GameStop 2007 Annual Report Download - page 84

Merger-related expenses shown in the statement of operations include costs believed to be of a one-time or
short-term nature associated with integrating the operations of Historical GameStop and EB, including $6,788 and
$13,600 for the 53 weeks ended February 3, 2007 and the 52 weeks ended January 28, 2006, respectively, included
in operating earnings and $7,518 included in interest expense in the 52 weeks ended January 28, 2006. The
Company completed all integration activities in fiscal 2006.
On January 13, 2007, the Company purchased Game Brands Inc. (“Game Brands”), a 72-store video game
retailer operating under the name Rhino Video Games, for $11,344. The acquisition was accounted for using the
purchase method of accounting and, accordingly, the results of operations for the period subsequent to the
acquisition are included in the consolidated financial statements. The excess of the purchase price over the net assets
acquired, in the amount of $8,083 was recorded as goodwill in fiscal 2006. In addition, merger-related costs and
liabilities of $612 related to the Game Brands purchase were accrued for and included in accrued liabilities in the
February 3, 2007 consolidated balance sheet. As of February 2, 2008, the cash payments made for the Game Brands
merger costs were $206 and the remaining merger accrual balance of $406 was reversed as a purchase price
adjustment to reduce goodwill. Additional purchase price adjustments to reduce goodwill for Game Brands were
$1,061 during fiscal 2007. The pro forma effect assuming the acquisition of Game Brands at the beginning of fiscal
2006 is not material.
3. Vendor Arrangements
The Company and approximately 75 of 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. The Company’s accounting for cooperative advertising arrange-
ments and other vendor marketing programs, in accordance with FASB Emerging Issues Task Force Issue 02-16,
results in a portion of the consideration received from the Company’s vendors reducing the product costs in
inventory rather than as an offset to the Company’s marketing and advertising costs. The consideration serving as a
reduction in inventory is recognized in cost of sales as inventory is sold. The amount of vendor allowances to be
recorded as a reduction of inventory was determined by calculating the ratio of vendor allowances in excess of
specific, incremental and identifiable advertising and promotional costs to merchandise purchases. The Company
then applied this ratio to the value of inventory in determining the amount of vendor reimbursements to be recorded
as a reduction to inventory reflected on the balance sheet.
The cooperative advertising programs and other vendor marketing programs generally cover a period from a
few days up to a few weeks and include items such as product catalog advertising, in-store display promotions,
Internet advertising, co-op print advertising, product training and promotion at the Company’s annual store
managers conference. The allowance for each event is negotiated with the vendor and requires specific performance
by the Company to be earned.
Specific, incremental and identifiable advertising and promotional costs were $76,074 in the 52 weeks ended
February 2, 2008, $49,585 in the 53 weeks ended February 3, 2007 and $32,161 in the 52 weeks ended January 28,
2006, respectively. Vendor allowances received in excess of advertising expenses were recorded as a reduction of
cost of sales of $92,425 for the 52 weeks ended February 2, 2008, $117,082 for the 53 weeks ended February 3, 2007
and $74,690 for the 52 weeks ended January 28, 2006, respectively. The amount recognized as income related to the
capitalization of excess vendor allowances was $6,113 for the 52 weeks ended February 2, 2008. The amounts
deferred as a reduction in inventory were $1,377 and $4,150 for the 53 weeks ended February 3, 2007 and the
52 weeks ended January 28, 2006, respectively.
4. Computation of Net Earnings per Common Share
As of February 3, 2007, the Company had two classes of common stock. Subsequent to February 3, 2007, the
Company completed the Conversion and the Stock Split and now has only Class A common stock outstanding and
computed earnings per share in accordance with Statement of Financial Accounting Standards No. 128, Earnings
F-17
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)