Best Buy 2012 Annual Report Download - page 71

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$ in millions, except per share amounts or as otherwise noted
71
The present value of costs associated with location closings, primarily future lease costs (net of expected sublease income), are
charged to earnings when we have ceased using the specific location. We accelerate depreciation on property and equipment we
expect to retire when a decision is made to abandon a location.
At March 3, 2012, and February 26, 2011, the obligation associated with location closings was $138 and $76, respectively, and
is included within Accrued liabilities and Long-term liabilities in our Consolidated Balance Sheets. The obligation associated
with location closings at March 3, 2012, included amounts associated with our fiscal 2012 and fiscal 2011 restructuring
activities and the obligation associated with location closings at February 26, 2011, included amounts associated with our fiscal
2011 restructuring activities.
Leases
We conduct the majority of our retail and distribution operations from leased locations. The leases require payment of real
estate taxes, insurance and common area maintenance, in addition to rent. The terms of our lease 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 based on factors such as specified percentages of revenue or the consumer price index.
For leases that contain predetermined 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.
Cash or lease incentives received upon entering into certain store leases ("tenant allowances") are recognized on a straight-line
basis as a reduction to rent from the date we take possession of the property through the end of the initial lease term. We record
the unamortized portion of tenant allowances as a part of deferred rent, in Accrued liabilities or Long-term liabilities, as
appropriate.
At March 3, 2012, and February 26, 2011, deferred rent included in Accrued liabilities in our Consolidated Balance Sheets was
$42 and $34, respectively, and deferred rent included in Long-term liabilities in our Consolidated Balance Sheets was $317 and
$343, respectively.
We also lease certain equipment under noncancelable operating and capital leases. In addition, we have financing leases for
which the gross cost of constructing the asset is included in property and equipment, and amounts reimbursed from the landlord
are recorded as financing obligations. Assets acquired under capital and financing leases are depreciated over the shorter of the
useful life of the asset or the lease term, including renewal periods, if reasonably assured.
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. We
test goodwill for impairment annually in the fiscal fourth quarter, or when indications of potential impairment exist. We
monitor the existence of potential impairment indicators throughout the fiscal year.
We test for goodwill impairment at the reporting unit level. Our reporting units are the components of operating segments
which constitute businesses for which discrete financial information is available and is regularly reviewed by segment
management. No components were aggregated in arriving at our reporting units. Our reporting units with goodwill balances at
the beginning of fiscal 2012 were Best Buy Domestic, Best Buy Canada, Five Star China and Best Buy Europe.
The impairment test involves comparing the fair value of each reporting unit to its carrying value, including goodwill. Fair
value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit. If the fair value
exceeds carrying value, then we conclude that no goodwill impairment has occurred. If the carrying value of the reporting unit
exceeds its fair value, a second step is required to measure possible goodwill impairment loss. The second step includes
hypothetically valuing the tangible and intangible assets and liabilities of the reporting unit as if the reporting unit had been
acquired in a business combination. Then, the implied fair value of the reporting unit's goodwill is compared to the carrying
value of that goodwill. If the carrying value of the reporting unit's goodwill exceeds the implied fair value of the goodwill, we
recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value.