GameStop 2013 Annual Report Download - page 51

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impairment charge. While management does not anticipate any material changes to the projected undiscounted cash flows
underlying its impairment test, many other factors impact the fair value calculation. Since we are required to determine fair value
from a hypothetical market participant’s perspective, discount rates used in the analyses may change based on market conditions,
regardless of whether our cost of capital has changed, which could negatively impact the fair value calculation. As we periodically
reassess our fair value calculations using currently available market information and internal forecasts, changes in our judgments
and other assumptions could result in recording material impairment charges of goodwill or other intangible assets in any of our
reporting units in the future.
We completed the annual impairment test of goodwill for our United States, Canada, Australia and Europe Video
Game Brands reporting units as of the first day of the fourth quarter of fiscal 2013. The results of our test indicated that none of
our goodwill was impaired. The Technology Brands reporting unit was excluded from the fiscal 2013 annual impairment test as
it commenced operations during the fourth quarter and therefore was not a reporting unit subject to assessment as of our annual
testing date. For our United States, Canada and Australia reporting units, the calculated fair value of each of these reporting units
exceeded their respective carrying values by more than 20% and the calculated fair value of our Europe reporting unit exceeded
its carrying value by more than 10%. A reduction in the terminal growth rate assumption of 0.25% or an increase in the discount
rate assumption of 0.25% utilized in the test for each respective reporting unit would not have resulted in an impairment.
For fiscal 2013, there was a $10.2 million goodwill write-off in the United States Video Game Brands reporting unit
as a result of abandoning our investment in Spawn Labs, which is described more fully in Note 2 to our consolidated financial
statements.
During the third quarter of fiscal 2012, we determined that sufficient indicators of potential impairment existed to
require an interim goodwill impairment test. As a result of the interim goodwill impairment test, we 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 our
Australia, Canada and Europe reporting units, respectively, to reduce the carrying value of goodwill.
We completed our annual impairment test of goodwill as of the first day of the fourth quarter of fiscal 2011, fiscal
2012 and fiscal 2013 and concluded that none of our goodwill was impaired. For fiscal 2011, there was a $3.3 million goodwill
write-off recorded in the United States segment as a result of the exiting of a non-core business. See Note 9 to our consolidated
financial statements for additional information concerning goodwill.
Other Intangible Assets. Other intangible assets consist primarily of trade names, dealer agreements, leasehold rights,
advertising relationships and amounts attributed to favorable leasehold interests recorded primarily as a result of the acquisitions
of Spring Mobile in the fourth quarter of fiscal 2013, SFMI Micromania SAS (“Micromania”) in 2008 and the merger with
Electronics Boutique Holdings Corp. in 2005 (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 determined based on the period in which they
are expected to contribute directly to cash flows.
Trade names which were recorded as a result of acquisitions, primarily Micromania, are generally considered indefinite-
lived 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. Dealer agreements were recorded primarily from our acquisition of Spring Mobile. Dealer
agreements represent a value associated with the rights and privileges afforded the operator under the associated agreement. Our
dealer agreements are not subject to amortization. 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. Advertising relationships, which were recorded as a result of digital acquisitions, are relationships with existing
advertisers who pay to place ads on our 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.
Indefinite-lived intangible assets are assessed for impairment at least annually and whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. This test is completed as of the beginning of the fourth
quarter each fiscal year or when circumstances indicate the carrying value of the intangible assets might be impaired. Similar to
the test for goodwill impairment discussed above, the impairment test for indefinite-lived intangible assets consists of a comparison
of the fair value of the intangible asset with its carrying amount. An impairment loss is recognized for the amount by which the
carrying value exceeds the fair value of the asset. The fair value of our trade names is calculated using a relief-from-royalty
approach, which assumes the 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