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$ in millions, except per share amounts
goodwill related to our acquisition of Musicland. In
2. Discontinued Operations addition, we recorded an after-tax, noncash charge of $8
In fiscal 2004, we sold our interest in Musicland. The for the change in our method of accounting for Musicland
buyer assumed all of Musicland’s liabilities, including vendor allowances. The charges are classified as
approximately $500 in lease obligations, in exchange for cumulative effects of changes in accounting principles in
all of the capital stock of Musicland and paid no cash discontinued operations (see Note 1, Summary of
consideration. The transaction also resulted in the transfer Significant Accounting Policies).
of all of Musicland’s assets, other than a distribution Also during fiscal 2003, in accordance with SFAS
center in Franklin, Indiana, and selected nonoperating No. 144, we recorded a pre-tax impairment charge of
assets. The loss from discontinued operations for fiscal $166 related to a reassessment of the carrying value of
2004 included a loss on the disposal of discontinued Musicland’s long-lived assets. The $166 charge was
operations (which was primarily noncash) of $66, net of recorded in loss before income taxes, in the table below.
tax, related to the sale of Musicland. In connection with We determined fair values utilizing widely accepted
the sale, Musicland purchased transition support services valuation techniques, including discounted cash flows. We
from us for approximately one year from the date of the based fair values on the then-current expectations for the
sale. business in light of the then-existing retail environment
In accordance with SFAS No. 144, Musicland’s financial and the uncertainty associated with future trends in
results are reported separately as discontinued operations prerecorded music products.
for all periods presented.
During fiscal 2003, we recorded an after-tax, noncash
impairment charge of $308 for the full write-off of
The financial results of Musicland, included in discontinued operations, were as follows:
Feb. 26, Feb. 28, March 1,
For the Fiscal Years Ended 2005 2004(1) 2003
Revenue $ — $354 $1,727
Loss before income taxes — (46) (244)
Loss before the disposal and the cumulative effect of accounting changes, net of
$17 and $119 tax, respectively — (29) (125)
Gain (loss) on disposal of discontinued operations(2) 50 (66) —
Cumulative effect of change in accounting principles, net of $5 tax — — (316)
Gain (loss) from discontinued operations, net of tax $50 $ (95) $ (441)
(1) Fiscal 2004 includes operating results from March 2, 2003, through June 16, 2003, the date we sold our interest in Musicland.
(2) Fiscal 2005 gain on disposal of discontinued operations represents the reversal of valuation allowances on deferred tax assets as
described below. Fiscal 2004 loss on disposal of discontinued operations is net of $25 tax benefit offset by a $25 valuation
allowance.
On March 25, 2005, we received notification from the on deferred tax assets related to the disposition of our
Internal Revenue Service (IRS) of a favorable resolution of interest in Musicland and recognized a $50 tax benefit.
outstanding tax matters regarding the disposition of our No assets or liabilities of Musicland were included in our
interest in Musicland. Based on the agreement with the balance sheets at February 26, 2005, or February 28,
IRS, we reversed previously recorded valuation allowances 2004.
71