GNC 2008 Annual Report Download - page 76

Table of Contents
GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements and footnotes have been prepared by the Company in accordance with accounting
principles generally accepted in the United States of America and with the instructions to Form 10-K and Regulation S-X. The Company's
normal reporting period is based on a calendar year.
The financial statements as of December 31, 2007 reflect periods subsequent to the Merger and include the accounts of the Company and
its wholly owned subsidiaries. Included for the period ending December 31, 2007 are fair value adjustments to assets and liabilities, including
inventory, goodwill, other intangible assets and property, plant and equipment. Accordingly, the accompanying financial statements for the
periods prior to the Merger are labeled as "Predecessor" and the periods subsequent to the Merger are labeled as "Successor".
Summary of Significant Accounting Policies
Principles of Consolidation. The consolidated financial statements include the accounts of the Company and all of its subsidiaries. All
material intercompany transactions have been eliminated in consolidation.
The Company has no relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured
finance or special purpose entities, which would have been established for the purpose of facilitating off balance sheet arrangements, or other
contractually narrow or limited purposes.
Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions. Accordingly, these estimates and assumptions affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Some of the most significant estimates pertaining to the Company include the valuation of inventories,
the allowance for doubtful accounts, income tax valuation allowances and the recoverability of long-lived assets. On a regular basis,
management reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience and
reasonable assumptions. After such reviews and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ
from those estimates.
Cash and Cash Equivalents. The Company considers cash and cash equivalents to include all cash and liquid deposits and investments
with a maturity of three months or less. The majority of payments due from banks for third-party credit cards process within 24-48 hours, except
for transactions occurring on a Friday, which are generally processed the following Monday. All credit card transactions are classified as cash
and the amounts due from these transactions totaled $3.6 million at December 31, 2007 and $3.9 million at December 31, 2006.
Inventories. Inventory components consist of raw materials, finished product and packaging supplies. Inventories are stated at the lower of
cost or market on a first in/first out ("FIFO") basis. Cost is determined using a standard costing system which approximates actual costs. The
Company regularly reviews its inventory levels in order to identify slow moving and short dated products, expected length of time for product
sell through and future expiring product. Upon analysis, the Company has established certain valuation allowances to reserve for such
inventory. When allowances are considered necessary, after such reviews, the inventory balances are adjusted and reflected net in the
accompanying financial statements.
Accounts Receivable and Allowance for Doubtful Accounts. The Company sells product to its franchisees and, to a lesser extent,
various third parties. See the footnote, "Receivables", for the 72