EX-99.1 2 earningsreleaseexhibit9911.htm EXHIBIT 99.1 Exhibit


GNC Holdings, Inc. Reports First Quarter 2018 Results

Same store sales growth of 0.5%; third straight quarter of positive growth

Net income of $6.2 million and $20.1 million on an adjusted basis; Adjusted EBITDA of $59.3 million

Gross profit rate of 34.1%; the highest in six quarters

PITTSBURGH, April 26, 2018 - GNC Holdings, Inc. (NYSE: GNC) (the “Company”) reported consolidated revenue of $607.5 million in the first quarter of 2018, compared with consolidated revenue of $654.9 million in the first quarter of 2017. The decrease was primarily due to the sale of Lucky Vitamin on September 30, 2017, which resulted in a $22.7 million reduction to revenue, and the termination of the U.S. Gold Card Member Pricing program in the prior year quarter, which resulted in a $23.0 million decrease in revenue.

Same store sales increased 0.5% in domestic company-owned stores (including GNC.com) in the first quarter of 2018. In domestic franchise locations, same store sales decreased 1.9%.

For the first quarter of 2018, the Company reported net income of $6.2 million compared with $24.7 million in the prior year quarter. Diluted earnings per share ("EPS") was $0.07 in the current quarter compared with $0.36 in the prior year quarter. In the first quarter of 2018, the Company recorded a $16.7 million loss on debt refinancing. Excluding this item and other expenses outlined in the table below, adjusted net income was $20.1 million in the current quarter compared with $26.0 million in the prior year quarter and adjusted EPS was $0.24 in the current quarter compared with $0.38 in the prior year quarter.

Adjusted EBITDA, as defined and reconciled in the table below, was $59.3 million in the current quarter compared with $73.7 million in the prior year quarter. The prior year quarter includes the impact of $23.0 million in revenue and gross profit associated with the termination of the Gold Card Member Pricing program as well as higher marketing expense of approximately $6 million in connection with the launch of the media campaign around the One New GNC.

“During the first quarter of 2018, we continued to see the business improve, and were pleased with the progress of our strategic growth initiatives,” said Ken Martindale, CEO. “Notably, we delivered meaningful gross margin growth, driven primarily by increased penetration of our private label brands. We continue to work to leverage our strength in innovation, expand our international presence and deliver a consistent, compelling experience at every customer touch point.”

Key Updates

GNC brand mix for domestic system-wide sales increased to 50% in the first quarter compared with 48% in the fourth quarter of 2017 and 43% in the first quarter of 2017.

Slimvance, our category defining weight loss product, has successfully attracted new customers, drove a larger basket and despite overall sales declines, increased our share of the U.S. weight management market.

As of March 31, 2018, our loyalty membership increased 12.3% to 12.8 million members compared with December 31, 2017. Included in our loyalty membership at March 31, 2018 are 935,000 members enrolled in PRO Access, a 23.6% increase compared with December 31, 2017.

In the first quarter, the Company improved its financial flexibility through the extension of its debt maturities. In addition, the Company's strong sustainable cash flow will continue to be used to pay down debt.
 







Segment Operating Performance

U.S. & Canada

Revenues in the U.S. and Canada segment decreased $24.2 million, or 4.5%, to $512.4 million for the three months ended March 31, 2018 compared with $536.6 million in the prior year quarter.

In the prior year quarter, the discontinuation of the Gold Card Member Pricing program in the U.S. resulted in the recognition of deferred revenue of $23.0 million. In addition, company-owned store closures contributed an approximate $7 million decrease compared with the prior year quarter, while domestic franchise revenue declined $7.8 million due to a decrease in retail same store sales, as well as a reduction in the number of franchise stores. Partially offsetting the above decreases in revenue was an increase of $12.9 million relating to the Company’s loyalty programs, PRO Access and myGNC Rewards.
   
Operating income decreased $7.0 million to $43.5 million for the three months ended March 31, 2018 compared with $50.5 million for the same period in 2017. Operating income as a percentage of segment revenue was 8.5% in the current quarter compared with 9.4% in the prior year quarter. Excluding the impact of the prior year quarter recognition of deferred revenue related to the Gold Card Member Pricing program and the prior year quarter marketing costs in support of the One New GNC media campaign, operating income as a percentage of segment revenue increased 2.0% due to a higher sales mix of proprietary product.

International

Revenues in the International segment increased $0.3 million, or 0.8%, to $40.1 million in the current quarter compared with $39.8 million in the prior year quarter primarily due to an increase of $3.4 million in China cross-border e-commerce sales.

Operating income decreased $0.4 million, or 2.7%, to $14.5 million in the current quarter compared with $14.9 million in the prior year quarter. Operating income was 36.1% of segment revenue in the current quarter compared with 37.4% in the prior year quarter. The decrease in operating income percentage was primarily due to a higher mix of China sales, which contribute lower margins relative to franchise sales.

Manufacturing / Wholesale

Revenues in the Manufacturing / Wholesale segment, excluding intersegment sales, decreased $0.7 million, or 1.4%, to $55.1 million for the three months ended March 31, 2018 compared with $55.8 million in the prior year quarter primarily due to a $0.9 million decrease in third-party contract manufacturing sales. Intersegment sales increased $3.4 million reflecting the Company's increasing focus on proprietary products.

