Best Buy 2016 Annual Report Download - page 71

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Impairment of Long-Lived Assets and Costs Associated With Exit Activities
Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying value of an
asset may not be recoverable. Factors considered important that could result in an impairment review include, but are not
limited to, significant under-performance relative to historical or planned operating results, significant changes in the manner of
use or expected life of the assets, or significant changes in our business strategies. An impairment loss is recognized when the
estimated undiscounted cash flows expected to result from the use of the asset plus net proceeds expected from the disposition
of the asset (if any) are less than the carrying value of the asset net of other liabilities. When an impairment loss is recognized,
the carrying amount of the asset is reduced to its estimated fair value using valuation techniques such as discounted cash flow
analysis.
When reviewing long-lived assets for impairment, we group long-lived assets with other assets and liabilities at the lowest level
for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. For example, long-
lived assets deployed at store locations are reviewed for impairment at the individual store level, which involves comparing the
carrying value of all land, buildings, leasehold improvements, fixtures and equipment located at each store to the net cash flow
projections for each store. In addition, we conduct separate impairment reviews at other levels as appropriate, for example, to
evaluate potential impairment of assets shared by several areas of operations, such as information technology systems. Refer to
Note 3, Fair Value Measurements, for further information associated with the long-lived assets impairments, including
valuation techniques used, impairment charges incurred, and remaining carrying values.
The present value of costs associated with vacated properties, primarily future lease costs (net of expected sublease income),
are charged to earnings when we cease using the property. We accelerate depreciation on property and equipment we expect to
retire when a decision is made to abandon a property.
At January 30, 2016, and January 31, 2015, the obligation associated with vacant properties included in accrued liabilities in
our Consolidated Balance Sheets was $44 million and $26 million, respectively, and the obligation associated with vacant
properties included in long-term liabilities in our Consolidated Balance Sheets was $54 million and $43 million, respectively.
The obligation associated with vacant properties at January 30, 2016, and January 31, 2015, included amounts associated with
our restructuring activities as further described in Note 4, Restructuring Charges.
Leases
We conduct the majority of our retail and distribution operations from leased locations. The leases generally 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 30, 2016, and January 31, 2015, deferred rent included in accrued liabilities in our Consolidated Balance Sheets was
$36 million and $31 million, respectively, and deferred rent included in long-term liabilities in our Consolidated Balance Sheets
was $139 million and $195 million, respectively.
In addition, we have financing leases for agreements when we are deemed the owner of the leased buildings, typically due to
significant involvement during the construction period, and do not qualify for sales recognition under the sale-leaseback
accounting guidance. We record the cost of the building in property and equipment, with the related liability recorded in long-
term debt. At January 30, 2016 and January 31, 2015, we had $178 million and $69 million, respectively, outstanding under
financing lease obligations. The increase in financing lease obligations was primarily due to renewals on existing leases.