Best Buy 2014 Annual Report Download - page 54

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Our impairment loss calculations include uncertainty because they require management to make assumptions and to apply
judgment to estimate future cash flows and asset fair values, including estimating useful lives of the assets and selecting the
discount rate that reflects the risk inherent in future cash flows. If actual results are not consistent with our estimates and
assumptions used in estimating future cash flows and asset fair values, we may be exposed to losses that could be material. We
do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to
calculate long-lived asset impairment losses.
Goodwill
We evaluate goodwill for impairment annually in the fiscal fourth quarter and whenever events or changes in circumstances
indicate their 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. 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.
Our detailed impairment analysis involves the use of discounted cash flow models. 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, SG&A rates, working capital fluctuations, capital
expenditures, discount rates and terminal growth rates. We determine discount rates 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.
The carrying value of goodwill at February 1, 2014, was $425 million, which all related to our U.S. reporting unit. In fiscal
2014, 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 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 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