Best Buy 2008 Annual Report Download - page 75

$ in millions, except per share amounts or as otherwise noted
When property is fully depreciated, retired or otherwise Disposal of Long-Lived Assets, which requires long-lived assets,
disposed of, the cost and accumulated depreciation are such as property and equipment, to be evaluated for
removed from the accounts and any resulting gain or loss is impairment whenever events or changes in circumstances
reflected in the consolidated statement of earnings. indicate the carrying value of an asset may not be recoverable.
Factors considered important that could result in an
Repairs and maintenance costs are charged directly to expense impairment review include, but are not limited to, significant
as incurred. Major renewals or replacements that substantially underperformance relative to historical or planned operating
extend the useful life of an asset are capitalized and results, significant changes in the manner of use of the assets
depreciated. or significant changes in our business strategies. An
Costs associated with the acquisition or development of impairment loss is recognized when the estimated
software for internal use are capitalized and amortized over the undiscounted cash flows expected to result from the use of the
expected useful life of the software, from three to seven years. asset plus net proceeds expected from disposition of the asset
A subsequent addition, modification or upgrade to internal-use (if any) are less than the carrying value of the asset. When an
software is capitalized only to the extent that it enables the impairment loss is recognized, the carrying amount of the asset
software to perform a task it previously did not perform. is reduced to its estimated fair value based on quoted market
Capitalized software is included in fixtures and equipment. prices or other valuation techniques.
Software maintenance and training costs are expensed in the The present value of costs associated with location closings,
period incurred. primarily future lease costs (net of expected sublease income),
Property under capital lease is comprised of buildings and are charged to earnings when a location is vacated. We
equipment used in our retail operations and corporate support accelerate depreciation on property and equipment we expect
functions. The related depreciation for capital lease assets is to retire when a decision is made to abandon a location.
included in depreciation expense. The carrying value of
property under capital lease was $54 and $26 at March 1, Leases
2008, and March 3, 2007, respectively, net of accumulated We conduct the majority of our retail and distribution
depreciation of $13 and $6, respectively. operations from leased locations. The leases require payment
Estimated useful lives by major asset category are as follows: of real estate taxes, insurance and common area
maintenance, in addition to rent. The terms of our lease
Life
Asset (in years) agreements generally range from 10 to 20 years. Most of the
Buildings 30–40 leases contain renewal options and escalation clauses, and
Leasehold improvements 3–25 certain store leases require contingent rents based on factors
Fixtures and equipment 3–20 such as specified percentages of revenue or the consumer
Property under capital lease 2–20 price index. Other leases contain covenants related to the
maintenance of financial ratios.
During the fourth quarter of fiscal 2007, we removed from our
For leases that contain predetermined fixed escalations of the
fixed asset balance $621 of fully depreciated assets that were
minimum rent, we recognize the related rent expense on a
no longer in service. This asset adjustment was based primarily
straight-line basis from the date we take possession of the
on an analysis of our fixed asset records and certain other
property to the end of the initial lease term. We record any
validation procedures and had no net impact on our fiscal
difference between the straight-line rent amounts and amounts
2007 consolidated balance sheet, statement of earnings or
payable under the leases as part of deferred rent, in accrued
statement of cash flows.
liabilities or long-term liabilities, as appropriate.
Impairment of Long-Lived Assets and Costs Cash or lease incentives (‘‘tenant allowances’’) received upon
Associated With Exit Activities entering into certain store leases are recognized on a
straight-line basis as a reduction to rent from the date we take
We account for the impairment or disposal of long-lived assets
possession of the property through the end of the initial lease
in accordance with Statement of Financial Accounting
term. We record the unamortized portion of tenant allowances
Standards (‘‘SFAS’’) No. 144, Accounting for the Impairment or
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