Best Buy 2006 Annual Report Download - page 60

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46
Description Judgments and Uncertainties
Effect if Actual Results Differ From
Assumptions
Goodwill and Intangible Assets
We evaluate goodwill and the Future Shop
tradename for impairment annually and
whenever events or changes in
circumstances indicate the carrying value of
the goodwill or the FutureShop tradename
may not be recoverable. We complete our
impairment evaluation by performing
internal valuation analyses, considering
other publicly available market information
and using an independent valuation firm.
In the fourth quarter of fiscal 2006, we
completed our annual impairment testing of
goodwill and the Future Shop tradename
using the methodology described herein,
and determined there was no impairment.
The carrying value of goodwill as of
February 25, 2006, was $557 million. The
carrying value of the Future Shop
tradename as of February 25, 2006, was
$44 million.
We determine fair value using widely
accepted valuation techniques, including
discounted cash flow and market multiple
analyses. 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 economicconditions, as well
as future expectations.
We have not made any material changes in
our impairment loss assessment
methodology during the past three fiscal
years.
We do not believe there is a reasonable
likelihood that there will be a material
change in the future estimates or
assumptionswe use to test for goodwill
impairment losses. However, if actual results
are not consistent with our estimates and
assumptions, we may be exposed to an
impairment charge that could be material.
We do not believe there is a reasonable
likelihood that there will be a material
change in the future estimates or
assumptionswe use to test for Future Shop
tradename impairment losses. However, if
actual results are not consistent with our
estimates and assumptions, or if we ever
were to discontinue the use of the Future
Shop tradename as a result of abandoning
our dual-branding strategy in Canada or
otherwise, 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 deductions and the allocation of
income among various tax jurisdictions. At
any one time, multiple tax years are subject
to audit by the various tax authorities. In
evaluating the exposures associated with
our various taxfiling positions, we record
reserves for probable exposures. A number
of years may elapse before a particular
matter, for which we have established a
reserve, is audited and fully resolved or
clarified. We adjust our tax contingencies
reserve and income tax provision in the
period in which actual results of a
settlement with tax authorities differs from
our established reserve, the statute of
limitations expires for the relevant taxing
authority to examine the tax position or
when more information becomes available.
Our tax contingencies reserve contains
uncertainties because management is
required to make assumptions and to apply
judgment to estimate the exposures
associated with our various filing positions.
Our effective income taxrate 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 management believes 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
reserves have been established, or are
required to pay amounts in excess of our
reserves, our effective income tax rate in a
given financial statement period could be
materially affected. An unfavorable tax
settlement would require use of our cash
and result in an increase in our effective
income tax rate in the period of resolution.
A favorable tax settlement would be
recognized as a reduction in our effective
income tax rate in the period of resolution.