GameStop 2007 Annual Report Download - page 76

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Year-End
The Company’s fiscal year is composed of the 52 or 53 weeks ending on the Saturday closest to the last day of
January. Fiscal 2007 consisted of the 52 weeks ending on February 2, 2008. Fiscal 2006 consisted of the 53 weeks
ending on February 3, 2007. Fiscal 2005 consisted of the 52 weeks ending on January 28, 2006.
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 with highly rated commercial banks and money
market investment funds holding direct U.S. Treasury obligations.
Merchandise Inventories
The Company’s merchandise inventories are carried at the lower of cost or market using the average cost
method. Under the average cost method, as new product is received from vendors, its current cost is added to the
existing cost of product on-hand and this amount is re-averaged over the cumulative units. 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. The Company’s ability to gauge these factors is dependent upon the Company’s ability to forecast
customer demand and to provide a well-balanced merchandise assortment. Inventory is adjusted based on
anticipated physical inventory losses or shrinkage and actual losses resulting from periodic physical inventory
counts. Inventory reserves as of February 2, 2008 and February 3, 2007 were $59,698 and $53,816, respectively.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation on
furniture, fixtures and equipment is computed using the straight-line method over their 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). 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 flows. An impairment loss would be recognized
for the amount by which the carrying amount of the assets exceeds their fair value, as approximated by the present
value of their projected cash flows. As a result of the mergers and an analysis of assets to be abandoned, the
Company impaired retail store assets totaling $9,016 in fiscal 2005 in its United States operating segment and
impaired retail store assets totaling $1,936 in its European segment in fiscal 2006. Write-downs incurred by the
Company through February 2, 2008 which were not related to the mergers have not been material.
Goodwill
Goodwill, aggregating $339,991, was recorded in the acquisition of Funco in 2000 and through the application
of “push-down” accounting in accordance with Securities and Exchange Commission (“SEC”) Staff Accounting
F-9
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)