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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
(Mark one)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  
For the quarterly period endedMarch 31, 2020
  
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.          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).        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 filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging 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 No
  
As of May 6, 2020, there were 84,607,231 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
 
 
PAGE
 



Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

GNC HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
(in thousands)
March 31, 2020December 31, 2019
Current assets:
Cash and cash equivalents$137,444  $117,046  
Receivables, net of allowance of $27,390 and $22,648, respectively (Note 2)
83,932  101,234  
Receivables due from related parties (Note 8)6,547  8,946  
Inventory (Note 4)367,402  387,655  
Prepaid and other current assets 34,348  24,880  
Total current assets629,673  639,761  
Long-term assets:  
Goodwill (Note 6)73,552  79,109  
Brand name (Note 6)189,000  300,720  
Other intangible assets, net (Note 6)69,891  71,298  
Property, plant and equipment, net (Note 5)72,054  86,916  
Right-of-use assets 305,788  350,579  
Equity method investments (Note 8)42,520  97,930  
Deferred tax assets12,389    
Other long-term assets21,090  24,274  
Total long-term assets786,284  1,010,826  
Total assets$1,415,957  $1,650,587  
Current liabilities:  
Accounts payable$143,535  $150,742  
Accounts payable due to related parties (Note 8)21,136  11,720  
Current portion of long-term debt (Note 7)895,022  180,566  
Current lease liabilities 106,704  112,005  
Deferred revenue and other current liabilities94,812  105,792  
Total current liabilities1,261,209  560,825  
Long-term liabilities:  
Long-term debt (Note 7)  681,999  
Deferred income taxes  31,586  
Lease liabilities305,194  330,510  
Other long-term liabilities40,549  41,535  
Total long-term liabilities345,743  1,085,630  
Total liabilities1,606,952  1,646,455  
Contingencies (Note 10)
Mezzanine equity:
  Convertible preferred stock (Note 11)211,395  211,395  
Stockholders’ deficit:  
Common stock131  131  
Additional paid-in capital1,013,394  1,012,076  
Retained earnings318,519  518,605  
Treasury stock, at cost(1,725,349) (1,725,349) 
Accumulated other comprehensive loss(9,085) (12,726) 
Total stockholders’ deficit(402,390) (207,263) 
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

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

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GNC HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Loss
(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 $3.4 million tax expense
7,459    
 Foreign currency translation (loss) gain(1,147) 438  
Other comprehensive gain (loss)3,641  (790) 
Comprehensive loss$(196,445) $(16,052) 

(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.

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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, 201984,564  $131  $(1,725,349) $1,012,076  $518,605  $(12,726) $(207,263) 
Comprehensive income —  —  —  —  (200,086) 3,641  (196,445) 
Restricted stock awards68  —  —  —  —  —    
Minimum tax withholding requirements(24) —  —  (54) —  —  (54) 
Stock-based compensation—  —  —  1,372  —  —  1,372  
Balance at March 31, 202084,608  131  (1,725,349) 1,013,394  318,519  (9,085) (402,390) 
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) 
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) 
 
The accompanying notes are an integral part of the Consolidated Financial Statements.

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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.
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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.

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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 three reportable segments, U.S. and Canada, International, and Manufacturing / Wholesale (refer to Note 13, "Segments" for more information). Corporate retail store operations are located in the United States, Canada, Puerto Rico, Ireland and, prior to the 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. Prior to the formation of the manufacturing 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 ability 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 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, 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 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 Company satisfied this requirement in the 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"). 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 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.

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 the settlement of liabilities and commitments in the 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 December 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, 2019, as filed with the SEC on March 25, 2020 (the "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, 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
In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a 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. Accordingly, the Company has adopted this ASU in the first quarter of 2020, which did not 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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International Revenues
        The following is a summary of 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  
(1)Includes revenue related to China operations prior to the transfer 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 locations in Ireland.
Manufacturing / Wholesale Revenue
The following is a summary of 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  
(1)As 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 were recognized thereafter.
Revenue by Geography
        The following is a summary of revenue by geography:
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 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:
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 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, 2020, the Company had deferred franchise fees with unsatisfied performance obligations extending throughout 2030 of $26.9 million, of which approximately $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, 2020December 31, 2019
 (in thousands)
Finished product ready for sale$367,402  $387,655  
Inventory$367,402  $387,655  
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 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 a 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 precision with which 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 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) (