Best Buy 2012 Annual Report Download - page 80

$ in millions, except per share amounts or as otherwise noted
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During fiscal 2009, we acquired a 50% controlling interest in the retail business of Carphone Warehouse, subsequently renamed
Best Buy Europe Distributions Limited ("Best Buy Europe"), which included the profit share agreement with Best Buy Mobile.
Carphone Warehouse holds a 50% noncontrolling interest in Best Buy Europe. Following the acquisition of Best Buy Europe,
payments made by Best Buy Mobile to Best Buy Europe were recorded as SG&A expense in Best Buy Mobile (Domestic
segment), and an SG&A reduction in Best Buy Europe (International segment). Carphone Warehouse's 50% share of the net
earnings of Best Buy Europe, which includes the profit share agreement, is recorded in Net (earnings) from continuing
operations attributable to noncontrolling interests within our Consolidated Statements of Earnings.
In November 2011, we announced strategic changes in respect of Best Buy Europe, including an agreement to buy out
Carphone Warehouse's interest in the profit share agreement for $1,303 (the "Mobile buy-out"), subject to the approval of
Carphone Warehouse shareholders. The Mobile buy-out was completed during the fourth quarter of fiscal 2012.
Financial Reporting Impact of the Mobile Buy-out
We accounted for the Mobile buy-out transaction as a $1,303 payment to terminate the future payments due under the profit
share agreement with Best Buy Europe, thereby eliminating Carphone Warehouse's interest in the profits. This payment was
presented within Net (earnings) from continuing operations attributable to noncontrolling interests in our Consolidated
Statements of Earnings, consistent with the financial reporting of the previous recurring payments made pursuant to the profit
share agreement. In the Consolidated Statements of Cash Flows, the payment to Carphone Warehouse is included within
Payment to noncontrolling interest, as part of cash flows from financing activities.
Goodwill Impairment – Best Buy Europe
The Best Buy Europe reporting unit comprises our 50% controlling interest in Best Buy Europe, which includes the profit share
agreement with Best Buy Mobile. Based upon the preliminary purchase price allocation for the Best Buy Europe acquisition in
the second quarter of fiscal 2009, we recorded $1,491 of goodwill. The goodwill balance attributable to our Best Buy reporting
unit has fluctuated over time as a result of changes in foreign currency exchange rates. No impairment had been recorded
through the end of the third quarter of fiscal 2012.
At the time of the announcement of the Mobile buy-out in November 2011, we also announced the closure of our large-format
Best Buy branded stores in the U.K. As of the end of the third quarter of fiscal 2012 and in light of these strategic decisions, we
performed an interim evaluation of potential impairment of goodwill associated with the Best Buy Europe reporting unit. The
fair value of the reporting unit, which reflected the exit plans for our large-format Best Buy branded stores in the U.K. and the
fair value of the profit share agreement indicated by the Mobile buy-out price agreed upon with Carphone Warehouse, was
determined to be in excess of the carrying value of the Best Buy Europe reporting unit as of the end of the third quarter of fiscal
2012. However, if the shareholders of Carphone Warehouse were to approve the Mobile buy-out, we estimated that
substantially all of the goodwill associated with the Best Buy Europe reporting unit would be impaired in the absence of
forecast cash flows to the reporting unit under the profit share agreement.
On January 24, 2012, the shareholders of Carphone Warehouse approved the Mobile buy-out and thus the transaction became
unconditional. We conducted an impairment review of the goodwill associated with the Best Buy Europe reporting unit as of
this date. Following the elimination of the profit share agreement from Best Buy Europe and the closure of large-format Best
Buy branded stores in the U.K., the remaining fair value of the Best Buy Europe reporting unit is entirely attributable to its
small-format store retail operations. Management determined the fair value of the reporting unit by reference to estimated
future cash flows discounted to present value using a discount rate of 9.0%. The reporting unit fair value determined was also
corroborated by reference to market data. The fair value determined was less than the carrying value of Best Buy Europe, and
therefore further analysis was conducted to determine the implied fair value of goodwill. This included first determining the
fair value of all identifiable tangible and intangible assets and liabilities attributable to Best Buy Europe, in a manner consistent
with purchase accounting methodology. Once complete, the aggregate fair value of all assets and liabilities was compared to the
reporting unit fair value determined, to ascertain the implied fair value of goodwill. Based on this analysis, it was determined
that goodwill attributable to the Best Buy Europe reporting unit, representing $1,207 as of January 24, 2012, had been fully
impaired. The impairment loss was recorded in the Goodwill impairment line within our Consolidated Statements of Earnings
in the fourth quarter of fiscal 2012.