees
—  (10,365) 
Fees associated with the issuance of convertible preferred stock—  (12,564) 
Minimum tax withholding requirements(54) (120) 
Net cash provided by (used) in financing activities18,227  (84,411) 
Effect of exchange rate changes on cash and cash equivalents(277) 22  
Net increase in cash and cash equivalents20,398  69,893  
Beginning balance, cash and cash equivalents117,046  67,224  
Ending balance, cash and cash equivalents$137,444  $137,117  
The accompanying notes are an integral part of the Consolidated Financial Statements.
5
 Three months ended March 31,
 2019 2018
Cash flows from operating activities:
Net (loss) income$(15,262)
$6,190
Adjustments to reconcile net (loss) income to net cash provided by operating activities: 

 
Depreciation and amortization expense10,190

12,105
Income from equity investments(955) —
Amortization of debt costs7,988

3,609
Stock-based compensation1,334

1,512
Loss on forward contracts related to the issuance of convertible preferred stock16,787

—
Loss on net asset exchange for the formation of the joint ventures19,514
 —
Gains on refranchising(21) —
Loss on debt refinancing—
 16,740
Third-party fees associated with refinancing—
 (15,753)
Changes in assets and liabilities:




(Increase) decrease in receivables(12,567)
11,840
(Increase) in inventory(6,886)
(22,766)
Increase in prepaid and other current assets(3,658)
(9,473)
Increase in accounts payable57,722

21,791
Increase in deferred revenue and accrued liabilities(627)
388
Other operating activities(4,848)
(1,111)
Net cash provided by operating activities68,711

25,072
 




Cash flows from investing activities: 

 
Capital expenditures(3,017)
(3,732)
Refranchising proceeds710

465
Store acquisition costs(43)
(116)
Proceeds from net asset exchange101,000
 —
Capital contribution to the newly formed joint ventures(13,079) —
Net cash provided by (used in) investing activities85,571

(3,383)
 




Cash flows from financing activities: 

 
Borrowings under revolving credit facility22,000

50,000
Payments on revolving credit facility(22,000)
(32,500)
Proceeds from the issuance of convertible preferred stock199,950
 —
Payments on Tranche B-1 Term Loan(147,312) (1,138)
Payments on Tranche B-2 Term Loan(114,000) (10,700)
Original issuance discount and revolving credit facility fees
(10,365)
(35,216)
Fees associated with the issuance of convertible preferred stock(12,564) (2,183)
Minimum tax withholding requirements(120)
(223)
Net cash used in financing activities(84,411)
(31,960)
 




Effect of exchange rate changes on cash and cash equivalents22

141
Net increase (decrease) in cash and cash equivalents69,893

(10,130)
Beginning balance, cash and cash equivalents67,224

64,001
Ending balance, cash and cash equivalents$137,117

$53,871
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GNC HOLDINGS, INC. AND SUBSIDIARIES
Supplemental Cash Flow Information
(unaudited)



As of March 31,
20202019
Non-cash investing activities (1):
(in thousands)
Net assets contributed to the joint ventures (Note 8)—  202,487  

(1)Capital expenditures included in current liabilities were not material during the three months ended March, 31, 2020 and March 31, 2019, respectively.

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


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



6
 As of March 31,
 2019 2018
Non-cash investing activities:(in thousands)
Capital expenditures in current liabilities$1,115
 $1,203
Non-cash financing activities:   
Original issuance discount (Note 5)$—
 $19,587

Refer to Note 8, "Leases" for supplemental cash flow information related to the Company's leases.Table of Contents


The accompanying notes are an integral part of the 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 health and wellness brand with a diversified, omni-channel business. The Company's assortment of performance and nutritional supplements, vitamins, herbs and greens, health and beauty, food and drink and other general merchandise features innovative private-label products as well as nationally recognized third-party brands, many of which are exclusive to GNC. 
The Company's operations consist of purchasing raw materials, formulating and manufacturing products and selling the finished products through its three3 reportable segments, U.S. and Canada, International, and Manufacturing / Wholesale (refer to Note 12,13, "Segments" for more information). Corporate retail store operations are located in the United States, Canada, Puerto Rico, Ireland and, Ireland. In addition,prior to the Company offers products on the internet through GNC.com and third-party websites.joint venture transaction with Harbin Pharmaceutical Group Co., Ltd ("Harbin") in February 2019, China. Franchise locations exist in the United States and approximately 50 other countries. Products can also be purchased through GNC.com, Amazon.com and other marketplaces and select wholesale partners. Additionally, the Company licenses the use of its trademarks and trade names
In February 2019,names. Prior to the Company entered into two joint ventures to operate its e-commerce business and retail business, respectively, in China, which will accelerate its presence and maximize the Company's opportunities for growth in the Chinese supplement market. Under the termsformation of the agreement, the Company contributed its China business and retained 35% interest in the joint ventures. In March 2019, the Company announced a strategicmanufacturing joint venture with International Vitamin Corporation ("IVC") (the "Manufacturing JV") in March 2019, the Company purchased raw materials, manufactured products and sold the finished products through its reportable segments. Refer to Note 8. "Equity Method Investments" for more information of the Company's joint ventures.

Going Concern

As further discussed below, the Company has an accelerated maturity payment due on May 16, 2020 (the “Springing Maturity Date”) that it does not have the ability to pay. Since the Company has not refinanced the $738.7 million of Tranche B-2 Term Loan (the "Tranche B-2 Term Loan), FILO Term Loan (the "FILO Term Loan") and Revolving Credit Facility (the "Revolving Credit Facility") that will become due on the Springing Maturity Date, management has concluded there is substantial doubt regarding the Company's manufacturingability to continue as a going concern within one year from the issuance date of the Company’s Consolidated Financial Statements. Failure to complete a refinancing or other restructuring, obtain an extension of the Springing Maturity Date as defined in the Credit Agreements, reach an agreement with required lender groups under the Credit Agreements prior to May 16, 2020 or to reach an agreement with the Company's stakeholders on the terms of an out-of-court restructuring would have a material adverse effect on the Company's liquidity, financial condition and results of operations and may result in filing a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in order to implement a restructuring plan. As of March 31, 2020, the Company's outstanding indebtedness has been classified as current on the Company's Consolidated Balance Sheets. In addition, the Company accelerated the amortization of original issuance discount and deferred financing fees for the Tranche B-2 Term Loan, FILO Term Loan and the Revolving Credit Facility of $12.4 million to the Springing Maturity Date.

The Company has continued to experience negative same store sales and declining gross profit. The Company has closed underperforming stores under its store optimization strategy and implemented cost reduction measures to help mitigate the effect of these declines and improve its financial position and liquidity. At March 31, 2020, the Company has substantial indebtedness including $156.4 million of outstanding indebtedness under the Notes issued under that certain Indenture dated as of August 10, 2015, among the Company, certain of its subsidiaries, and The Bank of New York Mellon Trust Company, N.A, maturing on August 15, 2020 (the "Notes") and $434.8 million of outstanding indebtedness under the Amended and Restated Term Loan Credit Agreement, dated as of February 28, 2018, among GNC Corporation, GNC Nutrition Centers, Inc., as Borrower, the lenders and agents parties thereto, and JPMorgan Chase Bank, N.A., as administrative agent (the “Tranche B-2 Term Loan Credit Agreement" and the term loan thereunder, the "Tranche B-2 Term Loan"). The Company made an excess cash flow payment of $25.9 million that was due in April 2020 which reduced the outstanding amount of the Tranche B-2 Term Loan. The Tranche B-2 Term Loan becomes due on the earlier to occur of (i) the maturity date of March 4, 2021 or (ii) May 16, 2020 if more than $50 million of the Notes are outstanding on such date. Each of the Revolving Credit Facility under the Credit Agreement, dated as of February 28, 2018, among GNC Corporation, GNC Nutritional Centers, Inc., as Administrative Borrower, certain of its subsidiaries, as subsidiary borrowers, the lenders and agents parties thereto, and JPMorgan Chase Bank, N.A., as administrative agent (the “ABL Credit Agreement,” and together with the Tranche B-2 Term Loan Credit Agreement, the "Credit Agreements") and the FILO Term Loan under the ABL Credit Agreement, which otherwise mature in August 2022 and December 2022 respectively, also include an accelerated maturity date of May 16, 2020 if more than $50 million of the Notes are outstanding on such
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date. The Company does not have the ability to reduce the outstanding balance on the Notes from $156.4 million to below $50 million with projected cash on hand and new borrowings under the Revolving Credit Facility, assuming such borrowings remain available.

The outbreak of novel strain of coronavirus COVID-19 ("COVID-19") caused business which enablesdisruption in the International segment beginning in January 2020. In late February 2020, the situation escalated as the scope of the COVID-19 outbreak worsened to directly impact areas outside of the Asia-Pacific region, with Europe and the United States recognizing outbreaks of COVID-19. As of March 31, 2020, the Company had temporarily closed approximately 30% of the U.S. and Canada company-owned and franchise stores as a result of the COVID-19 pandemic. There is significant uncertainty on the Company’s business going forward due to various global macroeconomic, operational and supply chain risks as a result of COVID-19.

The Company was in compliance with the debt covenant reporting and compliance obligations under the Credit Agreements as of March 31, 2020. Management does not believe that the Company has the ability to comply with the financial covenants under the Senior Credit Facility Agreements over the next twelve months given the current circumstances stemming from the COVID-19 pandemic.

The Company is in the process of reviewing a range of refinancing options to refinance the Company’s outstanding indebtedness. The Company has been working with an independent committee of the Board supported by independent financial and legal advisors to conduct its review and has had a series of discussions with financing sources in the United States and Asia.The Company will continue to explore all options to refinance and restructure its indebtedness. While the Company continues to work through a number of refinancing alternatives to address its upcoming debt maturities, the Company cannot make any assurances regarding the likelihood, certainty or exact timing of any alternatives.

Reporting requirements under both the Tranche B-2 Term Loan and the Credit Agreement require the Company to increase its focusprovide annual audited financial statements accompanied by an opinion of an independent public accountant without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit (other than a “going concern” statement, explanatory note or like qualification or exception resulting solely from an upcoming maturity date under the Tranche B-2 Term Loan or the Notes). Management believes the Company satisfied this requirement in the 2019 Annual Report on product innovation while IVC manages manufacturingForm 10-K, as filed with the Securities and integratesExchange Commission (the "SEC") on March 25, 2020 (the"2019 10-K"). If the lenders take a contrary position, (a) they could decide to instruct the administrative agent under the Senior Credit Agreements to deliver a written notice thereof to the borrower, and if the alleged default continued uncured for 30 days thereafter it would become an alleged event of default (unless waived by the lenders) and (b) the Company intends to contest such position and any action the lenders may attempt to take as a result thereof. If the lenders were to prevail in any such dispute, the required lenders could instruct the administrative agent to exercise remedies under the Senior Credit Agreements, including accelerating the maturity of the loans, terminating commitments under the revolving credit facility under the ABL Credit Agreement and requiring the posting of cash collateral in respect of outstanding letters of credit issued under the Revolving Credit Facility ($4.5 million at March 31, 2020). If this were to occur, management would enter into discussions with the lenders to waive the default or forebear from the exercise of remedies. Failure to obtain such a waiver, complete a refinancing or other restructuring, obtain an extension of the Springing Maturity Date as defined in the Credit Agreements or to reach an agreement with required lender groups under the Credit Agreements prior to May 16, 2020 or to reach an agreement with the Company's supply chain thereby driving more efficient usage of capital. Understakeholders on the terms of an out-of-court restructuring would have a material adverse effect on the agreement,Company's liquidity, financial condition and results of operations and may result in filing a voluntary petition for relief under Chapter 11 of the Company received $101 millionUnited States Bankruptcy Code in order to implement a restructuring plan.

The Company’s Consolidated Financial Statements as of March 31, 2020 are being prepared on a going concern basis, which contemplates the realization of assets and contributed its Nutra manufacturingthe settlement of liabilities and Anderson facility net assets in exchange for an initial 43% interestcommitments in the new joint venture.normal course of business.
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 ("SEC"), include all adjustments (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 MarchDecember 31, 2019 Consolidated Balance Sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the
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United States of America (“U.S. GAAP”). These interim Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Footnotes included in the Company’s audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 2018,2019, as filed with the SEC on March 13, 201925, 2020 (the "2018"2019 10-K"). Interim results are not necessarily indicative of the results that may be expected for the remainder of the year ending December 31, 2019.2020.
The preparation of the financial statements in conformity with GAAP requires management to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases these estimates on assumptions that it believes to be reasonable under the circumstances, including considerations for the impact from the outbreak of the COVID-19 pandemic on the Company's business due to various global macroeconomic, operational and supply chain risks as a result of COVID-19. Actual results could differ from the original estimates, requiring adjustments to these balances in future periods.
Recently Adopted Accounting Pronouncements

Adoption of the New Lease Standard

In February 2016,August 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, which requires lessees to recognize2018-15, Customer’s Accounting for Implementation Costs Incurred in a right-of-use asset andCloud Computing Arrangement That Is 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 adopted ASU 2016-02 and its related amendments (collectively known as "ASC 842") during the first quarter of fiscal 2019 electing the optional transition relief amendment that allows for a cumulative-effect adjustment in the period of adoption and did not restate prior periods.  In transitioning to ASC 842, the Company elected to use the practical expedient package available under the guidance for leases that commenced before the effective date and did not elect to use hindsight. The Company has implemented new lease management and accounting system and updated its processes and internal controls to comply with the new standard.

The Company leases substantially all of our retail stores in the U.S. and Canada segment, including most of the domestic franchise stores that are leased and sublease to franchisees, the four distribution centers in the United

States and retail stores in Ireland. In addition, the Company has leased office locations, vehicles and equipment to support our store and supply chain operations. All of the Company's leases are classified as operating leases.

The Company determines if a contract contains a lease at inception. The lease liabilities are recognized based on the present value of the future minimum lease payments over the term at the commencement date for leases exceeding 12 months. The lease agreements generally contain lease and non-lease components. Non-lease components primarily include payments for maintenance and utilities. The minimum lease payments include only fixed lease components, as well as any variable rate payments that depend on an index, initially measured using the index at the lease commencement date. Lease terms may include options to renew when it is reasonably certain that the Company will exercise an option. The Company estimates its incremental borrowing rate, which is estimated to approximate the interest rate on a collateralized basis with similar terms and payments for each lease, using a portfolio approach. The right-of-use assets recognized are initially equal to the lease liability, adjusted for any lease payments made on or before the commencement dates and lease incentives.

The Company recognized lease liabilities of $550.2 million on January 1, 2019. A right-of-use asset of $504.2 million was recognized based on the lease liability, adjusted for the reclassification of deferred rent of $53.3 million and prepaid rent of $7.3 million. Additionally, the Company recognized $79.8 million of right-of-use asset impairment charges for certain of the Company's stores for which it was previously determined that the carrying value of the such stores' assets were not recoverable. The right-of-use asset impairment charges were recorded as a reduction to January 1, 2019 (opening day) retained earnings, net of tax of $19.8 million. The new lease standard has no impact on the timing or classification of the Company's cash flows as reported in the Consolidated Statement of Cash Flows.

The lease liabilities for the operating leases are amortized using the effective interest method. The right-of-use asset is amortized by taking the difference between total rent expense recorded on straight line basis and the lease liability amortization. When the right-of-use asset for an operating lease is impaired, lease expense is no longer recognized on a straight-line basis. For impaired leases, the Company continues to amortize the lease liability using the same effective interest method as before the impairment charge and the right-of-use asset is amortized on a straight-line basis.

Refer to Note 8 "Leases" for additional information relating to the impact of adopting ASC 842.

Recently Issued Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-15,Service Contract, 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. TheAccordingly, the Company doeshas adopted this ASU in the first quarter of 2020, which did not expect the adoption of the new standard to have a material impact on its Consolidated Financial Statements.


In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments, which introduces a new model to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. This standard is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company has adopted this ASU in the first quarter of 2020, which did not have a material impact on its Consolidated Financial Statements.

The majority of the Company's domestic store and e-commerce revenues are received as cash at the point of sales. The majority of the Company's franchise and wholesale revenues are billed with varying terms for payment. An allowance for credit losses is established based on the aging of the accounts receivable balances, financial condition of our franchisees and other third-party customers, historical write-off experience and current and future economic and market conditions.

The allowance for credit losses related to accounts receivable as of March 31, 2020 and changes for the three months then ended are as follows:

(in thousands)Balance at December 31, 2019Charged to costs and expensesDeductionBalance at March 31, 2020
Vendor allowance(1)
$14,033  $5,439  $(6,707) $12,765  
Trade accounts receivable allowance (2)
8,615  9,224  (3,214) 14,625  
(1) Changes to vendor allowance reserves are recorded as cost of sales on the Consolidated Statement of Operations.
(2) Changes to trade accounts receivable allowance are recorded as selling, general and administrative on the Consolidated Statement of Operations

The Company recognized a $8.7 million allowance for credit losses for its franchisees and other third-party customers and $4.6 million vendor allowance reserves during the three months ended March 31, 2020 based on the current and estimated adverse impacts from the COVID-19. Refer to Note 15. "Subsequent Events" for more information on the uncertainty that exists regarding the impacts of COVID-19.

