BEST BUY CO INC, 10-K filed on 5/1/2012
Annual Report
Document and Entity Information (USD $)
In Billions, except Share data, unless otherwise specified
12 Months Ended
Mar. 3, 2012
Apr. 26, 2012
Aug. 27, 2011
Document and Entity Information [Abstract}
 
 
 
Entity Registrant Name
BEST BUY CO INC 
 
 
Current Fiscal Year End Date
--03-03 
 
 
Entity Voluntary Filers
No 
 
 
Document Fiscal Year Focus
2012 
 
 
Amendment Flag
false 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Common Stock, Shares Outstanding
 
342,198,524 
 
Entity Public Float
 
 
$ 6.6 
Document Fiscal Period Focus
FY 
 
 
Document Type
10-K 
 
 
Entity Central Index Key
0000764478 
 
 
Document Period End Date
Mar. 03, 2012 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
CONSOLIDATED BALANCE SHEETS (USD $)
In Millions, unless otherwise specified
Mar. 3, 2012
Feb. 26, 2011
CURRENT ASSETS
 
 
Cash and cash equivalents
$ 1,199 
$ 1,103 
Short-term investments
22 
Receivables
2,288 
2,348 
Merchandise inventories
5,731 
5,897 
Other current assets
1,079 
1,103 
Total current assets
10,297 
10,473 
Property and Equipment
 
 
Land and buildings
775 
766 
Leasehold improvements
2,367 
2,318 
Fixtures and equipment
4,981 
4,701 
Property under capital lease
129 
120 
Property, Plant and Equipment, Gross
8,252 
7,905 
Less accumulated depreciation
4,781 
4,082 
Net property and equipment
3,471 
3,823 
GOODWILL
1,335 
2,454 
TRADENAMES, NET
130 
133 
CUSTOMER RELATIONSHIPS, NET
229 
203 
EQUITY AND OTHER INVESTMENTS
140 
328 
OTHER ASSETS
403 
435 
TOTAL ASSETS
16,005 
17,849 
CURRENT LIABILITIES
 
 
Accounts payable
5,364 
4,894 
Unredeemed gift card liabilities
456 
474 
Accrued compensation and related expenses
539 
570 
Accrued liabilities
1,685 
1,471 
Accrued income taxes
288 
256 
Short-term debt
480 
557 
Current portion of long-term debt
43 
441 
Total current liabilities
8,855 
8,663 
LONG-TERM LIABILITIES
1,099 
1,183 
LONG-TERM DEBT
1,685 
711 
Contingencies and Commitments (Note 15)
   
   
Best Buy Co., Inc. Shareholders’ Equity
 
 
Preferred stock, $1.00 par value: Authorized - 400,000 shares; Issued and outstanding - none
Common stock, $0.10 par value: Authorized — 1.0 billion shares; Issued and outstanding — 341,400,000 and 392,590,000 shares, respectively
34 
39 
Additional paid-in capital
18 
Retained earnings
3,621 
6,372 
Accumulated other comprehensive income
90 
173 
Total Best Buy Co., Inc. shareholders' equity
3,745 
6,602 
Noncontrolling interests
621 
690 
Total equity
4,366 
7,292 
TOTAL LIABILITIES AND EQUITY
$ 16,005 
$ 17,849 
CONSOLIDATED BALANCE SHEETS (PARENTHETICAL) (USD $)
Mar. 3, 2012
Feb. 26, 2011
Preferred stock, par value (in dollars per share)
$ 1.00 
$ 1.00 
Preferred stock, Authorized shares
400,000 
400,000 
Preferred stock, Issued shares
Preferred stock, outstanding shares
Common stock, par value (in dollars per share)
$ 0.10 
$ 0.10 
Common stock, Authorized shares
1,000,000,000 
1,000,000,000 
Common stock, Issued shares
341,400,000 
392,590,000 
Common stock, outstanding shares
341,400,000 
392,590,000 
CONSOLIDATED STATEMENTS OF EARNINGS (USD $)
In Millions, except Per Share data, unless otherwise specified
12 Months Ended
Mar. 3, 2012
Feb. 26, 2011
Feb. 27, 2010
Revenue
$ 50,705 
$ 49,747 
$ 49,243 
Cost of goods sold
38,113 
37,197 
37,201 
Restructuring charges - cost of goods sold
19 
Gross profit
12,573 
12,541 
12,042 
Selling, general and administrative expenses
10,242 
10,029 
9,622 
Restructuring charges
39 
138 
52 
Goodwill impairment
1,207 
Operating income
1,085 
2,374 
2,368 
Other income (expense)
 
 
 
