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 ended	June 30, 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)

Delaware		20-8536244
(State or other jurisdiction of		(I.R.S. Employer
Incorporation or organization)		Identification No.)
300 Sixth Avenue		15222
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 class	Trading Symbol	Name of each exchange on which registered
Class A common stock, par value $0.001 per share	GNCIQ	*

* On June 30, 2020, the Company’s common stock was suspended from trading on the New York Stock Exchange (the “NYSE”) because of the Debtors’ filing of the Chapter 11 Cases. Effective July 1, 2020, trades in the Company’s common stock began being quoted on the OTC Pink Marketplace under the symbol “GNCIQ.” On July 1, 2020, the NYSE filed a Form 25 to delist the Company’s common stock and to remove it from registration under Section 12(b) of the Exchange Act.

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 filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.                ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

                    ☐ Yes ☒ No

1

As of August 5, 2020, there were 84,040,526 outstanding shares of Class A common stock, par value $0.001 per share (the “common stock”), of GNC Holdings, Inc.

2

TABLE OF CONTENTS

		PAGE
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited Debtor-In-Possession)
	Unaudited Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019	1
	Unaudited Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019	3
	Unaudited Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2020 and 2019	4
	Unaudited Consolidated Statements of Stockholders’ Deficit for the three and six months ended June 30, 2020 and 2019	5
	Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019	6
	Unaudited Supplemental Cash Flow Information for the six months ended June 30, 2020 and 2019	8
	Condensed Notes to Unaudited Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	43
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	61
Item 4.	Controls and Procedures	62
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	62
Item 1A.	Risk Factors	64
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	68
Item 3.	Defaults Upon Senior Securities	68
Item 4.	Mine Safety Disclosures	68
Item 5.	Other Information	68
Item 6.	Exhibits	69
Signatures		70

3

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited Debtor-In-Possession)

GNC HOLDINGS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)

Consolidated Balance Sheets

(unaudited)

(in thousands)

	June 30, 2020		December 31, 2019
Current assets:
Cash and cash equivalents	$	80,740	$	117,046
Restricted cash (Note 3)	15,688		—
Receivables, net of allowance for credit losses of $32,726 and $22,648, respectively (Note 2)	77,413		101,234
Receivables due from related parties (Note 9)	10,094		8,946
Inventory (Note 5)	275,170		387,655
Prepaid and other current assets	37,183		24,880
Total current assets	496,288		639,761
Long-term assets:
Goodwill (Note 7)	73,552		79,109
Brand name (Note 7)	189,000		300,720
Other intangible assets, net	68,493		71,298
Property, plant and equipment, net (Note 6)	66,597		86,916
Right-of-use assets (Note 6)	248,340		350,579
Equity method investments (Note 9)	42,077		97,930
Investment in GNC Canada (Note 3)	13,570		—
Deferred tax assets (Note 15)	26,542		—
Other long-term assets	18,603		24,274
Total long-term assets	746,774		1,010,826
Total assets	$	1,243,062	$	1,650,587
Current liabilities:
Debtor-in-possession financing (Note 3)	$	305,000	$	—
Accounts payable	6,435		150,742
Accounts payable due to related parties (Note 9)	3,340		11,720
Current portion of long-term debt (Note 8)	—		180,566
Current lease liabilities	—		112,005
Deferred revenue and other current liabilities	40,507		105,792
Total current liabilities	355,282		560,825
Long-term liabilities:
Long-term debt (Note 8)	—		681,999
Deferred income taxes	315		31,586
Lease liabilities	2,018		330,510
Other long-term liabilities	208		41,535
Total long-term liabilities	2,541		1,085,630
Total liabilities not subject to compromise	357,823		1,646,455
Liabilities subject to compromise	1,153,564		—
Total liabilities	1,511,387		1,646,455

1

Contingencies (Note 11)
Mezzanine equity:
Convertible preferred stock (Note 12)	211,395		211,395
Stockholders’ deficit:
Common stock	131		131
Additional paid-in capital	1,013,854		1,012,076
Retained earnings	234,850		518,605
Treasury stock, at cost	(1,725,349)		(1,725,349)
Accumulated other comprehensive loss	(3,206)		(12,726)
Total stockholders’ deficit	(479,720)		(207,263)
Total liabilities, mezzanine equity and stockholders’ deficit	$	1,243,062	$	1,650,587