Operating income decreased $2.3 million, or 13.3%, to $15.0 million for the three months ended March 31, 2018 compared with $17.3 million in the prior year quarter.  Operating income as a percentage of segment revenue decreased from 14.7% in the prior year quarter to 12.5% in the current quarter primarily due to a lower margin rate from third-party contract manufacturing.

Cash Flow and Liquidity Metrics

For the three months ended March 31, 2018, the Company generated net cash from operating activities of $25.1 million, a $21.0 million decrease compared with the three months ended March 31, 2017 of $46.1 million. The decrease was primarily related to $15.8 million in fees paid to third-parties in connection with the Amendment to the Company's Senior Credit Facility.

For the three months ended March 31, 2018, the Company generated an increase in free cash flow of $4.0 million or 12.0% from $33.4 million for the three months ended March 31, 2017 to $37.4 million for the three months ended





March 31, 2018. The Company defines free cash flow as cash provided by operating activities (excluding fees relating to the debt refinancing) less cash used in investing activities (excluding acquisitions except for store acquisitions). At March 31, 2018, the Company’s cash and cash equivalents were $53.9 million and debt was $1.3 billion, which includes $17.5 million in borrowings outstanding on its Revolving Credit Facility.

Store Count

At March 31, 2018, the Company had 3,385 corporate stores in the U.S. and Canada, 1,083 domestic franchise locations, 2,428 Rite Aid franchise store-within-a-store locations and 2,009 international locations. The Company now has 8,905 store locations worldwide. As part of the ongoing optimization of the Company's store portfolio, the Company intends to close approximately 200 stores in 2018.  Efforts toward favorable lease renegotiations or relocation opportunities are ongoing and may impact the amount of stores closings.  The Company expects a limited number of new store openings in 2018.

Update on Harbin Pharmaceutical Transaction
 
On April 26, 2018, shareholders of Harbin Pharmaceutical Group Holding Co., Ltd (“Hayao”) voted to approve the company’s $300 million investment in GNC.
 
As previously announced, on April 25, 2018, GNC convened and adjourned its Special Meeting of Stockholders (the “Special Meeting”) to allow additional time to solicit proxies and obtain a quorum for the meeting. 
 
A substantial majority (over 92%) of the proxies received by GNC as of April 25, 2018 authorized a vote in favor of the issuance of convertible preferred shares to Hayao (the “Share Issuance Proposal”) in connection with Hayao’s strategic investment in GNC.  However, holders of only approximately 36% of the outstanding shares of the Company’s common stock submitted proxies to vote at the Special Meeting and the necessary quorum was not reached.
 
GNC will reconvene its Special Meeting at 10:00 A.M., Eastern Time, on May 9, 2018.

Conference Call

GNC has scheduled a live webcast to reports its first quarter 2018 financial results on April 26, 2018 at 8:30 a.m ET. To participate on the live call, listeners in North America may dial (800) 263-0877 and international listeners may dial (323) 794-2094.  In addition, a live webcast of the call will be available on www.gnc.com via the Investor Relations section under “About GNC.”  A replay of this webcast will be available through May 10, 2018.

About Us

GNC Holdings, Inc.  (NYSE: GNC) - Headquartered in Pittsburgh, PA - is a leading global specialty health, wellness and performance retailer.

GNC connects customers to their best selves by offering a premium assortment of heath, wellness and performance products, including protein, performance supplements, weight management supplements, vitamins, herbs and greens, wellness supplements, health and beauty, food and drink and other general merchandise. This assortment features proprietary GNC and nationally recognized third-party brands.

GNC's diversified, multi-channel business model generates revenue from product sales through company-owned retail stores, domestic and international franchise activities, third-party contract manufacturing, e-commerce and corporate partnerships. As of March 31, 2018, GNC had approximately 8,900 locations, of which approximately 6,700 retail locations are in the United States (including approximately 2,400 Rite Aid franchise store-within-a-store locations) and franchise operations in approximately 50 countries.






Forward-Looking Statements Involving Known and Unknown Risks and Uncertainties

This release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the Company’s financial condition, results of operations and business that is not historical information. Forward-looking statements can be identified by the use of terminology such as “subject to,” “believes,” “anticipates,” “plans,” “expects,” “intends,” “estimates,” “projects,” “may,” “will,” “should,” “can,” the negatives thereof, variations thereon and similar expressions, or by discussions regarding dividend, share repurchase plan, strategy and outlook. While GNC believes there is a reasonable basis for its expectations and beliefs, they are inherently uncertain. The Company may not realize its expectations and its beliefs may not prove correct. Many factors could affect future performance and cause actual results to differ materially from those matters expressed in or implied by forward-looking statements, including but not limited to unfavorable publicity or consumer perception of the Company's products; costs of compliance and any failure on management's part to comply with new and existing governmental regulations governing our products; limitations of or disruptions in the manufacturing system or losses of manufacturing certifications; disruptions in the distribution network; or failure to successfully execute the Company's growth strategy, including any inability to expand franchise operations or attract new franchisees, any inability to expand company-owned retail operations, any inability to grow the international footprint, any inability to expand the e-commerce businesses, or any inability to successfully integrate businesses that are acquired. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Actual results could differ materially from those described or implied by such forward-looking statements. For a listing of factors that may materially affect such forward-looking statements, please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

Same Store Sales

Same store sales for company-owned stores include point-of-sale retail sales from all domestic stores which have been operating for twelve full months following the opening period. The Company is an omnichannel retailer with capabilities that allow a customer to use more than one channel when making a purchase, including in-store and through e-commerce channels which include its wholly-owned website GNC.com and third party websites (the sales from which are included in the GNC.com business unit) where product assortment and price are controlled by the Company, in which purchases are fulfilled by direct shipment to the customer from one of the Company's distribution facilities as well as third party e-commerce vendors. In-store sales are reduced by sales originally consummated online or through mobile devices and subsequently returned in-store. Sales of membership programs, including the new PRO Access loyalty program and former Gold Card program, which is no longer offered in the U.S., as well as the net change in the deferred points liability associated with the myGNC Rewards program, are excluded from same store sales.

