Best Buy 2007 Annual Report Download - page 80

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$ in millions, except per share amounts
65
PART II
Goodwill and Intangible Assets
Goodwill
Goodwill is the excess of the purchase price over the fair
value of identifiable net assets acquired in business
combinations accounted for under the purchase method.
We do not amortize goodwill but test it for impairment
annually, or when indications of potential impairment exist,
utilizing a fair value approach at the reporting unit level. A
reporting unit is the operating segment, or a business unit
one level below that operating segment, for which discrete
financial information is prepared and regularly reviewed by
segment management.
Tradenames
We have an indefinite-lived intangible asset related to our
Pacific Sales tradename which is included in the Domestic
segment. We also have indefinite-lived intangible assets
related to our Future Shop and Five Star tradenames which
are included in the International segment.
We determine fair values utilizing widely accepted valuation
techniques, including discounted cash flows and market
multiple analyses. During the fourth quarter of fiscal 2007,
we completed our annual impairment testing of our
goodwill and tradenames, using the valuation techniques as
described above, and determined there was no impairment.
The changes in the carrying amount of goodwill and tradenames by segment for continuing operations were as follows in
fiscal 2007, 2006 and 2005:
Goodwill Tradenames
Domestic International Total Domestic International Total
Balances at February 28, 2004 $ 3 $ 474 $477 $ — $37 $ 37
Changes in foreign currency exchange rates — 36 36 — 3 3
Balances at February 26, 2005 3 510 513 — 40 40
Changes in foreign currency exchange rates — 40 40 — 4 4
Changes resulting from acquisitions 3 1 4 — — —
Balances at February 25, 2006 6 551 557 — 44 44
Changes resulting from acquisitions 369 27 396 17 21 38
Changes resulting from tax adjustment(1) — (21) (21) — — —
Changes in foreign currency exchange rates — (13) (13) — (1) (1)
Balances at March 3, 2007 $375 $ 544 $919 $17 $64 $ 81
(1) Adjustment related to the resolution of certain tax matters associated with our acquisition of Future Shop.
Lease Rights
Lease rights represent costs incurred to acquire the lease of
a specific commercial property. Lease rights are recorded at
cost and are amortized to rent expense over the remaining
lease term, including renewal periods, if reasonably
assured. Amortization periods range up to 16 years,
beginning with the date we take possession of the property.
The gross cost and accumulated amortization of lease rights
were $32 and $13 at March 3, 2007; and $29 and $10 at
February 25, 2006. Lease rights amortization was $4, $3
and $4 in fiscal 2007, 2006 and 2005, respectively.
Current lease rights amortization is expected to be
approximately $3 for each of the next five fiscal years.
Investments
Short-term and long-term investments are comprised of
municipal and United States government debt securities as
well as auction-rate securities and variable rate-demand
notes. In accordance with SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities,and
based on our ability to market and sell these instruments,
we classify auction-rate securities, variable-rate demand
notes and other investments in debt securities as available-
for-sale and carry them at amortized cost, which
approximates fair value. Auction-rate securities and
variable-rate demand notes are similar to short-term debt
instruments because their interest rates are reset
periodically. Investments in these securities can be sold for
cash on the auction date. We classify auction-rate securities
and variable-rate demand notes as short-term or long-term
investments based on the reset dates.