Best Buy 2006 Annual Report Download - page 75

Download and view the complete annual report

Please find page 75 of the 2006 Best Buy annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 118

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118

$ in millions, except per share amounts
61
PART II
internal-use software is capitalized only to the extent that it
enables the software to perform a task it previously did not
perform. Capitalizedsoftware is includedin fixtures and
equipment. Software maintenance and training costs are
expensedin the period incurred.
Property under master and capital lease is comprised of
retail locations under our master lease program, equipment
used in our retail stores and other facilities. During the first
quarter of fiscal 2006, we paid off our master lease
obligation. Property under our master lease program had a
carrying value of $41 at February 26, 2005. The related
depreciation for master and capital lease assets is included
in depreciation expense. Accumulateddepreciation for
property under master and capital lease was $5 and $23 at
February 25, 2006, and February 26, 2005, respectively.
Estimated useful lives by majorasset category are as
follows:
Asset
Life
(in years)
Buildings 35
Leasehold improvements 5–25
Fixtures and equipment 3–20
Property under capital lease 6–20
Impairment of Long-Lived Assets and Costs
Associated With Exit Activities
We account for the impairment or disposal of long-lived
assets in accordance with Statement of Financial
Accounting Standards (SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which requires
long-lived assets, such as property and equipment, to be
evaluated for impairment whenever events orchanges in
circumstances indicate the carryingvalue of an asset may
not be recoverable. Factors considered important that could
result in an impairment review include, but are not limited
to, significant underperformance relative to historical or
plannedoperating results, significant changes in the
manner of use of the assets or significant changes in our
business strategies. An impairment loss is recognized when
the estimated undiscounted cash flows expected to result
from the use of the asset plus net proceeds expectedfrom
disposition of the asset (if any) are less than the carrying
value of the asset. When an impairment loss is recognized,
the carrying amount of the asset is reduced to its estimated
fair value based on quoted market prices or other valuation
techniques.
We recorded pre-tax asset impairment charges of $4, $22
and $22, in fiscal 2006, 2005 and 2004, respectively. The
impairment charges in fiscal 2006 related to technology and
store assets that were taken out of service due to changes in
ourbusiness. The impairment charges in fiscal 2005 related
to technology assetsthat were taken out ofservice due to
changes in our business and charges associated withthe
disposal of corporate facilities that had been vacated. The
impairment charges in fiscal 2004 related to corporate
technology assets that were taken out of service based on
changes in our business. Impairment charges are included in
selling, general and administrative expenses (SG&A) and
relate to our Domestic segment operations.
The present value of costs associated with location closings,
primarily futurelease costs (net of expected sublease
income), are charged to earnings when a location is
vacated.
Leases
We lease portions of our corporate facilities and conduct
the majority of our retail and distribution operations from
leasedlocations. The leases require payment of real estate
taxes, insurance andcommon area maintenance, in
addition to rent. The terms of ourlease agreements
generally range from 10 to 20 years. Most of the leases
contain renewal options and escalation clauses,and certain
store leases require contingent rents basedon factors such
as specifiedpercentages of revenue or the consumerprice
index. Other leases contain covenants related to the
maintenance offinancial ratios.
For leases that containpredetermined fixed escalations of
the minimum rent, we recognize the related rent expense on
a straight-line basis from the date we take possession of the
property to the end of the initial lease term. We record any
difference between the straight-line rent amounts and
amounts payable under the leases as part of deferred rent,
in accrued liabilities or long-term liabilities, as appropriate.