Same store sales are calculated on a daily basis for each store and exclude the net sales of a store for any period if the store was not open during the same period of the prior year. When a store’s square footage has been changed as a result of reconfiguration or relocation in the same mall or shopping center, the store continues to be treated as a same store. If, during the period presented, a store was closed, relocated to a different mall or shopping center, or converted to a franchise store or a company-owned store, sales from that store up to and including the closing day or the day immediately preceding the relocation or conversion are included as same store sales as long as the store was open during the same period of the prior year. Corporate stores are included in same store sales after the thirteenth month following a relocation or conversion to a company-owned store.

The Company also provides retail comparable same stores sales of its franchisees as well as its Canada business if meaningful to current results. While retail sales of franchisees are not included in the Company's Consolidated Financial Statements, the metric serves as a key performance indicator for its franchisees, which ultimately impacts wholesale sales, royalties and fees received from franchisees. The Company computes same store sales for its franchisees and Canada business consistent with the description of corporate same store sales above. Same store sales for international franchisees and Canada exclude the impact of foreign exchange rate changes relative to the U.S. dollar.






Non-GAAP Measures

Management has included non-GAAP financial measures in this press release because it believes they represent an effective supplemental means by which to measure the Company’s operating performance, including adjusted net income, adjusted EPS, adjusted EBITDA and segment operating income as a percentage of segment revenue, adjusted to exclude gains on refranchising and certain other items as reflected in this release, and free cash flow. Adjusted EBITDA is defined as net income plus interest expense, net, loss on debt refinancing, income taxes and depreciation and amortization and certain other items as reflected in this release.

Management believes that these measures are useful to investors as they enable the Company and its investors to evaluate and compare the Company’s results from operations in a more meaningful and consistent manner by excluding specific items which are not reflective of ongoing operating results and that can differ significantly from company to company depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments.

However, these measures are not measurements of the Company’s performance under GAAP and should not be considered as alternatives to earnings per share, net income or any other performance measures derived in accordance with GAAP, or as an alternative to GAAP cash flow from operating activities, or as a measure of the Company’s profitability or liquidity. For more information, see the attached reconciliations of non-GAAP financial measures.






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

 
Three months ended March 31,
 
2018
 
2017
 
(unaudited)
Revenue
$
607,533

 
$
654,948

Cost of sales, including warehousing, distribution and occupancy
400,659

 
435,086

Gross profit
206,874

 
219,862

Selling, general, and administrative
160,730

 
166,027

Other income, net
(245
)
 
(1,133
)
Operating income
46,389

 
54,968

Interest expense, net
21,773

 
15,894

Loss on debt refinancing
16,740

 

Income before income taxes
7,876

 
39,074

Income tax expense
1,686

 
14,330

Net income
$
6,190

 
$
24,744

Earnings per share:
 
 
 
Basic
$
0.07

 
$
0.36

Diluted
$
0.07

 
$
0.36

Weighted average common shares outstanding:
 
 
 
Basic
83,232

 
68,246

Diluted
83,368

 
68,300

















GNC HOLDINGS, INC. AND SUBSIDIARIES
Reconciliation of Net Income and Diluted EPS to Adjusted Net Income and Adjusted EPS
(in thousands, except per share data)

 
Three months ended March 31,
 
2018
 
2017
 
Net Income
 
Diluted EPS
 
Net Income
 
Diluted EPS
 
(unaudited)
Reported
$
6,190

 
$
0.07

 
$
24,744

 
$
0.36

Gains on refranchising

 

 
(124
)
 

Retention (1)
808

 
0.01

 

 

Legal charge (2)

 

 
2,097

 
0.03

Loss on debt refinancing
16,740

 
0.20

 

 

Tax effect of items above
(3,654
)
 
(0.04
)
 
(716
)
 
(0.01
)
Adjusted
$
20,084

 
$
0.24

 
$
26,001

 
$
0.38

 
 
 
 
 
 
 
 
Weighted average diluted common shares outstanding
83,368

 
 
 
68,300

 
 




Reconciliation of Net Income to Adjusted EBITDA
(in thousands)

 
Three months ended March 31,
 
2018
 
2017
 
(unaudited)
Net Income
$
6,190

 
$
24,744

Income tax expense
1,686

 
14,330

Interest expense, net
21,773

 
15,894

Loss on debt refinancing
16,740

 

Depreciation and amortization (3)
12,105

 
16,739

Retention (1)
808

 

Legal charge (2)

 
2,097

Gains on refranchising

 
(124
)
Adjusted EBITDA
$
59,302

 
$
73,680


(1) Relates to 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, which vests in four installments of 25% each over the next two years on the earlier of February 2019 or the closing of the Harbin transaction, February 2019, August 2019 and February 2020.

