Best Buy 2015 Annual Report Download - page 56

Table of Contents
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Goodwill
Goodwill is not amortized but is evaluated for impairment annually in the fiscal fourth quarter or whenever events or changes
in circumstances indicate the carrying value may not be recoverable.
We test for goodwill impairment at the reporting unit level, which is one level below the operating segment level. Our detailed
impairment testing involves comparing the fair value of each reporting unit to its carrying value, including goodwill. Fair value
reflects the price a market participant would be willing to pay in a potential sale of the reporting unit and is based on discounted
cash flows or relative market-based approaches. If the fair value exceeds carrying value, then it is concluded that no goodwill
impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, a second step is required to measure
possible goodwill impairment loss. The second step includes hypothetically valuing the tangible and intangible assets and
liabilities of the reporting unit as if the reporting unit had been acquired in a business combination. Then, the implied fair value
of the reporting unit's goodwill is compared to the carrying value of that goodwill. If the carrying value 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 value.
The carrying value of goodwill at January 31, 2015, was $425 million, which related entirely to our U.S. reporting unit. In
fiscal 2015, we determined that the excess of fair value over carrying value was substantial. We do not believe there is a
reasonable likelihood that there will be a material change in the future estimates or assumptions we use to test for impairment
losses on goodwill. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to an
impairment charge that could be material.
Tax Contingencies
Our income tax returns, like those of most companies, are periodically audited by domestic and foreign tax authorities. These
audits include questions regarding our tax filing positions, including the timing and amount of income and deductions and the
allocation of income among various tax jurisdictions. At any time, many tax years are subject to audit by various tax
authorities. In evaluating the exposures associated with our various tax filing positions, we may record a liability for such
exposures. A number of years may elapse before a particular matter, for which we have established a liability, is audited and
fully resolved or clarified. We adjust our liability for unrecognized tax benefits and income tax provisions in the period in
which an uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to
examine the tax position or when more information becomes available.
Our liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and
apply judgment to estimate the exposures associated with our various filing positions.
Our effective income tax rate is also affected by changes in tax law, the tax jurisdiction of new stores or business ventures, the
level of earnings and the results of tax audits.
Although we believe that the judgments and estimates discussed herein are reasonable, actual results could differ, and we may
be exposed to losses or gains that could be material.
To the extent we prevail in matters for which a liability has been established, or are required to pay amounts in excess of our
established liability, our effective income tax rate in a given financial statement period could be materially affected. An
unfavorable tax settlement generally would require use of our cash and may result in an increase in our effective income tax
rate in the period of resolution. A favorable tax settlement may reduce our effective income tax rate and would be recognized in
the period of resolution.
Revenue Recognition
The following accounting estimates relating to revenue recognition contain uncertainty because they require management to
make assumptions and to apply judgment regarding the effects of future events.
Returns – We recognize revenue, net of estimated returns, at the time the customer takes possession of merchandise or receives
services. We estimate the liability for sales returns with a corresponding reduction to revenue and cost of sales based on
historical return data. We believe that our estimate for sales returns is a reasonable reflection of future returns. However, if our
estimates are significantly below or above the actual return amounts, our reported revenue and cost of sales could be impacted.