GNC 2011 Annual Report Download - page 86

Table of Contents
NOTE 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Deferred Financing Fees. In conjunction with the Merger, $29.3 million in costs related to the financing of debt were capitalized and are being
amortized over the life of the debt. Accumulated amortization as of December 31, 2010 and 2009 was $15.2 million and $10.9 million, respectively.
Income Taxes. The Company accounts for income taxes in accordance with the standards on income taxes. As prescribed by these standards, the
Company utilizes the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. See Note 5, "Income Taxes".
For the year ended December 31, 2010, the Company will file a consolidated federal income tax return. For state income tax purposes, the Company
will file on both a consolidated and separate return basis in the states in which it conducts business. The Company filed in a consistent manner in 2009 and
2008.
It is the Company's policy to recognize interest and penalties related to uncertain tax positions as a component of income tax expense. See Note 5,
"Income Taxes", for additional information regarding the change in unrecognized tax benefits.
Self-Insurance. The Company has procured insurance for such areas as: (1) general liability; (2) product liability; (3) directors and officers liability;
(4) property insurance; and (5) ocean marine insurance. The Company is self-insured for such areas as: (1) medical benefits; (2) worker's compensation
coverage in the State of New York with a stop loss of $250,000; (3) physical damage to the Company's tractors, trailers and fleet vehicles for field personnel
use; and (4) physical damages that may occur at the corporate store locations. The Company is not insured for certain property and casualty risks due to the
Company's assessment of frequency and severity of a loss, the cost of insurance and the overall risk analysis.
The Company carries product liability insurance with a retention of $3.0 million per claim with an aggregate cap on retained losses of $10.0 million.
The Company carries general liability insurance with retention of $110,000 per claim with an aggregate cap on retained losses of $600,000. The majority of
the Company's workers' compensation and auto insurance are in a deductible/retrospective plan. The Company reimburses the insurance company for the
workers compensation and auto liability claims, subject to a $250,000 and $100,000 loss limit per claim, respectively.
As part of the medical benefits program, the Company contracts with national service providers to provide benefits to its employees for all medical,
dental, vision and prescription drug services. The Company then reimburses these service providers as claims are processed from Company employees. The
Company maintains a specific stop loss provision of $250,000 per individual per plan year with a maximum lifetime benefit limit of $2.0 million per
individual. The Company has no additional liability once a participant exceeds the $2.0 million ceiling. The Company's liability for medical claims is included
as a component of accrued benefits in Note 10, "Accrued Payroll and Related Liabilities", and was $1.9 million and $2.0 million as of December 31, 2010 and
2009, respectively.
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