GameStop 2004 Annual Report Download - page 66

GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Cash and Cash Equivalents
The Company considers all short-term, highly-liquid instruments purchased with an original maturity of
three months or less to be cash equivalents. The Company's cash and cash equivalents are carried at cost,
which approximates market value, and consist primarily of time deposits and money market investment
accounts.
Merchandise Inventories
Our merchandise inventories are carried at the lower of cost or market using the average cost method.
Used video game products traded in by customers are recorded as inventory at the amount of the store credit
given to the customer. In valuing inventory, management is required to make assumptions regarding the
necessity of reserves required to value potentially obsolete or over-valued items at the lower of cost or market.
Management considers quantities on hand, recent sales, potential price protections and returns to vendors,
among other factors, when making these assumptions. Inventory reserves as of January 29, 2005 and
January 31, 2004 were $14,804 and $12,274, respectively.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation
on furniture, Ñxtures and equipment is computed using the straight-line method over estimated useful lives
(ranging from two to eight years). Maintenance and repairs are expensed as incurred, while betterments and
major remodeling costs are capitalized. Leasehold improvements are capitalized and amortized over the
shorter of their estimated useful lives or the terms of the respective leases, including option periods 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 when 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 $339,991, was recorded in the acquisition of Funco and through the application of
""push-down'' accounting in accordance with Securities and Exchange Commission StaÅ Accounting Bulle-
tin No. 54 (""SAB 54'') in connection with the acquisition of Babbage's by a subsidiary of Barnes & Noble.
Goodwill in the amount of $2,931 was recorded in connection with the acquisition of Gamesworld 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 $22,034.
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
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