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Recently Issued Accounting Pronouncements
        In December 2019, the FASB issued ASU 2019-12, Income Taxes: Simplifying the Accounting for Income Taxes, which simplifies accounting for income taxes by eliminating certain exceptions to ASC 740 related to the general approach for intraperiod tax allocation, methodology for calculating income taxes in an interim period and recognition of deferred taxes when there are investment ownership changes. The new guidance also simplifies aspects of accounting for franchise taxes and interim period effects of enacted changes in tax laws or rates. The new guidance provides clarification on accounting for transactions that result in a step-up in the tax basis of goodwill and allocation of consolidated income tax expense to separate financial statements of entities not subject to income tax. This ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, and early adoption is permitted. The Company is evaluating the impact this standard will have on its Consolidated Financial Statements and related disclosures.
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 is 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 March 31,
 20202019
U.S. company-owned product sales: (1)
(in thousands)
   Protein$73,808  $80,257  
   Performance supplements67,992  74,778  
   Weight management20,516  30,779  
   Vitamins48,962  47,056  
   Herbs / Greens13,805  15,873  
   Wellness39,082  47,200  
   Health / Beauty39,485  46,388  
   Food / Drink19,199  28,243  
   General merchandise4,871  6,800  
Total U.S. company-owned product sales$327,720  $377,374  
Wholesale sales to franchisees51,056  58,257  
Royalties and franchise fees7,327  8,472  
Sublease income10,242  10,976  
Cooperative advertising and other franchise support fees4,408  5,067  
Other (2)
23,428  29,011  
Total U.S. and Canada revenue$424,181  $489,157  
(1)Includes e-commerce sales.
(2)Includes revenue primarily related to operations in Canada and the loyalty programs, myGNC Rewards and PRO Access.
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 Three months ended March 31,
 2019 2018
U.S. company-owned product sales: (1)
(in thousands)
   Protein$80,257
 $87,670
   Performance supplements74,778
 75,616
   Weight management30,779
 39,787
   Vitamins47,056
 50,371
   Herbs / Greens15,873
 16,158
   Wellness47,200
 47,701
   Health / Beauty46,388
 48,054
   Food / Drink28,243
 25,360
   General merchandise6,800
 7,062
Total U.S. company-owned product sales$377,374
 $397,779
Wholesale sales to franchisees58,257
 57,160
Royalties and franchise fees8,472
 8,748
Sublease income10,976
 11,765
Cooperative advertising and other franchise support fees5,067
 5,533
Other (2)
29,011
 31,429
Total U.S. and Canada revenue$489,157
 $512,414
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(1)Includes GNC.com sales.
(2)Includes revenue primarily related to Canada operations and loyalty programs, myGNC Rewards and PRO Access.
International Revenues
The following is a summary of the revenue disaggregated by major source in the International reportable segment:
 Three months ended March 31,
 20202019
 (in thousands)
Wholesale sales to franchisees$20,183  $25,437  
Royalties and franchise fees6,508  6,202  
Other (1)
6,854  9,284  
Total International revenue$33,545  $40,923  
 Three months ended March 31,
 2019 2018
 (in thousands)
Wholesale sales to franchisees$25,437
 $21,760
Royalties and franchise fees6,202
 6,621
Other (1)
9,284
 11,684
Total International revenue$40,923
 $40,065
(1)Includes revenue primarily related to China operations prior to the newly formed joint ventures intransfer of the China business to the HK JV and China JV, which was effective February 13, 2019, wholesale sales to the HK JV and China JV, and revenue from company-owned stores locatedlocations 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 March 31,
 20202019
 (in thousands)
Third-party contract manufacturing(1)
$—  $15,783  
Intersegment sales(1)
—  35,505  
Wholesale partner sales14,855  18,901  
Total Manufacturing / Wholesale revenue$14,855  $70,189  
 Three months ended March 31,
 2019 2018
 (in thousands)
Third-party contract manufacturing(1)
$15,783
 $32,722
Intersegment sales(1)
35,505
 64,663
Wholesale partner sales18,901
 22,332
Total Manufacturing / Wholesale revenue$70,189
 $119,717

(1) The decrease inAs a result of the transfer of the Nutra manufacturing business to the newly formed Manufacturing JV effective March 1, 2019, no third-party contract manufacturing and intersegment sales for the three months ended March 31, 2019 compared to the prior year quarter is due to the transaction with IVC for the newly formed manufacturing joint venture effective March 1, 2019.were recognized thereafter.
Revenue by Geography
The following is a summary of the revenue by geography:
 Three months ended March 31,
 2019 2018
Total revenues by geographic areas(1):
(in thousands)
United States$535,943
 $572,231
Foreign28,821
 35,302
Total revenues$564,764
 $607,533

Three months ended March 31,
20202019
Total revenues by geographic areas(1):
(in thousands)
United States$452,873  $535,943  
Foreign19,708  28,821  
Total revenues$472,581  $564,764  
(1) Geographic areas are defined based on legal entity jurisdiction.
Balances from Contracts with Customers
Contract assets represent amounts related to the Company's contractual right to consideration for completed performance obligations not yet invoiced. As of December 31, 2018, the Company had contract assets of $25.5 million for specialty manufacturing recorded within prepaid and other current assets on the Consolidated Balance Sheet (with a corresponding reduction to inventory at cost). Due to the contribution of the Nutra manufacturing net assets to the manufacturing joint venture with IVC on March 1, 2019, the Company has no contract assets on the Consolidated Balance Sheet as of March 31, 2019.

Contract liabilities include payments received in advance of performance under the contract, and are realized with the associated revenue recognized under the contract. The Company's PRO Access and loyalty program points are recorded within deferred revenue and other current liabilities on the Consolidated 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.

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The following table presents changes in the Company’s contract liabilities during the three months ended March 31, 2019:liabilities:

Three months ended March 31, 2020
 Balance at Beginning of PeriodRecognition of revenue included in beginning balanceContract liability, net of revenue, recognized during the periodBalance at the End of Period
 (in thousands)
Deferred franchise and license fees$28,293  (2,722) 1,303  $26,874  
PRO Access and loyalty program points (1)
22,896  (11,879) 11,096  22,113  
Gift card liability (1)
3,110  (1,367) 207  1,950  
 Three months ended March 31, 2019
 Balance at Beginning of Period Recognition of revenue included in beginning balance Contract liability, net of revenue, recognized during the period Balance at the End of Period
 (in thousands)
Deferred franchise and license fees$33,464
 (2,861) 668
 $31,271
PRO Access and loyalty program points24,836
 (12,423) 12,863
 25,276
Gift card liability3,416
 (1,523) 181
 2,074

Three months ended March 31, 2019
Balance at Beginning of PeriodRecognition of revenue included in beginning balanceContract liability, net of revenue, recognized during the periodBalance at the End of Period
(in thousands)
Deferred franchise and license fees$33,464  (2,861) 668  $31,271  
PRO Access and loyalty program points (1)
24,836  (12,423) 12,863  25,276  
Gift card liability (1)
3,416  (1,523) 181  2,074  
(1) Net of estimated breakage
As of March 31, 2019,2020, the Company had deferred franchise fees with unsatisfied performance obligations extending throughout 20292030 of $31.3$26.9 million, of which approximately $7.2$6.0 million is expected to be recognized over the 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 4.  INVENTORY
The net realizable value of inventory consisted of the following:
 March 31, 2019 December 31, 2018
 (in thousands)
Finished product ready for sale$410,951
 $416,113
Work-in-process, bulk product and raw materials(1)
—
 46,520
Packaging supplies(1)
—
 2,939
Inventory$410,951
 $465,572
March 31, 2020December 31, 2019
 (in thousands)
Finished product ready for sale$367,402  $387,655  
Inventory$367,402  $387,655  
(1) The decrease in work-process, buck
As a result of the COVID-19 pandemic, the Company has temporarily closed approximately 1,100, or 30%, of the U.S. and raw materialsCanada company-owned and packaging suppliesfranchise stores as of March 31, 2019 compared2020 and sales trends have significantly declined in the second half of March 2020. Some of the stores temporarily closed may be closed permanently in the future. Due to the store closures, decline in sales trends and estimated adverse impacts on the Company's business as a result of COVID-19, the Company recorded $18.2 million inventory obsolescence reserves during the quarter ended March 31, 2020, of which $17.8 million was recorded within the U.S. and Canada segment and $0.4 million was recorded within the Manufacturing and Wholesale segment.
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NOTE 5.  PROPERTY, PLANT AND EQUIPMENT, NET

As previously disclosed, as a result of the COVID-19 pandemic, the Company has temporarily closed approximately 1,100, or 30%, of the U.S. and Canada company-owned and franchise stores as of March 31, 2020 and sales trends have significantly declined in the second half of March 2020. Some of the stores temporarily closed may be closed permanently in the future. Due to the store closures, decline in sales trends and estimated adverse impact from COVID-19, the Company recorded $40.3 million of impairment charges and other store closing costs, of which $21.2 million related to right-of-use asset impairments, $11.2 million related to property and equipment impairment and $7.9 million related to other store closing costs, presented as long-lived asset impairments and other store closing costs in the accompanying Consolidated Statement of Operations. Refer to Note 15. "Subsequent Events" for more information on the uncertainty that exists regarding the impacts of COVID-19.

The impairment test was performed at the individual store level, as it is the lowest level in which identifiable cash flows are largely independent of other groups of assets and liabilities. 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 the asset group from its carrying value. Fair value for property, plant and equipment was estimated using a discounted cash flow method (income approach) utilizing the undiscounted cash flows computed in the first step of the test. Fair value for right-of-use asset was estimated using a discounted cash flow method (income approach) based on market participant assumptions.
During the three months ended March 31, 2020, the Company sold its owned location in Boston, MA and recorded a $2.1 million pre-tax gain from the sale recognized within other income, net on the Company's Consolidated Statements of Operations.
NOTE 6.  GOODWILL AND INTANGIBLE ASSETS
Due to the significant decline in the Company's share price in the first quarter of 2020 and current circumstances and estimated adverse impacts from the COVID-19 pandemic, management concluded a triggering event occurred in the first quarter requiring an impairment test of its definite-lived intangible assets, indefinite-lived intangible brand name asset and the goodwill of all reporting units. Refer to Note 15. "Subsequent Events" for more information on the uncertainty that exists regarding the impacts of COVID-19. No impairment was recorded for the Company's definite-lived intangible assets.
Brand Name
Management performed an impairment test for its brand intangible asset, and concluded that the estimated fair value under the relief from royalty method (income approach) was less than its carrying value, which resulted in an impairment charge of $111.7 million. The brand name impairment test was performed in totality as it represents a single unit of account and $88.6 million of the charge was allocated to the U.S. and Canada and the remaining amount was allocated to the International segment. Key assumptions included in the estimation of the fair value include the following:

•Future cash flow assumptions - Future cash flow assumptions include retail sales from the Company’s corporate retail store operations, GNC.com retail sales, wholesale partner sales, China JV and HK JV retail sales, and domestic and international franchise retail sales. Sales were based on organic growth and were derived from historical experience and assumptions regarding future growth, including considerations for the impact from the outbreak of the COVID-19 pandemic on the Company's business. The Company's analysis incorporated an assumed period of cash flows of 10 years with December 31, 2018a terminal value.

•Royalty rate - The royalty rates utilized consider external market evidence and internal financial metrics including a review of available returns after the consideration of property, plant and equipment, working capital and other intangible assets. The royalty rate used to estimate the fair values of the Company's reporting units was within a range of 0% - 3%.

•Discount rate - The discount rate was based on an estimated weighted average cost of capital ("WACC") for each business supported by the GNC brand name. 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. The WACC used to estimate the fair values of the Company's reporting units was within a range of 20% to 22%. Any difference
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between the WACC among reporting units is primarily due to the transactionprecision with IVCwhich management expects to be able to predict the future cash flows of each reporting unit.
Goodwill
Management performed an impairment test of the Company's goodwill. The results of the impairment test indicated no impairments for GNC.com, International Franchise and Wholesale reporting units. However, The Health Store reporting unit had a fair value below its carrying value, which resulted in a $5.5 million goodwill impairment charge, which was recorded within the International segment.
The Company estimated the fair values of its reporting units in the first quarter of 2020 using a discounted cash flow method (income approach) weighted 50% and a guideline company method (market approach) weighted 50%. The key assumptions used under the income approach include the following:
•Future cash flow assumptions - The Company's projections for its reporting units were based on organic growth and were derived from historical experience and assumptions regarding future growth and profitability trends, including considerations for the newly formed manufacturing joint venture effective March 1, 2019.impact from the outbreak of the COVID-19 pandemic on the Company's business. The Company's analysis incorporated an assumed period of cash flows of 10 years with a terminal value.
•Discount rate - The discount rate was based on an estimated weighted average cost of capital ("WACC") for each reporting unit. 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. The WACC used to estimate the fair values of the Company's reporting units was within a range of 20% to 22%. Any difference between the WACC among reporting units is primarily due to expectation of achieving the future cash flows of each reporting unit.
The guideline company method involves analyzing transaction and financial data of publicly-traded companies to develop multiples, which are adjusted to account for differences in growth prospects and risk profiles of the reporting unit and comparable.
Goodwill Roll-Forward
The following table summarizes the Company's goodwill activity by reportable segment:

U.S. and CanadaInternationalManufacturing / WholesaleTotal
(in thousands)
Goodwill at December 31, 2019
  Gross$389,895  $43,330  $141,299  $574,524  
  Accumulated impairments(380,644) —  (114,771) (495,415) 
Goodwill9,251  43,330  26,528  79,109  
2020 Activity:
  Impairment—  (5,451) —  (5,451) 
  Translation effect of exchange rates—  (106) —  (106) 
  Total 2020 activity—  (5,557) —  —  (5,557) 
Balance at March 31, 2020
  Gross389,895  43,224  141,299  574,418  
  Accumulated impairments(380,644) (5,451) (114,771) (500,866) 
Goodwill$9,251  $37,773  $26,528  $73,552  
Intangible Assets
The following table reflects the gross carrying amount and accumulated amortization for each major definite-lived intangible assets:

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March 31, 2020December 31, 2019
Weighted-Average LifeCostAccumulated Amortization/ImpairmentCarrying AmountCostAccumulated Amortization/ImpairmentCarrying Amount
(in thousands)
Brand nameIndefinite$720,000  $(531,000) $189,000  $720,000  $(419,280) $300,720  
Retail agreements30.331,000  (13,882) 17,118  31,000  (13,619) 17,381  
Franchise agreements2570,000  (36,517) 33,483  70,000  (35,817) 34,183  
Manufacturing agreements2540,000  (20,867) 19,133  40,000  (20,467) 19,533  
Other intangibles6.8627  (541) 86  639  (529) 110  
Franchise rights3$7,566  $(7,495) $71  $7,566  $(7,475) $91  
Total$869,193  $(610,302) $258,891  $869,205  $(497,187) $372,018  

NOTE 5.  LONG-TERM7.  DEBT / INTEREST EXPENSE
Long-term debt        Debt consisted of the following: 
March 31,
2020		December 31,
2019
 (in thousands)
Tranche B-2 Term Loan (net of $2.0 million and $7.0 million discount)434,773  441,500  
FILO Term Loan (net of $1.1 million and $8.2 million discount)273,898  266,814  
Notes (net of $2.4 million and $3.9 million conversion feature and $0.3 million and $0.5 million discount)156,427  154,675  
Revolving Credit Facility30,000  —  
Debt issuance costs(76) (424) 
Total debt895,022  862,565  
Less: current debt(895,022) (180,566) 
Long-term debt$—  $681,999  
 March 31,
2019		 December 31,
2018
 (in thousands)
Tranche B-1 Term Loan$—
 $147,289
Tranche B-2 Term Loan (net of $11.4 million and $17.5 million discount)446,799
 554,760
FILO Term Loan (net of $10.2 million and $10.9 million discount)264,768
 264,086
Unpaid original issuance discount—
 11,445
Notes177,440
 175,504
Debt issuance costs(654) (762)
Total debt888,353
 1,152,322
Less: current debt—
 (158,756)
Long-term debt$888,353
 $993,566

On February 28, 2018, the Company amended and restated its Senior Credit Facility (the "Amendment", and the Senior Credit Facility as so amended, the "Term Loan Agreement"), which included an extension of the maturity date of a portion of the term loan from March 2019 to March 2021 (the "TrancheTranche B-2 Term Loan"). The remaining term loan continued to have a maturity date of March 2019 ("Loan. In the Tranche B-1 Term Loan"). Providedevent that all outstanding amounts under the convertible senior notes exceeding $50.0$50 million haveare not been repaid, refinanced, converted or effectively discharged prior to May 16, 2020, ("the Springing Maturity Date"),Date, the maturity date of the Tranche B-2 Term Loan becomeswill become the Springing Maturity Date, subject to certain adjustments. In connection with the debt refinancing, the Company recognized a loss of $16.7 million during the first quarter of 2018, which primarily includes third-party fees. As of March 31, 2019,2020, the Company had paid down$434.8 million, net of discount, outstanding under the Tranche B-1 Term Loan and had $446.8 million Tranche B-2 Term Loan outstanding. TheLoan. On February 28, 2018, the Company also had a new asset-based credit agreement (the "ABLentered into the ABL Credit Agreement"),Agreement, consisting of:
•a $264.8$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, should the Springing Maturity Date be triggered); and
•a $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, should the Springing Maturity Date be triggered). In connection with the contributiontransfer of the Nutra manufacturing and Anderson facility net assets to the manufacturing joint venture (the "Manufacturing JV") with IVC,International Vitamin Corporation ("IVC"), the Revolving Credit Facility decreasedcommitment was reduced from $100 million to $81 million effective March 2019. As of March 31, 20192020, there were no$30.0 million borrowings outstanding on the Revolving Credit Facility. At March 31, 2020, the Company had $19.9 million available under the Revolving Credit Facility, after giving effect to $30.0 million borrowing outstanding, $4.5 million utilized to secure letters of credit and a $26.6 million reduction to borrowing ability as a result of decrease in net collateral.