(2) Relates to the outcome of litigation the Company pursued relating to a potential breach under its UK license agreement.

(3) The decrease in the current quarter compared with the prior year quarter was primarily due to the prior year quarter accelerated depreciation associated with the re-platforming of the GNC.com website from a third-party to a cloud-based solution, as well as long-lived asset impairments recorded within the U.S. and Canada segment for certain of our underperforming stores in the third and fourth quarter of 2017.









GNC HOLDINGS, INC. AND SUBSIDIARIES
U.S. Company-Owned Same Store Sales (including GNC.com)


 
Three months ended March 31,
 
2018
 
2017
Contribution to same store sales:
 
 
 
Domestic retail same store sales
(1.9
)%
 
(3.6
)%
GNC.com contribution to same store sales
2.4
 %
 
(0.3
)%
Total same store sales
0.5
 %
 
(3.9
)%






GNC HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
 
 
March 31,
 
December 31,
 
2018
 
2017
 
(unaudited)
Current assets:
 
 
 
Cash and cash equivalents
$
53,871

 
$
64,001

Receivables, net
114,712

 
126,650

Inventory
507,968

 
485,732

Prepaid and other current assets
78,677

 
66,648

Total current assets
755,228

 
743,031

Long-term assets:
 
 
 
Goodwill
141,200

 
141,029

Brand name
324,400

 
324,400

Other intangible assets, net
97,963

 
99,715

Property, plant and equipment, net
179,547

 
186,562

Other long-term assets
29,423

 
25,026

Total long-term assets
772,533

 
776,732

Total assets
$
1,527,761

 
$
1,519,763

Current liabilities:
 
 
 
Accounts payable
$
175,151

 
$
153,018

Current debt
213,111

 

Deferred revenue and other current liabilities
115,213

 
114,081

Total current liabilities
503,475

 
267,099

Long-term liabilities:
 
 
 
Long-term debt
1,062,778

 
1,297,023

Deferred income taxes
56,923

 
56,060

Other long-term liabilities
83,831

 
85,502

Total long-term liabilities
1,203,532

 
1,438,585

Total liabilities
1,707,007

 
1,705,684

Stockholders’ deficit:
 
 
 
Common stock
130

 
130

Additional paid-in capital
1,002,604

 
1,001,315

Retained earnings
550,046

 
543,814

Treasury stock, at cost
(1,725,349
)
 
(1,725,349
)
Accumulated other comprehensive loss
(6,677
)
 
(5,831
)
Total stockholders’ deficit
(179,246
)
 
(185,921
)
Total liabilities and stockholders’ deficit
$
1,527,761

 
$
1,519,763








GNC HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
 
Three months ended March 31,
 
2018
 
2017
 
(unaudited)
Cash flows from operating activities:
 
 
 
Net income
$
6,190

 
$
24,744

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization expense
12,105

 
16,739

Amortization of debt costs
3,609

 
3,288

Stock-based compensation
1,512

 
1,410

Gains on refranchising

 
(124
)
Loss on debt refinancing
16,740

 

Third-party fees associated with refinancing
(15,753
)
 

Changes in assets and liabilities:
 
 
 
Decrease in receivables
11,840

 
5,890

(Increase) in inventory
(22,766
)
 
(15,921
)
(Increase) in prepaid and other current assets
(9,473
)
 
(11,871
)
Increase in accounts payable
21,791

 
27,411

Increase (decrease) in deferred revenue and accrued liabilities
388

 
(5,660
)
Other operating activities
(1,111
)
 
197

Net cash provided by operating activities
25,072

 
46,103

 
 
 
 
Cash flows from investing activities:
 
 
 
Capital expenditures
(3,732
)
 
(13,906
)
Refranchising proceeds
465

 
1,344

Store acquisition costs
(116
)
 
(98
)
Net cash used in investing activities
(3,383
)
 
(12,660
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Borrowings under revolving credit facility
50,000

 
64,000

Payments on revolving credit facility
(32,500
)
 
(91,000
)
Payments on Tranche B-1 Term Loan
(1,138
)
 
(1,138
)
Payments on Tranche B-2 Term Loan
(10,700
)
 

Original Issuance Discount and revolving credit facility fees
(35,216
)
 

Deferred fees associated with pending equity transaction
(2,183
)
 

Minimum tax withholding requirements
(223
)
 
(229
)
Net cash used in financing activities
(31,960
)
 
(28,367
)
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
141

 
332

Net (decrease) increase in cash and cash equivalents
(10,130
)
 
5,408

Beginning balance, cash and cash equivalents
64,001

 
34,464

Ending balance, cash and cash equivalents
$
53,871

 
$
39,872







GNC HOLDINGS, INC. AND SUBSIDIARIES
Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow
(in thousands)
 
Three months ended March 31,
 
2018
 
2017
 
(unaudited)
 
 
 
 
Net cash provided by operating activities
$
25,072

 
$
46,103

Capital expenditures
(3,732
)
 
(13,906
)
Refranchising proceeds
465

 
1,344

Store acquisition costs
(116
)
 
(98
)
Third-party fees associated with refinancing
15,753

 

       Free cash flow
$
37,442

 
$
33,443

 
 
