GOODWILL AND OTHER LONG-LIVED ASSETS

6 Months Ended

Jun. 30, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND OTHER LONG-LIVED ASSETS

Interim Impairment Test

The Company’s long-term plan is focused on the strategic changes around the One New GNC, which was launched in December 2016. The focus of the One New GNC includes single-tier pricing and loyalty programs for the Company’s U.S. corporate and franchise stores as well as GNC.com. During the second quarter of 2017, in order for the Company to focus on the aforementioned strategic plan, the Company considered strategic alternatives for the Lucky Vitamin e-commerce business, which was considered a triggering event requiring an interim goodwill impairment review of the Lucky Vitamin reporting unit as of June 30, 2017. As previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2016, the estimated fair value for the Lucky Vitamin reporting unit exceeded its carrying value by less than 20% as of December 31, 2016.

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

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


•	Future cash flow assumptions - The Company's projections for Lucky Vitamin are based on organic growth and are derived from historical experience and assumptions regarding future growth and profitability trends. The Company's analysis incorporated an assumed period of cash flows of 8 years with a terminal value.

•

Discount rate - The discount rate is based on Lucky Vitamin’s estimated weighted average cost of capital ("WACC"). The components of WACC are the cost of equity and the cost of debt, each of which requires judgment by management to estimate. The Company develops its cost of equity estimate based on perceived risks and predictability of future cash flows. At June 30, 2017, the WACC used to estimate the fair value of the Lucky Vitamin reporting unit was 18.0%.

As a result of the review, the Company concluded that the carrying value of the Lucky Vitamin reporting unit exceeded its fair value, which resulted in a non-cash goodwill impairment charge of $11.5 million being recorded in the current quarter. There is no remaining goodwill balance on the Lucky Vitamin reporting unit at June 30, 2017 after the impact of this charge.

As a result of the impairment indicator described above, the Company also performed an impairment analysis with respect to its definite-long-lived assets on the Lucky Vitamin reporting unit, consisting of a trade name and property and equipment. The fair value of the trade name was determined using a relief from royalty method (income approach) and the fair value of the property and equipment was determined using an income approach. Based on the results of the analyses, the Company concluded that the carrying value of the Lucky Vitamin trade name and property and equipment exceed their fair values resulting in an impairment charge of $4.2 million and $3.7 million, respectively. All of the aforementioned non-cash charges totaling $19.4 million are recorded in long-lived asset impairments in the consolidated statement of operations within the U.S. and Canada segment.

The aforementioned charges resulted in goodwill, intangible assets and property and equipment for Lucky Vitamin being measured at fair value on a non-recurring basis at June 30, 2017, which utilized a significant number of unobservable Level 3 inputs, such as future cash flow assumptions. See Note 6, "Fair Value Measurements," for a definition of Level 3 Inputs. The conclusion of strategic alternatives being explored by the Company may result in additional charges being recorded in a future quarter.

Goodwill Roll-Forward

The following table summarizes the Company's goodwill activity by reportable segment:



	U.S. and Canada			International		Manufacturing / Wholesale			Total
	(in thousands)
Gross	$	401,359		$	42,994	$	202,841		$	647,194
Accumulated impairments	(380,644		)	—		(90,488		)	(471,132		)
Goodwill at December 31, 2016	20,715			42,994		112,353			176,062
2017 Activity:
Impairment	(11,464		)	—		—			(11,464		)
Translation effect of exchange rates	—			439		—			439
Total 2017 activity	(11,464		)	439		—			(11,025		)
Balance at June 30, 2017:
Gross	401,359			43,433		202,841			647,633
Accumulated impairments	(392,108		)	—		(90,488		)	(482,596		)
Goodwill	$	9,251		$	43,433	$	112,353		$	165,037

Intangible Assets

The following table reflects the gross carrying amount and accumulated amortization for each major definite-lived intangible asset:



	Weighted- Average Life	June 30, 2017							December 31, 2016
	Weighted- Average Life	Cost		Accumulated Amortization/ Impairment			Carrying Amount		Cost		Accumulated Amortization			Carrying Amount
		(in thousands)
Retail agreements	30.3	$	31,000	$	(10,987	)	$	20,013	$	31,000	$	(10,460	)	$	20,540
Franchise agreements	25.0	70,000		(28,817		)	41,183		70,000		(27,417		)	42,583
Manufacturing agreements	25.0	70,000		(28,817		)	41,183		70,000		(27,417		)	42,583
Other intangibles	11.8	10,251		(9,913		)	338		10,201		(5,467		)	4,734
Franchise rights	3.0	7,486		(6,938		)	548		7,486		(6,697		)	789
Total		$	188,737	$	(85,472	)	$	103,265	$	188,687	$	(77,458	)	$	111,229

The following table represents future amortization expense of definite-lived intangible assets at June 30, 2017:



Years ending December 31,	Estimated amortization expense
	(in thousands)

2017 (remainder)	$	3,558
2018	6,964
2019	6,823
2020	6,760
2021	6,660
Thereafter	72,500
Total	$	103,265

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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