|
NOTE 4. GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill represents the excess of purchase price over the fair value of identifiable net assets of acquired entities. In accordance with the standard on intangibles and goodwill, 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 basis over periods not exceeding 35 years.
For the nine months ended September 30, 2011, the Company acquired 22 franchise stores. These acquisitions were accounted for utilizing the acquisition method of accounting and the Company recorded the acquired inventory, fixed assets, franchise rights and goodwill, with an applicable reduction to receivables and cash. The total purchase price associated with these acquisitions was $2.1 million, of which $0.8 million was paid in cash.
On August 31, 2011, the Company acquired substantially all of the assets and assumed certain liabilities of Lucky Vitamin, which was accounted for as a business combination. The total purchase price for this acquisition was approximately $21 million. Of the purchase price, $11.5 million was preliminarily allocated to goodwill, $9.6 million to amortizable intangible assets, $2.6 million to current assets acquired, $0.7 million to property and equipment acquired, and $3.9 million to net assumed current liabilities.
The Company’s acquisition of Lucky Vitamin completed during the nine months ended September 30, 2011 did not have a material impact on the Company’s consolidated financial statements, and therefore pro forma disclosures have not been presented.
The following table summarizes the Company’s goodwill activity:
|
|
|
|
|
|
|
Manufacturing/ |
|
|
|
|
|
|
Retail |
|
Franchising |
|
Wholesale |
|
Total |
|
|
|
|
(in thousands) |
|
|
Balance at December 31, 2010 |
|
$ |
305,097 |
|
$ |
117,303 |
|
$ |
202,841 |
|
$ |
625,241 |
|
|
Acquired franchise stores |
|
686 |
|
- |
|
- |
|
686 |
|
|
Acquisition of Lucky Vitamin |
|
11,467 |
|
- |
|
- |
|
11,467 |
|
|
Balance at September 30, 2011 (unaudited) |
|
$ |
317,250 |
|
$ |
117,303 |
|
$ |
202,841 |
|
$ |
637,394 |
|
The following table summarizes the Company’s intangible asset activity:
|
|
|
Retail |
|
Franchise |
|
Operating |
|
Other |
|
|
|
|
|
|
Brand |
|
Brand |
|
Agreements |
|
Intangibles |
|
Total |
|
|
|
|
(in thousands) |
|
|
Balance at December 31, 2010 |
|
$ |
500,000 |
|
$ |
220,000 |
|
$ |
146,223 |
|
$ |
1,001 |
|
$ |
867,224 |
|
|
Acquired franchise stores |
|
- |
|
- |
|
- |
|
512 |
|
512 |
|
|
Acquisition of Lucky Vitamin |
|
- |
|
- |
|
- |
|
9,600 |
|
9,600 |
|
|
Amortization expense |
|
- |
|
- |
|
(5,140) |
|
(646) |
|
(5,786) |
|
|
Balance at September 30, 2011 (unaudited) |
|
$ |
500,000 |
|
$ |
220,000 |
|
$ |
141,083 |
|
$ |
10,467 |
|
$ |
871,550 |
|
The following table reflects the gross carrying amount and accumulated amortization for each major intangible asset:
|
|
|
Estimated |
|
September 30, 2011 |
|
December 31, 2010 |
|
|
|
|
Life |
|
|
|
Accumulated |
|
Carrying |
|
|
|
Accumulated |
|
Carrying |
|
|
|
|
in years |
|
Cost |
|
Amortization |
|
Amount |
|
Cost |
|
Amortization |
|
Amount |
|
|
|
|
|
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
Brands - retail |
|
- |
|
$ |
500,000 |
|
$ |
- |
|
$ |
500,000 |
|
$ |
500,000 |
|
$ |
- |
|
$ |
500,000 |
|
|
Brands - franchise |
|
- |
|
220,000 |
|
- |
|
220,000 |
|
220,000 |
|
- |
|
220,000 |
|
|
Retail agreements |
|
25-35 |
|
31,000 |
|
(4,933) |
|
26,067 |
|
31,000 |
|
(4,143) |
|
26,857 |
|
|
Franchise agreements |
|
25 |
|
70,000 |
|
(12,717) |
|
57,283 |
|
70,000 |
|
(10,617) |
|
59,383 |
|
|
Manufacturing agreements |
|
25 |
|
70,000 |
|
(12,717) |
|
57,283 |
|
70,000 |
|
(10,617) |
|
59,383 |
|
|
Other intangibles |
|
5-15 |
|
10,600 |
|
(633) |
|
9,967 |
|
1,150 |
|
(550) |
|
600 |
|
|
Franchise rights |
|
1-5 |
|
4,213 |
|
(3,263) |
|
950 |
|
3,702 |
|
(2,701) |
|
1,001 |
|
|
Total |
|
|
|
$ |
905,813 |
|
$ |
(34,263) |
|
$ |
871,550 |
|
$ |
895,852 |
|
$ |
(28,628) |
|
$ |
867,224 |
|
The following table represents future estimated amortization expense of other intangible assets, net, with definite lives at September 30, 2011:
|
|
|
|
Estimated |
|
|
|
|
|
amortization |
|
|
Years ending December 31, |
|
|
expense |
|
|
|
|
|
(unaudited) |
|
|
|
|
|
(in thousands) |
|
|
2011 |
|
|
$ |
1,944 |
|
|
2012 |
|
|
8,257 |
|
|
2013 |
|
|
8,052 |
|
|
2014 |
|
|
7,775 |
|
|
2015 |
|
|
7,681 |
|
|
Thereafter |
|
|
117,841 |
|
|
Total |
|
|
$ |
151,550 |
|
|