GameStop 2009 Annual Report Download - page 44

reporting unit’s goodwill exceeds the implied fair value, then an impairment loss is recognized in the amount of
the excess. If the carrying value of an individual indefinite-life intangible asset exceeds its fair value, such
individual indefinite-life intangible asset is written down by the amount of the excess. The Company
completed its annual impairment test of goodwill on the first day of the fourth quarter of fiscal 2007, fiscal
2008 and fiscal 2009 and concluded that none of its goodwill was impaired. Note 8 of “Notes to Consolidated
Financial Statements” provides additional information concerning goodwill.
The discounted cash flow method used to determine the fair value of reporting units requires management
to make significant judgments based on the Company’s projected sales and gross margin, annual business
plans, future business strategies and economic factors. Discount rates used in the analysis reflect the
Company’s weighted average cost of capital, current market rates and the risks associated with the projected
cash flows. The impairment testing process is subject to inherent uncertainties and subjectivity, particularly
related to sales and gross margin which can be impacted by various factors including the items listed in
Item 1A. Risk Factors. While the fair value is determined based on the best available information at the time of
assessment, any changes in business or economic conditions could materially increase or decrease the fair
value of the reporting unit’s net assets and, accordingly, could materially increase or decrease any related
impairment charge. Based on currently available information and forecasts of the Company’s annual results,
we do not anticipate recording any impairment of goodwill or other intangible assets in any of the Company’s
reporting units for the fiscal year ending January 29, 2011.
Other Intangible Assets and Other Noncurrent Assets. Other intangible assets consist primarily of
tradenames, leasehold rights and amounts attributed to favorable leasehold interests recorded as a result of the
Micromania acquisition and the EB merger. We record intangible assets apart from goodwill if they arise from
a contractual right and are capable of being separated from the entity and sold, transferred, licensed, rented or
exchanged individually. The useful life and amortization methodology of intangible assets are amortized over
the period in which they are expected to contribute directly to cash flows.
Tradenames which were recorded as a result of the Micromania acquisition are considered indefinite life
intangible assets as they are expected to contribute to cash flows indefinitely and are not subject to
amortization, but they are subject to annual impairment testing. Leasehold rights which were recorded as
a result of the Micromania acquisition represent the value of rights of tenancy under commercial property
leases for properties located in France. Rights pertaining to individual leases can be sold by us to a new tenant
or recovered by us from the landlord if the exercise of the automatic right of renewal is refused. Leasehold
rights are amortized on a straight-line basis over the expected lease term not to exceed 20 years with no residual
value. Favorable leasehold interests represent the value of the contractual monthly rental payments that are less
than the current market rent at stores acquired as part of the Micromania acquisition or the EB merger.
Favorable leasehold interests are amortized on a straight-line basis over their remaining lease term with no
expected residual value. For additional information related to the Company’s intangible assets, see Note 8 of
“Notes to Consolidated Financial Statements.”
Other non-current assets are made up of deposits and deferred financing fees. The deferred financing fees
are associated with the Company’s revolving credit facility and the senior notes issued in October 2005 in
connection with the financing of the EB merger. The deferred financing fees are being amortized over five and
seven years to match the terms of the revolving credit facility and the senior notes, respectively. Deferred
financing fees incurred in connection with the issuance of the senior floating rate notes in October 2005 in
connection with the EB merger were included in deferred financing fees in the balance sheet and were being
amortized over six years to match the term of the senior floating rate notes. The remaining balance of the
deferred financing fees on the senior floating rate notes was written off to debt extinguishment expense during
fiscal 2007 when the notes were redeemed.
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
29