GNC 2009 Annual Report Download - page 63

Table of Contents
Revenue Recognition
We operate primarily as a retailer, through company-owned stores, franchised stores, and to a lesser extent, as a wholesaler. On
December 28, 2005, we started recognizing revenue through product sales on our website, www.gnc.com. We apply the provisions of Staff
Accounting Bulletin No. 104, ''Revenue Recognition'', which requires the following:
• Persuasive evidence of an arrangement exists.
• Delivery has occurred or services have been rendered.
• The price is fixed or determinable.
• Collectibility is reasonably assured.
We recognize revenues in our Retail segment at the moment a sale to a customer is recorded. Gross revenues are reduced by actual
customer returns and a provision for estimated future customer returns, which is based on management's estimates after a review of historical
customer returns. We recognize revenues on product sales to franchisees and other third parties when the risk of loss, title and insurable risks
have transferred to the franchisee or third-party. We recognize revenues from franchise fees at the time a franchised store opens or at the time
of franchise renewal or transfer, as applicable.
Inventories
Where necessary, we provide estimated allowances to adjust the carrying value of our inventory to the lower of cost or net realizable value.
These estimates require us to make approximations about the future demand for our products in order to categorize the status of such
inventory items as slow moving, obsolete, or in excess of need. These future estimates are subject to the ongoing accuracy of management's
forecasts of market conditions, industry trends, and competition. We are also subject to volatile changes in specific product demand as a result
of unfavorable publicity, government regulation, and rapid changes in demand for new and improved products or services.
Accounts Receivable and Allowance for Doubtful Accounts
The majority of our retail revenues are received as cash or cash equivalents. The majority of our franchise revenues are billed to the
franchisees with varying terms for payment. We offer financing to qualified domestic franchisees with the initial purchase of a franchise location.
The notes are demand notes, payable monthly over periods of five to seven years. We generate a significant portion of our revenue from
ongoing product sales to franchisees and third-party customers. An allowance for doubtful accounts is established based on regular evaluations
of our franchisees' and third-party customers' financial health, the current status of trade receivables, and any historical write-off experience.
We maintain both specific and general reserves for doubtful accounts. General reserves are based upon our historical bad debt experience,
overall review of our aging of accounts receivable balances, general economic conditions of our industry, or the geographical regions and
regulatory environments of our third-party customers and franchisees.
Impairment of Long-Lived Assets
Long-lived assets, including fixed assets and intangible assets with finite useful lives, are evaluated periodically by us for impairment
whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. If the sum of the
undiscounted future cash flows is less than the carrying value, we recognize an impairment loss, measured as the amount by which the
carrying value exceeds the fair value of the asset. These estimates of cash flow require significant management judgment and certain
assumptions about future volume, revenue and expense growth rates, foreign exchange rates, devaluation and inflation. As such, this estimate
may differ from actual cash flows. 57