GameStop 2012 Annual Report Download - page 100

GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Company identified hypothetical unrecognized fair value changes to merchandise inventories, property and
equipment, unfavorable leasehold interests and deferred income taxes. The combination of these hypothetical
unrecognized intangible assets and other hypothetical unrecognized fair value changes to the carrying values of
other assets and liabilities, together with the lower reporting unit fair values calculated in step one, resulted in an
implied fair value of goodwill substantially below the carrying value of goodwill for the Australia, Canada and
Europe reporting units. Accordingly, the Company recorded non-cash, non-tax deductible goodwill impairments
for the third quarter of fiscal 2012 of $107.1 million, $100.3 million and $419.6 million in its Australia, Canada
and Europe reporting units, respectively, to reduce the carrying value of goodwill.
There were no goodwill impairments recorded for fiscal 2011 or fiscal 2010. During fiscal 2011, $3.3
million of goodwill was expensed in the United States segment as a result of the exiting of an immaterial non-
core business.
Intangible Assets and Deferred Financing Fees
Intangible assets, primarily from the EB merger and Micromania acquisition, consist of internally developed
software, amounts attributed to favorable leasehold interests and advertiser relationships which are included in
other intangible assets in the consolidated balance sheet. The trade names acquired, primarily Micromania, have
been determined to be indefinite-lived intangible assets and are therefore not subject to amortization. The total
weighted-average amortization period for the remaining intangible assets, excluding goodwill, is approximately
six 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.
As a result of the impairment indicators described in the discussion above of the interim goodwill
impairment test, during the third quarter of fiscal 2012, the Company also tested its long-lived assets for
impairment and concluded that its Micromania trade name was impaired. As a result of the interim impairment
test, the Company recorded a $44.9 million impairment charge of its Micromania trade name for the third quarter
of fiscal 2012. For fiscal 2011, the Company recorded a $37.8 million charge as a result of the Company’s annual
impairment test of its Micromania trade name. There were no trade name impairments recorded as a result of the
fiscal 2012 or fiscal 2010 annual impairment tests. For each impairment test, the fair value of the Micromania
trade name was calculated using a relief-from-royalty approach, which assumes the fair value of the trade name
is the discounted cash flows of the amount that would be paid by a hypothetical market participant had they not
owned the trade name and instead licensed the trade name from another company. The basis for future cash flow
projections are internal revenue forecasts, which the Company believes represent reasonable market participant
assumptions, to which the selected royalty rate is applied. These future cash flows are discounted using the
applicable discount rate, as well as any potential risk premium to reflect the inherent risk of holding a standalone
intangible asset. The discount rate used in the analysis reflects a hypothetical market participant’s weighted
average cost of capital, current market rates and the risks associated with the projected cash flows.
The deferred financing fees associated with the Company’s revolving credit facility are included in other
noncurrent assets in the consolidated balance sheet and are being amortized over five years to match the term of
the revolving credit facility. Prior to the retirement of the senior notes in December 2011, deferred financing fees
associated with the senior notes were included in other noncurrent assets in the consolidated balance sheet and
were being amortized over seven years to match the term of the senior notes. As of January 28, 2012, there is no
balance in other noncurrent assets in the consolidated balance sheet relating to deferred financing fees associated
with the senior notes as the senior notes were fully redeemed by that date.
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