GNC 2008 Annual Report Download - page 99

Table of Contents
GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. FINANCIAL INSTRUMENTS
At December 31, 2007 and 2006, the Company's financial instruments consisted of cash and cash equivalents, receivables, franchise notes
receivable, accounts payable, certain accrued liabilities and long-term debt. The carrying amount of cash and cash equivalents, receivables,
accounts payable and accrued liabilities approximates their fair value because of the short maturity of these instruments. Based on the interest
rates currently available and their underlying risk, the carrying value of the franchise notes receivable approximates their fair value. These fair
values are reflected net of reserves, which are recognized according to Company policy. The carrying amount of the senior credit facility and
mortgage is considered to approximate fair value since they carry an interest rate that is currently available to the Company for issuance of debt
with similar terms and remaining maturities. The Company determined the estimated fair values by using currently available market information
and estimates and assumptions where appropriate. Accordingly, as considerable judgment is required to determine these estimates, changes in
the assumptions or methodologies may have an effect on these estimates. The actual and estimated fair values of the Company's financial
instruments are as follows:
Successor Predecessor
December 31, 2007 December 31, 2006
Carrying Fair Carrying Fair
Amount Value Amount Value
(in thousands)
Cash and cash equivalents $ 28,854 $ 28,854 $ 24,080 $ 24,080
Receivables 84,666 84,666 74,827 74,827
Franchise notes receivable 2,473 2,473 5,902 5,902
Accounts payable 101,953 101,953 104,121 104,121
Long term debt 1,086,981 1,065,534 431,356 445,144
NOTE 16. LONG-TERM LEASE OBLIGATIONS
The Company enters into operating leases covering its retail store locations. The Company is the primary lessor of the majority of all leased
retail store locations and sublets the locations to individual franchisees. The leases generally provide for an initial term of between five and ten
years, and may include renewal options for varying terms thereafter. The leases require minimum monthly rental payments and a pro rata share
of landlord allocated common operating expenses. Most retail leases also require additional rentals based on a percentage of sales in excess
of specified levels ("Percent Rent"). According to the individual lease specifications, real estate taxes, insurance and other related costs may be
included in the rental payment or charged in addition to rent. Other lease expenses relate to and include distribution facilities, transportation
equipment, data processing equipment and automobiles.
As the Company is the primary lessee for the majority of the franchise store locations, it is ultimately liable for the lease payments to the
landlord. The Company makes the payments to the landlord directly, and then bills the franchisee for reimbursement of this cost. If a franchisee
defaults on its sub-lease and its sub-lease is terminated, the Company has in the past converted, and expects in the future to, convert any such
franchise store into a corporate store and fulfill the remaining lease obligation.
The composition of the Company's rental expense for all periods presented included the following components:
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