Best Buy 2012 Annual Report Download - page 72

$ in millions, except per share amounts or as otherwise noted
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We carry forward the detailed determination of the fair value of a reporting unit in our annual goodwill impairment analysis if
three criteria are met: (1) the assets and liabilities that make up the reporting unit have not changed significantly since the most
recent detailed fair value determination; (2) the most recent detailed fair value determination resulted in an amount that
exceeded the carrying amount of the reporting unit by a substantial margin; and (3) based on an analysis of events that have
occurred since the most recent detailed fair value determination, the likelihood that current fair value is less than the current
carrying amount of the reporting unit is remote. For all other reporting units, we perform a detailed determination of fair value
of the reporting unit.
Our detailed impairment analysis involves the use of a discounted cash flow ("DCF") model. Significant management judgment
is necessary to evaluate the impact of operating and macroeconomic changes on each reporting unit. Critical assumptions
include projected comparable store sales growth, store count, gross profit rates, selling, general and administrative expense
("SG&A") rates, working capital fluctuations, capital expenditures and terminal growth rates, as well as an appropriate discount
rate. Discount rates are determined separately for each reporting unit using the capital asset pricing model. We also use
comparable market earnings multiple data and our company's market capitalization to corroborate our reporting unit valuations.
Goodwill Impairment
For the Best Buy Domestic, Best Buy Canada and Five Star China reporting units, we utilized the carry-forward methodology
outlined above in completing the fiscal 2012 goodwill impairment reviews. For each of these reporting units, we determined
that the fair value of goodwill remained substantially in excess of carrying values. No goodwill impairments were recorded in
fiscal 2011 or fiscal 2010.
Refer to Note 2, Profit Share Buy-Out, for further information on the $1,207 goodwill impairment attributable to the Best Buy
Europe reporting unit recorded in the fourth quarter of fiscal 2012.
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. Significant management
judgment is necessary to determine key assumptions, including projected revenue, royalty rates and appropriate discount rates.
Royalty rates used are consistent with those assumed for original purchase accounting. Other assumptions are consistent with
those we use for goodwill impairment testing purposes.