GameStop 2005 Annual Report Download - page 85

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liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. In preparing these financial statements, management has made its best estimates and judgments of
certain amounts included in the financial statements, giving due consideration to materiality. Changes in the
estimates and assumptions used by management could have significant impact on the Company’s financial results.
Actual results could differ from those estimates.
Fair Values of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable, accounts payable and the note payable
to Barnes & Noble reported in the accompanying consolidated balance sheets approximate fair value due to the
short-term maturities of these assets. The carrying values of the senior notes payable and the senior floating rate
notes payable in the accompanying consolidated balance sheets approximate fair value due to the recent issuance of
these notes in connection with the merger. Foreign exchange contracts are recorded at fair market value.
Guarantees
The Company remains contingently liable for the BC Sports Collectibles store leases assigned to Sports
Collectibles Acquisition Corporation (“SCAC”). SCAC is owned by the family of James J. Kim, Chairman of EB at
the time and currently one of the Company’s directors. If SCAC were to default on these lease obligations, the
Company would be liable to the landlords for up to $5,400 in minimum rent and landlord charges as of January 28,
2006. Mr. Kim has entered into an indemnification agreement with EB with respect to these leases, therefore no
accrual was recorded for this contingent obligation.
The Company had bank guarantees relating to international store leases totaling $3,262 as of January 28, 2006.
Vendor Concentration
The Company’s largest vendors are Sony Computer Entertainment of America, Microsoft Corp. and Electronic
Arts, Inc., which accounted for 18%, 13% and 11%, respectively, of the Company’s new product purchases in fiscal
2005.
Classifications
The Company includes purchasing, receiving and distribution costs in selling, general and administrative
expenses, rather than cost of goods sold, in the statement of operations. For the 52 weeks ended January 28, 2006,
January 29, 2005 and January 31, 2004 these purchasing, receiving and distribution costs amounted to $20,583,
$9,203 and $9,480, respectively.
The Company includes processing fees associated with purchases made by check and credit cards in cost of
sales, rather than selling, general and administrative expenses, in the statement of operations. For the 52 weeks
ended January 28, 2006, January 29, 2005 and January 31, 2004 these processing fees amounted to $20,905,
$12,014 and $10,703, respectively.
Reclassifications
Certain reclassifications have been made to conform the prior period data to the current year presentation.
New Accounting Pronouncements
In May 2005, the FASB issued Statement of Financial Accounting Standard No. 154, Accounting Changes and
Error Corrections (“SFAS 154”). This Statement defines the accounting for and reporting of a change in accounting
principle. SFAS 154 will be effective for the Company beginning in fiscal 2006. The implementation of SFAS 154 is
not expected to have an impact on the Company’s financial condition or results of operations.
76
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)