GNC 2008 Annual Report Download - page 111

Table of Contents
GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition to the Retail product categories discussed above, Franchise revenues are primarily generated from (1) product sales to
franchisees, (2) royalties from franchise retail sales and (3) franchise fees, and Manufacturing/ Wholesale sales are generated from sales of
manufactured products to third parties, primarily in the VMHS product category.
NOTE 21. FRANCHISE REVENUE
The Company's Franchise segment generates revenues through product sales to franchisees, royalties, franchise fees and interest income
on the financing of the franchise locations. The Company enters into franchise agreements with initial terms of ten years. The Company
charges franchisees three types of flat franchise fees associated with stores: initial, transfer and renewal. The initial franchise fee is payable
prior to the franchise store opening as consideration for the initial franchise rights and services performed by the Company. Transfer fees are
paid as consideration for the same rights and services as the initial fee and occur when a former franchisee transfers ownership of the franchise
location to a new franchisee. This is typically a reduced fee compared to the initial franchise fee. The renewal franchise fee is charged to
existing franchisees upon renewal of the franchise contract. This fee is similar to, but typically less than the initial fee.
Once the franchised store is opened, transferred or renewed, the Company has no further obligations under these fees to the franchisee.
Therefore, all initial, transfer and renewal franchise fee revenue is recognized in the period in which a franchise store is opened, transferred or
date the contract period is renewed. The Company recognized initial franchise fees of $1.4 million for the period March 16 to December 31,
2007, $0.3 million for the period from January 1 to March 15, 2007, $1.5 million and $1.3 million for the years ended December 31, 2006 and
2005, respectively.
The following is a summary of our franchise revenue by type:
Successor Predecessor
March 16 - January 1 -
December 31, March 15, Year ended December 31,
2007 2007 2006 2005
(in thousands)
Product sales $ 160,665 $ 38,409 $ 191,707 $ 173,427
Royalties 25,990 7,102 32,641 31,380
Franchise fees 3,013 810 3,532 3,565
Other 4,228 916 4,409 4,378
Total franchise revenue $ 193,896 $ 47,237 $ 232,289 $ 212,750
NOTE 22. SUPPLEMENTAL CASH FLOW INFORMATION
The Company remitted cash payments for federal and state income taxes of $1.2 million, $23.2 million, and $2.9 million for the period
January 1 to March 15, 2007, and for the years ended December 31, 2006 and 2005, respectively. The Company received cash refunds of
$19.7 million, net of tax payments for the period March 16 to December 31, 2007.
The Company remitted cash payments for interest expense related to outstanding debt of $38.7 million, $56.8 million, $40.2 million and
$32.7 million for the period from January 1 to March 15, 2007, the period from March 16 to December 31, 2007, and for the years ended
December 31, 2006 and 2005, respectively.
NOTE 23. RETIREMENT PLANS
The Company sponsors a 401(k) defined contribution savings plan covering substantially all employees. Full time employees who have
completed 30 days of service and part time employees who have completed 1,000 hours of service are eligible to participate in the plan. The
plan provides for 107