Radio Shack 2013 Annual Report Download - page 50

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NOTE 4 – GOODWILL
During the fourth quarter of 2013, we conducted our annual
review of goodwill balances. Included in Other business
activities in our segment reporting we have goodwill
assigned to our Mexican subsidiary reporting unit which is
the primary component of our consolidated goodwill
balance.
In step 1 of the two-step impairment test we compared the
carrying amount, including assigned goodwill, to the fair
value of the Mexican subsidiary. We estimated fair value by
equally weighting the results from the income approach and
market approach. The significant assumptions employed in
determining fair value include, but were not limited to,
projected financial information, growth rates, terminal value,
discount rates, and multiples from publicly traded
companies that were comparable to our Mexican
subsidiary. We did a multi-year projection based upon our
normal annual planning process for the upcoming year
during the fourth quarter of 2013. Due to the less than
anticipated operating results of the Mexican subsidiary in
the fourth quarter of 2013 and a review of operations in our
normal planning process for the upcoming year, the
projected operating results of our Mexican subsidiary for
2014 were reduced and the timing of a planned expansion
was delayed to future years. The result of these actions
was a significant reduction in sales and gross profits in our
multi-year projection which was the primary factor in the
calculation that determined the fair value of the goodwill of
the Mexican subsidiary was less than the carrying amount.
As a result, step 2 of the two-step impairment test was
required in order to measure the amount of goodwill
impairment, if any.
In step 2, the fair value of the Mexican subsidiary measured
in step 1 was allocated to its assets and liabilities to
determine the implied fair value of the goodwill. This
process calculated the implied fair value of the goodwill of
the Mexican subsidiary to be $12.2 million compared to a
carrying value of the goodwill of $35.9 million. The
difference between the fair value and carrying amount of
$23.7 was recorded in the fourth quarter of 2013 in the
“Impairment of long-lived assets and goodwill” line within
our Consolidated Statements of Income.
If future actual results or performance of our Mexican
subsidiary are not consistent with our projections, estimates
and assumptions, we may incur additional goodwill
impairment charges.
For the first half of 2012, we experienced a significant
decline in the market capitalization of our common stock,
which was driven primarily by lower than expected
operating results. Our market capitalization was lower than
our consolidated net book value for much of this period. We
determined that these facts were an indicator that we
should conduct an interim goodwill impairment test in the
third quarter.
After reviewing our reporting units, we determined that the
fair value of our U.S. RadioShack company-operated stores
reporting unit could not support its $3.0 million of goodwill
due to our lower market capitalization. This resulted in a
$3.0 million impairment charge that was included in our
operating results for the third quarter of 2012. Our U.S.
RadioShack company-operated stores reporting unit is
comprised of our U.S. RadioShack company-operated
stores operating segment, our overhead and corporate
expenses that are not allocated to our operating segments,
and all of our interest expense.
The changes in the carrying amount of goodwill by reportable segment were as follows for the years ended December 31,
2013 and 2012:
U.S.
RadioShack
(In millions) Stores
Other
(1)
Total
Balances at December 31, 2011
Goodwill $ 2.9 $ 34.1 $ 37.0
Accumulated impairment losses -- -- --
2.9 34.1 37.0
Acquisition of dealer 0.1 -- 0.1
Goodwill impairment (3.0) -- (3.0)
Foreign currency translation adjustment -- 2.5 2.5
Balances at December 31, 2012
Goodwill 3.0 36.6 39.6
Accumulated impairment losses (3.0) -- (3.0)
-- 36.6 36.6
Foreign currency translation adjustment -- (0.2) (0.2)
Goodwill impairment -- (23.7) (23.7)
Balances at December 31, 2013
Goodwill 3.0 36.4 39.4
Accumulated impairment losses (3.0) (23.7) (26.7)
$ -- $ 12.7 $ 12.7
(1) Goodwill classified as Other in the above table primarily relates to goodwill recorded on our Mexican subsidiary reporting unit.