Gain on sale of investments
55 
Investment income and other
37 
43 
53 
Interest expense
(134)
(86)
(92)
Earnings from continuing operations before income tax expense and equity in (loss) income of affiliates
1,043 
2,331 
2,329 
Income tax expense
709 
779 
835 
Equity in (loss) income of affiliates
(4)
Net (loss) earnings from continuing operations
330 
1,554 
1,495 
Loss from discontinued operations (Note 3), net of tax of $89, $65 and $33
(308)
(188)
(101)
Net earnings (loss) including noncontrolling interests
22 
1,366 
1,394 
Net loss (earnings) from continuing operations attributable to noncontrolling interests
(1,387)
(127)
(96)
Net loss (earnings) from discontinued operations attributable to noncontrolling interests
134 
38 
19 
Net earnings (loss) attributable to Best Buy Co., Inc.
$ (1,231)
$ 1,277 
$ 1,317 
Basic (loss) earnings per share attributable to Best Buy Co., Inc.
 
 
 
Continuing operations (in dollars per share)
$ (2.89)
$ 3.51 
$ 3.36 
Discontinued operations (in dollars per share)
$ (0.47)
$ (0.37)
$ (0.20)
Basic (in dollars per share)
$ (3.36)
$ 3.14 
$ 3.16 
Diluted (loss) earnings per share attributable to Best Buy Co., Inc.
 
 
 
Continuing operations (in dollars per share)
$ (2.89)
$ 3.44 
$ 3.29 
Discontinued operations (in dollars per share)
$ (0.47)
$ (0.36)
$ (0.19)
Diluted (in dollars per share)
$ (3.36)
$ 3.08 
$ 3.10 
Weighted-average common shares outstanding (in millions)
 
 
 
Basic (in shares)
366.3 
406.1 
416.8 
Diluted (in shares)
366.3 
416.5 
427.5 
CONSOLIDATED STATEMENTS OF EARNINGS (PARENTHETICAL) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Mar. 3, 2012
Feb. 26, 2011
Feb. 27, 2010
Tax effect of discontinued operation
$ 89 
$ 65 
$ 33 
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Millions, unless otherwise specified
12 Months Ended
Mar. 3, 2012
Feb. 26, 2011
Feb. 27, 2010
OPERATING ACTIVITIES
 
 
 
Net earnings including noncontrolling interests
$ 22 
$ 1,366 
$ 1,394 
Adjustments to reconcile net earnings including noncontrolling interests to total cash provided by operating activities
 
 
 
Depreciation
897 
896 
838 
Amortization of definite-lived intangible assets
48 
82 
88 
Restructuring charges
288 
222 
52 
Goodwill impairment
1,207 
Stock-based compensation
120 
121 
118 
Realized gain on sale of investment
(55)
Deferred income taxes
28 
(134)
(30)
Excess tax benefits from stock-based compensation
(11)
(7)
Other, net
25 
11 
Changes in operating assets and liabilities, net of acquired assets and liabilities:
 
 
 
Receivables
41 
(371)
(63)
Merchandise inventories
120 
(400)
(609)
Other assets
(24)
40 
(98)
Accounts payable
574 
(443)
141 
Other liabilities
(23)
(156)
279 
Income taxes
25 
(33)
103 
Total cash provided by (used in) operating activities
3,293 
1,190 
2,206 
INVESTING ACTIVITIES
 
 
 
Additions to property and equipment, net of $18, $81 and $9 non-cash capital expenditures in fiscal 2012, 2011 and 2010, respectively
(766)
(744)
(615)
Purchases of investments
(112)
(267)
(16)
Sales of investments
290 
415 
56 
Acquisition of businesses, net of cash acquired
(174)
(7)
Proceeds from sale of business, net of cash transferred
21 
Change in restricted assets
40 
(2)
18 
Settlement of net investment hedges
12 
40 
Other, net
(2)
(4)
(16)
Total cash provided by (used in) investing activities
(724)
(569)
(540)
FINANCING ACTIVITIES
 
 
 
Repurchase of common stock
(1,500)
(1,193)
Issuance of common stock under employee stock purchase plan and for the exercise of stock options
67 
179 
138 
Dividends paid
(228)
(237)
(234)
Repayments of debt
(3,412)
(3,120)
(5,342)
Proceeds from issuance of debt
3,921 
3,021 
5,132 
Payment to noncontrolling interest (Note 2)
(1,303)
Acquisition of noncontrolling interests
(21)
(34)
Excess tax benefits from stock-based compensation
11 
Other, net
(23)
(15)
Total cash provided by (used in) financing activities
(2,478)
(1,357)
(348)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
13 
10 
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
96 
(723)
1,328 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
1,103 
1,826 
498 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
1,199 
1,103 
1,826 
Supplemental Disclosure of Cash Flow Information
 
 
 
