GameStop 2011 Annual Report Download - page 86

GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 28, 2012,
January 29, 2011 and January 30, 2010 were $65.0 million, $62.1 million and $57.7 million, respectively.
Loyalty Expenses
The PowerUp Rewards loyalty program, introduced in May 2010, allows enrolled members to earn points
on purchases in the Company’s stores and on some of the Company’s Web sites that can be redeemed for
rewards that include discounts or merchandise. The Company estimates the net cost of the rewards that will be
issued and redeemed and records this cost and the associated balance sheet reserve as points are accumulated by
loyalty program members. The cost is recognized in selling, general and administrative expenses and the
associated liability is included in accrued liabilities. The cost of the rewards for the 52 weeks ended January 28,
2012 and January 29, 2011 was $50.0 million and $21.6 million, respectively.
The two primary estimates utilized to record the balance sheet reserve for loyalty points earned by members
are the estimated redemption rate and the estimated weighted-average cost per point redeemed. Management uses
historical redemption rates experienced under the loyalty program, prior experience with other customer
incentives and data on other similar loyalty programs as a basis to estimate the ultimate redemption rate of points
earned. A weighted-average cost per point redeemed is used to estimate future redemption costs. The weighted-
average cost per point redeemed is based on the Company’s most recent actual costs incurred to fulfill points that
have been redeemed by its loyalty program members and is adjusted as appropriate for recent changes in
redemption costs, including the mix of rewards redeemed. The Company continually evaluates its reserve
methodology and assumptions based on developments in redemption patterns, cost per point redeemed and other
factors. Changes in the ultimate redemption rate and weighted-average cost per point redeemed have the effect of
either increasing or decreasing the reserve through the current period provision by an amount estimated to cover
the cost of all points previously earned but not yet redeemed by loyalty program members as of the end of the
reporting period.
Income Taxes
Income tax expense includes United States, state, local and international income taxes. Deferred tax assets
and liabilities are recognized for the tax consequences of temporary differences between the financial reporting
basis and the tax basis of existing assets and liabilities using enacted tax rates. Valuation allowances are recorded
to reduce deferred tax assets to the amount that will more likely than not be realized. In accordance with GAAP,
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