

	Year ended December 31,
	2019			2018			2017
	(in thousands)
Current:
Federal	$	17,130		$	277		$	23,965
State	3,379			4,646			4,458
Foreign	3,764			6,037			3,376
Total current income tax expense	24,273			10,960			31,799
Deferred:
Federal	3,393			(11,069		)	(177,272		)
State	18,188			(11,284		)	(13,710		)
Foreign	(985		)	(912		)	(596		)
Total deferred income tax expense (benefit)	20,596			(23,265		)	(191,578		)
Total income tax expense (benefit)	$	44,869		$	(12,305	)	$	(159,779	)

Income tax expense (benefit) reflected in the accompanying Consolidated Statements of Operations varies from the amounts that would have been provided by applying the United States federal statutory income tax rate of 21% to income (loss) before income taxes as shown below:



	Year ended December 31,
	2019			2018			2017
	(in thousands)
U.S. federal statutory income tax	$	2,049		$	12,070		$	(108,532	)
Increase (reduction) resulting from:
State income tax, net of federal tax benefit	3,014			(5,600		)	(3,224		)
International operations	2,085			856			(2,431		)
Foreign derived intangible income	(484		)	(2,003		)	—
Global intangible low taxed income	305			4,005			—
Premiums paid to wholly owned subsidiary company	(221		)	(221		)	(368		)
Nondeductible goodwill	—			—			6,219
Brand impairment	—			—			50,957
Exchange of convertible senior notes	40			—			(9,529		)
Loss (gain) on forward contracts for the issuance of the convertible preferred stock	3,525			(18,678		)	—
Formation of the joint ventures	8,067			—			—
Change in valuation allowance	27,117			2,547			(3,294		)
Stock based compensation	971			1,859			1,651
Federal tax credits and income deductions	(3,642		)	(5,305		)	(2,448		)
Tax impact of uncertain tax positions	4,831			1,028			295
Return to provision adjustment	(3,093		)	(1,073		)	(3,852		)
Impact of 2017 Tax Act	—			(3,583		)	(86,786		)
Other permanent differences	305			1,793			1,563
Income tax expense (benefit)	$	44,869		$	(12,305	)	$	(159,779	)

During the year ended December 31, 2019, we recognized an income tax expense of $44.9 million. The current year effective tax rate was significantly impacted by an increase to income tax expense of $27.1 million relating to an increase in valuation allowance against certain deferred tax assets that may not be realizable and an increase to tax expense of $7.6 million resulting from the transfer of the Nutra manufacturing net assets to the Manufacturing JV. The current year tax expense was also impacted by a $4.8 million increase in the Company’s liability for uncertain tax positions and a $3.5 million increase related to a loss on forward contracts for the issuance of convertible preferred stock that was not recognizable for tax purposes.

During the year ended December 31, 2018, the Company finalized estimates of income tax impacts of the 2017 Tax Act based upon the regulations and other relevant guidance issued through December 31, 2018. The Company's 2018 income tax provision includes a discrete tax benefit of $3.6 million relating to the finalization of the remeasurement of its deferred tax assets and liabilities upon filing of the Company's 2017 federal income tax return.

On December 22, 2017, tax reform legislation known as The Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”) was enacted. The 2017 Tax Act made significant changes to the Internal Revenue Code. During the year ended December 31, 2017, the Company recorded a non-cash income tax benefit of $86.8 million, related to the remeasurement of its deferred tax assets and liabilities to reflect the effects of these temporary differences at enacted tax rates expected to be in effect when taxes are actually paid or recovered.



	Year ended December 31,
	2019			2018
	(in thousands)
Deferred tax assets:
Operating reserves	$	4,642		$	5,787
Deferred revenue	7,402			9,118
Net operating loss and credit carryforwards	30,395			35,243
Lease liabilities	89,975			6,842
Fixed assets	8,941			12,632
Stock-based compensation	3,599			3,479
Interest limitation	29,205			20,073
Other	2,456			3,938
Valuation allowance	(42,348		)	(20,025		)
Total deferred tax assets	134,267			77,087

Deferred tax liabilities:
Prepaid expenses	(4,850		)	(3,820		)
Right-of-use assets	(68,116		)	—
Intangible assets	(91,673		)	(100,709		)
Convertible senior notes	(1,214		)	(3,616		)
Total deferred tax liabilities	(165,853		)	(108,145		)
Net deferred tax liability	$	(31,586	)	$	(31,058	)

As of December 31, 2019, the Company had gross state NOL carryforwards of $344.4 million expiring between 2026 and 2039 and $5.0 million of state tax credit carryforwards that will expire between 2023 and 2034. The Company also had $1.1 million of US foreign tax credit carryforwards expiring in 2028 and 2029. The company had immaterial foreign NOL carryforwards and no US Federal NOL carryforwards as of December 31, 2019. Under the Internal Revenue Code, the amount of and the benefits from NOL and tax credit carryforwards may be limited or permanently impaired in certain circumstances.