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

2

GNC HOLDINGS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)

Consolidated Statements of Operations

(unaudited)

(in thousands, except per share amounts)

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Revenue (Note 4)	$	343,538	$	533,997	$	816,119	$	1,098,760
Cost of sales, including warehousing, distribution and occupancy	255,305		340,253		591,171		701,925
Gross profit	88,233		193,744		224,948		396,835
Selling, general and administrative	127,115		143,840		271,657		292,143
Long-lived asset impairments and other store closing costs	20,201		—		177,715		—
Loss on net asset exchange for the formation of the joint ventures (Note 9)	—		1,779		1,655		21,293
Other income, net	(565)		(593)		(1,528)		(801)
Operating (loss) income	(58,518)		48,718		(224,551)		84,200
Interest expense, net (Note 8)	22,057		24,964		69,502		57,920
Gain on convertible debt repurchase	—		(3,214)		—		(3,214)
Loss on forward contracts for the issuance of convertible preferred stock	—		—		—		16,787
Reorganization items, net	15,429		—		15,429		—
(Loss) income before income from equity method investments and income taxes	(96,004)		26,968		(309,482)		12,707
Income tax (benefit) expense (Note 15)	(11,386)		13,030		(64,421)		14,986
(Loss) income before income from equity method investments	(84,618)		13,938		(245,061)		(2,279)
Income (loss) from equity method investments (Note 9)	949		2,120		(38,694)		3,075
Net (loss) income	$	(83,669)	$	16,058	$	(283,755)	$	796
(Loss) earnings per share (Note 13):
Basic	$	(1.06)	$	0.13	$	(3.51)	$	(0.09)
Diluted	$	(1.06)	$	0.11	$	(3.51)	$	(0.09)
Weighted average common shares outstanding (Note 13):
Basic	83,936		83,663		83,916		83,587
Diluted	83,936		140,942		83,916		83,587

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

3

GNC HOLDINGS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)

Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

(in thousands)

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Net (loss) income	$	(83,669)	$	16,058	$	(283,755)	$	796
Other comprehensive gain (loss):
Net change in interest rate swaps:
Periodic revaluation of interest rate swap, net of tax(1)	—		(2,830)		(3,542)		(4,295)
Reclassification adjustment for interest recognized in Consolidated Statement of Operations, net of tax(2)	—		268		871		504
Net change in unrecognized loss on interest rate swaps, net of tax	—		(2,562)		(2,671)		(3,791)
Deferred loss recognized on interest rate swap, net of $3.4 million tax expense	—		—		7,459		—
Foreign currency translation gain (loss)	251		186		(896)		625
Deconsolidation of GNC Canada - currency translation	5,628		—		5,628		—
Other comprehensive gain (loss)	5,879		(2,376)		9,520		(3,166)
Comprehensive (loss) income	$	(77,790)	$	13,682	$	(274,235)	$	(2,370)

(1)Net of tax benefit of $1.3 million for the three months ended June 30, 2019, and net of tax benefit of $1.6 million and $1.9 million, respectively, for the six months ended June 30, 2020 and 2019.

(2)Net of tax expense of $0.1 million, respectively, for the three months ended June 30, 2019, and net of tax expense of $0.4 million and $0.2 million, respectively, for the six months ended June 30, 2020 and 2019.

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

4

GNC HOLDINGS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)

Consolidated Statements of Stockholders’ Deficit

(unaudited)

(in thousands)

