Best Buy 2013 Annual Report Download - page 70

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70
acquired in a business combination. Then, the implied fair value of the reporting unit’s goodwill is compared to the carrying
amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of the goodwill,
we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying amount.
Initial goodwill impairment assessments as of November 4, 2012, based on forecasts in place at that time, indicated that fair
value exceeded carrying value for each reporting unit. However, operating performance in our Best Buy Canada and Five Star
reporting units fell significantly below expectations in the later part of the fiscal fourth quarter. Therefore, we updated our
forecasts for Best Buy Canada and Five Star and tested for goodwill impairment as of the end of fiscal 2013 (11-month). The
updated forecasts, which were used as the basis for our DCF valuations for goodwill testing purposes, reflected significantly
lower cash flows than previously forecast. Our analysis for step one of detailed impairment testing indicated that carrying
values exceeded fair values for both Best Buy Canada and Five Star. Step two entailed allocating the fair values determined
from step one to the fair value of all recognized and appropriate unrecognized assets and liabilities to determine the implied fair
value of goodwill. In both cases, this analysis led to the conclusion that goodwill had no value, and therefore we recorded full
impairment of the goodwill associated with Best Buy Canada ($611 million) and Five Star ($208 million). The combined
goodwill impairment expense of $819 million is included in our International segment.
For the Best Buy Domestic reporting unit, we determined that the fair value of the reporting unit exceeded its carrying value by
a substantial margin and there were no events during the fourth quarter of fiscal 2013 (11-month) that would be more likely
than not to reduce the fair value of the Domestic reporting unit below its carrying amount.
Refer to Note 3, Profit Share Buy-Out, for further information on the $1.2 billion goodwill impairment attributable to the Best
Buy Europe reporting unit recorded in the fourth quarter of fiscal 2012. No goodwill impairments were recorded in fiscal 2011.
Tradenames and Customer Relationships
We have an indefinite-lived tradename related to Pacific Sales included within our Domestic segment. We also have indefinite-
lived tradenames related to Future Shop, Five Star, The Carphone Warehouse and The Phone House included within our
International segment.
We have definite-lived intangible assets related to customer relationships acquired as part of our acquisition of mindSHIFT
within our Domestic segment, and Best Buy Europe within our International segment.
Our valuation of identifiable intangible assets acquired is based on information and assumptions available to us at the time of
acquisition, using income and market approaches to determine fair value. We amortize definite-lived intangible assets over their
estimated useful lives. We do not amortize our indefinite-lived tradenames, but test for impairment annually, or when
indications of potential impairment exist.
We utilize the relief from royalty method to determine the fair value of each of our indefinite-lived tradenames. If the carrying
value exceeds the fair value, we recognize an impairment loss in an amount equal to the excess. No impairments were
identified during fiscal 2013 (11-month).
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