GameStop 2010 Annual Report Download - page 79

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Table of Contents
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Cash and Cash Equivalents
The Company considers all short-term, highly-liquid instruments purchased with an original maturity of three months or less to be cash
equivalents. The Company's cash and cash equivalents are carried at cost, which approximates market value, and consist primarily of time deposits
with highly rated commercial banks. From time to time depending upon interest rates, credit worthiness and other factors, the Company invests in
money market investment funds holding direct U.S. Treasury obligations. The Company held such cash equivalents as of January 29, 2011.
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 29, 2011 and January 30, 2010 were $69.5 million and $66.5 million, 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 29, 2011 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 F-9