GameStop 2009 Annual Report Download - page 80

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unrecognized tax benefits, which was accounted for as a cumulative effect adjustment to the February 4, 2007
balance of retained earnings (see Note 12).
U.S. income taxes have not been provided on $353,465 of undistributed earnings of foreign subsidiaries as of
January 30, 2010. The Company reinvests earnings of foreign subsidiaries in foreign operations 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 GAAP. 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 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 translated at an average rate over the period. Currency
translation adjustments are recorded as a component of other comprehensive income. Transaction gains and (losses)
are included in selling, general and administrative expenses and amounted to $3,891, ($9,993) and $8,575 for the
52 weeks ended January 30, 2010, January 31, 2009 and February 2, 2008, respectively. The foreign currency
transaction gains in fiscal 2009 and fiscal 2007 are primarily due to the decrease in the value of the U.S. dollar
compared to the functional currencies in the countries the Company operates in internationally, primarily the euro,
the Canadian dollar and the Australian dollar. The foreign currency transaction losses in fiscal 2008 are primarily
related to the increase in the value of the U.S. dollar compared to the functional currencies in the countries the
Company operates in internationally, primarily the euro, the Canadian dollar and the Australian dollar. The net
foreign currency transaction loss in the 52 weeks ended January 31, 2009 included a $3,545 net loss related to the
change in foreign exchange rates related to the funding of the Micromania acquisition recorded in merger-related
expenses.
The Company uses forward exchange contracts, foreign currency options and cross-currency swaps, (together,
the “Foreign Currency Contracts”) to manage currency risk primarily related to intercompany loans denominated in
non-functional currencies and certain foreign currency assets and liabilities. These Foreign Currency Contracts are
not designated as hedges and, therefore, changes in the fair values of these derivatives are recognized in earnings,
thereby offsetting the current earnings effect of the re-measurement of related intercompany loans and foreign
currency assets and liabilities (see Note 5).
Net Income Per Common Share
Basic net income per common share is computed by dividing the net income available to common stockholders
by the weighted average number of common shares outstanding during the period. Diluted net income per common
share is computed by dividing the net income available to common stockholders by the weighted average number of
common shares outstanding and potentially dilutive securities outstanding during the period. Potentially dilutive
securities include stock options and unvested restricted stock outstanding during the period, using the treasury stock
method. Potentially dilutive securities are excluded from the computations of diluted earnings per share if their
effect would be antidilutive. Note 4 provides additional information regarding net earnings per common share.
F-12
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)