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The Tranche B-2 Term Loan requires annual aggregate principal payments of at least $43 million and bears interest at a rate of, at the Company's option, LIBOR plus a margin of 8.75% per annum subject to change under certain circumstances (with a minimum and maximum margin of 8.25% and 9.25%, respectively, per annum), or prime plus a margin of 7.75% per annum subject to change under certain circumstances (with a minimum and maximum

margin of 7.25% and 8.25%, respectively, per annum). Any mandatory repayments as defined in the credit agreement shall be applied to the remaining annual aggregate principal payments in direct order of maturity. As discussed in further detail below, in November 2018, theThe Company paid $100 million on the Tranche B-2 Term Loan in November 2018 and elected to use the payment to satisfy the scheduled amortization payments on the Term Loan Facility through December 2020. 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”). 
There are no scheduled amortization payments associated with the FILO Term Loan, which bears interest at a rate of, at the Company's option, 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) or prime plus a margin of 6.00% per annum subject to decrease under certain circumstances (with a minimum possible interest rate of prime plus a margin of 5.50% per annum). Outstanding borrowings under the Revolving Credit Facility bear interest at a rate of LIBOR plus 1.75%1.50% per annum (subject to an increase or decrease of 0.25% or 0.50% based on the amount available to be drawn under the Revolving Credit Facility) or prime plus a margin of 0.50% per annum (subject to an increase of 0.25% or 0.50% based on the amount 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 2.0%1.5% per annum (subject to adjustmentan increase of 0.25% or 0.50% based on the amount available to be be drawn under the Revolving Credit Facility) on outstanding letters of credit and an annual commitment fee of 0.375% on the undrawn portion of the Revolving Credit Facility, which is subject to an increase to 0.5% based on the amount available to be drawn 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.
Under the Company’s Term Loan Agreement and ABL Credit Agreement (collectively, the "Credit Facilities"),Agreements, 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) and second the FILO Term Loan (until repaid in full, but only if such prepayment is permitted under the ABL Credit Agreement) 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 payment will be 75% of excess cash flow for each such fiscal year, subject to a reduction to 50% based on the attainment of a certain Consolidated Net First Lien Leverage Ratio, and will be reduced by certain scheduled debt payment amounts. TheBased on the Company's results for the year ended December 31, 2019, the Company made the firstan excess cash flow payment of $25.9 million in April 2020. The Company made an excess cash flow payment of $9.8 million in April 2019 of $9.8 million with respect to the year ending December 31, 2018. The Company expects this excess cash flow payment to be between $25 million
        At March 31, 2020, the Company's contractual interest rates under the Tranche B-2 Term Loan, the FILO Term Loan and $35 million at 50% with respect to the year ending December 31, 2019,Revolving Credit Facility were 10.1%, 8.0% and 4.0%, respectively, which is expected to be paidconsist of LIBOR plus the applicable margin rate and in the second quartercase of 2020.
Revolving Credit Facility at Prime rate plus the applicable margin rate. At MarchDecember 31, 2019, the interest rates under the Tranche B-2 Term Loan and the FILO Term Loan were 11.3% and 9.5%, respectively. At December 31, 2018, the interest rate under the Tranche B-1 Term Loan, Tranche B-2 Term Loan, and the FILO Term Loan were 5.7%, 11.8%10.6%, and 9.5%8.8%, respectively. At March 31, 2019, the Company had $74.2 million available under the Revolving Credit Facility, after giving effect to $6.2 million utilized to secure letters of credit and $0.6 million reduction to borrowing ability as a result of decrease in net collateral.
The Company’s Credit Facilities contain customary covenants, including limitations on the ability of GNC Corporation, 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, or enter into arrangements that restrict their ability to pay dividends or grant liens. Despite these limitations, the Company has the ability to discharge the liabilities of GNC Holdings, Inc. in the ordinary course of business through a variety of alternatives, including a restricted payment basket, a junior lien debt incurrence basket, and repayment of intercompany debt.
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 initiallycurrently 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 on1.00. If the amount available to be drawnCompany’s availability under the Revolving Credit Facility is less than the greater of (i) 12.5% of the borrowing base
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or (ii) $12.5 million, then 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.
In connectionAgreements. Given current circumstances around the COVID-19 pandemic as discussed further in Note 15, "Subsequent Events", there can be no assurances as our ability to remain in compliance with the strategic investment from Harbin Pharmaceutical Group Co., Ltd ("Harbin") andfinancial covenants under the manufacturing joint venture with IVC,Senior Credit Facility Agreements over the next twelve months.
        As of March 31, 2020, the Company received (i) $100 million investment from Harbin in November 2018, which was utilized to pay a portion of the Tranche B-2 Term Loan and elected to use the payment to satisfy the scheduled amortization payments through December 2020, (ii) approximately $200 million from Harbin in the first quarter of 2019 and (iii) $101 million from IVC in the first quarter of 2019. The Company applied such proceeds to pay down the remaining balance of the Tranche B-1 Term Loan that matured in March 2019. The remaining proceeds together with cash generated from operating activities were utilized to pay $114.0 million of the Tranche B-2 and the original issuance discount due to the Tranche B-2 Term Loan lenders at 2% of the outstanding balance.

Convertible Debt
The Company maintains $188.6$159.1 million in principal amount of its 1.5% convertible senior notes due in 2020 (the "Notes").Notes. The Notes consist of the following components:
March 31, 2020December 31, 2019
(in thousands)
Liability component  
Principal$159,097  $159,097  
Conversion feature(2,356) (3,898) 
Discount related to debt issuance costs(314) (524) 
Net carrying amount$156,427  $154,675  
 March 31, 2019 December 31, 2018
 (in thousands)
Liability component   
Principal$188,565
 $188,565
Conversion feature(9,788) (11,489)
Discount related to debt issuance costs(1,337) (1,572)
Net carrying amount$177,440
 $175,504

As mentioned in Note 1, "Nature of Business," substantial doubt exists concerning the Company's ability to reduce the outstanding balance on the Notes to below $50.0 million. Given this, if we cannot reduce the outstanding balance under the Notes prior to May 16, 2020, the Springing Maturity Date, the Tranche B-2 Term Loan, the Revolving Credit Facility and the FILO Term Loan maturity will accelerate. While the Company continues to work through a number of refinancing alternatives to address its upcoming debt maturities, the Company cannot make any assurances regarding the likelihood, certainty or exact timing of any alternatives. As of March 31, 2020, all debt has been reclassified to current on the Consolidated Balance Sheets. In addition, the Company accelerated the amortization of original issuance discount and deferred financing fees for the Tranche B-2 Term Loan, FILO Term Loan and the Revolving Credit Facility of $12.4 million to the Springing Maturity Date.
Interest Rate Swaps
On June 13, 2018, the Company entered into two2 interest rate swaps with notional amounts of $275 million and $225 million to limit the exposure of 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 ishas scheduled to decreasedecreases 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 deemed effective upon initiation. The interest rate swaps are recognized on the balance sheet at fair value. ChangesWhen the cash flow hedges are deemed effective, changes in fair value are recorded within other comprehensive gain (loss)loss on the Consolidated Balance SheetSheets and reclassified into the Consolidated Statement of Operations as interest expense in the period in which the underlying transaction affects earnings.

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The fair values of the derivative financial instruments included in the Consolidated Balance Sheets consisted of the following:

Fair Value at
Balance Sheet ClassificationMarch 31, 2020December 31, 2019
(in thousand)
Other current liabilities$9,080  $5,013  
Other long-term liabilities1,730  1,927  
Total liabilities$10,810  $6,940  
(in thousands, except percentages)      
     Fair Value at
 Notional Amount Fixed Rate Balance Sheet Classification March 31, 2019 December 31, 2018
          
Accounting cash flow hedges:        
Interest rate swap$275,000
 2.82% Other long-term liabilities $3,641
 $2,371
Interest rate swap225,000
 2.74% Other long-term liabilities 1,348
 839
Net carrying amount$500,000
   Total liabilities $4,989
 $3,210


At March 31, 2019, there was a cumulative unrealized loss        As mentioned above, if the Company cannot reduce the outstanding balance on the Notes to below $50 million before the Springing Maturity date, the maturity date of $3.4 million, net of tax, relatedthe Tranche B-2 and the FILO Term Loan will accelerate. Management does not expect to these interest rate swaps included in accumulated other comprehensive income loss. This loss would be immediately recognized inhave sufficient cash flows from operations to repay the Consolidated Statement of Operations if these instruments fail to meet certainindebtedness before the Springing Maturity date. As such, the Company deemed the cash flow hedge requirements. Ashedges as ineffective as the forecasted hedging transactions will not occur by the end of March 31, 2019, the amount included inoriginally specified time period. The Company reclassified a $10.8 million pre-tax loss previously deferred within accumulated other comprehensive loss related to the interest rate swaps to be reclassified into earningsexpense during the next 12three 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.ended March 31, 2020.

Interest Expense
Interest expense consisted of the following:
Three months ended March 31,
2019 2018Three months ended March 31,
(in thousands)20202019
   (in thousands)
Tranche B-1 Term Loan coupon$928
 $8,058
Tranche B-1 Term Loan coupon$—  $928  
Tranche B-2 Term Loan coupon16,468
 6,824
Tranche B-2 Term Loan coupon12,339  16,468  
FILO Term Loan coupon6,751
 2,122
FILO Term Loan coupon6,826  6,751  
Revolving Credit Facility123
 132
Revolving Credit Facility149  123  
Terminated revolving credit facility—
 316
Amortization of discount and debt issuance costs6,043
 1,755
Amortization of discount and debt issuance costs15,055  6,043  
Subtotal30,313
 19,207
Subtotal34,369  30,313  
Notes:   Notes:
Coupon707
 707
Coupon596  707  
Amortization of conversion feature1,701
 1,610
Amortization of conversion feature1,542  1,701  
Amortization of discount and debt issuance costs244
 244
Amortization of discount and debt issuance costs217  244  
Total Notes2,652
 2,561
Total Notes2,355  2,652  
Loss on interest rate swapLoss on interest rate swap10,810  —  
Other(9) 5
Other(90) (9) 
Interest expense, net$32,956
 $21,773
Interest expense, net$47,444  $32,956  


NOTE 6.8. EQUITY METHOD INVESTMENTS

        The Company's interests in the Manufacturing, HK and China joint ventures are accounted for as equity method investments due to the Company’s ability to exercise significant influence over management decisions of the joint ventures. Under the equity method, the Company's share of profits and losses from the joint ventures is recorded within income from equity method investments on the Consolidated Statement of Operations. The following table provides a reconciliation of equity method investments on the Company’s Consolidated Balance Sheets:
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March 31, 2020December 31, 2019
(in thousands)
Manufacturing JV$56,684  $75,434  
Manufacturing JV capital contribution10,714  10,714  
HK JV and China JV10,200  10,342  
Income from equity method investments4,618  5,296  
Distributions received from equity method investments(3,856) (3,856) 
Manufacturing JV other-than-temporary impairment(35,840) —  
Total Equity method investments$42,520  $97,930  
In February 2019, the Company contributed its China business in exchange for 35% ownership of each of the newly formed joint ventures (the “HK JV”with Harbin, the HK JV and the "China JV").China JV. The HK JV includes the operation of the cross-border China e-commerce business, and has an exclusive right to use the Company’s trademarks to manufacture and distribute the Company’s products in China (excluding Hong Kong, Taiwan and Macau) via e-commerce channels. The China JV is a retail-focused joint venture to operate GNC's brick-and-mortar retail business in China and it will have an exclusive right to use the Company's trademarks to manufacture and distribute the Company's products in China (excluding Hong Kong, Taiwan and Macau) via retail stores and pharmacies. The HK JV closed in February 2019 and the China JV agreement is expected to be completed in the second or third quarter of 20192020, following the satisfaction of certain routine regulatory and legal requirements.
In March 2019, the Company entered into a strategic joint venture with IVC regarding the Company's manufacturing business. The Manufacturing JV is responsible for the manufacturing of the products previously produced by the Company at the Nutra manufacturing facility. The Company received $101$99.2 million from IVC and contributed the net assets of the Nutra manufacturing and Anderson facilities in exchange for an initial 43% equity interest in a newly formed joint venture (the “Manufacturing JV”).the Manufacturing JV. In addition, the Company made a capital contribution of $10.7 million to the Manufacturing JV forto fund its share of short-term working capital needs. OverUnder the next four years, GNC expectsterms of the agreement, IVC has the ability to receivepay an additional $75$75.0 million adjusted up or down based onover a four year period from the Manufacturing JV's future performance, from IVCeffective date of the transaction as IVC’sIVC's ownership of the joint venture increases to 100%. The subsequent purchase price for each year is $18.8 million, adjusted up or down based on the the Company's future purchases from the Manufacturing JV. The Company received the first subsequent purchase price of $15.6 million during the first quarter of 2020. As a result, the Company's ownership of the Manufacturing JV is responsible for the manufacturing of the products previously produced by the Company’s Nutra manufacturing facility.decreased to 32% in March 2020.
Gain (loss) from the net asset exchange
In connection with the formation of the joint ventures effective in the first quarter of 2019, the Company deconsolidated its China business and theits Nutra manufacturing business effectivewhich resulted in the first quarter of 2019 and recorded a pre-tax gain of $5.8 million and loss of $25.3$27.1 million, respectively, which is recorded within loss on net asset exchange for the formation of the joint ventures on the Consolidated Statements of Operations. The $5.8 million gain from the Harbin transaction iswas calculated based on the difference between the fair value of the 35% equity interest in the HK JV and China JV, less the carrying value of the contributed China business, including $2.4 million of cash, and third-party closing fees. The $25.3$27.1 million loss from the Manufacturing JV transaction iswas calculated based on the fair value of the 43% equity interest retained in the Manufacturing JV and the $101 million in cash received, less a $1.8 million working capital purchase price adjustment in the second quarter of 2019, less the carrying value of the contributed Nutra and Anderson facilities and third-party closing fees.

The Company's interestAs mentioned above, the Company received $15.6 million from IVC in connection with the subsequent purchase of the ownership of the Manufacturing JV in the joint ventures are accounted for as equity method investments due tofirst quarter of 2020, which resulted in a pre-tax loss of $3.1 million on net asset exchange calculated based on the Company’s ability to exercise significant influence overdifference between the management decisionscash receipt and the purchase price of the joint ventures. Under the equity method, the Company's share of profits and losses from the joint ventures is$18.8 million. The loss was recorded within equityin (loss) income (loss) from equity method investments ininvestment within the Consolidated Statement of Operations. The following table providesAdditionally, in the first quarter of 2020, the Company recognized a reconciliation$1.7 million purchase price adjustment related to the Harbin transaction, which was recorded as a loss on net asset exchange within the Consolidated Statements of Operations during the three months ended March 31, 2020.
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Other-Than-Temporary Impairment
Due to the current and estimated adverse impacts from the COVID-19 pandemic and the Company's store closures, management expects a decrease in future purchases from the Manufacturing JV resulting in a decline in the value of its equity method investments on the Company’s Consolidated Balance Sheets:
  March 31, 2019 December 31, 2018
 
  (in thousands)
 Manufacturing JV$75,434
 $—
 Manufacturing JV capital contribution10,714
 —
 HK JV and China JV10,700
 —
 Income from equity method investments955
 —
 Total Equity method investments$97,803
 $—

In connection with the transaction with IVC, the Company entered into a lease for warehouse space within the Anderson facility. Refer to Note 8, "Leases" for more information on the lease withinvestment in the Manufacturing JV. SubsequentThe decline in value was determined to be other-than-temporary which required the formation ofequity method investment to be written down to its fair value. The Company recognized $35.8 million other-than-temporary impairment related to its equity method investment in the Manufacturing JV, which was recorded within (loss) income from equity method investment on the Consolidated Statement of Operations during the three months ended March 31, 2020. This impairment charge was derived using Level 3 inputs and was primarily driven by the projected future purchase price of the equity interest in the Manufacturing JV from IVC under the terms of the agreement. As a result of the impairment, the carrying amount of the Company's equity method investment in the Manufacturing JV was $35.8 million less than its share of underlying equity in net assets as of March 31, 2020.
Related Party transactions
The Company purchased approximately $21$36.4 million and $21.0 million of finished goods from the Manufacturing JV during the periodthree months ended March 31, 2020 and March 31, 2019, respectively, and had approximately $20$21.1 million and $4$11.7 million accounts payable and accounts receivable, respectively, outstanding as of March 31, 2019. The intra-entity transactions between the Company2020 and December 31, 2019, respectively. In connection with the HK JV, whichthe Company recognized revenue, primarily consist offrom wholesale sales were immaterial duringand royalties, of $3.8 million and $2.2 million for the periodthree months ended March 31, 2019.2020 and March 31, 2019, respectively, and had $6.5 million and $8.9 million accounts receivable outstanding as of March 31, 2020 and December 31, 2019, respectively.
NOTE 7.9.  FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS
Accounting Standards Codification 820, Fair Value Measurements and Disclosures defines 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 other long-term assets approximates its fair value.
The carrying value and estimated fair value of the forward contracts for the issuance of convertible preferred stock, the Term Loan Facility, net of discount, Notes (net of the equity component classified in stockholders' equity and discount) and the interest rate swaps were as follows:

 March 31, 2019 December 31, 2018
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 (in thousands)
Assets:       
Forward contracts for the issuance of convertible preferred stock$—
 $—
 $88,942
 $88,942
Liabilities:       
Tranche B-1 Term Loan$—
 $—
 $147,289
 $145,080
Tranche B-2 Term Loan446,799
 430,938
 554,760
 511,766
FILO Term Loan264,768
 267,204
 264,086
 260,125
Notes177,440
 134,854
 175,504
 131,628
Interest rate swaps4,989
 4,989
 3,210
 3,210

The forward contracts for the issuance of convertible preferred stock are measured at fair value, as of the valuation date, using a single factor binomial lattice model (the "Lattice Model") which incorporates the terms and conditions of the convertible preferred stock and is based on changes in the prices of the underlying common share price over successive periods of time. Key assumptions of the Lattice Model include the current price of the underlying stock and its historical and expected volatility, risk-neutral interest rates and the instruments remaining term.  These assumptions require significant management judgment and are considered Level 3 inputs. The forward contracts were revalued at each reporting period with changes in fair value recognized in the Consolidated Statements of Operations. The forward contracts settled upon issuance on January 2, 2019 and February 13, 2019.
 March 31, 2020December 31, 2019
 Carrying
Amount		Fair
Value		Carrying
Amount		Fair
Value
 (in thousands)
Liabilities:
Tranche B-2 Term Loan$434,773  $239,125  $441,500  $414,321  
FILO Term Loan273,898  231,786  266,814  265,851  
Notes156,427  148,606  154,675  148,488  
Interest rate swaps10,810  10,810  6,940  6,940  
        The fair values of the term loans were determined using the instrument’sinstruments' 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. The Company's interest rate
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swaps are carried at fair value, which is based primarily on Level 2 inputs utilizing readily observable market data, such as LIBOR forward rates, for all substantial terms of the interest rate swap contracts and the assessment of nonperformance risk.
NOTE 8. LEASES
The Company has operating leases for retail stores, distribution centers, other leased office locations, vehiclesAs described in Note 5, "Property, Plant and certain equipment with remaining lease terms of 1 year to 14 years, some of which include options to extend the leases for up to 10 years. On the Company’s Consolidated Balance Sheets as of March 31, 2019,Equipment, Net," and Note 6, "Goodwill and Intangible Assets, Net," the Company had lease liabilities of $518.7 million, of which $117.1 million are classified as current, and right-of-use assets of $401.5 million.
The Company has elected to apply the short-term lease exemption for allrecorded long-lived asset classes and excluded them from the balance sheet. Lease payments for short-term leases are recognized on a straight-line basis over the lease term. The short-term rent expense recognizedimpairments during the three months ended March 31, 2019 is immaterial. The components2020. This resulted in the following assets being measured at fair value on a non-recurring basis using Level 3 inputs:
•the indefinite-lived brand name intangible asset at March 31, 2020;
•goodwill at March 31, 2020 for the Health Store reporting unit;
•property and equipment and right-of-use assets at certain of the Company's rent expense, which is recorded within cost of sales on the Consolidated Statements of Operations, was as follows:
 Three months ended March 31, 2019
 (in thousands)
Company-owned and franchise stores: 
Operating leases$36,602
Variable lease costs (1)
21,509
Total company-owned and franchise stores58,111
Other2,188
Total rent expense$60,299
(1) Includes percent and contingent rent, landlord related taxes and common operating expenses.stores at March 31, 2020;
•The weighted average remaining lease term and weighted average discount rate were as follows:

