GameStop 2009 Annual Report Download - page 77

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investment funds holding direct U.S. Treasury obligations. The Company held such cash equivalents as of
January 30, 2010.
Merchandise Inventories
The Company’s merchandise inventories are carried at the lower of cost or market generally 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 January 30, 2010 and January 31, 2009 were $66,499 and $56,567, 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. Write-downs incurred by the Company through January 30, 2010 have not been
material.
Goodwill
Goodwill represents the excess purchase price over tangible net assets and identifiable intangible assets
acquired. The Company is required to evaluate goodwill and other intangible assets not subject to amortization for
impairment at least annually. This test is completed at the beginning of the fourth quarter each fiscal year or when
circumstances indicate the carrying value of the goodwill or other intangible assets might be impaired. Goodwill has
been assigned to reporting units for the purpose of impairment testing. The Company has four business segments,
the United States, Australia, Canada and Europe, which also define our reporting units based upon the similar
economic characteristics of operations within each segment, including the nature of products, product distribution
and the type of customer and separate management within those regions. The Company estimates fair value based
on the discounted cash flows of each reporting unit. The Company uses a two-step process to measure goodwill
impairment. If the fair value of the reporting unit is higher than its carrying value, then goodwill is not impaired. If
the carrying value of the reporting unit is higher than the fair value, then the second test of goodwill impairment is
needed. The second test compares the implied fair value of the reporting unit’s goodwill with its carrying amount. If
the carrying amount of the reporting unit’s goodwill exceeds the implied fair value, then an impairment loss is
F-9
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)