Income taxes paid
568 
882 
732 
Interest paid
$ 89 
$ 68 
$ 78 
CONSOLIDATED STATEMENTS OF CASH FLOWS (PARENTHETICAL) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Mar. 3, 2012
Feb. 26, 2011
Feb. 27, 2010
Statement of Cash Flows [Abstract]
 
 
 
Non-cash capital expenditures
$ 18 
$ 81 
$ 9 
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (USD $)
In Millions, except Share data, unless otherwise specified
Total
Total Best Buy Co., Inc. Shareholder's Equity
Common Stock
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Noncontrolling Interest [Member]
Beginning balances at Feb. 28, 2009
$ 5,156 
$ 4,643 
$ 41 
$ 205 
$ 4,714 
$ (317)
$ 513 
Beginning balances (in shares) at Feb. 28, 2009
 
 
414,000,000 
 
 
 
 
Increase (Decrease) in Shareholders' Equity
 
 
 
 
 
 
 
Net earnings (loss)
1,394 
1,317 
1,317 
77 
Other Comprehensive Income (Loss), Net of Tax [Abstract]
 
 
 
 
 
 
 
Foreign currency translation adjustments
405 
329 
329 
76 
Unrealized gains (losses) on available-for-sale securities
28 
28 
28 
Total comprehensive income (loss)
1,827 
1,674 
 
 
 
 
153 
Payment to noncontrolling interest
 
 
 
 
 
 
Purchase accounting adjustments
(22)
(22)
Stock options exercised
96 
96 
95 
Stock options exercised (in shares)
 
 
4,000,000 
 
 
 
 
Tax benefits (loss) from stock options, restricted stock and employee stock purchase plan
(19)
(19)
(19)
Issuance of common stock under employee stock purchase plan
42 
42 
42 
Issuance of common stock under employee stock purchase plan (in shares)
 
 
1,000,000 
 
 
 
 
Stock-based compensation
118 
118 
118 
Common stock dividends, $0.62 per share during the period ended March 3, 2012, $0.58 per share during the period ended February 26, 2011, and $0.56 per share during the period ended February 27, 2010, respectively
(234)
(234)
(234)
Ending balances at Feb. 27, 2010
6,964 
6,320 
42 
441 
5,797 
40 
644 
Ending balances (in shares) at Feb. 27, 2010
 
 
419,000,000 
 
 
 
 
Increase (Decrease) in Shareholders' Equity
 
 
 
 
 
 
 
Net earnings (loss)
1,366 
1,277 
1,277 
89 
Other Comprehensive Income (Loss), Net of Tax [Abstract]
 
 
 
 
 
 
 
Foreign currency translation adjustments
34 
76 
76 
(42)
Unrealized gains (losses) on available-for-sale securities
58 
58 
58 
Cash flow hedging instruments - unrealized gains (losses)
(2)
(1)
(1)
(1)
Total comprehensive income (loss)
1,456 
1,410 
 
 
 
 
46 
Payment to noncontrolling interest
 
 
 
 
 
 
Stock options exercised
134 
134 
134 
Stock options exercised (in shares)
 
 
4,000,000 
 
 
 
 
Vesting of restricted stock (in shares)
 
 
1,000,000 
 
 
 
 
Vesting of restricted stock
Tax benefits (loss) from stock options, restricted stock and employee stock purchase plan
Issuance of common stock under employee stock purchase plan
45 
45 
45 
Issuance of common stock under employee stock purchase plan (in shares)
 
 
1,000,000 
 
 
 
 
Stock-based compensation
121 
121 
121 
Common stock dividends, $0.62 per share during the period ended March 3, 2012, $0.58 per share during the period ended February 26, 2011, and $0.56 per share during the period ended February 27, 2010, respectively
(238)
(238)
(238)
Repurchase of common stock
(1,193)
(1,193)
(3)
(726)
(464)
Repurchase of common stock (in shares)
 
 
(32,000,000)
 
 
 
 
Ending balances at Feb. 26, 2011
7,292 
6,602 
39 
18 
6,372 
173 
690 
Ending balances (in shares) at Feb. 26, 2011
 
 
393,000,000 
 
 
 
 
Increase (Decrease) in Shareholders' Equity
 
 
 
 
 
 
 
Net earnings (loss)
22 
(1,231)
(1,231)
1,253 
Other Comprehensive Income (Loss), Net of Tax [Abstract]
 
 
 
 
 
 
 
Foreign currency translation adjustments
(21)
(9)
(9)
(12)
Unrealized gains (losses) on available-for-sale securities
(26)
(26)
(26)
Reclassification adjustment for gain on availbable-for-sale securities included in net earnings
(48)
(48)
(48)
Total comprehensive income (loss)
(73)
(1,314)
 
 
 
