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Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2012

2. Goodwill and Intangible Assets

We have goodwill at our Guitar Center reporting unit, which is also an operating segment. We also have intangible assets primarily related to trademarks, customer relationships and favorable leases.

Goodwill

The following table presents a summary of goodwill by segment (in thousands):

	Guitar			Direct
	Center			Response			Total
Balance at September 30, 2012 and December 31, 2011
Goodwill	$	706,182		$	108,929		$	815,111
Accumulated impairment losses	(123,804		)	(108,929		)	(232,733		)
	$	582,378		$	—		$	582,378

Other intangible assets

The following tables present a summary of our intangible assets (dollars in thousands, life in years):

		September 30, 2012
	Weighted-	Gross
	Average Useful	Carrying		Accumulated			Intangible
	Life	Amount		Amortization			Assets, Net
Unamortized trademarks	—	$	208,501	$	—		$	208,501
Amortized
Customer relationships	13.0	224,302		(142,294		)	82,008
Favorable lease terms	7.5	57,721		(49,999		)	7,722
Other	4.5	675		(661		)	14
		$	491,199	$	(192,954	)	$	298,245

		December 31, 2011
	Weighted-	Gross
	Average Useful	Carrying		Accumulated			Intangible
	Life	Amount		Amortization			Assets, Net
Unamortized trademarks	—	$	208,501	$	—		$	208,501
Amortized
Customer relationships	13.0	224,302		(125,049		)	99,253
Favorable lease terms	7.5	57,721		(45,436		)	12,285
Covenants not to compete	4.2	210		(209		)	1
Other	4.5	665		(565		)	100
		$	491,399	$	(171,259	)	$	320,140

We amortize intangible assets with finite lives over their respective estimated useful lives. We amortize customer relationship intangible assets using an accelerated method based on expected customer attrition rates. Other intangible assets with finite lives are generally amortized using the straight-line method.

Intangible assets with indefinite lives are not amortized. We test indefinite-lived intangible assets for impairment annually or more frequently if events or changes in circumstances indicate that the assets might be impaired.

We include amortization of favorable leases in cost of goods sold, buying and occupancy. We include amortization of other intangible assets such as customer relationships and non-compete agreements in selling, general and administrative expenses.

Amortization expense is classified in our condensed consolidated statements of comprehensive loss as follows (in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2012		2011		2012		2011
Cost of goods sold, buying and occupancy	$	1,423	$	1,800	$	4,563	$	5,780
Selling, general and administrative expenses	5,776		8,843		17,331		26,553

The future estimated amortization expense related to intangible assets as of September 30, 2012 was as follows (in thousands):

Year

Remainder of 2012	$	7,083
2013	22,191
2014	16,350
2015	12,408
2016	9,640
Thereafter	22,072
Total	$	89,744

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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