GNC 2008 Annual Report Download - page 87

Table of Contents
GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
accounted for in accordance with SFAS 109. This Interpretation is intended to result in increased relevance and comparability in financial
reporting of income taxes and to provide more information about the uncertainty in income tax assets and liabilities.
The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized a
$0.4 million increase in the liability for unrecognized tax benefits which was accounted for as a reduction to the January 1, 2007 balance of
retained earnings. Additionally, as a result of the implementation of FIN 48, the Company recorded $15.0 million of unrecognized tax benefits
related to a balance sheet reclassification that did not impact retained earnings. A total of $11.3 million of this reclassification relates to the
gross presentation of certain tax positions related to periods that are subject to the indemnification provisions of the purchase agreement
between the Company and Numico. Under these provisions Numico is responsible for the satisfaction of these claims, and, as such the
Company recorded a corresponding receivable of $11.3 million. The remaining $3.7 million related to tax positions previously categorized as
current liabilities.
After the recognition of these items in connection with the implementation of FIN 48, the total liability for unrecognized tax benefits at
January 1, 2007 was $14.2 million. At December 31, 2007, the Company had a liability of $6.9 million for unrecognized tax benefits. The
Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. Accrued interest and penalties
were $0.7 million and $1.3 million as of December 31, 2007 and as of January 1, 2007, respectively.
As of December 31, 2007, the Company is not aware of any positions for which it is reasonably possible that the total amounts of
unrecognized tax benefits will significantly increase or decrease within the next 12 months.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Successor Predecessor
Period March 16- Period January
December 31, 1- March 15,
2007 2007
(in thousands)
Balance of unrecognized tax benefits at beginning of period $ 15,771 $ 14,190
Additions for tax positions taken during current period 617 1,581
Reductions for tax positions taken during prior periods (235) —
Expiration of statute of limitations (9,282) —
Balance of unrecognized tax benefits at end of period $ 6,871 $ 15,771
At December 31, 2007, the amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is immaterial. Due to
the Merger, the majority of unrecognized tax benefits would be reversed through adjustments to the opening balance sheet. While it is often
difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, we believe that our unrecognized tax
benefits reflect the most likely outcome. We adjust 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
our effective income tax rate in the period of resolution.
The Company files a consolidated federal tax return and various consolidated and separate tax returns as prescribed by the tax laws of the
state and local jurisdictions in which it operates. The Company has been audited by the Internal Revenue Service, ("IRS"), through its
December 4, 2003 tax 83