Three months ended March 31, 2019
Weighted average remaining lease term4.6 years
Weighted average discount rate10%
Supplemental cash flow information related to leases was as follows:
 Three months ended March 31, 2019
 (in thousands)
Operating cash flow information: 
Cash paid for amounts included in the measurement of operating lease liabilities$44,936
Right-of-use assets obtained in exchange for new operating lease liabilities$6,442

The Company recorded sublease revenue, within revenue on the Consolidated Statements of Operations, of $11.0 million and $11.8 millionequity method investment in the three months ended March 31, 2019 and 2018, respectively, relating to subleases with its franchisees, which includes rental income and other occupancy related items.
Maturities of the lease liabilities (undiscounted lease payments, as defined in Note 2 "Basis of Presentation") as of March 31, 2019 were as follows:
 Operating Leases for Company-Owned and Franchise Stores 
Operating Leases for Other (1)
 Total Operating Leases 
Sublease
Income from Franchisees
 Rent on Operating Leases, net of Sublease Revenue
 (in thousands)
2019 (remainder)$120,954
 $4,270
 $125,224
 $(23,783) $101,441
2020135,834
 4,964
 140,798
 (27,829) 112,969
2021109,994
 3,643
 113,637
 (22,697) 90,940
202284,925
 2,342
 87,267
 (17,882) 69,385
202363,125
 1,180
 64,305
 (13,384) 50,921
Thereafter136,071
 6,703
 142,774
 (29,548) 113,226
Total future obligations$650,903
 $23,102
 $674,005
 $(135,123) $538,882
Less amounts representing interest

   (155,295)   

Present value of lease obligations

 

 $518,710
    
(1) Includes various leases for warehouses, vehicles, and various equipment at our facility
As of March 31, 2019, leases that the Company has entered into but have not yet commenced are immaterial.
In connection with the transaction with IVC for the Manufacturing JV effectiveat March 1, 2019, the Company leased warehouse space within the Anderson facility from the Manufacturing JV for a term of one year. The lease was accounted for as sale leaseback transaction and classified as an operating lease included in the current lease liabilities on the Consolidated Balance Sheet.

Disclosures related to periods prior to adoption of ASU 2016-02

The Company adopted ASU 2016-02 using a modified retrospective adoption method at January 1, 2019 as noted in Note 2. "Basis of Presentation." As required, the following disclosure is provided for periods prior to adoption. Minimum future rent obligations for non-cancelable operating leases, excluding optional renewal periods, were as follows for the period ending December 31, 2018 and exclude landlord related taxes, common operating expenses, and percent and contingent rent.

 Operating Leases for Company-Owned and Franchise Stores 
Operating Leases for Other (1)
 Total Operating Leases 
Sublease
Income from Franchisees
 Rent on Operating Leases, net of Sublease Revenue
 (in thousands)
2019$162,910
 $6,071
 $168,981
 $(29,867) $139,114
2020126,312
 5,574
 131,886
 (23,631) 108,255
202195,000
 4,185
 99,185
 (16,782) 82,403
202264,735
 2,479
 67,214
 (10,285) 56,929
202339,798
 1,290
 41,088
 (4,717) 36,371
Thereafter56,200
 6,703
 62,903
 (4,238) 58,665
Total future obligations$544,955
 $26,302
 $571,257
 $(89,520) $481,737

2020.
(1) Includes various leases for warehouses, vehicles, and various equipment at our facility
NOTE 9.10.  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 liability matters, intellectual property matters and employment-related matters resulting from the Company's business activities.
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 for such matters. If the Company ultimately is required to make any 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, prior to the formation of the Manufacturing JV, 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' 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 March 31, 2019,2020, the Company was named in 27 personal injury lawsuits involving products containing DMAA and/or Aegeline.
The majority of these        These matters are currently stayed pending final resolution. One matter is scheduled for trial in June 2019.

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.
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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 in the Superior Court of the State of California for the County of Alameda. The complaint contains eight8 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. In November 2019, GNC filed a renewed Motion for Decertification, which was denied by the Court in January 2020. Trial is currently scheduled for July 2020. As of March 31, 2019,2020, an immaterial liability has been accrued in the accompanying financial statements. The Company intends to vigorously defend against the remaining class action claims asserted in this action. Trial is currently scheduled for September 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"), challenging the Company's utilization of the "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 in an immaterial amount, which has been recorded as a charge in the accompanying 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 the adverse judgment 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. Oral argument occurredThe Pennsylvania Supreme Court ruled in April 2019 and the Company awaits the Court’s ruling.
Jason Olive v. General Nutrition Corp. In April 2012, Jason Olive filed a complaint in the Superior Courtfavor 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.Plaintiffs. 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 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' 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. Argument occurred in October 2018. On November 2, 2018, the Court affirmed the trial court's decision in part and reversed in part, reversing the denial of Mr. Olive's motion for attorneys' fees and remanding the matterbeen remanded to the trial court for further proceedings regarding his attorneys' fees and costs. On November 16, 2018, the Company filed a motion for reconsideration of the Court’s decision. On December 27, 2018, the Court reversed, in part, its November 2, 2018 ruling and held that there was no prevailing party for the purposes of the attorneys’ fee award. Olive has filed a petition for review with the Supreme Court of the State of California and the Company has opposed that petition. On April 17, 2019, the California Supreme Court denied Olive’s petition for review.final resolution.
Oregon Attorney General. On October 22, 2015, the Attorney General for the State of Oregon sued the Company 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, and adding USPlabs, LLC and SK Laboratories as counterclaim defendants.  In March 2018, the Oregon Attorney General filed a motion for summary judgment relating to its first claim for relief, which the Company contested.  The Company filed a cross motion for

summary 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 process of exchanging discovery. Trial is currently scheduled to begin in September 2019.2020.
 As any losses that may arise from this matter are not probable or reasonably estimable at this time, no0 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.
E-Commerce Pricing Matters.  In 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 reached aA tentative agreement was reached in the third quarter of 2017 on many of the key terms of a settlement. The matters have been effectively stayed whileIn December 2019, the parties remain in discussions.Court approved the settlement agreement. 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 Consolidated Financial Statements.liability.
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Government Regulation
In November 2013, the Company received a subpoena from the U.S. Department of Justice ("DOJ") for information related to its investigation of a third 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, which agreement acknowledges the Company relied on the representations and written guarantees of USPlabs and the Company's representation that it did not knowingly sell products not in compliance with the Federal Food, Drug and Cosmetic Act (the "FDCA"). Under the agreement, which includesincluded 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 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 own and the 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

As part of soil and groundwater remediation conducted at the Nutra manufacturing facility pursuant to an investigation conducted in partnership with the South Carolina Department of Health and Environmental Control (the "DHEC"), wethe Company completed additional investigations with the DHEC's approval, including the installation and operation of 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. After an initial monitoring period, in October of 2017 the DHEC approved a work plan for extended monitoring of such system and the contamination into 2021. While the Company contributed the net assets of the Nutra manufacturing and Anderson facilities to the Manufacturing JV in March of 2019 (refer to Note 68 “Equity Method Investments” for additional information), we retained certain liabilities, including historical environmental liabilities, related to the facilities. As such, the Company and the Manufacturing Joint VentureJV will continue to consult with the DHEC on the next steps in 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 our potential liability. Therefore, no liability has been recorded in the Company's Consolidated 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 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, including certain historic liabilities retained by the Company pursuant to the terms of the Manufacturing JV. 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.

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 current or former 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.
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NOTE 10.11. MEZZANINE EQUITY
Holdings is authorized to issue up to 60.0 million shares of preferred stock, par value $0.001 per share. 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, and the Investor agreed to purchase from the Company, 299,950 shares of a newly created series of convertible preferred stock of the Company, designated the “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 “Securities Purchase”). The Convertible Preferred Stock is convertible into 56.1 million shares of the Company's Common Stock at an initial conversion price of $5.35 per share, subject to customary anti-dilution adjustments. On November 7, 2018, The Company entered into an Amendment to the Securities Purchase Agreement with the Investor. Pursuant to the terms of the Securities Purchase Agreement, the Investor assigned its interest in the Securities Purchase Agreement to Harbin and funded the $300 million investment in three3 separate tranches. The shares of Convertible Preferred Stock waswere issued as follows: (i) 100,000 shares of Convertible Preferred Stock issued on November 8, 2018 for a total purchase price of $100 million (the "Initial Issuance"), (ii) 50,000 shares of Convertible Preferred Stock issued on January 2, 2019 for a total purchase price of $50 million (the "Second Issuance") and (iii) 149,950 shares of Convertible Preferred Stock issued on February 13, 2019 for a total purchase price of approximately $150 million (the “Third Issuance”).
Holders of shares of Convertible Preferred Stock are entitled to receive cumulative preferential dividends, payable quarterly in arrears, at an annual rate of 6.5% of the stated value of $1,000 per share, subject to increase in connection with the payment of dividends in kind. Dividends are payable, at the Company's option, in cash from legally available funds or in kind by issuing additional shares of Convertible Preferred Stock with such stated value equal to the amount of payment being made or by increasing the stated value of the outstanding Convertible Preferred Stock by the amount per share of the dividend or in a combination thereof.
As of March 31, 2019,2020, the Company had issued a total of 299,950 shares of Convertible Preferred Stock. The Convertible Preferred Stock was recorded as Mezzanine Equity, net of issuance cost, on the Consolidated Balance Sheets because theythe shares are redeemable at the option of the holder if a fundamental change occurs, which includes change in control or delisting.delisting (a "Fundamental Change"). The guaranteed Second Issuance and Third Issuance were considered forward contracts that represented an obligation to both parties until the shares were issued. The forward contracts were recorded at fair value on the Consolidated Balance Sheets as of December 31, 2018, with any changes in fair value recorded in earnings in the Consolidated Statements of Operations. The Company recorded a $16.8 million loss on forward contracts for the issuance of Convertible Preferred Stock during the first quarter ended March 31,of 2019. Upon issuance of the shares associated with the forward contracts, the carrying value of the forward contracts were recorded to Mezzanine Equity.

        The Convertible Preferred Stock is not currently redeemable and is only redeemable upon a Fundamental Change at the stated value plus any accumulated and unpaid dividends on such shares on the fundamental change date. The Company does not believe a Fundamental Change is considered probable until it occurs. Subsequent adjustment of the amount presented in temporary equity is unnecessary if it is not probable that the instrument will become redeemable.  As the Convertible Preferred Stock is only redeemable upon a Fundamental Change, the occurrence of which is not probable, we will not accrete the Convertible Preferred Stock to its redemption value until it occurs.  As such, the Company will recognize changes in the redemption value to the Convertible Preferred Stock as they occur and adjust the carrying value to the redemption value at the end of each reporting period as if the end of the reporting period were also the redemption date for the Convertible Preferred Stock. As of March 31, 2019, there were $4.7 million cumulative undeclared dividends related to2020, the issued and outstanding Convertible Preferred Stock, of which $3.7 million relate to dividends accumulated in the first quarter of 2019. The cumulative undeclared dividends will not be recorded on the Consolidated Balance Sheets until they are declared. The dividends accumulated in the current period are deducted from earnings available to common stockholders when computing earnings per share. Refer to Note 11, "Earnings Per Share" for more information. As of March 31, 2019, the Company does not believe the redemptionstated value of the Convertible Preferred Stock is probable as$300.0 million (299,950 shares at $1,000 per share) and there are accumulated and unpaid dividends on such shares of $25.0 million. As of December 31, 2019, the occurrencestated value of the contingent events is deemed not probable.Convertible Preferred Stock was $300.0 million (299,950 shares at $1,000 per share) and there were accumulated and unpaid dividends on such share of $19.8 million.

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NOTE 11.12. EARNINGS PER SHARE

The following table represents the Company's basic and dilutive weighted-average shares:
Three months ended March 31,
 20202019
 (in thousands)
Basic weighted average shares83,897  83,510  
Effect of dilutive stock-based compensation awards—  —  
Diluted weighted average shares83,897  83,510  
 Three months ended March 31,
 2019 2018
 (in thousands)
Basic weighted average shares83,510
 83,232
Effect of dilutive stock-based compensation awards—
 136
Diluted weighted average shares83,510
 83,368

For the three months ended March 31, 2020 and 2019, all 6.8 million and 4.0 million, respectively, outstanding stock-based awards were excluded from the computation of diluted earnings per shareshares ("EPS") because the Company was in a net loss position and as a result, inclusion of the awards would have been anti-dilutive.
For the three months ended March 31, 2018, the following awards were not included in the computation of diluted EPS because the impact of applying the treasury stock method was antidilutive or because certain conditions have not been met with respect to the Company's performance awards.
Antidilutive:
Time-based options and restricted stock awards3,206
Performance-based restricted stock awards536
Contingently issuable:
Performance-based restricted stock awards—
Performance-based restricted stock awards with a market condition315
Total stock-based awards excluded from diluted EPS4,057

The Company has applied the if-converted method to calculate dilution on the Convertible Preferred Stock and the Notes in the current quarter, which has resulted in all 42.959.9 million and 2.92.4 million shares underlying the Convertible Preferred Stock and the Notes, respectively, being anti-dilutive.

The computations for basic and diluted earningsloss per common share are as follows:
 Three months ended March 31,
 20202019
 (in thousands, except per share data)
Loss per common share - Basic
Net loss$(200,086) $(15,262) 
Cumulative undeclared convertible preferred stock dividend5,195  3,716  
Net loss attributable to common shareholders(205,281) (18,978) 
Weighted average common shares outstanding - basic83,897  83,510  
Loss per common share - basic$(2.45) $(0.23) 
Loss per common share - Diluted
Net loss$(200,086) $(15,262) 
Cumulative undeclared convertible preferred stock dividends5,195  3,716  
Net loss attributable to common shareholders(205,281) (18,978) 
Weighted average common shares outstanding - diluted83,897  83,510  
Loss per common share - diluted$(2.45) $(0.23) 
 Three months ended March, 31
 2019 2018
 (in thousands, except per share data)
Earnings (loss) per common share - Basic   
Net (loss) income$(15,262) $6,190
  Cumulative undeclared convertible preferred stock dividend3,716
 —
Net income (loss) attributable to common shareholders(18,978) 6,190
Weighted average common shares outstanding - basic83,510
 83,232
Earnings (loss) per common share - basic$(0.23) $0.07
Earnings (loss) per common share - Diluted   
Net (loss) income$(15,262) $6,190
  Cumulative undeclared convertible preferred stock dividend3,716
 —
Net income (loss) attributable to common shareholders(18,978) 6,190
Weighted average common shares outstanding - diluted83,510
 83,368
Earnings (loss) per common share - diluted$(0.23) $0.07


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NOTE 12.13.  SEGMENTS
The Company aggregates its operating segments into three3 reportable segments, which include U.S. and Canada, International and Manufacturing / Wholesale. Warehousing and distribution costs have been allocated to each reportable segment based on estimated utilization and benefit. The Company's chief operating decision maker (its chief executive officer) 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, manufacturesprior to the formation of the Manufacturing JV, manufactured and sellssold product to the U.S. and Canada and International segments at cost with a markup, which iswas eliminated at consolidation.
Due to the current and estimated adverse impacts from the COVID-19 pandemic, during the three months ended March 31, 2020, the Company recorded $157.5 million long-lived asset impairments and other store closing costs ($128.9 million within U.S. and Canada; $28.6 million within International), $22.8 million reserves related to inventory obsolescence and vendor allowances ($22.4 million within U.S. and Canada; $0.4 million within Manufacturing / Wholesale), and $8.7 million allowance for doubtful accounts ($7.9 million within U.S. and Canada; $0.8 million within International). Refer to Note 15. "Subsequent Events" for more information on the uncertainty that exists regarding the impacts of COVID-19.
The following table represents key financial information for each of the Company's reportable segments:
 Three months ended March 31,
 20202019
 (in thousands)
Revenue:  
U.S. and Canada$424,181  $489,157  
International33,545  40,923  
Manufacturing / Wholesale:
Intersegment revenues—  35,505  
Third-party contract manufacturing—  15,783  
Wholesale partner sales14,855  18,901  
Subtotal Manufacturing / Wholesale14,855  70,189  
Total reportable segment revenues472,581  600,269  
Elimination of intersegment revenues—  (35,505) 
Total revenue$472,581  $564,764  
Operating income:  
U.S. and Canada$(131,200) $52,100  
International(17,382) 14,050  
Manufacturing / Wholesale6,931  15,344  
Total reportable segment operating income(141,651) 81,494  
Corporate costs(24,835) (26,261) 
Loss on net asset exchange for the formation of the joint ventures(1,655) (19,514) 
Other2,107  (237) 
Unallocated corporate costs, loss on net asset exchange and other(24,383) (46,012) 
Total operating (loss) income(166,034) 35,482  
Interest expense, net47,444  32,956  
  Loss on forward contracts for the issuance of convertible preferred stock—  16,787  
Loss before income taxes$(213,478) $(14,261) 
 Three months ended March 31,
 2019 2018
 (in thousands)
Revenue: 
  
U.S. and Canada$489,157

$512,414
International40,923

40,065
Manufacturing / Wholesale:




Intersegment revenues35,505

64,663
Third party34,684

55,054
Subtotal Manufacturing / Wholesale70,189

119,717
Total reportable segment revenues600,269

672,196
Elimination of intersegment revenues(35,505)
(64,663)
Total revenue$564,764

$607,533
Operating income: 
  
U.S. and Canada$52,100

$43,490
International14,050

14,464
Manufacturing / Wholesale15,344

14,964
Total reportable segment operating income81,494

72,918
Corporate costs(26,261) (26,479)
Loss on net asset exchange for the formation of the joint ventures(19,514) —
Other(237) (50)
Unallocated corporate costs, loss on net asset exchange and other(46,012)
(26,529)
Total operating income35,482

46,389
Interest expense, net32,956
 21,773
Loss on debt refinancing—
 16,740
  Loss on forward contracts for the issuance of convertible preferred stock16,787
 —
(Loss) income before income taxes$(14,261) $7,876


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

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NOTE 13.14.  INCOME TAXES

The Coronavirus Aid, Relief, and Economic Security Act ("CARES" Act) signed into law on March 27, 2020 in response to the COVID-19 pandemic, provides additional avenues of financial relief and assistance to individuals and businesses, including tax relief. The CARES Act includes, among other items, provisions relating to payroll tax credits and deferrals, net operating loss carry back periods, alternative minimum tax credits, and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act also temporarily and retroactively increases the limitation on the deductibility of interest expense under Internal Revenue Code Section 163(j)(1) from 30% to 50% of adjusted taxable income for tax years beginning in 2019 and 2020. The Company is currently evaluating the impact of the provisions of the CARES Act.

