GameStop 2011 Annual Report Download - page 84

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GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
when circumstances indicate the carrying value of the goodwill or other intangible assets might be impaired.
Goodwill has been assigned to reporting units for the purpose of impairment testing. The Company has four
business segments, the United States, Australia, Canada and Europe, which also define our reporting units based
upon the similar economic characteristics of operations within each segment, including the nature of products,
product distribution and the type of customer and separate management within those regions. The Company
estimates fair value based on the discounted cash flows of each reporting unit. The Company uses a two-step
process to measure goodwill impairment. If the fair value of the reporting unit is higher than its carrying value,
then goodwill is not impaired. If the carrying value of the reporting unit is higher than the fair value, then the
second test of goodwill impairment is needed. The second test compares the implied fair value of the reporting
unit’s goodwill with its carrying amount. If the carrying amount of the reporting unit’s goodwill exceeds the
implied fair value, then an impairment loss is recognized in the amount of the excess. The Company completed
its annual impairment test of goodwill as of the first day of the fourth quarter of fiscal 2009, fiscal 2010 and
fiscal 2011 and concluded that none of its goodwill was impaired. For fiscal 2011, there was a $3.3 million
goodwill impairment charge in the United States segment as a result of the exiting of a non-core business. Note 9
provides additional information concerning the changes in goodwill for the consolidated financial statements
presented.
Other Intangible Assets
Other intangible assets consist primarily of trade names, leasehold rights, advertising relationships and
amounts attributed to favorable leasehold interests recorded as a result of business acquisitions. Intangible assets
are recorded 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 determined based on the period in which they are expected to contribute
directly to cash flows. Intangible assets that are determined to have a definite life are amortized over that period.
Leasehold rights which were recorded as a result of the purchase of SFMI Micromania SAS “Micromania”
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. Advertising relationships, which were
recorded as a result of digital acquisitions, are relationships with existing advertisers who pay to place ads on the
Company’s digital Web sites and are amortized on a straight-line basis over 10 years. 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.
Intangible assets that are determined to have an indefinite life are not amortized, but are required to be
evaluated at least annually for impairment. Trade names which were recorded as a result of acquisitions,
primarily Micromania, are considered indefinite-lived intangible assets as they are expected to contribute to cash
flows indefinitely and are not subject to amortization, but are subject to annual impairment testing. If the carrying
value of an individual indefinite-lived intangible asset exceeds its fair value as determined by its discounted cash
flows, such individual indefinite-lived intangible asset is written down by the amount of the excess. The
Company completed its annual impairment tests of indefinite-lived intangible assets as of the first day of the
fourth quarter of fiscal 2009 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 acquired in connection with the
purchase of Micromania was impaired. As a result, there was an impairment charge for other intangible assets for
fiscal 2011 of $37.8 million. The impairment was primarily related to a reduction of revenue projections utilized
F-10