GameStop 2010 Annual Report Download - page 48

Table of Contents
discontinued their allowances. In addition, management believes that the Company's revenues would be adversely affected if its vendors
decreased or discontinued their allowances, but management is unable to quantify the impact.
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 allowances) is in conformance with
GAAP. For leases that contain predetermined fixed escalations of the minimum rent, we recognize the related rent expense on a straight-line
basis and include the impact of escalating rents for periods in which we are reasonably assured of exercising lease options and we include in
the lease term any period during which the Company is not obligated to pay rent while the store is being constructed, or "rent holiday."
Income Taxes. The Company accounts for income taxes utilizing 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. As a result of our operations in many foreign countries, our global tax rate is derived from a combination of applicable tax rates in the
various jurisdictions in which we operate. We base our estimate of an annual effective tax rate at any given point in time on a calculated mix
of the tax rates applicable to our Company and to estimates of the amount of income to be derived in any given jurisdiction. We file our tax
returns based on our understanding of the appropriate tax rules and regulations. However, complexities in the tax rules and our operations, as
well as positions taken publicly by the taxing authorities, may lead us to conclude that accruals for uncertain tax positions are required. In
accordance with GAAP, we maintain accruals for uncertain tax positions until examination of the tax year is completed by the taxing
authority, available review periods expire or additional facts and circumstances cause us to change our assessment of the appropriate accrual
amount.
Consolidated Results of Operations
The following table sets forth certain statement of operations items as a percentage of sales for the periods indicated:
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended
January 29, January 30, January 31,
2011 2010 2009
Statement of Operations Data:
Sales 100.0% 100.0% 100.0%
Cost of sales 73.2 73.2 74.2
Gross profit 26.8 26.8 25.8
Selling, general and administrative expenses 18.0 18.0 16.4
Depreciation and amortization 1.8 1.8 1.6
Merger-related expenses — — 0.1
Operating earnings 7.0 7.0 7.7
Interest expense, net 0.4 0.4 0.5
Debt extinguishment expense — 0.1 —
Earnings before income taxes 6.6 6.5 7.2
Income tax expense 2.3 2.4 2.7
Consolidated net income 4.3 4.1 4.5
Net loss attributable to noncontrolling interests — 0.1 —
Consolidated net income attributable to GameStop 4.3% 4.2% 4.5%
The Company includes purchasing, receiving and distribution costs in selling, general and administrative expenses, rather than cost of sales, in
the statement of operations. The Company includes processing fees associated
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