Best Buy 2011 Annual Report Download - page 79

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$ in millions, except per share amounts or as otherwise noted
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 fair value determination; (2) the most recent 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 fair value determination, the likelihood that a current fair value
determination would be 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 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, and for fiscal 2011 ranged from 8.5% to 12.5%. We also use comparable market earnings multiple data and our
company’s market capitalization to corroborate our reporting unit valuations.
In fiscal 2009, we recorded a goodwill impairment charge of $62 relating to our former Speakeasy business. The decline
in the fair value of Speakeasy was primarily the result of revenue forecasts that were lower than what we originally
anticipated, which was partly due to lower-than-expected synergies with our other businesses. There were no goodwill
impairments for any of our other reporting units in fiscal 2009.
In fiscal 2010, we identified no goodwill impairments. We determined that the fair value of the Speakeasy business, which
had a remaining goodwill carrying value of $12, approximated its carrying value. For all of our other reporting units, we
determined that the excess of fair value over carrying value was substantial.
In fiscal 2011, we identified no goodwill impairments. For all of our reporting units, we determined that the excess of fair
value over carrying value was substantial. As a result of the sale of our Speakeasy business in the second quarter of fiscal
2011, we wrote off the carrying value of the goodwill associated with such business as of the date of sale. See Note 14,
Sale of Business, for additional information regarding the sale.
Indefinite-Lived Tradename Impairment Testing
We utilize the relief from royalty method to determine the fair value of each 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.
In fiscal 2009, we recorded an impairment charge of $4 relating to our Speakeasy tradename. The primary cause of the
decline in the fair value of the tradename was the lower revenue forecasts discussed above. In fiscal 2010, we identified
no indefinite-lived tradename impairments. As a result of the sale of our Speakeasy business in the second quarter of
fiscal 2011, we wrote off the carrying value of the indefinite-lived tradename associated with such business as of the date
of sale. See Note 14, Sale of Business, for additional information regarding the sale. Furthermore, as part of our fiscal
2011 restructuring, we recorded an impairment charge of $10 related to certain indefinite-lived tradenames in our
Domestic segment. See Note 5, Restructuring Charges, for additional information regarding the restructuring.
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