GNC 2011 Annual Report Download - page 85

Table of Contents
NOTE 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Company collects advertising fees from the franchisees and utilizes the proceeds to coordinate various advertising and marketing campaigns. The Company
recognized $51.4 million, $50.0 million, and $55.1 million for the years ended December 31, 2010, 2009 and 2008, respectively, net of approximately
$11.0 million annually from the national advertising fund.
Leases. The Company has various operating leases for company-owned and franchise store locations and equipment. Store leases generally include
amounts relating to base rental, percent rent and other charges such as common area maintenance fees and real estate taxes. Periodically, the Company
receives varying amounts of reimbursements from landlords to compensate the Company for costs incurred in the construction of stores. These
reimbursements are amortized by the Company as an offset to rent expense over the life of the related lease. The Company determines the period used for the
straight-line rent expense for leases with option periods and conforms it to the term used for amortizing improvements.
The Company leases an approximately 300,000 square-foot-facility in Greenville, South Carolina where the majority of its proprietary products are
manufactured. The Company also leases a 630,000 square foot complex located in Anderson, South Carolina, for packaging, materials receipt, lab testing,
warehousing, and distribution. Both the Greenville and Anderson facilities are leased on a long-term basis pursuant to "fee-in-lieu-of-taxes" arrangements
with the counties in which the facilities are located, but the Company retains the right to purchase each of the facilities at any time during the lease for $1.00,
subject to a loss of tax benefits. As part of a tax incentive arrangement, the Company assigned the facilities to the counties and leases them back under
operating leases. The Company leases the facilities from the counties where located, in lieu of paying local property taxes. Upon exercising its right to
purchase the facilities back from the counties, the Company will be subject to the applicable taxes levied by the counties. In accordance with the standards on
the accounting for leases, the purchase option in the lease agreements prevent sale-leaseback accounting treatment. As a result, the original cost basis of the
facilities remains on the balance sheet and continues to be depreciated.
The Company leases a 217,000 square foot distribution center in Leetsdale, Pennsylvania and a 112,000 square foot distribution center in Phoenix,
Arizona. The company also leases warehouse space in Canada. The Company also has operating leases for its fleet of distribution tractors and trailers and
fleet of field management vehicles. In addition, the Company also has a minimal amount of leased office space in California, Florida, and Canada. The
expense associated with leases that have escalating payment terms is recognized on a straight-line basis over the life of the lease. See Note 15, "Long-Term
Lease Obligations".
Contingencies. In accordance with the standards on contingencies the Company accrues a loss contingency if it is probable and can be reasonably
estimated or a liability had been incurred at the date of the financial statements if those financial statements have not been issued. If both of the conditions
above are not met, or if an exposure to loss exists in excess of the amount accrued, disclosure of the contingency shall be made when there is at least a
reasonable possibility that a loss or an additional loss may have been incurred. The Company accrues costs that are part of legal settlements when the
settlement is probable.
Pre-Opening Expenditures. The Company recognizes the cost associated with the opening of new stores as incurred. These costs are charged to
expense and are not material for the periods presented. Franchise store pre-opening costs are incurred by the franchisees.
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