GNC 2009 Annual Report Download - page 79

Table of Contents
GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
assets, which the Company can use as collateral in the event of a default by the franchisee. An allowance for international franchisees is
calculated based on unpaid, non collateralized amounts associated with their receivable balance. An allowance for receivable balances due
from third parties is recognized, if considered necessary, based on facts and circumstances. These allowances are deducted from the related
receivables and reflected net in the accompanying financial statements.
Notes Receivable. The Company offers financing to qualified franchisees in connection with the initial purchase of a franchise store. The
notes offered by the Company to its franchisees are demand notes, payable monthly over a period ranging from five to seven years. Interest
accrues principally at an annual rate that ranges from 9.5% to 13.75%, based on the amount of initial deposit, and is payable monthly.
Allowances for these receivables are recognized in accordance with the Company's policy described in the Accounts Receivable and Allowance
for Doubtful Accounts policy.
Property, Plant and Equipment. Property, plant and equipment expenditures are recorded at cost. As a result of the Merger, the remaining
estimated useful lives of already-existing property and equipment were reevaluated on a prospective basis using the fair values determined at
the date of the Merger. These remaining useful lives ranged from one year to sixteen years across all asset classes with the exception of
buildings, whose useful lives ranged from fifteen to thirty seven years. Depreciation and amortization are recognized using the straight-line
method over the estimated useful life of the property. Fixtures are depreciated over three to fifteen years, and equipment is generally
depreciated over ten years. Computer equipment and software costs are generally depreciated over three to five years. Amortization of
improvements to retail leased premises is recognized using the straight-line method over the estimated useful life of the improvements, or over
the life of the related leases including renewals that are reasonably assured, whichever period is shorter. Buildings are depreciated over forty
years and building improvements are depreciated over the remaining useful life of the building. The Company records tax depreciation in
conformity with the provisions of applicable tax law.
Expenditures that materially increase the value or clearly extend the useful life of property, plant and equipment are capitalized in
accordance with the policies outlined above. Repair and maintenance costs incurred in the normal operations of business are expensed as
incurred. Gains from the sale of property, plant and equipment are recognized in current operations.
The Company recognized depreciation expense of property, plant and equipment of $31.6 million for the year ended December 31, 2008,
$6.5 million for the period January 1 to March 15, 2007, $20.8 million for the period March 16 to December 31, 2007, $34.6 million for the year
ended December 31, 2006.
Goodwill and Intangible Assets. Goodwill represents the excess of purchase price over the fair value of identifiable net assets of acquired
entities. Goodwill and intangible assets with indefinite useful lives are not amortized, but instead are tested for impairment at least annually. The
Company completes its annual impairment test in the fourth quarter. The Company records goodwill and franchise rights upon the acquisition of
franchisee stores when the consideration given to the franchisee exceeds the fair value of the identifiable assets acquired and liabilities
assumed of the store. This goodwill is accounted for in accordance with the above policy. See the footnote, "Goodwill and Intangible Assets".
Long-lived Assets. The Company periodically performs reviews of underperforming businesses and other long-lived assets, including
amortizable intangible assets, for impairment pursuant to the provisions of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-
Lived Assets." These reviews may include an analysis of the current operations and capacity utilization, in conjunction with an analysis of the
markets in which the businesses are operating. A comparison is performed of the undiscounted projected cash flows of the current operating
forecasts to the net book value of the related assets. If it is determined that the full value of the assets may not be recoverable, an appropriate
charge to adjust the carrying value of the long-lived assets to fair value may be required.
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