 
 






GNC HOLDINGS, INC. AND SUBSIDIARIES
Segment Financial Data
(in thousands)
 
Three months ended March 31,
 
2018
 
2017
 
(unaudited)
Revenue:
 
 
 
U.S. and Canada
$
512,414

 
$
536,621

International
40,065

 
39,751

Manufacturing / Wholesale:
 
 
 
Intersegment revenues
64,663

 
61,298

Third-party
55,054

 
55,834

Subtotal Manufacturing / Wholesale
119,717

 
117,132

Total reportable segment revenues
672,196

 
693,504

Other

 
22,742

Elimination of intersegment revenues
(64,663
)
 
(61,298
)
Total revenue
$
607,533

 
$
654,948

Operating income:
 
 
 
U.S. and Canada
$
43,490

 
$
50,490

International
14,464

 
14,869

Manufacturing / Wholesale
14,964

 
17,267

Total reportable segment operating income
72,918

 
82,626

Corporate costs
(26,479
)
 
(28,074
)
Other
(50
)
 
416

Unallocated corporate and other costs
(26,529
)
 
(27,658
)
Total operating income
$
46,389

 
$
54,968







GNC HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Store Count Activity
 
Three months ended March 31,
 
2018
 
2017
U.S. & Canada
 
 
 
Company-owned(a):
 
 
 
Beginning of period balance
3,423

 
3,513

Store openings
5

 
19

Acquired franchise stores(b)
6

 
12

Franchise conversions(c)

 
(1
)
Store closings
(49
)
 
(44
)
End of period balance
3,385

 
3,499

Domestic Franchise:
 
 
 
Beginning of period balance
1,099

 
1,178

Store openings
5

 
6

Acquired franchise stores(b)
(6
)
 
(12
)
Franchise conversions(c)

 
1

Store closings
(15
)
 
(9
)
End of period balance
1,083

 
1,164

International(d):
 
 
 
Beginning of period balance
2,015

 
1,973

Store openings 
16

 
22

Store closings
(22
)
 
(46
)
End of period balance
2,009

 
1,949

Store-within-a-store (Rite Aid):
 

 
 

Beginning of period balance
2,418

 
2,358

Store openings
16

 
16

Store closings
(6
)
 
(3
)
End of period balance
2,428

 
2,371

Total Stores
8,905

 
8,983

_______________________________________________________________________________
(a) Includes Canada.
(b) Stores that were acquired from franchisees and subsequently converted into company-owned stores.
(c) Company-owned store locations sold to franchisees.
(d) Includes franchise locations in approximately 50 countries (including distribution centers where sales are made) and company-owned stores located in Ireland and China.







GNC HOLDINGS, INC. AND SUBSIDIARIES
Adoption of New Revenue Recognition Standard

The Company adopted Accounting Standards Update 2014-09 (Revenue from Contracts with Customers) during the first quarter of fiscal 2018 using the full retrospective method.

The adoption of the new revenue standard does not impact recognition of point-of-sale revenue in company-owned stores, most wholesale sales, royalties and sublease revenue, together which account for approximately 90% of the Company’s revenue. In addition, the new standard has no impact on the timing or classification of the Company’s cash flows as reported in the Consolidated Statement of Cash Flows and is not expected to have a significant impact on the Company’s Consolidated Statement of Operations. The impact to the applicable quarterly periods in 2017 are presented below for the Consolidated Statements of Operations and by reportable segment.

 
Three months ended March 31, 2017
 
As Previously Reported
 
Franchise Fees
Specialty Manufacturing
Cooperative Advertising and Other Franchise Support Fees
Total Adjustments
 
As Revised
 
(in thousands, except per share amounts)
Revenue
$
644,838

 
$
983

$
3,086

$
6,041

$
10,110

 
$
654,948

Cost of sales (1)
431,867

 

2,624

595

3,219

 
435,086

Gross profit
212,971

 
983

462

5,446

6,891

 
219,862

SG&A (2)
160,581

 


5,446

5,446

 
166,027

Gains on refranchising
(154
)
 
30



30

 
(124
)
Other income, net
(1,009
)
 




 
(1,009
)
Operating income
53,553

 
953

462


1,415

 
54,968

Interest expense, net
15,894

 




 
15,894

Income before income taxes
37,659

 
953

462


1,415

 
39,074

Income tax expense
13,809

 
350

171


521

 
14,330

Net income
$
23,850

 
$
603

$
291

$

$
894

 
$
24,744

Earnings per share:
 
 
 
 
 
 
 
 
Basic
$
0.35

 
$
0.01

$

$

$
0.01


$
0.36

Diluted
$
0.35

 
$
0.01

$

$

$
0.01


$
0.36

 
 
 
 
 
 
 
 
 
Adjusted net income (3)
$
25,088

 
$
622

$
291

$

$
913

 
$
26,001

Adjusted diluted EPS (3)
$
0.37

 
$
0.01

$

$

$
0.01

 
$
0.38






 
Three months ended June 30, 2017
 
As Previously Reported
 
Franchise Fees
Specialty Manufacturing
Cooperative Advertising and Other Franchise Support Fees
Total Adjustments
 
As Revised
 
(in thousands, except per share amounts)
Revenue
$
640,994

 
$
1,353

$
1,542

$
6,349

$
9,244

 
$
650,238

Cost of sales (1)
428,271

 

