GameStop 2012 Annual Report Download - page 50

indefinite-lived intangible assets as of the first day of the fourth quarter of fiscal 2012 and fiscal 2010 and
concluded that none of its intangible assets were impaired. The Company completed its annual impairment
test of indefinite-lived intangible assets as of the first day of the fourth quarter of fiscal 2011 and concluded
that its Micromania trade name was impaired due to revenue forecasts that had declined since the initial
valuation. As a result, the Company recorded a $37.8 million impairment charge for fiscal 2011.
Cash Consideration Received from Vendors. The Company and its vendors participate in cooperative
advertising programs and other vendor marketing programs in which the vendors provide the Company with
cash consideration in exchange for marketing and advertising the vendors’ products. Our accounting for
cooperative advertising arrangements and other vendor marketing programs results in a portion of the
consideration received from our vendors reducing the product costs in inventory. The consideration serving
as a reduction in inventory is recognized in cost of sales as inventory is sold. The amount of vendor
allowances recorded as a reduction of inventory is determined by calculating the ratio of vendor allowances
in excess of specific, incremental and identifiable advertising and promotional costs to merchandise
purchases. The Company then applies this ratio to the carrying value of inventory in determining the amount
of vendor reimbursements recorded as a reduction to inventory reflected on the balance sheet. Because of
the variability in the timing of our advertising and marketing programs throughout the year, the Company
uses significant estimates in determining the amount of vendor allowances recorded as a reduction of
inventory in interim periods, including estimates of full year vendor allowances, specific, incremental and
identifiable advertising and promotional costs, merchandise purchases and value of inventory. Estimates of
full year vendor allowances and the carrying value of inventory are dependent upon estimates of full year
merchandise purchases. Determining the amount of vendor allowances recorded as a reduction of inventory
at the end of the fiscal year no longer requires the use of estimates as all vendor allowances, specific,
incremental and identifiable advertising and promotional costs, merchandise purchases and value of
inventory are known.
Although management considers its advertising and marketing programs to be effective, we do not
believe that we would be able to incur the same level of advertising expenditures if the vendors decreased or
discontinued their allowances. In addition, management believes that the Company’s revenues would be
adversely affected if its vendors decreased or discontinued their allowances, but management is unable to
quantify the impact.
Loyalty Program. The PowerUp Rewards loyalty program 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 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.
Lease Accounting. The Company leases retail stores, warehouse facilities, office space and
equipment. These are generally leased under noncancelable agreements that expire at various dates through
2034 with various renewal options for additional periods. The agreements, which have been classified as
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