The Company recognized $2.0$53.0 million of income tax expensebenefit during the three months ended March 31, 20192020 compared with $1.7$2.0 million of income tax expense in the prior year quarter. The Company's income tax expense is based on income, statutory tax rates and tax planning opportunities available in the jurisdictions in which it operates. The Company’s year-to-date tax provision is calculated by applying the most recent annualized effective tax rate to year-to-dateyear-to-date pre-tax ordinary income. The Company’s most recent annualized2020 annual effective tax rate was impacted by a $27.6 million partial valuation allowance for attributes expected to be generated in 2020 that may not be realizable, the other-than-temporary impairment of the Manufacturing JV, and the benefit of the federal tax rate differential related to federal net operating losses generated during the current year that are expected to be carried back to prior years at a 35% rate. The 2019 effective tax rate was significantly impacted by a gain for tax purposes resulting from the newly formedtransfer of the Nutra manufacturing joint venture as well asnet assets to the Manufacturing JV and the establishment of a partial valuation allowance for attributes generated in the current2019 year that may not be realizable. The tax impactimpacts of unusual or infrequent items are recorded discretely in the interim period in which they occur. TheDuring the three months ended March 31, 2020, the Company discretely recorded a permanent $4.8 million benefit related to the tax impactrelease of valuation allowances on the Federal interest expense limitation generated in 2019, resulting from the passage of the lossCARES Act which retroactively changed the 2019 Federal interest expense limitation from 30% to 50% of adjusted taxable income.

During the fourth quarter of the year ended December 31, 2019, as further discussed in Note 1, "Nature of Business," management concluded that there is substantial doubt regarding the Company’s ability to continue as a going concern. Management considered this in concluding that certain deferred tax assets were no longer more likely than not realizable. As a result, increase in valuation allowance of $27.6 million and $27.1 million on forward contracts for the issuanceCompany’s deferred tax assets were recorded as of convertible preferred stock. This loss was not deductible for incomeMarch 31, 2020 and December 31, 2019, respectively, which related principally to Federal deferred tax purposes.assets, state NOL carryforwards, and other state tax attributes. These increases were partially offset by valuation allowance decreases of $4.8 million as of March 31, 2020 and December 31, 2019.
At March 31, 20192020 and December 31, 2018,2019, the Company had $6.6$10.8 million and $6.9$10.7 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 $2.1$2.8 million at March 31, 20192020 and $2.0$2.1 million at December 31, 2018,2019, 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.
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 examination (the earliest open period is generally 2011).


NOTE 15. SUBSEQUENT EVENTS

The Company is closely monitoring the current and future potential impact of the COVID-19 pandemic on all aspects of our business and geographies, including how it will impact our customers, employees, suppliers, vendors, business partners and distribution channels. The Company incurred significant disruptions during the three months ended March 31, 2020 from COVID-19, and the Company's estimates on the future impact that COVID-19 will have on the Company's financial position and operating results is subject to numerous uncertainties. These uncertainties include the severity of the virus, the duration of the outbreak, governmental, business or other actions (which could include limitations on our operations), impacts on the Company's supply chain, the effect on customer
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demand, store closures or changes to our operations. The health of the Company's workforce, and the ability to meet staffing needs in stores, distribution facilities, wholesale operations and other critical functions cannot be predicted and is vital to our operations. Further, the impacts of a potential worsening of global economic conditions and the continued disruptions to, and volatility in, the credit and financial markets, consumer spending as well as other unanticipated consequences remain unknown. As of May 6, 2020, approximately 1,300, or 40%, of the U.S. and Canada company-owned and franchise retail stores were closed due to the COVID-19 pandemic.

In addition, the Company cannot predict with certainty the impact that COVID-19 will have on its customers, vendors, suppliers and other business partners; however, any material effect on these parties could adversely impact the Company. The situation surrounding COVID-19 remains fluid, and the Company is actively managing its response in collaboration with customers, government officials, team members and business partners and assessing potential impacts to its financial position and operating results, as well as adverse developments in the business.

Due to the adverse impacts of COVID-19, the Company withheld rent and other occupancy payments beginning in April 2020 for certain of its retail locations as management negotiates with landlords for rent concessions. The Company withheld rent and other occupancy payments of approximately $19 million in April 2020 and approximately $16 million in May 2020. In the event that withholding these rent payments would constitute an event of default per the lease agreement, management intends to negotiate resolution with the landlord. If such negotiations are not successful, the lease liabilities associated with those leases could become immediately due and payable. The Company has elected FASB's modification guidance to account for rent concessions related to the effects of the COVID-19 pandemic. The Company will not apply the lease modification guidance under ASC 842 to rent concessions that result in the total payments required by the modified contract being substantially the same as or less than total payments required by the original contract. If other terms of the lease are changed or renegotiated in connection with the concession process, then the changes will be treated as a modification in accordance with ASC 842.
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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 1,1. “Financial Statements” of this Quarterly Report on Form 10-Q. The following information presented for the three months ended March 31, 20192020 and 20182019 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 includeincludes 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," "anticipate," "plan," "expect," "intend," "estimate," "project," "may," "will," "should," "would," "could," "can," the negatives thereof, variations thereon and similar expressions, or by discussions of strategystrategy.
All forward-looking statements, including, without limitation, our examination of historical operating trends, are based upon our current expectations and include various assumptions. We believe there is a reasonable basis for our expectations and beliefs, but they are inherently uncertain and subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. 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 2018 10-K.2019 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (the "SEC") on March 25, 2020 (the"2019 10-K").

In addition, we operate in a highly competitive and rapidly changing environment; therefore, new risk factors can arise, and it is not possible for management to predict all such risk factors, nor to assess the impact of all such risk factors on our business or the extent to which any individual risk factor, or combination of risk factors, may cause results to differ materially from those contained in any forward-looking statement. 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 as a prediction of actual results. We cannot guarantee future results, events, levels of activity, performance or achievements. The forward-looking statements included in this Quarterly Report on Form10-QForm 10-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
GNC is a global health and wellness brand with a diversified, omni-channel business. Our assortment of performance and nutritional supplements, vitamins, herbs and greens, health and beauty, food and drink and other general merchandise features innovative private-label products as well as nationally recognized third-party brands, manysome of which are exclusive to GNC.  We derive our revenues principally fromfrom: product sales through our company-owned retail locations,stores; online sales primarily through our website, GNC.com, as well as third-party websites; domestic and international franchise activities, e-commerce, and corporateselect wholesale partnerships. We havesell products through a worldwide network of approximately 8,2007,300 locations in approximately 50 countries.operating under the GNC brand name.
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 operationsproprietary product and innovation capabilities; and differentiated service model designed to enhance the customer experience.
Uncertainty Relating to COVID-19
Our business has been materially and adversely affected by the outbreak of the novel coronavirus known as “COVID-19”. During March 2020, many state governments ordered all but certain essential businesses closed and imposed significant limitations on the circulation of the populace. Approximately 1,300, or 40%, of the U.S. and Canada company-owned and franchise retail stores were closed as of May 6, 2020 due to the COVID-19 pandemic. Some of the stores temporarily closed may be closed permanently in the future. In response, the company has
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significantly reduced inventory purchases and capital expenditures, as well as taken actioned measures to decrease costs by nearly $40 million in 2020 consisting of employee furloughs, marketing reductions, store hours reductions and deferral of non-essential spend.

Due to the current and future potential impact of COVID-19, including uncertainties on the severity of the virus, the duration of the outbreak, governmental, business or other actions (which could include limitations on our operations), impacts on our supply chain, the effect on customer demand, temporary and permanent store closures or changes to our operations, we have recorded charges to carrying amount of inventory, accounts receivable, goodwill, indefinite-lived intangibles, our equity method investment and other long-lived assets during the three months ended March 31, 2020.

Refer to Item 1, "Financial Statement," Note 15, "Subsequent Events" for additional information on the uncertainty relating to COVID-19.

Our Current Strategy
Key elements of our business strategy and areas of internal focus for the Company are detailed below:
•
Leading brand of nutritional supplements. GNC has been in business for more than 80 years and the Company is built on a core foundation as a brand builder of high-quality nutritional supplements. Based on our worldwide network of approximately 8,200 locations and our online channels, we are a leading global brand of health, wellness and performance products.

as follows:

•Leading brand of nutritional supplements. GNC has been in business for more than 80 years and the Company is built on a core foundation as a brand builder of high-quality nutritional supplements. Based on our worldwide network of approximately 7,300 locations and our online channels, we are a leading global brand of health, wellness and performance products.

Our objective is to offer a broad and deep mix of products for consumers interested in living well, whether they are looking to treat a health-related issue, maintain their overall wellness, or improve their performance. Our premium, value-added offerings include both proprietary GNC-branded products and other nationally recognized third-party brands.

We believe our depth of brands, exclusive products and range of merchandise, combined with the customer support and service we offer, differentiatesdifferentiate us and allowsallow us to effectively compete against food, drug and mass channel players, specialty stores, independent vitamin, supplement and natural food shops and online retailers.

•
Product development and innovation.We
•Product development and innovation. We develop high-quality, innovative nutritional supplement products that can be purchased only through our store locations, GNC.com, our Amazon.com storefront and other marketplaces or through our store locations, GNC.com, our Amazon.com marketplace and our select wholesale partners. Our high quality ingredients are rigorously tested before going into GNC products, undergoing multiple quality checks to ensure that they meet our high standards for identity, strength, purity, composition and limits in contaminants.
We believe our sector-leading innovation capability is a significant competitive advantage. Our strategic partnership with International Vitamin Corporation ("IVC") will allowallows us to furthercontinue to focus on further innovation while IVC drives increased efficiencies in manufacturing. Refer to Item 1, "Financial Statements, "Note 6,Note 8. "Equity Method Investments" for more information. GNC has demonstrated strength in developing unique, branded, and scientifically verified products and has a long history of delivering new ingredients and reformulations. We directly employ scientists, nutritionists, formulators chemists, engineers and quality control experts and have access to a wide range of world-class medical research facilities and consultants.

•
•A differentiated retail customer experience. Our retail strategy is to deliver a compelling experience at every customer touch point. We operate in a highly personalized, aspirational sector and believe that the nutritional supplement consumer often desires and seeks out product expertise and knowledgeable customer service.
We further differentiate ourselves from competitors through development of our well-trained salesin-store associates who are aided in becoming trusted advisorsas "coaches" with regular training that focuses on solution-based selling, and through in-store technology such as tablets, which allowthat allows associates to view customers’ purchase history and preferences.preferences in real time via tablets. With that knowledge, and help from sales tools built into the tablet platform, our in-store associates can engage customers in conversation, share product information and testimonials before and after
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pictures, recommend solutions and help customers add complimentary products and build wellness regimens.
Our loyalty programs allow us to develop and maintain a large and loyal customer base, provide targeted offers and information, and connect with our customers on a regular basis. We harness data generated by these programs to better understand customers’ buying behaviors and needs, so we can deliver a stronger experience, bring like-minded consumers into the channel and make well-informed decisions about the business.
•Omni-channel development. We believe our diversified, omni-channel model, which includes company-owned stores, domestic and international franchise locations, wholesale locations and e-commerce channels, differentiates us from online-only and other competitors. Our strategy is to give consumers a seamless, integrated experience across digital, mobile and store channels and in every interaction they have with GNC.

•
Omni-channel development. We believe our diversified, omni-channel model, which includes company-owned stores, domestic and international franchise locations, wholesale locations and e-commerce, can differentiate us from online-only competitors. Our strategy is to give consumers a seamless, integrated experience across digital, mobile and store channels and in every interaction they have with GNC.

Through GNC.com, and our Amazon.com storefront and other marketplaces, customers can research and purchase our products online. We believe our store base is a competitive advantage with respect to our online presence and platform, allowing customers to experience our products and get expert advice from an associate.our in-store associates "coaches" as desired.

Our omni-channel model can enhance the customer experience and increase the lifetime value of a GNC customer, and we are implementingplan to continue to implement strategies over the next 12-18 months to blend our digital , online and in-store platforms.platforms to provide a seamless omni-channel shopping experience. These initiatives include increased cross-channel marketing, online and in-store subscription services, giving customers the option of picking up online purchases in GNC stores, shipping products purchased via e-commerce directly from stores, and providing additional educational content, information and advice on GNC.com.


•International growth. We see opportunity to expand internationally within the large global supplement market, which is expected to continue to grow. In particular, our partnership with Harbin Pharmaceutical Group Co., Ltd. ("Harbin") allows us to further expand our business in China. Harbin’s expertise in distribution and regulation is the ideal match for our highly valued brand and assortment of products in the China market. Refer to Item 1, "Financial Statement," Note 8. "Equity Method Investments" for more information.
•
International growth. We see opportunity to expand internationally within the large global supplement market which is expected to continue to grow. In particular, our partnership with Harbin Pharmaceutical Group Co., Ltd ("Harbin") allows us to further expand our business in China. Harbin’s expertise in distribution and regulation is the ideal match for our highly valued brand and assortment of products in the China market. Refer to Item 1, "Financial Statements, "Note 6, "Equity Method Investments" for more information.
•
Driving constructive industry dialogue. We remain focused on continuously raising the bar on transparency and quality throughout the dietary supplement industry. We believe that over time the implementation of higher standards and more stringent industry self-regulation regarding manufacturing practices, ingredient traceability and product transparency will prove beneficial for the industry and lead to improved dialogue with regulators, stronger consumer trust and greater confidence in our industry.
Key Performance Indicators
The primary key performance indicatorsindicator that senior management focusfocuses on include revenue andis operating income for each segment, which areis discussed in detail within the section titled "Results of Operations", as well as revenue and same store sales growth.
The table below presents the key components of U.S Company-owned same store sales:sales for the periods indicated:
 Three months ended March 31,
 2019 2018
Contribution to same store sales   
Domestic Retail same store sales(1.9)%
(1.2)%
GNC.com contribution to same store sales0.3 %
1.7 %
Total Same Store Sales(1.6)%
0.5 %
U.S. Company-Owned Same Store Sales, including GNC.comQ1
2020 total same store sales(10.1)%
2019 total same store sales(1.6)%
Same store sales include point-of-sale retail sales from all our company-owned domestic stores whichthat have been operating for twelve full months following the opening day and retail sales from GNC.com. We are an omni-channel retailer with capabilities that allow a customer to use more than one channel when making a purchase, including in-store and e-commerce channels. Our 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 in whichand purchases are fulfilled by direct shipment to the customer from one of our distribution facilities or from third-party e-commerce vendors. In-store sales are reduced
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by sales originally consummated online or through mobile devices and subsequently returned in-store. Sales of membership programs, including the PRO Access loyalty program and the net change in the deferred points liability associated with the myGNC Rewards program, are excluded from same store sales.
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 permanently 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 stores 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.
During March 2020, many state governments ordered all but certain essential businesses closed and imposed significant limitations on the circulation of the populace. Approximately 1,100, or 30%, of the U.S. and Canada company-owned and franchise retail stores were closed due to the COVID-19 pandemic as of March 31, 2020 and sales significantly declined in the second half of March due to COVID-19. The impact from the COVID-19 pandemic on U.S. Company-owned same store sales, including GNC.com, was estimated by comparing the same store sales in the last two weeks in March to the weekly same store sales trends in the first quarter of 2020 prior to the pandemic outbreak.

Non-GAAP Measures
We have included certain non-GAAP financial measures below, which have been adjusted to exclude the impact of certain transactions occuring during the periods presented, because we believe such measures represent an effective supplemental means by which to measure our operating performance. We believe that (i) net (loss) income, (ii) diluted earnings per share and("EPS"), (iii)

EBITDA, each on an as adjusted basis to exclude certain prior year items, and (iv) free cash flow are useful metrics to investors and enable management and our investors to evaluate and compare our results from operations in a more meaningful and consistent manner by excluding specific items that are not reflective of ongoing operating results. However, these metrics are not a measurement of our operating performance under GAAP and should not be considered as an alternative to earnings per share, net (loss) income, EPS, 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.

