Best Buy 2007 Annual Report Download - page 61

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Description Judgments and Uncertainties Effect if Actual Results Differ From Assumptions
Goodwill and Intangible Assets
We evaluate goodwill and other intangible
assets for impairment annually and
whenever events or changes in
circumstances indicate the carrying value of
the goodwill or other intangible assets 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, as
appropriate.
In the fourth quarter of fiscal 2007, we
completed our annual impairment testing of
goodwill and other intangible assets using
the methodology described herein, and
determined there was no impairment.
The carrying value of goodwill at March 3,
2007, was $919 million. The carrying value
of other intangible assets at March 3, 2007,
was $81 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 economic conditions, 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
assumptions we use to test for impairment
losses on goodwill and other intangible
assets. 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 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 tax authority to examine the tax
position or when more information becomes
available.
Effective March 4, 2007, we adopted FASB
Interpretation (‘‘FIN’’) No. 48, Accounting
for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109.
We are currently evaluating the impact, if
any, the adoption of FIN No. 48 will have
on retained earnings.
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 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 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 would 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.