Best Buy 2015 Annual Report Download - page 71

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Table of Contents
64
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 new lease agreements for large-
format stores are generally less than 10 years, although we have existing leases with terms up to 20 years. Small-format stores
generally have lease terms that are half the length of large-format stores. 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 January 31, 2015, and February 1, 2014, deferred rent included in accrued liabilities in our Consolidated Balance Sheets was
$31 million and $36 million, respectively, and deferred rent included in long-term liabilities in our Consolidated Balance Sheets
was $195 million and $232 million, 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, as of the first day of 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 and 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 only reporting unit with a goodwill balance at the beginning
of fiscal 2015 was Best Buy Domestic.
Our detailed impairment testing 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 and is
based on discounted cash flows or relative market-based approaches. If the fair value exceeds carrying value, then it is
concluded 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. In fiscal 2015, we determined that the fair value of the Best Buy Domestic
reporting unit exceeded its carrying value, and as a result, no goodwill impairment was recorded in fiscal 2015.
In fiscal 2013 (11-month), initial goodwill impairment assessments as of November 4, 2012, based on forecasts in place at that
time, indicated that fair value exceeded carrying value for each reporting unit. However, operating performance in our Best Buy
Canada and Five Star reporting units fell significantly below expectations in the later part of the fiscal fourth quarter. Therefore,
we updated our forecasts for Best Buy Canada and Five Star and tested for goodwill impairment as of the end of fiscal 2013
(11-month). The updated forecasts, which were used as the basis for our discounted cash flow ("DCF") valuations for goodwill
testing purposes, reflected significantly lower cash flows than previously forecast. Our analysis for step one of detailed
impairment testing indicated that carrying values exceeded fair values for both Best Buy Canada and Five Star. Step two