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Reconciliation of Net (Loss) IncomeLoss and Diluted EPS to Adjusted Net (Loss) Income and Adjusted Diluted EPS
(in thousands, except per share data)
 Three months ended March 31,
 20202019
Net Loss
Diluted EPS (1)
Net (Loss) Income
Diluted EPS (1)
(unaudited)
Reported$(200,086) $(2.45) $(15,262) $(0.23) 
Loss on net asset exchange for the formation of the joint ventures1,655  0.02  19,514  0.15  
Loss from equity method investment3,125  0.04  —  —  
Amortization of discount in connection with early debt payment156  —  3,119  0.02  
Amortization of discount and deferred financing fees in connection with the accelerated debt maturity date (2)
12,390  0.15  —  —  
Loss on forward contracts related to the issuance of convertible preferred stock—  —  16,787  0.13  
Long-lived asset impairments and other store closing costs157,515  1.88  —  —  
Manufacturing JV other-than-temporary impairment35,840  0.43  —  —  
Inventory and vendor allowance reserves (3)
22,799  0.27  —  —  
Allowance for doubtful accounts (4)
8,703  0.10  —  —  
Interest expense recognized on interest rate swap (5)
10,810  0.13  —  —  
Other (6)
(821) (0.01) 713  0.01  
Tax effect (7)
(63,043) (0.75) (5,837) (0.05) 
Adjusted$(10,957) $(0.19) $19,034  $0.15  
Weighted average diluted common shares outstanding  83,897  126,628  
 Three months ended March 31,
 2019 2018
 Net (Loss) Income 
Diluted EPS (1)
 Net Income Diluted EPS
 (unaudited)
Reported$(15,262) $(0.23) $6,190
 $0.07
Loss on debt refinancing—
 —
 16,740
 0.20
Amortization of discount in connection with early debt payment3,119
 0.02
 —
 —
Loss on net asset exchange for equity method investments19,514
 0.15
 —
 —
Loss on forward contract related to the issuance of convertible preferred stock16,787
 0.13
 —
 —
Other (2)
713
 0.01
 808
 0.01
Tax effect of items above (3)
(5,837) (0.05) (3,654) (0.04)
Adjusted$19,034
 $0.15
 $20,084
 $0.24
        
Weighted average diluted common shares outstanding126,628
   83,368
  


Reconciliation of Net (Loss) Income to Adjusted EBITDA
(in thousands)
 Three months ended March 31,
 2019 2018
 (unaudited)
Net (loss) income$(15,262) $6,190
Income tax expense1,956
 1,686
Interest expense, net32,956
 21,773
Equity income from equity method investments(955) —
Loss on debt refinancing—
 16,740
Depreciation and amortization10,190
 12,105
Loss on net asset exchange for equity method investments19,514
 —
Loss on forward contracts related to the issuance of convertible preferred stock16,787
 —
  Other (2)
713
 808
Adjusted EBITDA$65,899
 $59,302

(1) The Company applies the if-converted method to calculate the dilution impact of the convertible senior notes and the convertible preferred stock. For reported and adjusted diluted EPS for the three months ended March 31, 2020 and for reported diluted EPS calculation for the three months ended March 31, 2019, the underlying shares of the convertible preferred stock and the convertible senior notes are anti-dilutive. Therefore, the diluted EPS included a reduction to net (loss) income for the cumulative undeclared dividends of $5.2 million and $3.7 million, respectively, for the first quarter of 2020 and 2019. For the adjusted diluted EPS calculation for the three months ended March 31, 2019, the underlying shares of the convertible preferred stock are dilutiveis dilutive.

(2) The Company accelerated the amortization of discount and deferred financing fees related to the Tranche B-2 Term Loan, FILO Term Loan and the convertible senior notes are anti-dilutive. Additionally, the reported diluted EPS calculation for the first quarter of 2019 includes the cumulative undeclared dividends of approximately $3.7 million within reported net income. AsRevolving Credit Facility as a result amountsof the expected acceleration of the debt maturity date to the Springing Maturity Date.

(3) Included $18.2 million inventory obsolescence reserves recorded as a reduction to inventory and $4.6 million vendor allowance recorded as a reduction to accounts receivables due to the current and estimated adverse impacts from the COVID-19 pandemic. The inventory and vendor allowance reserves were recognized within cost of sales in the Consolidated Statement of Operations Refer to Item 1, "Financial Statement," Note 2, "Basis of Presentation", Note 4, "Inventory", and Note 15, "Subsequent Events" for additional information.

(4) Represents credit losses for its franchisees and other third-party customers during the three months ended March 31, 2020 based on the current and estimated adverse impacts from the COVID-19.

(5) The Company reclassified the loss related to the interest rate swap that was previously deferred within accumulated other comprehensive loss to interest expense as the forecasted hedging transactions will not occur by the end of the originally specified time period as a result of the expected acceleration of the debt maturity date.

(6) The three months ended March 31, 2020 included a $2.1 million gain from the sale of the Company owned location in Boston, MA, offset by $0.8 million severance and $0.3 million loss from the cancellation of the annual franchise conference as a result of COVID-19 and $0.2 million of retention. The three months ended March 31, 2019 Diluted EPS column do not sum.


(2) 2019 includesincluded retention of $0.7 million retention and an immaterial refranchising gain. 2018 included $0.8 million retention.gains. The retention expense recognized in 2019 and 2018is relates to an incentive program to retain senior executives and certain other key personnel below the executive level who are critical to the execution and success of the Company's strategy. The total amount awarded was approximately $10 million, of which $1 million was forfeited, which vestsvested in four installments of 25% each over two years. Vesting dates arewere on November 2018, February 2019, August 2019 and February 2020.

(3)(7) For the three months ended March 31, 2020 and 2019, the Company utilized a blended federal rate plus a net state rate that excluding the impact of certain state NOL's, state credits and valuation allowance. Additionally, the loss on forward contracts related to the issuance of convertible preferred stock in 2019 had no tax impact.
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Reconciliation of Net Loss to Adjusted EBITDA
(in thousands)
 Three months ended March 31,
 20202019
(unaudited)
Net loss$(200,086) $(15,262) 
Income tax expense(53,035) 1,956  
Interest expense, net47,444  32,956  
Depreciation and amortization7,858  10,190  
Loss on net asset exchange for the formation of the joint ventures1,655  19,514  
Loss from equity method investment3,125  —  
Loss on forward contracts related to the issuance of convertible preferred stock—  16,787  
Long-lived asset impairments and other store closing costs157,515  —  
Manufacturing JV other-than-temporary impairment35,840  —  
Obsolete inventory reserves and vendor allowance (1)
22,799  —  
Allowance for doubtful accounts (2)
8,703  —  
  Other (3)
(821) 713  
Adjusted EBITDA$30,997  $66,854  

(1) Included $18.2 million inventory obsolescence reserves recorded as a reduction to inventory and $4.6 million vendor allowance recorded as a reduction to accounts receivables due to the estimated adverse impacts from the COVID-19 pandemic. The inventory and vendor allowance reserves were recognized within cost of sales in the Consolidated Statement of Operations. Refer to Item 1, "Financial Statement," Note 2, "Basis of Presentation", Note 4, "Inventory", and Note 15, "Subsequent Events" for additional information.
(2) Represents credit losses for its franchisees and other third-party customers during the three months ended March 31, 2020 based on the current and estimated adverse impacts from the COVID-19 under the current circumstances.
(3) The three months ended March 31, 2020 included a $2.1 million gain from the sale of the Company utilizedowned location in Boston, MA, offset by $0.8 million severance and $0.3 million loss from the cancellation of the annual franchise conference as a result of COVID-19 and $0.2 million of retention. The three months ended March 31, 2019 included retention of $0.7 million and immaterial refranchising gains. The retention expense is relates to an annual effective tax rateincentive program to retain senior executives and certain other key personnel below the executive level who are critical to the execution and success of the Company's strategy. The total amount awarded was approximately $10 million, of which $1 million was forfeited, which vested in four installments of 25% each over two years. Vesting dates were on November 2018, adjustedFebruary 2019, August 2019 and February 2020.
GNC HOLDINGS, INC. AND SUBSIDIARIES
Reconciliation of Net Cash (Used in) Provided by Operating Activities to exclude discrete items and the tax impactFree Cash Flow
(in thousands)
 Three months ended March 31,
 20202019
(unaudited)
Net cash (used in) provided by operating activities$(12,085) $68,711  
Capital expenditures(3,858) (3,017) 
       Free cash flow$(15,943) $65,694  

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Table of loss on debt financing.Contents



Results of Operations
(Calculated as a percentage of consolidated revenue unless indicated otherwise)
 Three months ended March 31,
 20202019
Revenues:
U.S. and Canada89.8 %86.6 %
International7.1 %7.3 %
Manufacturing / Wholesale:
Intersegment revenues— %6.3 %
Third-party contract manufacturing— %2.8 %
Wholesale partner sales3.1 %3.3 %
Subtotal Manufacturing / Wholesale3.1 %12.4 %
Elimination of intersegment revenue— %(6.3)%
Total net revenues100.0 %100.0 %
Operating expenses:
Cost of sales, including warehousing, distribution and occupancy71.1 %64.0 %
Gross profit28.9 %36.0 %
Selling, general and administrative30.6 %26.3 %
Long-lived asset impairments33.3 %— %
Loss on net asset exchange for the formation of the joint ventures0.4 %3.5 %
Other income, net(0.2)%— %
Total operating expenses135.2 %93.8 %
Operating income:
U.S. and Canada (*)
(30.9)%10.7 %
International (*)
(51.8)%34.3 %
Manufacturing / Wholesale (*)
46.7 %21.9 %
Unallocated corporate costs and other
Corporate costs(5.3)%(4.6)%
Loss on net asset exchange for the formation of the joint ventures(0.4)%(3.5)%
Other0.4 %— %
Subtotal unallocated corporate, loss on net asset exchange and other costs(5.3)%(8.1)%
Total operating (loss) income(35.1)%6.3 %
Interest expense, net10.0 %5.8 %
Loss on forward contracts for the issuance of convertible preferred stock— %3.0 %
Loss before income from equity method investments and income taxes(45.1)%(2.5)%
Income tax (benefit) expense(11.2)%0.3 %
Net loss before income from equity method investments(33.9)%(2.8)%
    (Loss) income from equity method investments(8.4)%0.2 %
Net loss(42.3)%(2.6)%
 Three months ended March 31,
 2019 2018
Revenues:   
U.S. and Canada86.6 % 84.3 %
International7.3 % 6.6 %
Manufacturing / Wholesale:   
Intersegment revenues6.3 % 10.6 %
Third party6.1 % 9.1 %
Subtotal Manufacturing / Wholesale12.4 % 19.7 %
Elimination of intersegment revenue(6.3)% (10.6)%
Total net revenues100.0 % 100.0 %
Operating expenses:   
Cost of sales, including warehousing, distribution and occupancy64.0 % 65.9 %
Gross profit36.0 % 34.1 %
Selling, general and administrative26.3 % 26.5 %
Loss on net asset exchange for the formation of the joint ventures3.5 % — %
Other income, net— % — %
Total operating expenses93.8 % 92.4 %
Operating income:   
U.S. and Canada (*)
10.7 % 8.5 %
International (*)
34.3 % 36.1 %
Manufacturing / Wholesale (*)
21.9 % 12.5 %
Unallocated corporate costs and other   
Corporate costs(4.6)% (4.4)%
Loss on net asset exchange for the formation of the joint ventures(3.5)% — %
Other— % — %
Subtotal unallocated corporate, loss on net asset exchange and other costs(8.1)% (4.4)%
Total operating income6.3 % 7.7 %
Interest expense, net5.8 % 3.6 %
Loss on debt refinancing— % 2.8 %
Loss on forward contracts for the issuance of convertible preferred stock3.0 % — %
(Loss) income before income taxes(2.5)% 1.3 %
Income tax expense0.3 % 0.3 %
Net (loss) income before equity income from equity method investments(2.8)% 1.0 %
    Equity income from equity method investments0.2 % — %
Net (loss) income(2.6)% 1.0 %

(*) Calculated as a percentage of segment revenue.

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The following table summarizes the number of our locations for the periods indicated:
Three months ended March 31, Three months ended March 31,
2019 2018 20202019
U.S. & Canada   U.S. & Canada
Company-owned(a):
 
  
Company-owned(a):
  
Beginning of period balance3,206
 3,423
Beginning of period balance2,902  3,206  
Openings5
 5
Openings3  5  
Acquired franchise locations(b)
6
 6
Acquired franchise locations(b)
5  6  
Franchise conversions(c)
(1) —
Franchise conversions(c)
—  (1) 
Closings(87) (49)
Closings (d)
Closings (d)
(92) (87) 
End of period balance3,129
 3,385
End of period balance2,818  3,129  
Domestic Franchise:   Domestic Franchise:
Beginning of period balance1,037
 1,099
Beginning of period balance956  1,037  
Openings3
 5
Openings6  3  
Acquired franchise locations(b)
(6) (6)
Acquired franchise locations(b)
(5) (6) 
Franchise conversions(c)
1
 —
Franchise conversions(c)
—  1  
Closings(17) (15)
Closings (d)
Closings (d)
(25) (17) 
End of period balance1,018
 1,083
End of period balance932  1,018  
International(d):
   
International(e):
International(e):
Beginning of period balance1,957
 2,015
Beginning of period balance1,915  1,957  
Openings24
 16
Openings15  24  
Closings(24) (22)Closings(20) (24) 
China locations contributed to the partnership with Harbin(5) —
China locations contributed to the China joint venture China locations contributed to the China joint venture—  (5) 
End of period balance1,952
 2,009
End of period balance1,910  1,952  
Store-within-a-store (Rite Aid): 
  
Store-within-a-store (Rite Aid):  
Beginning of period balance2,183
 2,418
Beginning of period balance1,759  2,183  
Openings11
 16
Openings31  11  
Closings(85) (6)
Closings(f)
Closings(f)
(162) (85) 
End of period balance2,109
 2,428
End of period balance1,628  2,109  
Total Locations8,208
 8,905
Total Locations7,288  8,208  

(a) Includes Canada.
(b) Stores that were acquired from franchisees and subsequently converted into company-owned stores.store locations.
(c) Company-owned store locations sold to franchisees.
(d) Excludes approximately 1,100 of the U.S. and Canada company-owned and franchise retail temporary closed stores due to COVID-19 as of March 31, 2020.
(e) Includes franchise locations in approximately 50 countries (including distribution centers where sales are made and store-within-a-store)store-within-a-store locations) and company-owned stores located in Ireland. Prior year also includes company-owned locations in China.Ireland.
.(f) Rite Aid store-within-a-store closings were primarily a result of the Walgreens acquisition of certain Rite Aid locations







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Comparison of the Three Months Ended March 31, 20192020 (current quarter) and 20182019 (prior year quarter)
Revenues 
Our consolidated net revenues decreased $42.7$92.2 million, or 7.0%16.3%, to $564.8$472.6 million for the three months ended March 31, 20192020 compared with $607.5$564.8 million for the same period in 2018.2019. The decrease in revenue was primarily a resultlargely due to U.S. company-owned negative same store sales of 10.1%, the closure of company-owned stores under our ongoing store portfolio optimization strategy, the transfer of the Nutra manufacturing and China e-commerce businesses to the newly formedManufacturing joint venturesventure ("Manufacturing JV") in the first quarter of 2019 and the closure of company-owned stores from our store portfolio optimization strategy.lower Domestic and International franchise revenue.
U.S. and Canada. Revenues in our U.S. and Canada segment decreased $23.2$65.0 million, or 4.5%13.3%, to $489.2$424.2 million for the three months ended March 31, 20192020 compared with $512.4$489.2 million in the prior year quarter. The $23.2$65.0 million decrease in revenue in the current quarter as compared with the prior year quarter was primarily due to the following:
The decrease in the number of corporate stores from 3,385 at March 31, 2018 to 3,129 at March 31, 2019 from our store portfolio optimization strategy contributed an approximate $14 million decrease to revenue;
•A decrease in U.S. company-owned same store sales of 1.6%10.1%, which includes GNC.com sales, which resulted in a $6.2$35.8 million decrease to revenue. GNC.com contributed an increaserevenue, of 0.3%which approximately $20 million was attributable to the same store sales.impact of COVID-19 in the second half of March compared with sales trends during the first quarter of 2020 prior to the pandemic outbreak. E-commerce sales were 7.4%comprised 10.6% of U.S. and Canada revenue in the current quarter compared with 7.1%7.4% in the prior year quarter; and
•The decrease in the number of corporate stores from 3,129 at March 31, 2019 to 2,818 at March 31, 2020 as a result of our store portfolio optimization strategy contributed a $20.7 million decrease to revenue;
•A decrease in Canada company-owned storesdomestic franchise revenue of $2.8$8.3 million primarily due to a decrease in same store sales of 4.1%10.2% and decrease in number of franchise stores from 1,018 at March 31, 2019 to 932 at March 31, 2020;
•A decrease in Canada same stores sales of 11.7% resulted in a $2.5 million decrease to revenue.
International. Revenues in our International segment increased $0.8decreased $7.4 million, or 2.1%18.0%, to $40.9$33.5 million in the current quarter compared with $40.1$40.9 million in the prior year quarter. Revenue from our international franchisees increased $4.6 million in the current quarter compared to the prior year quarter primarily due to strong performance from franchiseesthe outbreak of COVID-19 which caused business disruption in Singapore and South Korea.the International segment beginning in January 2020. Revenue from our China businessinternational franchisees decreased by $3.4 million to $4.5$6.4 million in the current quarter compared with the prior year mostlyquarter primarily due to lower sales in the transferAsian markets as a result of the cross-border e-commerce China business to the newly formed joint venture effective February 13, 2019.COVID-19 pandemic.
Manufacturing / Wholesale. Revenues in our Manufacturing / Wholesale segment, excluding intersegment sales, decreased $20.4$19.8 million, or 37.0%57.2%, to $34.7$14.9 million for the three months ended March 31, 20192020 compared with $55.1 million in the prior year. Third-party contract manufacturing sales decreased $16.9 million, or 51.8%, to $15.8 million for the three months ended March 31, 2019 compared with $32.7$34.7 million in the prior year quarter primarily due to the transaction with IVC fortransfer of the newly formedNutra manufacturing joint venture effective March 1, 2019.business to the Manufacturing JV. Sales to our wholesale partners decreased $3.4$4.0 million, or 15.4%21.4%, from $22.3$18.9 million in the prior year quarter to $18.9$14.9 million in the current quarter primarilylargely due to the terminationclosures of the consignment agreement withour Rite Aid in the fourth quarterstore-within-a-store as a result of 2018. Additionally,Walgreens' acquisition of certain Rite Aid locations. There were no intersegment sales decreased $29.2 million from $64.7 million in the prior year quarter to $35.5 million in the current quarter due to the transaction with IVC fortransfer of the newly formedNutra manufacturing joint venture effectivebusiness to the Manufacturing JV in March 1, 2019.2019, compared to $35.5 million in the prior year quarter.
Cost of Sales and Gross Profit
Cost of sales, which includes product costs, warehousing, distribution and occupancy costs, decreased $39.0$25.8 million to $361.7$335.9 million for the three months ended March 31, 20192020 compared with $400.7$361.7 million in the prior year quarter. Gross profit decreased $3.8$66.4 million from $206.9$203.1 million in the prior year quarter to $203.1$136.7 million in the current quarter. Based on the estimated adverse impact from the COVID-19 pandemic, we recorded $22.8 million in reserves related to inventory obsolescence and vendor allowances in the current quarter, but increasedof which $22.4 million was within U.S. and Canada segment and $0.4 million was within Manufacturing / Wholesale segment. Excluding these reserves in the current quarter, gross profit as a percentage of revenue from 34.1%was 33.8% for the quarterthree months ended March 31, 2018 to2020 compared with 36.0% in the currentprior year quarter. The increasedecrease in gross profit rate was primarily due to lowerdeleverage in occupancy expense as a resultassociated with lower sales, partially offset by the transfer of the adoptionNutra manufacturing business to the Manufacturing JV in the first quarter of the new lease standard, savings from store closures associated with the store optimization program and rent reductions.prior year.
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Selling, General and Administrative (“SG&A”) Expense
SG&A expense, including compensation and related benefits, advertising and other expenses, decreased $12.4$3.8 million, or 7.7%2.5%, from $160.7$148.3 million in the prior year quarter to $148.3$144.5 million in the current quarter. SG&A expense, as a percentage of revenue, was 26.3%30.6% and 26.5%26.3% for the three months ended March 31, 2020 and 2019, respectively.
        During the three months ended March 31, 2020 and 2019, we recognized $0.2 million and $0.7 million, respectively, related to a retention program adopted in the first quarter of 2018 to retain senior executives and certain other key personnel who are critical to the execution and success of our strategy. The total amount awarded was approximately $10 million, of which approximately $1 million was forfeited, which vested in four installments of 25% each over two years through February 2020. In addition, in connection with the COVID-19 pandemic in the current quarter, we recorded $8.7 million allowance for credit losses for certain vendors and franchisees, of which $7.9 million was recorded within U.S. and Canada segment and $0.8 million was recorded within Manufacturing / Wholesale segment, and $1.1 million for certain other expenses as detailed within the table "Reconciliation of Net Loss and Diluted EPS to Adjusted Net (Loss) Income and Adjusted Diluted EPS" above.
        Excluding the impact of these items, SG&A expense decreased $13.0 million in the current quarter compared with the prior year quarter, and, as a percentage of revenue, was 28.5% and 26.1% for the three months ended March 31, 2020 and 2019, respectively. The decrease in SG&A expense was primarily due to lower salaries and benefits associated with the store portfolio optimization, corporate incentive and cost saving initiatives. The increase in SG&A expense as a percentage of revenue was primarily driven by more normalized marketing expense and partially offset by higherdeleverage in salaries and benefits asassociated with a percentdecrease in sales, and to a lesser extent an increase in consulting fees.
Long-lived Asset Impairments and other store closing costs
We recorded $157.5 million long-lived asset impairments and other store closing costs, consisting of revenue.$111.7 million related to brand name (of which $88.6 million was allocated to the U.S. and Canada segment and the remaining was allocated to the International segment), $40.3 million related to long-lived assets and other store closing costs and $5.5 million related to goodwill for The Health Store reporting unit within the International segment.
Refer to Item 1, "Financial Statements," Note 5, "Property, Plant and Equipment, net" and Note 6, "Goodwill and Intangible Assets" for more information.
Other Income, net
        Other income, net, of $1.0 million in the current quarter included a $2.1 million gain from the sale of the Company owned location in Boston, MA, offset by a $1.1 million foreign currency loss. Other income, net, of $0.2 million in the current quarter and prior year quarter included foreign currency gains and refranchising gains.