1,342

842

2,184

 
430,455

Gross profit
212,723

 
1,353

200

5,507

7,060

 
219,783

SG&A (2)
154,033

 


5,507

5,507

 
159,540

Long-lived asset impairments
19,356

 




 
19,356

Other income, net
(486
)
 




 
(486
)
Operating income
39,820

 
1,353

200


1,553

 
41,373

Interest expense, net
16,067

 




 
16,067

Income before income taxes
23,753

 
1,353

200


1,553

 
25,306

Income tax expense
8,092

 
497

73


570

 
8,662

Net income
$
15,661

 
$
856

$
127

$

$
983

 
$
16,644

Earnings per share:
 
 
 
 
 
 
 
 
Basic
$
0.23

 
$
0.01

$

$

$
0.01

 
$
0.24

Diluted
$
0.23

 
$
0.01

$

$

$
0.01

 
$
0.24

 
 
 
 
 
 
 
 
 
Adjusted net income (3)
$
27,841

 
$
856

$
127

$

$
983

 
$
28,824

Adjusted diluted EPS (3)
$
0.41

 
$
0.01

$

$

$
0.01

 
$
0.42

 
Three months ended September 30, 2017
 
As Previously Reported
 
Franchise Fees
Specialty Manufacturing
Cooperative Advertising and Other Franchise Support Fees
Total Adjustments
 
As Revised
 
(in thousands, except per share amounts)
Revenue
$
609,469

 
$
(360
)
$
(1,925
)
$
5,769

$
3,484

 
$
612,953

Cost of sales (1)
412,663

 

(1,681
)
679

(1,002
)
 
411,661

Gross profit
196,806

 
(360
)
(244
)
5,090

4,486

 
201,292

SG&A (2)
150,961

 


5,090

5,090

 
156,051

Gains on refranchising
(230
)
 
40



40

 
(190
)
Long-lived asset impairments
3,861

 




 
3,861

Other loss, net
1,769

 




 
1,769

Operating income
40,445

 
(400
)
(244
)

(644
)
 
39,801

Interest expense, net
16,339

 




 
16,339

Income before income taxes
24,106

 
(400
)
(244
)

(644
)
 
23,462

Income tax expense
2,643

 
(146
)
(91
)

(237
)
 
2,406

Net income
$
21,463

 
$
(254
)
$
(153
)
$

$
(407
)
 
$
21,056

Earnings per share:
 
 
 
 
 
 
 
 
Basic
$
0.31

 
$

$

$

$

 
$
0.31

Diluted
$
0.31

 
$

$

$

$

 
$
0.31

 
 
 
 
 
 
 
 
 
Adjusted net income (3)
$
22,228

 
$
(229
)
$
(153
)
$

$
(382
)
 
$
21,846

Adjusted diluted EPS (3)
$
0.32

 
$

$

$

$

 
$
0.32






 
Three months ended December 31, 2017
 
As Previously Reported
 
Franchise Fees
Specialty Manufacturing
Cooperative Advertising and Other Franchise Support Fees
Total Adjustments
 
As Revised
 
(in thousands, except per share amounts)
Revenue
$
557,737

 
$
1,493

$
(1,672
)
$
5,265

$
5,086

 
$
562,823

Cost of sales (1)
380,190

 

(1,452
)
600

(852
)
 
379,338

Gross profit
177,547

 
1,493

(220
)
4,665

5,938

 
183,485

SG&A (2)
137,986

 


4,665

4,665

 
142,651

Long-lived asset impairments
434,577

 




 
434,577

Other income, net
(785
)
 




 
(785
)
Operating loss
(394,231
)
 
1,493

(220
)

1,273

 
(392,958
)
Interest expense, net
15,921

 




 
15,921

Gain on convertible debt and debt refinancing costs
(10,996
)
 




 
(10,996
)
Loss before income taxes
(399,156
)
 
1,493

(220
)

1,273

 
(397,883
)
Income tax benefit (4)
(189,331
)
 
4,606

(452
)

4,154

 
(185,177
)
Net loss
$
(209,825
)
 
$
(3,113
)
$
232

$

$
(2,881
)
 
$
(212,706
)
Loss per share:
 
 
 
 
 
 
 
 
Basic
$
(2.99
)
 
$
(0.04
)
$

$

$
(0.04
)
 
$
(3.03
)
Diluted
$
(2.99
)
 
$
(0.04
)
$

$

$
(0.04
)
 
$
(3.03
)
 
 
 
 
 
 
 
 
 
Adjusted net income (3)
$
17,689

 
$
962

$
(139
)
$

$
823

 
$
18,512

Adjusted diluted EPS (3)
$
0.25

 
$
0.01

$

$

$
0.01

 
$
0.26

 
Year ended December 31, 2017
 
As Previously Reported
 
Franchise Fees
Specialty Manufacturing
Cooperative Advertising and Other Franchise Support Fees
Total Adjustments
 
As Revised
 
(in thousands, except per share amounts)
Revenue
$
2,453,038

 
$
3,469

$
1,031

$
23,424

$
27,924

 
$
2,480,962

Cost of sales (1)
1,652,991

 

833

2,716

3,549

 
1,656,540

Gross profit
800,047

 
3,469

198

20,708

24,375

 
824,422

SG&A (2)
603,561

 


