GameStop 2008 Annual Report Download - page 78

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goodwill if they arise from a contractual right and are capable of being separated from the entity and sold,
transferred, licensed, rented or exchanged individually. The useful life and amortization methodology of intangible
assets are based on the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, which requires that the assets should be amortized over the period in which they are expected to
contribute directly to cash flows.
Tradenames which were recorded as a result of the Micromania acquisition are considered indefinite life
intangible assets as they are expected to contribute to cash flows indefinitely and are not subject to amortization, but
are subject to annual impairment testing. Leasehold rights which were recorded as a result of the Micromania
acquisition represent the value of rights of tenancy under commercial property leases for properties located in
France. The rights to any particular lease can be sold by us to a new tenant or recovered by us from the landlord if the
exercise of the automatic right of renewal is refused. Leasehold rights are amortized on a straight-line basis over the
expected lease term not to exceed 20 years with no residual value. Favorable leasehold interests represent the value
of the contractual monthly rental payments that are less than the current market rent at stores acquired as part of the
Micromania acquisition or the EB merger. Favorable leasehold interests are amortized on a straight-line basis over
their remaining lease term with no expected residual value. Note 7 provides additional information related to the
Company’s intangible assets.
Revenue Recognition
Revenue from the sales of the Company’s products is recognized at the time of sale and is stated net of sales
discounts. The sales of used video game products are recorded at the retail price charged to the customer. Sales
returns (which are not significant) are recognized at the time returns are made. Subscription and advertising
revenues are recorded upon release of magazines for sale to consumers. Magazine subscription revenue is
recognized on a straight-line basis over the subscription period. Revenue from the sales of product replacement
plans is recognized on a straight-line basis over the coverage period. The deferred revenues for magazine
subscriptions and deferred financing plans are included in accrued liabilities (see Note 6).
Revenues do not include sales taxes or other taxes collected from customers.
Cost of Sales and Selling, General and Administrative Expenses Classification
The classification of cost of sales and selling, general and administrative expenses varies across the retail
industry. 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 31, 2009,
the 52 weeks ended February 2, 2008 and the 53 weeks ended February 3, 2007, these purchasing, receiving and
distribution costs amounted to $57,037, $43,928 and $35,903, 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 31, 2009, the 52 weeks ended February 2, 2008 and the 53 weeks ended February 3, 2007, these
processing fees amounted to $65,493, $55,215 and $40,877, respectively.
Customer Liabilities
The Company establishes a liability upon the issuance of merchandise credits and the sale of gift cards.
Revenue is subsequently recognized when the credits and gift cards are redeemed. In addition, income (“breakage”)
is recognized quarterly on unused customer liabilities older than three years to the extent that the Company believes
the likelihood of redemption by the customer is remote, based on historical redemption patterns. Breakage has
historically been immaterial. To the extent that future redemption patterns differ from those historically experi-
enced, there will be variations in the recorded breakage.
F-11
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)