Best Buy 2011 Annual Report Download - page 60

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Effect if Actual Results Differ From
Description Judgments and Uncertainties Assumptions
Goodwill and Intangible Assets
We evaluate goodwill and other indefinite- We carry forward the detailed We have not made any material changes
lived intangible assets for impairment determination of the fair value of a in the accounting methodology we use to
annually in the fiscal fourth quarter and reporting unit in our annual goodwill assess impairment loss on goodwill and
whenever events or changes in impairment analysis if three criteria are other intangible assets during the past three
circumstances indicate their carrying value met: (1) the assets and liabilities that make fiscal years.
may not be recoverable. up the reporting unit have not changed The carrying values of goodwill and
significantly since the most recent fair value
We test for goodwill impairment at the indefinite-lived intangible assets at
determination; (2) the most recent fair
reporting unit level, which is at the February 26, 2011, were $2.5 billion and
value determination resulted in an amount
operating segment level or one level below $105 million, respectively.
that exceeded the carrying amount of the
the operating segment. Our impairment reporting unit by a substantial margin; and In fiscal 2011, we identified no goodwill
evaluation involves comparing the fair (3) based on an analysis of events that impairments. We determined that the
value of each reporting unit to its carrying have occurred since the most recent fair excess of fair value over carrying value for
value, including goodwill. Fair value value determination, the likelihood that a each of our reporting units was substantial.
reflects the price a market participant current fair value determination would be
would be willing to pay in a potential sale As part of our fiscal 2011 restructuring, we
less than the current carrying amount of
of the reporting unit. If the fair value recorded an impairment charge of
the reporting unit is remote. For all other
exceeds carrying value, then it is concluded $10 million related to certain indefinite-
reporting units, we perform a detailed
that no goodwill impairment has occurred. lived tradenames in our Domestic segment
determination of fair value of the reporting
If the carrying value of the reporting unit unit. We do not believe there is a reasonable
exceeds its fair value, a second step is
likelihood that there will be a material
required to measure possible goodwill Our detailed impairment analysis involves
change in the future estimates or
impairment loss. The second step includes the use of a discounted cash flow model.
assumptions we use to test for impairment
hypothetically valuing the tangible and Significant management judgment is
losses on goodwill and other intangible
intangible assets and liabilities of the necessary to evaluate the impact of
assets. However, if actual results are not
reporting unit as if the reporting unit had operating and macroeconomic changes on
consistent with our estimates or
been acquired in a business combination. each reporting unit. Critical assumptions
assumptions, we may be exposed to an
Then, the implied fair value of the include projected comparable store sales
impairment charge that could be material.
reporting unit’s goodwill is compared to growth, store count, gross profit rates,
the carrying value of that goodwill. If the SG&A rates, working capital fluctuations,
carrying value of the reporting unit’s capital expenditures and terminal growth
goodwill exceeds the implied fair value of rates, as well as an appropriate discount
the goodwill, we recognize an impairment rate. We determine discount rates
loss in an amount equal to the excess, not separately for each reporting unit using the
to exceed the carrying value. capital asset pricing model. For fiscal
2011, such discount rates ranged from
8.5% to 12.5%. We also use comparable
market earnings multiple data and our
company’s market capitalization to
corroborate our reporting unit valuations.
These types of analyses contain
uncertainties because they require
management to make assumptions and to
apply judgment to estimate industry
economic factors and the profitability of
future business strategies. It is our policy to
conduct impairment testing based on our
current business strategy in light of present
industry and economic conditions, as well
as our future expectations.
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