GameStop 2011 Annual Report Download - page 87

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GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
we maintain accruals for uncertain tax positions until examination of the tax year is completed by the applicable
taxing authority, available review periods expire or additional facts and circumstances cause us to change our
assessment of the appropriate accrual amount (see Note 13).
U.S. income taxes have not been provided on $635.5 million of undistributed earnings of foreign
subsidiaries as of January 28, 2012. The Company reinvests earnings of foreign subsidiaries in foreign operations
and expects that future earnings will also be reinvested in foreign operations indefinitely.
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, the Company recognizes the related rent expense on a straight-line basis and includes the impact
of escalating rents for periods in which it is reasonably assured of exercising lease options, and the Company
includes in the lease term any period during which the Company is not obligated to pay rent while the store is
being constructed.
Foreign Currency Translation
GameStop has determined that the functional currencies of its foreign subsidiaries are the subsidiaries’ local
currencies. The assets and liabilities of the subsidiaries are translated at the applicable exchange rate as of the end
of the balance sheet date and revenue and expenses are translated at an average rate over the period. Currency
translation adjustments are recorded as a component of other comprehensive income. Transaction gains and
(losses) are included in selling, general and administrative expenses and amounted to ($0.6) million, $2.5 million
and $3.9 million for the 52 weeks ended January 28, 2012, January 29, 2011 and January 30, 2010, respectively.
The foreign currency transaction gains and losses are primarily due to the decrease or increase in the value of the
U.S. dollar compared to the functional currencies in the countries the Company operates in internationally. In
fiscal 2011, the foreign currency transaction losses are primarily due to volatility in the value of the U.S. dollar
compared to the Australian dollar, Canadian dollar and euro. In fiscal 2010, the foreign currency transaction
gains are primarily due to the decrease in the value of the U.S. dollar compared to the Canadian dollar and the
Australian dollar. In fiscal 2009, the foreign currency transaction gains are primarily due to the decrease in the
value of the U.S. dollar compared to the euro, the Canadian dollar and the Australian dollar.
The Company uses forward exchange contracts, foreign currency options and cross-currency swaps
(together, the “Foreign Currency Contracts”) to manage currency risk primarily related to intercompany loans
denominated in non-functional currencies and certain foreign currency assets and liabilities. These Foreign
Currency Contracts are not designated as hedges and, therefore, changes in the fair values of these derivatives are
recognized in earnings, thereby offsetting the current earnings effect of the re-measurement of related
intercompany loans and foreign currency assets and liabilities (see Note 6).
Net Income Per Common Share
Basic net income per common share is computed by dividing the net income available to common
stockholders by the weighted average number of common shares outstanding during the period. Diluted net
income per common share is computed by dividing the net income available to common stockholders by the
weighted average number of common shares outstanding and potentially dilutive securities outstanding during
the period. Potentially dilutive securities include stock options and unvested restricted stock outstanding during
the period, using the treasury stock method. Potentially dilutive securities are excluded from the computations of
diluted earnings per share if their effect would be antidilutive. Note 5 provides additional information regarding
net earnings per common share.
F-13