20,708

20,708

 
624,269

Gains on refranchising
(384
)
 
70



70

 
(314
)
Long-lived asset impairments
457,794

 




 
457,794

Other income, net
(511
)
 




 
(511
)
Operating loss
(260,413
)
 
3,399

198


3,597

 
(256,816
)
Interest expense, net
64,221

 




 
64,221

Gain on convertible debt and debt refinancing costs
(10,996
)
 




 
(10,996
)
Loss before income taxes
(313,638
)
 
3,399

198


3,597

 
(310,041
)
Income tax benefit (4)
(164,787
)
 
5,307

(299
)

5,008

 
(159,779
)
Net loss
$
(148,851
)
 
$
(1,908
)
$
497

$

$
(1,411
)
 
$
(150,262
)
Loss per share:
 
 
 
 
 
 
 
 
Basic
$
(2.16
)
 
$
(0.03
)
$
0.01

$

$
(0.02
)
 
$
(2.18
)
Diluted
$
(2.16
)
 
$
(0.03
)
$
0.01

$

$
(0.02
)
 
$
(2.18
)
 
 
 
 
 
 
 
 
 
Adjusted net income (3)
$
92,846

 
$
2,211

$
126

$

$
2,337

 
$
95,183

Adjusted diluted EPS (3)
$
1.35

 
$
0.03

$

$

$
0.03

 
$
1.38

(1) Includes warehousing, distribution and occupancy
(2) Defined as selling, general and administrative expense.
(3) Adjusted for certain expenses as previously defined in prior earnings releases.
(4) Adjustments include $3.7 million non-cash tax expense related to the remeasurement of the applicable net deferred tax assets in connection with the 2017 Tax Act.






The impact of adoption of the new revenue recognition standard on the Company's reportable segments was as follows:
 
Three months ended March 31, 2017
 
As Previously Reported
 
Franchise Fees
Specialty Manufacturing
Cooperative Advertising and Other Franchise Support Fees
Total Adjustments
 
As Revised
 
(in thousands)
Revenue:
 
 
 
 
 
 

 
 
U.S. and Canada
$
530,179

 
$
401

$

$
6,041

$
6,442

 
$
536,621

International
39,417

 
334



334

 
39,751

Manufacturing / Wholesale
 
 
 
 
 
 
 
 
Intersegment revenues
61,298

 




 
61,298

Third party
52,500

 
248

3,086


3,334

 
55,834

Subtotal Manufacturing / Wholesale
113,798

 
248

3,086


3,334

 
117,132

Total reportable segment revenues
683,394

 
983

3,086

6,041

10,110

 
693,504

Other
22,742

 




 
22,742

Elimination of intersegment revenues
(61,298
)
 




 
(61,298
)
Total revenue
$
644,838

 
$
983

$
3,086

$
6,041

$
10,110

 
$
654,948

Operating income:
 

 
 

 
 
 

 
 

U.S. and Canada
$
50,119

 
$
371

$

$

$
371

 
$
50,490

International
14,535

 
334



334

 
14,869

Manufacturing / Wholesale
16,557

 
248

462


710

 
17,267

Total reportable segment operating income
81,211

 
953

462


1,415

 
82,626

Corporate costs
(28,074
)
 




 
(28,074
)
Other
416

 




 
416

Unallocated corporate costs and other
(27,658
)
 





 
(27,658
)
Total operating income
$
53,553

 
$
953

$
462

$

$
1,415

 
$
54,968

 
Three months ended June 30, 2017
 
As Previously Reported
 
Franchise Fees
Specialty Manufacturing
Cooperative Advertising and Other Franchise Support Fees
Total Adjustments
 
As Revised
 
(in thousands)
Revenue:
 
 
 
 
 
 

 
 
U.S. and Canada
$
520,804

 
$
661

$

$
6,349

$
7,010

 
$
527,814

International
43,631

 
182



182

 
43,813

Manufacturing / Wholesale
 
 
 
 
 
 
 
 
Intersegment revenues
56,000

 




 
56,000

Third party
53,945

 
510

1,542


2,052

 
55,997

Subtotal Manufacturing / Wholesale
109,945

 
510

1,542


2,052

 
111,997

Total reportable segment revenues
674,380

 
1,353

1,542

6,349

9,244

 
683,624

Other
22,614

 




 
22,614

Elimination of intersegment revenues
(56,000
)
 




 
(56,000
)
Total revenue
$
640,994

 
$
1,353

$
1,542

$
6,349

$
9,244

 
$
650,238

Operating income:
 

 
 

 
 
 

 
 

U.S. and Canada
$
51,829

 
$
661

$

$

$
661

 
$
52,490

International
15,605

 
182



182

 
15,787

Manufacturing / Wholesale
17,927

 
510

200


710

 
18,637

Total reportable segment operating income
85,361

 
1,353

200


1,553

 
86,914

Corporate costs
(26,207
)
 




 
(26,207
)
Other
(19,334
)
 




 
(19,334
)
Unallocated corporate costs and other
(45,541
)
 




 
(45,541
)
Total operating income
$
39,820

 
$
1,353

$
200

$

$
1,553

 
$
41,373






 
Three months ended September 30, 2017
 
As Previously Reported
 
Franchise Fees
Specialty Manufacturing
Cooperative Advertising and Other Franchise Support Fees
Total Adjustments
 
As Revised
 
(in thousands)
Revenue:
 
