GNC 2010 Annual Report Download - page 95

Table of Contents
GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$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 the standard on income taxes, the total liability for
unrecognized tax benefits at January 1, 2007 was $14.2 million. At December 31, 2009 and 2008, the Company had a liability of $6.8 million
and $5.5 million, respectively, 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 $2.2 million and $1.2 million as of December 31, 2009 and 2008,
respectively.
As of December 31, 2009, 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.
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 and its subsidiaries operate. The Company has been audited by the Internal Revenue Service,
("IRS"), through its March 15, 2007 tax 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 issued an examination report in the second quarter of 2009, the Company received notification
from the IRS that the Joint Committee of Taxation had completed its review and had taken no exceptions to the conclusions reached by the
IRS. As such the Company recorded a discrete tax benefit of $0.9 million for the reduction of its liability of unrecognized tax benefits. The
Company has various state and local jurisdiction tax years open to examination (earliest open period 2004), and the Company also has certain
state and local jurisdictions currently under audit. As of December 31, 2009, the Company believes that it is appropriately reserved for any
potential federal and state income tax exposures.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Successor Predecessor
Year Ended Year Ended
December 31, December 31, March 16 - January 1-
2009 2008 December 31, 2007 March 15, 2007
(in thousands)
Balance of unrecognized tax benefits at beginning of period $ 5,542 $ 6,871 $ 15,771 $ 14,190
Additions for tax positions taken during current period 1,881 1,620 617 1,581
Additions for tax positions taken during prior periods 2,108 — — —
Reductions for tax positions taken during prior periods (2,264) (2,059) (235) —
Settlements (491) (890) (9,282) —
Balance of unrecognized tax benefits at end of period $ 6,776 $ 5,542 $ 6,871 $ 15,771
At December 31, 2009, the amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $5.9 million.
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.
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