GameStop 2007 Annual Report Download - page 43

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 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 renewal options in which the exercise of the option is reasonably assured (generally ranging
from three to ten years). Costs incurred to third parties 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
whenever 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 is 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. As a
result of the mergers and an analysis of assets to be abandoned, the Company impaired assets totaling
$9.0 million in fiscal 2005 and $1.9 million in fiscal 2006 prior to October 8, 2006, the anniversary of the
mergers. These impairment costs are included in merger-related expenses in the consolidated statements of
operations. Write-downs incurred by the Company through February 2, 2008 which were not related to the
mergers have not been material.
Merger-Related Costs. In connection with the mergers, management incurred merger-related costs and
integration expenses of approximately $6.8 million and $21.1 million, which were charged to costs in the
accompanying consolidated statement of operations for the years ended February 3, 2007 and January 28,
2006, respectively. The Company completed all integration activities in fiscal 2006. Rebranding of EB stores
to the GameStop name is substantially complete.
Goodwill. Goodwill, aggregating $340.0 million, was recorded in the acquisition of Funco in 2000 and
through the application of “push-down” accounting in accordance with Securities and Exchange Commission
(“SEC”) Staff Accounting Bulletin No. 54 (“SAB 54”) in connection with the acquisition of Babbage’s, Etc.
LLC in 1999 by a subsidiary of Barnes & Noble, Inc. (“Barnes & Noble”). Goodwill in the amount of
$2.9 million was recorded in connection with the acquisition of Gamesworld Group Limited in 2003. Goodwill
in the amount of $1,074.9 million was recorded in connection with the mergers. Goodwill in the amount of
$6.6 million was recorded in connection with the acquisition in January 2007 of Game Brands Inc. (operating
as Rhino Video Games stores).
Goodwill represents the excess purchase price over tangible net assets and identifiable intangible assets
acquired. The Company evaluates goodwill for impairment on at least an annual basis in accordance with the
requirements of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
(“SFAS 142”). Subsequent to the mergers, the Company determined that it has four reporting units, the United
States, Australia, Canada and Europe, based upon the similar economic characteristics of operations and
separate management within those regions. The Company employed the services of an independent valuation
specialist to assist in the allocation of goodwill resulting from the mergers to the four reporting units as of
October 8, 2005. The Company completed its annual impairment test of goodwill as of the first day of the
fourth quarter of fiscal 2005, fiscal 2006 and fiscal 2007 and concluded that none of its goodwill was impaired.
Note 7 of “Notes to Consolidated Financial Statements” provides additional information concerning goodwill.
Intangible Assets and Other Noncurrent Assets. Intangible assets consist of point-of-sale software and
amounts attributed to favorable leasehold interests acquired in the mergers and are included in other non-
current assets in the consolidated balance sheet. The total weighted-average amortization period for the
intangible assets, excluding goodwill, is approximately four years. The intangible assets are being amortized
based upon the pattern in which the economic benefits of the intangible assets are being utilized, with no
expected residual value.
The deferred financing fees associated with the Company’s revolving credit facility and the senior notes
issued in connection with the financing of the mergers are separately shown in the consolidated balance sheet.
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