GameStop 2014 Annual Report Download - page 54

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Estimate Description Judgment and/or Uncertainty Potential Impact if Results Differ
Indefinite-Lived Intangible Assets
Indefinite-lived intangible assets were
recorded as aresult of acquisitionsand
consist of our dealer agreement assets
and ourMicromania trade name. As
these intangible assets are expectedto
contribute to cash flows indefinitely,
they are not subject to amortization.
We assess our indefinite-lived
intangible assets for impairment at least
annually and whenever events or
changes in circumstances indicate that
the carrying value may not be
recoverable. Our test is completed as of
the beginning of the fourth quarter each
fiscal year.
We value our dealer agreements using a
discounted cash flow analysis known as
the Greenfield Method, which assumes
that abusiness, at its inception, owns
only dealer agreements and must make
capital expenditure, working capital and
other investments to ramp up its
operations to alevel that is comparable
to its current operations.
We value our Micromania trade name
using arelief-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.
As of January 31, 2015, our indefinite-
lived intangible assets totaled $179.4
million. Refer to Note 9, "Goodwill and
Intangible Assets," to the consolidated
financial statements included in this
Form 10-K for afulldescription of our
indefinite-lived intangible assets.
In valuing our dealer agreementassets,
considerable management judgment is
necessary to estimate the cash flows
required to build acomparable operation
and the availablefuturecash flowsfrom
these operations. Specifically,weare
required to makecertain assumptions
about the cost of investment to build a
comparable operation, projected net
sales, cost of sales, operating expenses
and income taxes, as well as the
discount rate that is applied to the
expected future cash flows to arrive at
an estimated fair value.
In valuing our Micromaniatrade name,
we are required to make certain
assumptions regarding future cash flow
projections to ensurethatsuch
projections represent reasonable market
participant assumptions, to which the
royalty rate is applied.Additionally,
management judgment is necessary in
selectinganappropriate discount rate
which is reflective of the inherent risk of
holdingastandalone intangible asset.
Changes in the assumptions utilized in
estimating the present value of the cash
flows attributable to trade names and
dealer agreementscouldmaterially
impact the fair value estimates.
Areduction in the terminal growth rate
assumption of 0.5% or an increase in the
discount rate assumption of 0.5% utilized
in the test would not have resulted in an
impairment of the dealer agreement
assets.
Areduction in the terminal growth rate
assumption of 0.5% or an increase in the
discount rate assumption of 0.5% utilized
in the test would not have resulted in an
impairment of the Micromania trade
name.
We can provide no assurance that we will
nothave impairment charges infuture
periodsasaresult of changes in our
operating results or our assumptions.
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