GameStop 2014 Annual Report Download - page 53

Estimate Description Judgment and/or Uncertainty Potential Impact if Results Differ
Customer Liabilities
Our PowerUp Rewards loyalty program
allows enrolled members to earn points
on purchases in our stores and on some
of our websites that can be redeemed
for rewards that include discountsor
merchandise. We estimate the net cost
of the rewards that will be issued and
redeemed and record this cost and the
associated liability as points are earned
by our loyalty program members.
Additionally,wesellgift cards to our
customers in our retail stores, through
our website and through selected third
parties. At the point of sale, aliability is
established for the value of the giftcard.
We recognize revenue from gift cards
when the card is redeemed by the
customer or the likelihood of the gift
card being redeemed by the customer is
remote, which is aconcept knowninthe
retail industry as breakage. We
determine our gift card breakage rate
based on historical redemption patterns,
which show that, after 60 months, we
can determine the portion of the initial
liability for which redemption is
remote.
Thetwo primaryestimates utilized to
record the balance sheet liability for
loyalty points earned by members are
the estimated redemption rate and the
estimated weighted-average cost per
point redeemed. We usehistorical
redemption rates experienced under our
loyalty program as abasis for estimating
the ultimate redemption rate of points
earned. Aweighted-average cost per
point redeemed is used to estimate
future redemptioncosts. The weighted-
average cost per point redeemed is
basedonour most recent actual costs
incurred to fulfill points that have been
redeemed by our loyalty program
members and is adjusted as appropriate
for recent changesinredemption costs,
including the mix of rewards redeemed.
Our estimate of the amount and timing
of gift card redemptions is based
primarily on historical transaction
experience.
We continually evaluate our 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 liability
through the current period expense by an
amount estimated to cover the cost of all
pointspreviously earned but not yet
redeemed by loyalty program members as
of the end of the reporting period.
A10% change inour customer loyalty
programredemption rate or weighted-
average cost per point redeemed at
January31, 2015 wouldhave affected net
earnings by approximately $5.5 million
and $5.5 million, respectively,infiscal
2014.
A10% change in our gift card breakage
rate at January 31, 2015 would have
affected net earnings by approximately
$11.1million in fiscal 2014.
Goodwill
Our goodwill results from our
acquisitions and represents the excess
purchase price over the net identifiable
assets acquired. We are required to
evaluate our goodwill and other
indefinite-lived intangible assets for
impairment at least annually or
whenever indicators of impairmentare
present. Our annual test iscompleted as
of the beginning of the fourth fiscal
quarter,and interim tests are conducted
when circumstances indicate the
carrying value of the goodwill or other
intangible assets may not be
recoverable.
As of January 31, 2015, our goodwill
totaled $1,390.4 million. Refer to Note
9, "Goodwill and Intangible Assets," to
the consolidated financial statements
included in this Form 10-K for afull
description of our goodwill.
Considerable management judgment is
necessary to initially value intangible
assets upon acquisition and to evaluate
those assets and goodwill for
impairment going forward. We
determine fair value using widely
acceptable valuation techniques
including discounted cashflows and
market multiples analyses.
Assumptions usedinour valuations,
such as forecasted growthrates and our
cost of capital, are consistent with our
internal projections and operating plans.
Variations in any of the assumptions used
in valuing our intangible assets and in our
impairment analysis may result in
different calculations of fair values that
could result in amaterial impairment
charge.
Basedonthe results of our annual
impairment test in fiscal 2014, the fair
valuesfor ourUnited States, Canada,
Europe and Technology Brands reporting
unitsexceeded their respective carrying
valuesbymorethan30% and the fair
value of ourAustraliareporting unit
exceeded its carrying value by more than
15%. Areduction in the terminal growth
rate assumption of 0.5% or an increasein
the discount rate assumption of 1.0%
utilized in the test for each respective
reporting unit would not have resulted in
an impairment.
We can provide no assurance that we will
nothave impairment charges in future
periodsasaresult of changes in our
operating results or our assumptions.
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