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## Property and equipment 

Property and equipment are recorded at cost and depreciated using the straight-line method over the following estimated useful lives: 

Expenditures for maintenance and repairs are charged to expense as incurred. 

## Goodwill and other intangible assets 

<img src='content_image/112906.jpg'>

Under the provisions of Statements of Financial Accounting Standards (“SFAS”) No. 142 , Goodwill and Other Intangible Assets (“SFAS 142 ”), the Company’s goodwill and intangible assets with indefinite useful lives are no longer amortized, but instead are tested for impairment at least annually. The Company’s intangible assets with finite lives are recorded at cost and are amortized over their respective estimated useful lives to their estimated residual values, and are reviewed for impairment in accordance with SFAS No. 144 , Accounting for the Impairment or Disposal of Long-Lived Assets (Note 5 ). In addition, the Company is required to make judgments regarding and periodically assesses the useful life of its intangible assets. 

## Revenue recognition 

Revenue is recognized when products are shipped, which is when title and risk of loss pass to independent distributors who are the Company’s customers. A reserve for product returns is accrued based on historical experience totaling $ 1 . 1  million, $ 1 . 4  million and $ 2 . 5  million as of December 31 , 2002 , 2003  and 2004 , respectively. The Company generally requires cash or credit card payment at the point of sale. The Company has determined that no allowance for doubtful accounts is neces- sary. Amounts received prior to shipment and title passage to distributors are recorded as deferred revenue. The global compensation plan for the Company’s distributors generally does not provide rebates or selling discounts to distributors who purchase its products and services and classifies selling discounts, if any, as a reduction of revenue. 

## Advertising expense 

Advertising costs are expensed as incurred. Advertising expense incurred for the years ended December 31 , 2002 , 2003 and 2004  totaled approximately $ 2 . 8  million, $ 1 . 4  million and $ 1 . 3  million, respectively. 

## Research and development 

The Company’s research and development activities are conducted primarily through its Pharmanex division. Research and development costs are expensed as incurred and totaled $ 6 . 9  million, $ 6 . 4  million and $ 7 . 7  million in 2002 , 2003  and 2004 , respectively. 

## Income taxes 

The Company follows the liability method in accounting for income taxes. Under this method, deferred tax assets and li- abilities are determined based on the differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company has netted deferred tax assets and deferred tax liabilities by jurisdiction as of December 31 , 2004  and reclassified prior-period balances to conform to the December 31 , 2004  presentation. Valuation allowances are established when neces- sary to reduce deferred tax assets to the amounts expected to be ultimately realized. The Company accounts for any income tax contingencies in accordance with SFAS No. 5 , Accounting for Contingencies. 

## Net income per share 

Net income per share is computed based on the weighted-average number of common shares outstanding during the periods presented. Additionally, diluted earnings per share data gives effect to all potentially dilutive common shares that were outstanding during the periods presented (Note 10 ). Earnings per share in 2004  were positively impacted by the repurchase of 10 . 8  million shares of the Company’s Class A common stock in October 2003  and the repurchase of 3 . 1  million shares of the Company’s Class A common stock in July 2004 . 

