GameStop 2011 Annual Report Download - page 83

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 28, 2012.
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 28, 2012 and January 29, 2011 were $67.7 million
and $69.5 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. Impairment losses recorded by the Company in fiscal 2011
were $11.2 million. Impairment losses recorded in fiscal 2010 and fiscal 2009 were $1.5 million and $1.8
million, respectively.
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
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