Operating Income
As a result of the foregoing, consolidated operating income decreased $10.9 million, or 23.5%, to $35.5loss was $166.0 million for the three months ended March 31, 20192020 compared with $46.4operating income of $35.5 million in the prior year quarter, and as a percentage of revenue, was 6.3% and 7.7% for the three months ended March 31, 2019 and 2018. The decrease was due to a $19.5 millionquarter. Operating loss on the exchange of net assets for the newly formed joint ventures recognized in the firstcurrent quarter of 2019.was significantly impacted by $157.5 million long-lived asset impairment and other store closing charges, $22.8 million reserves related to inventory obsolescence and vendor allowance and $8.7 million allowance for credit losses in connection with the current and estimated adverse impacts from the COVID-19 pandemic. Refer to Item 1, "Financial Statements," Note 15, "Subsequent Events" for more information about the COVID-19 impacts.
U.S. and Canada. Operating income increased $8.6 million to $52.1loss was $131.2 million for the three months ended March 31, 20192020 compared with $43.5operating income of $52.1 million for the same period in 2018.2019. Operating income as a percentage of segment revenue was 10.7%loss in the current quarter comparedincluded $88.6 million non-cash brand impairment and $40.3 million of long-lived asset store impairment charges and other store closing costs. In addition, as mentioned above, in connection with 8.5%the COVID-19 pandemic, we recorded $22.4 million inventory and vendor reserves, $7.9 million allowances for credit losses, and $1.1 million in certain other expenses detailed within table "Reconciliation of Net Loss and Diluted EPS to Adjusted Net (Loss) Income and Adjusted Diluted EPS" above. Excluding these items and immaterial gains on refranchising in the prior year quarter. The increase inquarter, operating income as a percentage of segment revenue was primarily due to lower occupancy and marketing costs, partially offset by a decrease in product margin rate.
International.Operating income decreased $0.4$29.1 million, or 2.9%, to $14.1 million for the three months ended March 31, 2019 compared with $14.5 million in the prior year quarter. Operating income was 34.3%6.9% of segment revenue, in the current quarter compared with 36.1%$52.1 million, or 10.7% of segment revenue, in the prior year quarter. The decrease in operating income as a percentage in the current quarter compared to the prior year quarter was primarily due to occupancy, salaries and benefits deleverage in connection with the decrease in sales and higher marketing expense.
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        International.Operating loss was $17.4 million for the three months ended March 31, 2020. Excluding non-cash brand impairment of $23.1 million and goodwill impairment of $5.5 million in the current quarter, operating income was $11.2 million, or 33.4% of segment revenue, compared with $14.1 million, or 34.3% of segment revenue, for the same period in 2019. The decrease in operating income percentage was primarily due to a lower margin rate driven by a change in revenue mix.mix within the segment as a result of the transfer of the China business to the joint ventures effective February 13, 2019.
Manufacturing / Wholesale. Operating income increased $0.3decreased $8.4 million, or 2.5%54.8%, to $15.3$6.9 million for the three months ended March 31, 20192020 compared with $15.0$15.3 million in the prior year quarter.  Operating income as a percentage of segment revenue increased from12.5%from 21.9% in the prior year quarter to 21.9%46.7% in the current quarter primarily due to a decrease in revenuesquarter. Revenue decreased as a result of the transfer of the Nutra manufacturing business to the Manufacturing JV. Although revenue decreased, theJV as described above. However, operating income reductionmargins were positively impacted as the Manufacturing / Wholesale segment recognized profit margin that resulted from maintaining consistent pricing to what was minimal as GNC continuescharged to recognize margin on product sold in March, but purchasedour other operating segments prior to the formationinception of the joint venture. The remaining increase in operating income is the result of an increase in GNC brand sales.Manufacturing JV.
Corporate costs. Corporate costs decreased $0.2$1.5 million to $26.3$24.8 million for the three months ended March 31, 20192020 compared with $26.5$26.3 million in the prior year quarter. As explained above, the current quarter and prior year quarter included retention expense of $0.2 million and $0.7 million, respectively. Excluding these expenses, corporate costs decreased $0.9 million in the current quarter compared with the prior year quarter.
Loss on net asset exchangeNet Asset Exchange for the formationFormation of the joint ventures. Joint VenturesWe contributed. During the first quarter of 2020, we recognized a $1.7 million purchase price adjustment related to the Harbin transaction. During the first quarter of 2019, we recognized a pre-tax loss of $19.5 million related to the contribution of our China business in exchange for 35% equity interest each ofto the new HK JV and China JV. In addition, we contributedJV and the contribution of our Nutra manufacturing and Anderson facility net assets to the Manufacturing JV in exchangeJV. Refer to Item 1, "Financial Statements," Note 8, "Equity Method Investment" for $101more information.
Interest Expense, net
Interest expense was $47.4 million and an initial 43% equity interest in the Manufacturing JV duringfor the three months ended March 31, 2019. As a result, we recognized a pre-tax loss of $19.5 million.
Interest Expense, net
Interest expense was2020 compared with $33.0 million infor the three months ended March 31, 2019 compared with $21.8 million in the three months ended March 31, 2018 primarily due to higher interest rate in$12.4 million accelerated amortization of the current quarter on the Tranche B-2discounts and the FILO Term Loandeferred financing fees in connection with the debt refinancing andaccelerated maturity date for the amortization of original issuance discount in connection with the early payment on Tranche B-2, Term Loan.
Loss on Debt Refinancing
In connection with the refinancing of the Senior Credit Facility in the three months ended March 31, 2018, we recorded a loss of $16.7 million, which primarily includes third-party fees relating to the Tranche B-2FILO Term Loan and the FILO Term Loan.Revolving Credit Facility and $10.8 million expense recognized for the amount previously deferred within accumulated other comprehensive loss related to the interest rate swap cash flow hedges being deemed ineffective as of March 31, 2020. Refer to Note 7, "Debt / Interest Expense" for more information.
Loss on Forward Contracts for the Issuance of Convertible Preferred Stock
A loss of $16.8 million was recorded in the three months ended March 31, 20182019 for the change in fair value of the forward contracts related to the issuance of convertible preferred stock. Refer to Item 1, "Financial Statements," Note 10,11, "Mezzanine Equity" for more information.
Income Tax (Benefit) Expense
We recognized $2.0$53.0 million of income tax expensebenefit during the three months ended March 31, 20192020 compared with $1.7$2.0 million of income tax expense for the same period in 2018.2019. The Company’s 2020 annual effective tax rate was impacted by a partial valuation allowance for attributes expected to be generated in 2020 that may not be realizable, the other-than-temporary impairment of the Manufacturing JV, and the benefit of the federal tax rate differential related to federal net operating losses generated during the current year that are expected to be carried back to prior years at a 35% rate. The 2019 effective tax rate was significantly impacted by a gain for tax purposes resulting from the transfer of the Nutra manufacturing net assets to the Manufacturing JV and the establishment of a partial valuation allowance for attributes generated in the 2019 year that may not be realizable.

(Loss) Income from Equity Method Investments
In connection with the formation of the HK JV and Manufacturing JV in the first quarter of 2019, we recognize 35% and 43% of the joint ventures' net income, respectively. We recognized $0.9a loss of $39.6 million from equity income from the manufacturing joint venture and an immaterial equity income from the HK JVmethod investments during the three months ended March 31, 2019.2020 compared with income from equity method investments of $1.0 million in the prior year quarter. During the first quarter of 2020, the loss from equity method investments included a $35.8 million other-than-temporary impairment for the Manufacturing JV as the estimated fair value of the equity method investment in the Manufacturing JV was less than its carrying value, $3.1 million loss in connection with IVC's first subsequent purchase of the Manufacturing JV and $0.7 million loss from our share of the equity method investments. Refer to Item 1, "Financial Statements," Note 8, "Equity Method Investments" for more information.
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Net (Loss) IncomeLoss
As a result of the foregoing, consolidated net income decreased $21.5 million to a net loss of $15.3was $200.1 million for the three months ended March 31, 20192020 compared with net incomeloss of $6.2$15.3 million for the same period in 2018.2019. Excluding certain expenses as reconciled in the table above, under the caption "Reconciliation of Net Loss and Diluted EPS to Adjusted Net (Loss) Income and Adjusted Diluted EPS", adjusted net loss was $11.0 million for the current quarter compared with adjusted net income of $19.0 million for the same period in 2019.
Diluted (Loss) EarningsLoss Per Share
Diluted loss per share was $0.23$2.45 for the three months ended March 31, 20192020 compared with diluted loss per share of $0.23 for the same period in 2019. The diluted loss per share included cumulative undeclared dividends of $5.2 million and $3.7 million, respectively, for the current and prior year quarters. Excluding certain expenses as reconciled in the table above, under the caption "Reconciliation of Net Income and Diluted EPS to Adjusted Net (Loss) Income and Adjusted Diluted EPS", adjusted diluted loss per share was $0.19 for the current quarter compared with diluted earnings per share of $0.07$0.15 for the same period in 2018.2019.
Liquidity and Capital Resources
As of March 31, 2019,2020, we had $74.2$19.9 million available under the Revolving Credit Facility, after giving effect to $6.2$30.0 million borrowing outstanding, $4.5 million utilized to secure letters of credit and $0.6$26.6 million reduction to borrowing ability as a result of a decrease in net collateral.  Ourcollateral.  During April 2020, we borrowed an additional $30.0 million on the Revolving Credit Facility and as of April 30, 2020, we had $60.0 million borrowing outstanding.
As further discussed below, we have an accelerated maturity payment due on May 16, 2020 (the “Springing Maturity Date”) that we do not have the ability to make scheduled paymentspay. Since we have not refinanced the $738.7 million of principalTranche B-2 Term Loan (the "Tranche B-2 Term Loan"), FILO Term Loan (the "FILO Term Loan") and Revolving Credit Facility (the "Revolving Credit Facility") that will become due on the Springing Maturity Date, management has concluded there is substantial doubt regarding our ability to pay interest oncontinue as a going concern within one year from the issuance date of our Consolidated Financial Statements. Failure to complete a refinancing or other restructuring, obtain an extension of the Springing Maturity Date as defined in the Credit Agreements, reach an agreement with required lender groups under the Credit Agreements prior to May 16, 2020 or to refinancereach an agreement with our debt and to satisfy our other debt obligations will dependstakeholders on the terms of an out-of-court restructuring would have a material adverse effect on our future operating performance, which will be affected by general economic,liquidity, financial condition and other factors beyondresults of operations and may result in filing a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in order to implement a restructuring plan. As of March 31, 2020, our control. outstanding indebtedness has been classified as current on the Company's Consolidated Balance Sheets. In addition, we accelerated the amortization of original issuance discount and deferred financing fees for the Tranche B-2 Term Loan, FILO Term Loan and the Revolving Credit Facility of $12.4 million to the Springing Maturity Date.
We expecthave continued to makeexperience negative same store sales and declining gross profit. We have closed underperforming stores under its store optimization strategy and implemented cost reduction measures to help mitigate the effect of these declines and improve its financial position and liquidity. At March 31, 2020, we have substantial indebtedness including $156.4 million of outstanding indebtedness under the Notes issued under that certain Indenture dated as of August 10, 2015, among the Company, certain of its subsidiaries, and The Bank of New York Mellon Trust Company, N.A, maturing on August 15, 2020 (the "Notes") and $434.8 million of outstanding indebtedness under the Amended and Restated Term Loan Credit Agreement, dated as of February 28, 2018, among GNC Corporation, GNC Nutrition Centers, Inc., as Borrower, the lenders and agents parties thereto, and JPMorgan Chase Bank, N.A., as administrative agent (the “Tranche B-2 Term Loan Credit Agreement" and the term loan thereunder, the "Tranche B-2 Term Loan"). We made an excess cash flow payment between $25of $25.9 million and $35that was due in April 2020 which reduced the outstanding amount of the Tranche B-2 Term Loan. The Tranche B-2 Term Loan becomes due on the earlier to occur of (i) the maturity date of March 4, 2021 or (ii) May 16, 2020 if more than $50 million at 50% with respect toof the year ending December 31, 2019, which is expected to be paid in the second quarterNotes are outstanding on such date. Each of 2020.
We currently anticipate that cash generated from operations, together with amounts available under the Revolving Credit Facility will be sufficient to service our debt (including the expected excess cash flow payment), meet our operating expenses and fund capital expenditures over the next 12 months. If all outstanding amounts under the convertible senior notes ("Notes"Credit Agreement, dated as of February 28, 2018, among GNC Corporation, GNC Nutritional Centers, Inc., as Administrative Borrower, certain of its subsidiaries, as subsidiary borrowers, the lenders and agents parties thereto, and JPMorgan Chase Bank, N.A., as administrative agent (the “ABL Credit Agreement,” and together with the Tranche B-2 Term Loan Credit Agreement, the "Credit Agreements") and the FILO Term Loan under the ABL Credit Agreement, which otherwise mature in excess of $50.0 million have not been repaid, refinanced, converted or effectively discharged prior to May 2020 ("Springing Maturity Date"), theAugust 2022 and December 2022 respectively, also include an accelerated maturity date of May 16, 2020 if more than $50 million of the Tranche B-2 becomes the Springing Maturity Date, subject to certain adjustments. In the event that a refinancing doesNotes are outstanding on such date. We do not occur before the Springing Maturity Date, management believes that the Company will have the ability to repay $138.6reduce the outstanding balance on the Notes from $156.4 million of the Notesto below $50 million with projected cash on hand and new borrowings under the Revolving Credit Facility. Facility, assuming such borrowings remain available.
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The outbreak of novel strain of coronavirus COVID-19 caused business disruption in the International segment beginning in January 2020. In late February 2020, the situation escalated as the scope of the COVID-19 outbreak worsened to directly impact areas outside of the Asia-Pacific region, with Europe and the United States recognizing outbreaks of COVID-19. As of March 31, 2020, we had temporarily closed approximately 30% of the U.S. and Canada company-owned and franchise stores as a result of the COVID-19 pandemic. There is significant uncertainty on our business going forward due to various global macroeconomic, operational and supply chain risks as a result of COVID-19.
We are currentlywere in compliance with ourthe debt covenant reporting and compliance obligations under the Credit Agreements as of March 31, 2020. Management does not believe that we have the ability to comply with the financial covenants under the Senior Credit Facility Agreements over the next twelve months given the current circumstances stemming from the COVID-19 pandemic
We are in the process of reviewing a range of refinancing options to refinance our outstanding indebtedness. We have been working with an independent committee of the Board supported by independent financial and legal advisors to conduct its review and have had a series of discussions with financing sources in the United States and Asia.We will continue to explore all options to refinance and restructure its indebtedness. While we continue to work through a number of refinancing alternatives to address its upcoming debt maturities, we cannot make any assurances regarding the likelihood, certainty or exact timing of any alternatives.
Reporting requirements under both the Tranche B-2 Term Loan and the Credit FacilitiesAgreement require the Company to provide annual audited financial statements accompanied by an opinion of an independent public accountant without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit (other than a “going concern” statement, explanatory note or like qualification or exception resulting solely from an upcoming maturity date under the Tranche B-2 Term Loan or the Notes). Management believes the we satisfied this requirement in the 2019 Annual Report on Form 10-K, as filed with the Securities and expectExchange Commission (the "SEC") on March 25, 2020 (the"2019 10-K"). If the lenders take a contrary position, (a) they could decide to remaininstruct the administrative agent under the Senior Credit Agreements to deliver a written notice thereof to the borrower, and if the alleged default continued uncured for 30 days thereafter it would become an alleged event of default (unless waived by the lenders) and (b) the Company intends to contest such position and any action the lenders may attempt to take as a result thereof. If the lenders were to prevail in compliance during 2019.any such dispute, the required lenders could instruct the administrative agent to exercise remedies under the Senior Credit Agreements (the "Revolving Credit Facility"), including accelerating the maturity of the loans, terminating commitments under the revolving credit facility under the ABL Credit Agreement and requiring the posting of cash collateral in respect of outstanding letters of credit issued under the Revolving Credit Facility ($4.5 million at March 31, 2020). If this were to occur, management would enter into discussions with the lenders to waive the default or forebear from the exercise of remedies. Failure to obtain such a waiver, complete a refinancing or other restructuring, obtain an extension of the Springing Maturity Date as defined in the Credit Agreements or to reach an agreement with required lender groups under the Credit Agreements prior to May 16, 2020 or to reach an agreement with the our stakeholders on the terms of an out-of-court restructuring would have a material adverse effect on our liquidity, financial condition and results of operations and may result in filing a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in order to implement a restructuring plan.
Due to the adverse impacts of COVID-19, we withheld rent and other occupancy payments beginning in April 2020 for certain of our retail locations as management negotiates with landlords for rent concessions. The Company withheld rent and other occupancy payments of approximately $19 million in April 2020 and approximately $16 million in May 2020. In the event that withholding these rent payments would constitute an event of default per the lease agreement, management intends to negotiate resolution with the landlord. If such negotiations are not successful, the lease liabilities associated with those leases could become immediately due and payable.
Cash (Used in) Provided by Operating Activities
Cash provided byused in operating activities increased by $43.6 million from $25.1was $12.1 million for the three months ended March 31, 2018 to2020 compared with cash provided by operating activities of $68.7 million for the three months ended March 31, 2019 due to favorable2019. The decrease in cash from operating activities was driven by a decrease in operating income, as discussed above, and unfavorable working capital changes primarily due to an increase in accounts payable as a resultchanges.
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Table of the Company's cash management efforts and the increase in accounts payable related to the establishment of the Manufacturing JV.Contents
Cash Used inProvided by Investing Activities
Cash provided by investing activities was $85.6$14.5 million for the three months ended March 31, 20192020 compared with cash used in investing activities of $3.4$85.6 million for the same period in 2018 primarily due to2019. During the three months ended March 31, 2020, we received $15.6 million for the first subsequent purchase price from IVC for additional equity interest in the Manufacturing JV and $2.6 million in proceeds from the sale of the Company owned location in Boston, MA. In the prior year quarter, we received $101 million cash proceeds received from IVC in exchange for IVC's 57% of ownership inof the Manufacturing JV. In addition, in 2019 we made a capital contribution of $10.7 million to the Manufacturing JV for our share of short-term working capital needs and contributed cash of $2.4 million cash from our China business to the HK JV and China joint ventures.JV. Capital expenditures for the three months ended March 31, 2019 was $3.02020 were $3.9 million compared with $3.7$3.0 million for the same period in 2018.
We expect capital expenditures to be approximately $20 to $30 million in 2019, which includes investments for store development, IT infrastructure and maintenance. We anticipate funding our 2019 capital requirements with cash flows from operations and, if necessary, borrowings under the Revolving Credit Facility.2019.

