GameStop 2010 Annual Report Download - page 81

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Table of Contents
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company sells a variety of digital products which generally allow consumers to download software or play games on the internet. Certain
of these products do not require the Company to purchase inventory or take physical possession of, or take title to, inventory. When purchasing these
products from the Company, consumers pay a retail price and the Company earns a commission based on a percentage of the retail sale as negotiated
with the product publisher. The Company recognizes this commission as revenue on the sale of these digital products.
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 29, 2011, January 30, 2010 and January 31, 2009, these purchasing, receiving and distribution costs
amounted to $64.7 million, $63.6 million and $57.0 million, 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 29, 2011, January 30, 2010 and January 31, 2009, these
processing fees amounted to $69.7 million, $63.1 million and $65.5 million, 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 experienced, there will be
variations in the recorded breakage.
Pre-Opening Expenses
All costs associated with the opening of new stores are expensed as incurred. Pre-opening expenses are included in selling, general and
administrative expenses in the accompanying consolidated statements of operations.
Closed Store Expenses
Upon a formal decision to close or relocate a store, the Company charges unrecoverable costs to expense. Such costs include the net book
value of abandoned fixtures and leasehold improvements and, once the store is vacated, a provision for future lease obligations, net of expected
sublease recoveries. Costs associated with store closings are included in selling, general and administrative expenses in the accompanying
consolidated statements of operations.
Advertising Expenses
The Company expenses advertising costs for newspapers and other media when the advertising takes place. Advertising expenses for
television, newspapers and other media during the 52 weeks ended January 29, 2011, January 30, 2010 and January 31, 2009 were $83.7 million,
$57.7 million and $46.7 million, respectively. F-11