GNC 2008 Annual Report Download - page 88

Table of Contents
GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
year. The IRS commenced an examination of the Company's 2005, 2006 and short period 2007 federal income tax returns in February 2008.
The IRS is expected to issue an examination report in the fourth quarter of 2008. The Company has various state and local jurisdiction tax
years open to examination (earliest open period 2002), and the Company also has certain state and local jurisdictions currently under audit. As
of December 31, 2007, the Company believes that it is appropriately reserved for any potential federal and state income tax exposures.
NOTE 6. OTHER CURRENT ASSETS
Other current assets at each respective period consisted of the following:
Successor Predecessor
December 31, December 31,
2007 2006
(in thousands)
Current portion of franchise note receivables $ 1,598 $ 2,905
Less: allowance for doubtful accounts (256) (22)
Prepaid rent 12,806 12,009
Prepaid insurance 5,877 5,406
Prepaid income tax 3,122 —
Other current assets 10,327 9,600
$ 33,474 $ 29,898
NOTE 7. GOODWILL, BRANDS, AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of purchase price over the fair value of identifiable net assets of acquired entities. In accordance with SFAS
No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"), goodwill and intangible assets with indefinite useful lives are not amortized,
but instead are tested for impairment at least annually. Other intangible assets with finite lives are amortized on a straight-line or declining
balance basis over periods not exceeding 35 years.
Management utilized various resources in arriving at its final fair value adjustments that were made to the Company's financial statements
as of March 16, 2007. In connection with the Merger, final fair values were assigned to various other intangible assets. The Company's brands
were assigned a final fair value representing the longevity of the Company name and general recognition of the product lines. The Gold Card
program was assigned a final fair value representing the underlying customer listing, for both the Retail and Franchise segments. The retail
agreements were assigned a final fair value reflecting the opportunity to expand the Company stores within a major drug store chain and on
military facilities. A final fair value was assigned to the agreements with the Company's franchisees, both domestic and international, to operate
stores for a contractual period. Final fair values were assigned to the Company's manufacturing and wholesale segments for production and
continued sales to certain customers. During the period from March 16, 2007 to December 31, 2007, the Company updated the purchase price
allocations, as a result of updates in the assumptions used in the valuation models.
For the period from January 1, 2007 to March 15, 2007, the period from March 16, 2007 to December 31, 2007, and for the year ended
December 31, 2006, the Company acquired 17, 44 and 73 franchise stores, respectively. These acquisitions are accounted for utilizing the
purchase method of accounting and the Company records the acquired inventory, fixed assets, franchise rights and goodwill, with an applicable
reduction to receivables and cash. For the period from January 1, 2007 to March 15, 2007, the total purchase price associated with these
acquisitions was $1.3 million, of which $0.6 million was paid in cash. For the period from March 16, 2007 to December 31, 2007, the total
purchase price associated with these acquisitions was $1.2 million, of which $0.5 million was paid in cash. For the year ended December 31,
2006, the total purchase price associated with these acquisitions was $3.6 million, of which $0.5 million was paid in cash.
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