 
 
 
 
 

 
 
U.S. and Canada
$
486,282

 
$
332

$

$
5,769

$
6,101

 
$
492,383

International
49,057

 
(599
)


(599
)
 
48,458

Manufacturing / Wholesale
 
 
 
 
 
 
 
 
Intersegment revenues
58,037

 




 
58,037

Third party
53,304

 
(93
)
(1,925
)

(2,018
)
 
51,286

Subtotal Manufacturing / Wholesale
111,341

 
(93
)
(1,925
)

(2,018
)
 
109,323

Total reportable segment revenues
646,680

 
(360
)
(1,925
)
5,769

3,484

 
650,164

Other
20,826

 




 
20,826

Elimination of intersegment revenues
(58,037
)
 




 
(58,037
)
Total revenue
$
609,469

 
$
(360
)
$
(1,925
)
$
5,769

$
3,484

 
$
612,953

Operating income:
 

 
 

 
 
 

 
 

U.S. and Canada
$
31,572

 
$
292

$

$

$
292

 
$
31,864

International
16,768

 
(599
)


(599
)
 
16,169

Manufacturing / Wholesale
19,505

 
(93
)
(244
)

(337
)
 
19,168

Total reportable segment operating income
67,845

 
(400
)
(244
)

(644
)
 
67,201

Corporate costs
(25,558
)
 




 
(25,558
)
Other
(1,842
)
 




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




 
(27,400
)
Total operating income
$
40,445

 
$
(400
)
$
(244
)

$
(644
)
 
$
39,801

 
Three months ended December 31, 2017
 
As Previously Reported
 
Franchise Fees
Specialty Manufacturing
Cooperative Advertising and Other Franchise Support Fees
Total Adjustments
 
As Revised
 
(in thousands)
Revenue:
 
 
 
 
 
 

 
 
U.S. and Canada
$
456,179

 
$
669

$

$
5,265

$
5,934

 
$
462,113

International
45,254

 
502



502

 
45,756

Manufacturing / Wholesale
 
 
 
 
 
 
 
 
Intersegment revenues
56,160

 




 
56,160

Third party
56,304

 
322

(1,672
)

(1,350
)
 
54,954

Subtotal Manufacturing / Wholesale
112,464

 
322

(1,672
)

(1,350
)
 
111,114

Total reportable segment revenues
613,897

 
1,493

(1,672
)
5,265

5,086

 
618,983

Other

 




 

Elimination of intersegment revenues
(56,160
)
 




 
(56,160
)
Total revenue
$
557,737

 
$
1,493

$
(1,672
)
$
5,265

$
5,086

 
$
562,823

Operating loss:
 

 
 

 
 
 

 
 

U.S. and Canada
$
(379,616
)
 
$
669

$

$

$
669

 
$
(378,947
)
International
13,660

 
502



502

 
14,162

Manufacturing / Wholesale
(5,999
)
 
322

(220
)

102

 
(5,897
)
Total reportable segment operating loss
(371,955
)
 
1,493

(220
)

1,273

 
(370,682
)
Unallocated corporate costs
(22,276
)
 




 
(22,276
)
Total operating loss
$
(394,231
)
 
$
1,493

$
(220
)
$

$
1,273

 
$
(392,958
)





 
Year ended December 31, 2017
 
As Previously Reported
 
Franchise Fees
Specialty Manufacturing
Cooperative Advertising and Other Franchise Support Fees
Total Adjustments
 
As Revised
 
(in thousands)
Revenue:
 
 
 
 
 
 

 
 
U.S. and Canada
$
1,993,444

 
$
2,063

$

$
23,424

$
25,487

 
$
2,018,931

International
177,359

 
419



419

 
177,778

Manufacturing / Wholesale
 
 
 
 
 
 
 
 
Intersegment revenues
231,495

 




 
231,495

Third party
216,053

 
987

1,031


2,018

 
218,071

Subtotal Manufacturing / Wholesale
447,548

 
987

1,031


2,018

 
449,566

Total reportable segment revenues
2,618,351

 
3,469

1,031

23,424

27,924

 
2,646,275

Other
66,182

 




 
66,182

Elimination of intersegment revenues
(231,495
)
 




 
(231,495
)
Total revenue
$
2,453,038

 
$
3,469

$
1,031

$
23,424

$
27,924

 
$
2,480,962

Operating loss:
 

 
 

 
 
 

 
 

U.S. and Canada
$
(246,097
)
 
$
1,993

$

$

$
1,993

 
$
(244,104
)
International
60,568

 
419



419

 
60,987

Manufacturing / Wholesale
47,990

 
987

198


1,185

 
49,175

Total reportable segment operating loss
(137,539
)
 
3,399

198


3,597

 
(133,942
)
Corporate costs
(102,114
)
 




 
(102,114
)
Other
(20,760
)
 




 
(20,760
)
Unallocated corporate costs and other
(122,874
)
 




 
(122,874
)
Total operating loss
$
(260,413
)
 
$
3,399

$
198

$

$
3,597

 
$
(256,816
)






Contacts:
Investors:    Matt Milanovich, Senior Director - Investor Relations, Analysis & Strategy , (412) 402-7260; or
John Mills, Partner - ICR, (646) 277-1254

SOURCE:     GNC Holdings, Inc.
Web site:     http://www.gnc.com