Best Buy 2006 Annual Report Download - page 83

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$ in millions, except per share amounts
69
PART II
Derivative Financial Instruments
Our only derivative financial instrument was an interest-rate
swap with a fair value of $1as of February 26, 2005. On
May 2, 2005, we terminated the interest-rate swap. Our
interest-rate swap was includedin ourconsolidatedbalance
sheet in the current portion of long-term debt.
New Accounting Standards
In October 2005, the FASBissuedFSP No. FAS 13-1,
Accounting for Rental Costs Incurred During a Construction
Period . FSP No. FAS 13-1requires companies to expense
rent payments for building or ground leases incurred during
the construction period. FSP No. FAS 13-1 is effective for
annual reporting periods beginning after December 15,
2005. Retrospective application is permitted, but not
required. We will adopt FSP No. FAS 13-1 on a prospective
basis in the first quarter of fiscal 2007. We do not believe
the adoption of this new standard will have a significant
effect on operating income ornet earnings.
2. Discontinued Operations
In fiscal 2004, we sold ourinterest in Musicland. The buyer
assumed all of Musicland’s liabilities, including
approximately $500 in lease obligations, in exchange for
all of the capital stock of Musicland andpaid no cash
consideration. The transaction also resulted in the transfer
of all of Musicland’s assets, other than a distribution center in
Franklin, Indiana, and selected nonoperating assets. The loss
from discontinued operations for fiscal 2004 included a loss
on the disposal of discontinued operations (which was
primarily noncash) of $66, net of tax, related to the sa le of
Musicland. In connection with the sale, Musicland purchased
transition support services from us for approximately one year
from the date of the sale.
On March 25, 2005, we received notification from the
Internal Revenue Service (IRS)ofa favorable resolution of
outstanding tax mattersregarding the disposition of our
interest in Musicland. Based on the agreement with the
IRS, wereversed previously recorded valuation allowances
on deferred taxassets related to the disposition of our
interest in Musiclandand recognized a $50 tax benefit in
fiscal 2005.
In accordance with SFAS No. 144, Musicland’s financial
results are reported separately as discontinuedoperations
for all periods presented.
No assets or liabilities of Musicland were included in our
consolidatedbalance sheets at February 25, 2006, or
February 26, 2005.
In fiscal 2006, we have separately disclosed the operating,
investing and financingportions of the cash flows
attributable to our discontinued operations, which in prior
periods were reported on a combined basis as a single
amount.
The financial results of Musicland, included in discontinued operations, were as follows:
For the Fiscal Years Ended
Feb. 25,
2006
Feb. 26,
2005
Feb. 28,
2004(1)
Revenue $ — $ — $ 3 54
Loss before income taxes — — (46)
Loss before the disposal and the cumulative effect of accounting changes, net of $17 tax — — (29)
Gain (loss) on disposal of discontinued operations(2)— 50 (66)
Gain (loss) fromdiscontinued operations, net of tax $ — $50 $ (95)
(1)Fiscal 2004 includes operating results from March 2, 2003, through June 16, 2003, the date we sold our interest in Musicland.
(2)The fiscal 2005 gain on disposal of discontinued operations represents the reversal of valuation allowances on deferred tax assets as
described above. The fiscal 2004 loss on disposal of discontinued operations is net of $25 tax benefit offset by a $25 valuation
allowance.