GameStop 2007 Annual Report Download - page 78

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Pre-Opening Expenses
All costs associated with the opening of new stores are expensed as incurred. Pre-opening expenses are included
in selling, general and administrative expenses in the accompanying consolidated statements of operations.
Closed Store Expenses
Upon a formal decision to close or relocate a store, the Company charges unrecoverable costs to expense. Such
costs include the net book value of abandoned fixtures and leasehold improvements and, once the store is vacated, a
provision for future lease obligations, net of expected sublease recoveries. Costs associated with store closings are
included in selling, general and administrative expenses in the accompanying consolidated statements of oper-
ations. Costs associated with closings of Historical GameStop stores which are directly attributable to the mergers
are included in merger-related expenses in the accompanying consolidated statements of operations.
Advertising Expenses
The Company expenses advertising costs for newspapers and other media when the advertising takes place.
Advertising expenses for television, newspapers and other media during the 52 weeks ended February 2, 2008, the
53 weeks ended February 3, 2007 and the 52 weeks ended January 28, 2006 were $26,243, $16,043 and $12,448,
respectively. During fiscal 2007, the Company launched a new marketing campaign for television, radio and print to
promote the GameStop brand and its brand tagline, “Power to the Players.”
Income Taxes
The Company accounts for income taxes in accordance with the provisions of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (“SFAS 109”). SFAS 109 utilizes an asset and
liability approach, and deferred taxes are determined based on the estimated future tax effect of differences between
the financial reporting and tax bases of assets and liabilities using enacted tax rates. On February 4, 2007, the
Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes,to
account for uncertainty in income taxes recognized in the Company’s financial statements (see Note 12).
U.S. income taxes have not been provided on $142,504 of undistributed earnings of foreign subsidiaries as of
February 2, 2008. The Company did not have undistributed earnings of foreign subsidiaries prior to the mergers.
The Company reinvested earnings of foreign subsidiaries in foreign operations since the mergers and expects that
future earnings will also be reinvested in foreign operations indefinitely.
Lease Accounting
The Company’s method of accounting for rent expense (and related deferred rent liability) and leasehold
improvements funded by landlord incentives for allowances under operating leases (tenant improvement allow-
ances) is in conformance with generally accepted accounting principles (“GAAP”), as clarified by the Chief
Accountant of the SEC in a February 2005 letter to the American Institute of Certified Public Accountants. For
leases that contain predetermined fixed escalations of the minimum rent, the Company recognizes the related rent
expense on a straight-line basis and includes the impact of escalating rents for periods in which it is reasonably
assured of exercising lease options and the Company includes in the lease term any period during which the
Company is not obligated to pay rent while the store is being constructed.
Foreign Currency Translation
GameStop has determined that the functional currencies of its foreign subsidiaries are the subsidiaries’ local
currencies. The accounts of the foreign subsidiaries are translated in accordance with Statement of Financial
Accounting Standards No. 52, Foreign Currency Translation. The assets and liabilities of the subsidiaries are
translated at the applicable exchange rate as of the end of the balance sheet date and revenue and expenses are
F-11
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)