GameStop 2004 Annual Report Download - page 31

including renewal options in which the exercise of the option is reasonably assured (generally ranging from
three to ten years). Capitalized lease acquisition costs are being amortized over the average lease terms of the
underlying leases. Costs incurred in purchasing management information systems are capitalized and included
in property and equipment. These costs are amortized over their estimated useful lives from the date the
systems become operational. The Company periodically reviews its property and equipment whenever events
or changes in circumstances indicate that their carrying amounts may not be recoverable or their depreciation
or amortization periods should be accelerated. The Company assesses recoverability based on several factors,
including management's intention with respect to its stores and those stores' projected undiscounted cash
Öows. An impairment loss would be recognized for the amount by which the carrying amount of the assets
exceeds the present value of their projected cash Öows. No write-downs have been necessary by the Company
through January 29, 2005.
Goodwill. Goodwill, aggregating $340.0 million, was recorded in the acquisition of Funco and through
the application of ""push-down'' accounting in accordance with SAB 54 in connection with the acquisition of
Babbage's by a subsidiary of Barnes & Noble. Goodwill in the amount of $2.9 million was recorded in
connection with the acquisition of Gamesworld Group Limited in June 2003. Goodwill represents the excess
purchase price over tangible net assets and identiÑable intangible assets acquired. EÅective February 3, 2002,
the Company adopted the provisions of Statement of Financial Accounting Standards No. 142, ""Goodwill and
Other Intangible Assets'' (""SFAS 142''). SFAS 142 requires, among other things, that companies no longer
amortize goodwill, but instead evaluate goodwill for impairment on at least an annual basis. Prior to the
adoption of the provisions of SFAS 142, the Company's goodwill was amortized on a straight-line basis over a
30-year period. At February 2, 2002, accumulated amortization was $22.0 million. In accordance with the
requirements of SFAS 142, the Company completed the initial impairment test of the goodwill attributable to
its reporting unit as of February 3, 2002, and concluded that none of its goodwill was impaired. As part of this
analysis, the Company determined that it has one reporting unit based upon the similar economic
characteristics of its operations. Fair value of this reporting unit was estimated using market capitalization
methodologies. Subsequent to the acquisition of Gamesworld Group Limited, the Company determined that it
still has one reporting unit based upon the similar economic characteristics of its operations. The Company
also evaluates the goodwill of its reporting unit for impairment at least annually. The Company elected to
perform its annual impairment test during the fourth quarter of both Ñscal 2003 and Ñscal 2004 and concluded
that none of its goodwill was impaired. Note 7 of ""Notes to Consolidated Financial Statements'' of the
Company provides additional information concerning goodwill.
Cash Consideration Received from Vendors. The Company and its vendors participate in cooperative
advertising programs and other vendor marketing programs in which the vendors provide the Company with
cash consideration in exchange for marketing and advertising the vendors' products. Our accounting for
cooperative advertising arrangements and other vendor marketing programs, in accordance with FASB
Emerging Issues Task Force Issue 02-16 or ""EITF 02-16,'' results in a portion of the consideration received
from our vendors reducing the product costs in inventory rather than as an oÅset to our marketing and
advertising costs as in years prior to Ñscal 2003. The consideration serving as a reduction in inventory is
recognized in cost of sales as inventory is sold. The amount of vendor allowances recorded as a reduction of
inventory is determined by calculating the ratio of vendor allowances in excess of speciÑc, incremental and
identiÑable advertising and promotional costs to merchandise purchases. The Company then applies this ratio
to the value of inventory in determining the amount of vendor reimbursements recorded as a reduction to
inventory reÖected on the balance sheet. Because of the variability in the timing of our advertising and
marketing programs throughout the year, the Company uses signiÑcant estimates in determining the amount
of vendor allowances recorded as a reduction of inventory in interim periods, including estimates of full year
vendor allowances, speciÑc, incremental and identiÑable advertising and promotional costs, merchandise
purchases and value of inventory. Estimates of full year vendor allowances and the value of inventory are
dependent upon estimates of full year merchandise purchases. Determining the amount of vendor allowances
recorded as a reduction of inventory at the end of the Ñscal year no longer requires the use of estimates as all
vendor allowances, speciÑc, incremental and identiÑable advertising and promotional costs, merchandise
purchases and value of inventory are known.
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