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$ in millions, except per share amounts
depreciation for property under master and capital lease in fiscal 2004 related to corporate technology assets that
was $23 and $12 as of February 26, 2005, and were taken out of service based on changes in our
February 28, 2004, respectively. business. The impairment charges in fiscal 2003 related
to charges associated with vacating former corporate
Estimated useful lives by major asset category are as facilities in connection with the relocation to our new
follows: corporate campus in fiscal 2004. Impairment charges are
Life included in SG&A and primarily relate to our Domestic
Asset (in years)
segment operations.
Buildings 30-40
Leasehold improvements 10-25 We adopted SFAS No. 146, Accounting for Costs
Fixtures and equipment 3-15 Associated with Exit or Disposal Activities, on January 1,
Property under master and capital lease 3-35 2003. Since adoption, the present value of costs
associated with location closings, primarily future lease
Prior to fiscal 2005, cash or lease incentives received costs, are charged to earnings when a location is
upon entering into certain store leases (tenant allowances) vacated. Prior to adoption of SFAS No. 146, we
were classified as a reduction to property and equipment. recognized a liability when we made the decision to
In the fourth quarter of fiscal 2005, tenant allowances relocate or close a location.
were reclassified from property and equipment to accrued
rent or financing obligations, as appropriate. See Note 7, Goodwill and Intangible Assets
Leases, for further discussion.
Goodwill
Impairment of Long-Lived Assets and Costs Goodwill is the excess of the purchase price over the fair
Associated with Exit Activities value of identifiable net assets acquired in business
We account for the impairment or disposal of long-lived combinations accounted for under the purchase method.
assets in accordance with Statement of Financial Effective March 3, 2002, we adopted SFAS No. 142,
Accounting Standards (SFAS) No. 144, Accounting for the Goodwill and Other Intangible Assets, which eliminated
Impairment or Disposal of Long-Lived Assets, which the systematic amortization of goodwill. This Statement
requires long-lived assets, such as property and also requires that we review goodwill for impairment at
equipment, to be evaluated for impairment whenever adoption and at least annually thereafter.
events or changes in circumstances indicate the carrying During fiscal 2003, we completed the transitional
value of an asset may not be recoverable. An impairment requirements for goodwill impairment testing. As a result
loss is recognized when estimated undiscounted cash of the transitional goodwill impairment testing, we
flows expected to result from the use of the asset plus net determined that the carrying value of the assets of our
proceeds expected from disposition of the asset (if any) Musicland and Magnolia Audio Video businesses, which
are less than the carrying value of the asset. When an were acquired in fiscal 2001, exceeded their current fair
impairment loss is recognized, the carrying amount of the values. We determine fair values utilizing widely accepted
asset is reduced to its estimated fair value based on valuation techniques, including discounted cash flows and
quoted market prices or other valuation techniques. market multiple analyses. We based Musicland’s fair value
We recorded pre-tax asset impairment charges of $22, on the then-current expectations for the business in light of
$22 and $11, in fiscal 2005, 2004 and 2003, the then-existing retail environment and the uncertainty
respectively. The impairment charges in fiscal 2005 were associated with future trends in prerecorded music
related to technology assets that were taken out of service products. We based Magnolia Audio Video’s fair value
and charges associated with the disposal of corporate on the then-current expectations for the business in light of
facilities that had been vacated. The impairment charges recent sales trends and the then-existing business
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