	Common Stock			Treasury Stock		Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders’ Deficit
	Class A
	Shares	Dollars
Balance at December 31, 2019	84,564	$	131	$	(1,725,349)	$	1,012,076	$	518,605	$	(12,726)	$	(207,263)
Comprehensive income	—	—		—		—		(200,086)		3,641		(196,445)
Restricted stock awards	68	—		—		—		—		—		—
Minimum tax withholding requirements	(24)	—		—		(54)		—		—		(54)
Stock-based compensation	—	—		—		1,372		—		—		1,372
Balance at March 31, 2020	84,608	131		(1,725,349)		1,013,394		318,519		(9,085)		(402,390)
Comprehensive income	—	—		—		—		(83,669)		5,879		(77,790)
Restricted stock awards	(546)	—		—		—		—		—		—
Minimum tax withholding requirements	(21)	—		—		(10)		—		—		(10)
Stock-based compensation	—	—		—		470		—		—		470
Balance at June 30, 2020	84,041	$	131	$	(1,725,349)	$	1,013,854	$	234,850	$	(3,206)	$	(479,720)
Balance at December 31, 2018	83,886	$	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 awards	121	—		—		—		—		—		—
Minimum tax withholding requirements	(41)	—		—		(120)		—		—		(120)
Stock-based compensation	—	—		—		1,334		—		—		1,334
Balance at March 31, 2019	83,966	130		(1,725,349)		1,009,041		538,439		(11,345)		(189,084)
Comprehensive income	—	—		—		—		16,058		(2,376)		13,682
Restricted stock awards	628	—		—		—		—		—		—
Minimum tax withholding requirements	(15)	—		—		(108)		—		—		(108)
Stock-based compensation	—	—		—		1,658		—		—		1,658
Balance at June 30, 2019	84,579	$	130	$	(1,725,349)	$	1,010,591	$	554,497	$	(13,721)	$	(173,852)

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

5

GNC HOLDINGS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

	Six months ended June 30,
	2020		2019
Cash flows from operating activities:
Net (loss) income	$	(283,755)	$	796
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization expense	14,845		18,704
Non-cash reorganization items, net	13,386		—
Loss (income) from equity method investments	38,694		(3,075)
Amortization of debt costs	21,954		12,364
Stock-based compensation	1,842		2,992
Long-lived asset impairments and other store closing costs	177,715		—
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 ventures	1,655		21,293
Gain on convertible notes repurchase	—		(3,214)
Interest expense recognized on interest rate swap	10,810		—
Distribution from equity investments	1,399		—
Deferred income tax benefit	(61,344)		(5,859)
Other	(2,106)		(398)
Changes in assets and liabilities:
Decrease (increase) in receivables	20,559		(4,400)
Decrease (increase) in inventory	88,146		(706)
Decrease (increase) in prepaid and other current assets	(12,841)		874
Increase (decrease) in accounts payable	(51,772)		24,886
Increase (decrease) in deferred revenue and accrued liabilities	53,125		(222)
Decrease in net lease liabilities	(33,998)		(18,556)
Other operating activities	(1,755)		3,057
Net cash (used in) provided by operating activities	(3,441)		65,323

6

Cash flows from investing activities:
Capital expenditures	(5,970)		(6,460)
Refranchising proceeds, net of store acquisition costs	408		1,520
Proceeds from net asset exchange	18,211		101,000
Deconsolidation of GNC Canada	(4,293)		—
Capital contribution to the joint ventures	—		(13,079)
Interest rate swap settlement	(8,990)		—
Net cash (used in) provided by investing activities	(634)		82,981
Cash flows from financing activities:
Proceeds from debtor-in-possession financing	30,000		—
Fees associated with the issuance of debtor-in-possession financing	(7,300)		—
Borrowings under revolving credit facility	60,000		22,000
Payments on revolving credit facility	(60,000)		(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	(37,628)		(123,774)
Payments on convertible notes repurchase	—		(24,708)
Original issuance discount and revolving credit facility fees	—		(10,365)
Fees associated with the issuance of convertible preferred stock	—		(12,814)
Minimum tax withholding requirements	(64)		(228)
Net cash used in financing activities	(14,992)		(119,251)
Effect of exchange rate changes on cash and cash equivalents and restricted cash	(1,551)		(384)
Net (decrease) increase in cash and cash equivalents and restricted cash	(20,618)		28,669
Beginning balance, cash and cash equivalents and restricted cash	117,046		67,224
Ending balance, cash and cash equivalents and restricted cash	$	96,428	$	95,893

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

7

GNC HOLDINGS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)

Supplemental Cash Flow Information

(unaudited)

(in thousands)

	Six months ended June 30,
	2020		2019
Non-cash investing activities (1):
Net assets contributed to the joint ventures (Note 9)	$	—