The Company regularly reviews deferred tax assets. The review is to ascertain that, based upon all the information available at the time of the preparation of the financial statements, it is more likely than not that the Company expects to utilize these deferred tax assets in the future. If the Company determines that it is more likely than not that these deferred tax assets will not be utilized, a valuation allowance is recorded, reducing the deferred tax asset to the amount expected to be realized. In assessing the need for a valuation allowance, the Company considers all available positive and negative evidence, including the Company’s operating results, reversals of deferred tax liabilities, and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis.

During the fourth quarter of the year ended December 31, 2019, as further discussed in Note 1, "Nature of Business," management concluded that there is substantial doubt regarding the Company’s ability to continue as a going concern. Management considered this in concluding that certain deferred tax assets were no longer more likely than not realizable. As a result, an increase in valuation allowance of $27.1 million on the Company’s deferred tax assets was recorded as of December 31, 2019 which related principally to deferred tax assets for state NOL carryforwards and other state tax attributes and deferred tax assets related to the Company’s interest expense deductions as determined under Section 163(j) of the Internal Revenue Code. This increase was partially offset by a valuation allowance decrease of $4.8 million.

As of December 31, 2019 and 2018, a valuation allowance was provided for certain NOLs, as the Company currently believes that these NOLs may not be realizable prior to their expiration. As of December 31, 2019, the Company recorded an additional $18.6 million valuation allowance related to state net operating losses and other state attributes no longer determined to be realizable. In the current year, the Company also recorded a $7.4 million partial valuation allowance related to the deferred tax asset resulting from the limitation of the Company’s interest expense deduction as determined by Section 163(j) of the Internal

Revenue Code and a $1.1 million valuation allowance related to federal foreign tax credit carryforwards. The Company reduced its foreign deferred tax assets and related valuation allowance by $4.8 million respectively, because it determined that $3.7 million of China NOLs would not be available to the Company as a result of the China joint venture transaction and $1.1 million of Puerto Rico NOLs were realized at the filing of the 2018 Puerto Rico statutory income tax returns.

As of December 31, 2019 and 2018, the Company has valuation allowances for deferred tax assets in the amount of $42.3 million and $20.0 million, respectively. Management will continue to assess the valuation allowance in forthcoming periods. This may result in a different conclusion as to the realizability of the Company's deferred tax assets in the future.

The Company’s foreign subsidiaries generate earnings that are not subject to U.S. income taxes so long as they are permanently reinvested in its operations outside of the U.S. Pursuant to ASC Topic No 740-30, undistributed earnings of foreign subsidiaries that are no longer permanently reinvested would become subject to deferred income taxes. The Company does not have any material undistributed earnings of international subsidiaries at December 31, 2019 as these subsidiaries are considered to be branches for United States tax purposes, to have incurred cumulative NOLs, or to have only minimal undistributed earnings.

GNC Holdings, Inc. files a consolidated federal tax return and various consolidated and separate tax returns as prescribed by the tax laws of the state, local and international jurisdictions in which it and its subsidiaries operate. The statutes of limitation for the Company’s U.S. federal income tax returns are closed for years through 2013. The Company has various state and local jurisdiction tax years open to possible examination (the earliest open period is generally 2011), and the Company also has certain state and local tax filings currently under audit.



	December 31,
	2019			2018			2017
	(in thousands)
Balance of unrecognized tax benefits at beginning of period	$	6,950		$	5,774		$	6,456
Additions for tax positions taken during current period	180			882			748
Additions for tax positions taken during prior periods	4,774			715			192
Reductions for tax positions taken during prior periods	(800		)	(421		)	(675		)
Settlements	(385		)	—			(947		)
Balance of unrecognized tax benefits at end of period	$	10,719		$	6,950		$	5,774

As of December 31, 2019, the Company is not aware of any positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months. Accrued interest and penalties were $2.4 million and $2.0 million at December 31, 2019 and 2018, respectively. At December 31, 2019, the amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $13.1 million, including the impact of accrued interest and penalties. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, the Company believes that its unrecognized tax benefits reflect the most likely outcome. The Company adjusts these unrecognized tax benefits, as well as the related interest, in light of changing facts and circumstances. Settlement of any particular position could require the use of cash. Favorable resolution would be recognized as a reduction to the effective income tax rate in the period of resolution.