Best Buy 2005 Annual Report Download - page 94

$ in millions, except per share amounts
6. Net Interest Income (Expense)
Net interest income (expense) for fiscal 2005, 2004 and 2003 was comprised of the following:
2005 2004 2003
Interest expense(1) $(44) $(32) $(30)
Capitalized interest —15
Interest income 45 23 23
Net interest income (expense) 1 (8) (2)
Interest expense allocated to discontinued operations(2) — — (6)
Net interest income (expense) from continuing operations $ 1 $ (8) $ 4
(1) Fiscal 2005 interest expense includes $21 of expense related to our lease accounting corrections.
(2) We allocated interest expense to discontinued operations based upon debt that was attributable to Musicland’s operation.
and $3, respectively, and deferred rent included in
7. Leases long-term liabilities was approximately $171 and $73,
We lease portions of our corporate facilities and conduct respectively.
the majority of our retail and distribution operations from We capitalize straight-line rent amounts during the major
leased locations. The leases require payment of real estate construction phase of leased properties. Straight-line rent
taxes, insurance and common area maintenance, in is expensed as incurred subsequent to the major
addition to rent. The terms of our lease agreements construction phase, including the period prior to the store
generally range up to 20 years. Most of the leases opening.
contain renewal options and escalation clauses, and
We conducted an extensive review of our lease
certain store leases require contingent rents based on
accounting practices during the fourth quarter of fiscal
specified percentages of revenue. Other leases contain
2005 in light of the views expressed by the Securities and
covenants related to the maintenance of financial ratios.
Exchange Commission (SEC) in its letter dated
For leases that contain predetermined fixed escalations of February 7, 2005, to the American Institute of Certified
the minimum rent, we recognize the related rent expense Public Accountants Center for Public Company Audit
on a straight-line basis from the date we take possession Firms. In the letter, the SEC expressed its views regarding
of the property to the end of the initial lease term. We operating lease accounting matters and the related
record any difference between the straight-line rent interpretation/application of these matters under existing
amounts and amounts payable under the leases as part of GAAP.
deferred rent, in accrued liabilities or long-term liabilities,
Following our review, we recorded a cumulative fourth-
as appropriate.
quarter charge of $36 pre-tax ($23 after-tax) to correct
Cash or lease incentives (tenant allowances) received our accounting for certain operating lease matters. Of the
upon entering into certain store leases are recognized on $36 pre-tax charge, $15 was recorded as a charge to
a straight-line basis as a reduction to rent from the date SG&A, while the remaining $21 was recorded as a
we take possession of the property though the end of the charge to interest expense. We determined that no
initial lease term. We record the unamortized portion of restatement was required due to the immaterial impact of
tenant allowances as a part of deferred rent, in accrued the errors on current and prior periods.
liabilities or long-term liabilities, as appropriate.
The $15 charge to SG&A was primarily related to rent
At February 26, 2005, and February 28, 2004, deferred holidays. Rent holidays are considered to be any period
rent included in accrued liabilities was approximately $11 during which a tenant has the right to control use of the
leased property, but rent payments are not required.
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