Cash Used in Financing Activities
        For the three months ended March 31, 2020, cash provided by financing activities was $18.2 million, primarily consisting of $30.0 million in borrowings from the Revolving Credit Facility and $11.7 million in payments on the Tranche B-2 Term Loan utilizing proceeds from IVC's purchase of equity interest in the Manufacturing JV during the first quarter of 2020.
For the three months ended March 31, 2019, cash used in financing activities was $84.4 million, primarily consisting of $147$147.3 million in payments on the Tranche B-1 Term Loan, $114$114.0 million in payments on the Tranche B-2 Term Loan, $12.6 million fees associated with the issuance of convertible preferred stock and a $10.4 million original issuance discount (“OID”)OID paid to the Tranche B-2 Term Loan lender at 2% of the outstanding balance, and $12.6 million in fees paid for the issuance of convertible preferred stock, partially offset by approximately $200 million of proceeds from the issuance of convertible preferred stock.the Convertible Preferred Stock.
For
Contractual Obligations
The Company does not expect to have the three months ended March 31, 2018,ability to reduce the outstanding balance on the Notes from $156.4 million to below $50 million with projected cash used in financing activities was $32.0 million, primarily consisting of $35.2 million in an OID paid to lenderson hand and fees associated with our new Revolving Credit Facility associated with the debt refinancing and we made $11.8 million in amortization payments on our term loan balances, partially offset by net borrowings under the Revolving Credit Facility, assuming such borrowings remain available, before the Springing Maturity Date. As of $17.5 million.
Contractual Obligations
March 31, 2020, the Company's outstanding indebtedness has been classified as current on the Company's Consolidated Balance Sheets. Refer to Liquidity and Capital Resource for more information. There have been no other material changes in our contractual obligations as disclosed in the 20182019 10-K.
Critical Accounting Estimates
We adopted ASU 2016-02, Leases, during the first quarter of fiscal 2019 and elected the optional transition relief amendment that allows for a cumulative-effect adjustment in the period of adoption and did not restate prior periods. We revised our accounting policy on leases in conjunction with the adoption of the new lease standard. Refer to Item 1, "Financial Statements,"Note 2, "Basis of Presentation" for more information.
In February 2019, we contributed our China business in exchange for 35% ownership of each of the newly formed joint ventures (the “HK JV” and the "China JV"). In March 2019, we received $101 million from IVC and contributed the net assets of the Nutra manufacturing and Anderson facilities in exchange for an initial 43% equity interest in a newly formed joint venture (the “Manufacturing JV”). Our interest in the joint ventures are accounted for as equity method investments. Refer to Item 1, "Financial Statements,"Note 6, "Equity Method Investments" for more information. The equity method is applied in situations where we have the ability to exercise significant influence, but not control, over the management decisions of the joint ventures. We evaluate the equity investments for impairment whenever events or changes in circumstances indicate that the carrying value of an investment is not recoverable. A significant amount of judgment is involved in determining whether an indicator of impairment has occurred. Factors that may trigger an impairment review include significant, sustained declines in an investee's revenue, earnings, and cash flow trends; adverse market conditions; the investee's ability to continue operations measures by several items, including liquidity; and other factors. Once an impairment indicator is identified, we use considerable judgment to determine if the impairment is other than temporary, in which case the equity investment is written down to its estimated fair value. An impairment that is other than temporary could significantly and adversely impact reported results of operations.
Except as discussed above, thereThere have been no material changes to the application of critical accounting policies and significant judgments and estimates as disclosed in our 20182019 10-K.
Recent Accounting Pronouncements
Refer to As described in Item 1, "Financial Statements," Note 2,5, "Property, Plant and Equipment, net", Note 6, "Goodwill and Other Long-lived Assets," and Note 8, "Equity Method Investment", we recorded $157.5 million in long-lived asset impairment and other store closing costs and $35.8 million other-than-temporary impairment for the Manufacturing JV. The calculation of these charges required the use of judgment and estimates that involve inherent uncertainties.
Recent Accounting Pronouncements
        Refer to Note 2. "Basis of Presentation," which is incorporated herein by reference.
 
Item 3.  Quantitative and Qualitative Disclosures about Market Risk
There have been no significant changes to our market risk since December 31, 2018.2019. For a discussion of our exposure to market risk, refer to Part II, Item 7A "Quantitative and Qualitative Disclosures About Market Risk" of our 20182019 Form 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
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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 March 31, 2019,2020, our disclosure controls and procedures are effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting
During the three months ended March 31, 2019, we implemented a new lease management and accounting system and updated our processes and internal controls in conjunction with the adoption of the new lease accounting standard, ASU 2016-02, Leases, effective January 1, 2019. We have also updated our processes and internal controls in connection with the formation of the newly formed joint ventures during the three months ended March 31, 2019. These implementations resulted in a material change in a component of our internal control over financial reporting and were not made in response to a deficiency in internal controls.
Except as discussed above, there        There are no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ending March 31, 2019,2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.  
PART II - OTHER INFORMATION 
Item 1.   Legal Proceedings 
We are engaged in various legal actions, claims and proceedings arising in the normal course of business, some of which are covered by insurance for which we have rights of indemnification. These actions, claims and proceedings are of the sort that are commonly encountered in the nutritional supplement retail industry, including claims related to breach of contracts, products liabilities, intellectual property matters and employment-related matters resulting from our business activities. Although the impact of the final resolution of these matters on the Company's financial condition, results of operations or cash flows is not known, management does not believe that the resolution of these lawsuits will have a material adverse effect on the financial condition, results of operations or liquidity of the Company.
DMAA/Aegeline Claims.   As disclosed in prior Annual Reports on Form 10-K and Quarterly Reports on Forms 10-Q, prior to December 2013, we 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 our stores in November 2013, and/or Aegeline, a compound extracted from bael trees. As of March 31, 2019,2020, individuals (on their own behalf or on behalf of minors or estatesestates) have filed 27 personal injury lawsuits involving products containing DMAA and/or Aegeline, where we (or one of our wholly-owned subsidiaries) along with the third-party vendor, have been named as parties:
•Case No. 140502403, filed May 20, 2014 in Common Pleas Court of Philadelphia County, Pennsylvania
•Case No. 15-1-0847-05, filed May 1, 2015, in the first Circuit Court, State of Hawaii
•Cases filed in the District Court for the District of Hawaii as follows:
- Case No. 3-00639 DMK, filed November 21, 2013- Case No. CV 14-00029, filed January 23, 2014
- Case No. CV 14-00030, filed January 23, 2013- Case No. CV 14-00031, filed January 23, 2014
- Case No. CV 14-00032, filed January 23, 2014- Case No. CV14-00029, filed January 23, 2014
- Case No. 14-cv-00364 filed October 24, 2014- Case No. CV14-00365 filed October 24, 2014
- Case No. CV14-00366 filed August 15, 2014- Case No. 14-cv-00367 filed October 24, 2014
- Case No. CV-15-00228, filed June 17, 2016
•Cases filed in the Superior Court of California as follows:
Orange County:
- Case No. 2014-00740258 filed August 18, 2014- Case No. 30-2015-00776749, filed March 12, 2015
- Case No. 30-2015-00783256-CU-PL-CXC, filed April 16, 2015

San Diego County:
- Case No. 37-2015-00008404, filed March 13, 2015- Case No. 37-2014-110924, filed September 8, 2014
- Case No. 37-2013-00074052-CU-PL-CTL, filed November 1, 2013
Los Angeles County:
- Case No. BC559542, filed October 6, 2014- Case No. BC575264, filed March 13, 2015
- Case No. BC575262, filed March 13, 2015- Case No. BC534065, filed January 23, 2014
Monterey County:
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- Case No. M131321, filed March 13, 2015- Case No. M131322, filed March 13, 2015
Santa Clara County:
- Case No. 115CV78045, filed March 13, 2015- Case No. CV-14-0037, filed January 24, 2014
The majority of these        These matters are currently stayed pending final resolution. One matter is scheduled for trial in June 2019.
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 legal proceedings to which we are a party, see Item 1 "Financial Statements" Note 9,10, "Contingencies."
Item 1A.   Risk Factors
There        Other than as set forth below, there have been no material changes to the disclosures relating to this item from those set forth under Part I, Item 1A “Risk Factors” in the 2018 10-K.2019 10-K:
If the Company cannot meet the NYSE continued listing requirements, the NYSE may delist the Company’s shares.
Under the continued listing requirements of The New York Stock Exchange (“NYSE”), amongst others, the Company is considered to be out of compliance with the NYSE’s minimum price requirement if the Company’s average closing price of its common stock (“Shares”) over a consecutive 30 trading-day period is less than $1.00 per share (the “Share Price Deficiency”). In addition, the 30 trading-day average market capitalization of the Company is required to be above $50 million (unless, at the same time, the Company’s total stockholders’ equity is equal to or greater than $50 million) (the “Market Capitalization Deficiency”). On April 22, 2020, the Company received written notification from the NYSE that it was not in compliance with either the minimum share price requirement or the market capitalization requirement.
Pursuant to Section 802.01C of the NYSE Listed Company Manual, the Company has a period of six months following its receipt of the written notice from the NYSE with respect to the Share Price Deficiency to regain compliance with the minimum share price requirement. In order to regain compliance, on the last trading day of any calendar month during the cure period, the Shares must have (i) a closing price of at least $1.00 per Share and (ii) an average closing price of at least $1.00 per Share over the 30 trading day period ending on the last trading day of such month.
Pursuant to Section 802.02 of the NYSE Listed Company Manual, the Company has a period of 45 days from its receipt of written notice with respect to the Market Capitalization Deficiency to submit a plan advising the NYSE of definitive actions the Company has taken, or is taking, that would bring it into conformity with the market capitalization listing standard within 18 months of its receipt of written notice. If the NYSE accepts the plan, the Shares will continue to be listed on the NYSE during the 18-month period, subject to compliance with other NYSE continued listing standards and continued periodic review by the NYSE of the Company’s progress with respect to its plan. If the plan is not submitted on a timely basis, is not accepted, or is accepted but the Company does not make progress consistent with the plan during the plan period, the Shares will be subject to suspension and delisting from the NYSE. In addition, the NYSE can at any time suspend trading in a security and delist the stock if it deems it necessary for the protection of investors.
If the Shares are suspended and delisted from the NYSE, the Company expects that the Shares would be quoted on an over-the-counter (“OTC”) market, although there is no assurance that an active market in the Shares would develop. The OTC market is a significantly more limited market than the NYSE, which could affect the market price, trading volume, liquidity and resale price of such Shares. Shares that trade on the OTC markets also typically experience more volatility compared to securities that trade on a national securities exchange. No assurance can be given that the Company will be able to regain compliance with these requirements or maintain compliance with the other continued listing requirements set forth in the NYSE Listed Company Manual. If trading in the Shares is suspended on the NYSE or the Shares are delisted by the NYSE for any reason, it could negatively impact the Company as it would likely reduce the liquidity and market price of the Shares; reduce the number of investors willing to hold or acquire the Shares; negatively impact the Company’s ability to access equity markets
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and obtain financing; and impair the Company’s ability to attract and retain employees by means of equity compensation.
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table sets forth information regarding Holdings’We made no purchases of shares of Class A common stock duringfor the quarter ended March 31, 2019:2020.
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 authorization to $1.0 billion of the Company’s common stock. As of March 31, 2020, the Company has utilized $802.2 million of the current repurchase program and has $197.8 million remains available for purchase under the program.

Period (1)
Total Number of
Shares Purchased
 
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
        
January 1 to January 31, 2019—
 $—
 —
 $197,795,011
February 1 to February 28, 2019—
 $—
 —
 $197,795,011
March 1 to March 31, 2019—
 $—
 —
 $197,795,011
Total—
 $—
 —
  
(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 March 31, 2019.

(2)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 the Company’s common stock. The Company has utilized $802.2 million of the current repurchase program. As of March 31, 2019, $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.
 

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Item 6.   Exhibits
Exhibit
No.Description
10.131.1* 
Amended and Restated Stockholders Agreement, dated February 13, 2019 (Incorporated by reference to Exhibit 10.1 of Form 8-K filed February 13, 2019 (File No. 001-35113))
10.2
Amendment to the Master Reorganization and Subscription Agreement, dated February 13, 2019 (Incorporated by reference to Exhibit 10.2 of Form 8-K filed February 13, 2019 (File No. 001-35113))
10.3
Master Transaction Agreement, dated March 1, 2019, by and among GNC Holdings, Inc., General Nutrition Corporation, GNC Newco Parent, LLC, Nutra Manufacturing, LLC, IVL, LLC, IVL Holding, LLC and International Vitamin Corporation (Incorporated by reference to Exhibit 10.1 of Form 8-K filed March 7, 2019 (File No. 001-35113))
10.4
Amended and Restated Limited Liability Company Agreement of Nutra Manufacturing, LLC, dated March 1, 2019, by and among GNC Newco Parent, LLC, Nutra Manufacturing, LLC, and IVL, LLC, (Incorporated by reference to Exhibit 10.2 of Form 8-K filed March 7, 2019 (File No. 001-35113))
10.5
Product Supply Agreement, dated March 1, 2019, by and between GNC Supply Purchaser, LLC and Nutra Manufacturing, LLC (Incorporated by reference to Exhibit 10.3 of Form 8-K filed March 7, 2019 (File No. 001-35113))
31.1*
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted , as Adopted Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSXBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCHXBRL Taxonomy Extension Schema
101.CALXBRL Taxonomy Extension Calculation Linkbase
101.LABXBRL Taxonomy Extension Label Linkbase
101.PREXBRL Taxonomy Extension Presentation Linkbase
101.DEFXBRL Taxonomy Extension Definition Linkbase
*Filed herewith.




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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 persons undersigned thereunto duly authorized.
 
 
GNC HOLDINGS, INC.
(Registrant)
/s/ Tricia K. Tolivar
Date: May 2, 201911, 2020Tricia K. Tolivar
Chief Financial Officer
(Principal Financial Officer)


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