 
1,241 
Payment to noncontrolling interest
(1,303)
(1,303)
Dividend distribution
(7)
(7)
Stock options exercised
27 
27 
27 
Stock options exercised (in shares)
1,126,000 
 
1,000,000 
 
 
 
 
Tax benefits (loss) from stock options, restricted stock and employee stock purchase plan
(2)
(2)
(2)
Issuance of common stock under employee stock purchase plan
40 
40 
40 
Issuance of common stock under employee stock purchase plan (in shares)
 
 
2,000,000 
 
 
 
 
Stock-based compensation
120 
120 
120 
Common stock dividends, $0.62 per share during the period ended March 3, 2012, $0.58 per share during the period ended February 26, 2011, and $0.56 per share during the period ended February 27, 2010, respectively
(228)
(228)
(228)
Repurchase of common stock
(1,500)
(1,500)
(5)
(203)
(1,292)
Repurchase of common stock (in shares)
 
 
(55,000,000)
 
 
 
 
Ending balances at Mar. 03, 2012
$ 4,366 
$ 3,745 
$ 34 
$ 0 
$ 3,621 
$ 90 
$ 621 
Ending balances (in shares) at Mar. 03, 2012
 
 
341,000,000 
 
 
 
 
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (PARENTHETICAL)
12 Months Ended
Mar. 3, 2012
Feb. 26, 2011
Feb. 27, 2010
Statement of Stockholders' Equity [Abstract]
 
 
 
Dividends declared per common share (in dollars per share)
$ 0.62 
$ 0.58 
$ 0.56 
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

Description of Business

Unless the context otherwise requires, the use of the terms "we," "us" and "our" in these notes to consolidated financial statements refers to Best Buy Co., Inc. and, as applicable, its consolidated subsidiaries. We are a multinational retailer of consumer electronics, computing and mobile phone products, entertainment products, appliances and related services.

Our enterprise consists of two operating segments which our Chief Executive Officer (our chief operating decision maker) reviews separately to make decisions about resource allocation and to assess performance: Domestic and International. We do not aggregate these operating segments in determining our reportable segments. The Domestic segment is comprised of store, call center and online operations in all states, districts and territories of the U.S., operating under the brand names Best Buy, Best Buy Mobile, Geek Squad, Magnolia Audio Video and Pacific Sales. U.S. Best Buy stores offer a wide variety of consumer electronics, computing and mobile phone products, entertainment products, appliances and related services. Best Buy Mobile offers a wide selection of mobile phones, accessories and related services. Geek Squad provides residential and commercial computer repair, support and installation services. Magnolia Audio Video stores offer high-end audio and video products and related services. Pacific Sales stores offer high-end home-improvement products including appliances, consumer electronics and related services.

The International segment is comprised of: (i) all Canada store, call center and online operations, operating under the brand names Best Buy, Best Buy Mobile, Cell Shop, Connect Pro, Future Shop and Geek Squad, (ii) all Europe store, call center and online operations, operating under the brand names The Carphone Warehouse, The Phone House and Geek Squad, (iii) all China store and call center operations, operating under the brand name Five Star and (iv) all Mexico store operations operating under the brand names Best Buy and Geek Squad. Our International segment offers products and services similar to those of our U.S. Best Buy stores. However, Best Buy Canada stores do not carry appliances and Five Star stores do not carry entertainment products. Further, our small-format stores and offerings in Europe are similar to our Best Buy Mobile format and offerings in the U.S., primarily offering mobile phones, voice and data service plans, and related accessories and services.

In support of our retail store operations, we also maintain Web sites for each of our brands including, but not limited to, BestBuy.com, BestBuy.ca, BestBuyMobile.com, CarphoneWarehouse.com, FutureShop.ca and PhoneHouse.com.

Basis of Presentation

The consolidated financial statements include the accounts of Best Buy Co., Inc. and its consolidated subsidiaries. Investments in unconsolidated entities over which we exercise significant influence but do not have control are accounted for using the equity method. We have eliminated all intercompany accounts and transactions.

In order to align our fiscal reporting periods and comply with statutory filing requirements in certain foreign jurisdictions, we consolidate the financial results of our Europe, China and Mexico operations on a two-month lag. Our policy is to accelerate recording the effect of events occurring in the lag period that significantly affect our consolidated financial statements. In November 2011, we announced plans to close our large-format Best Buy branded stores in the United Kingdom ("U.K."). However, a portion of the charges were not recorded until the stores were closed in January 2012. Accordingly, $82 of restructuring charges recorded in January 2012 related to the store closures were included in our fiscal 2012 results. Furthermore, in January 2012, we determined that the goodwill attributable to our Best Buy Europe reporting unit had been fully impaired. Accordingly, we recorded the $1,207 impairment charge in our fiscal 2012 results. Except for these restructuring activities and the goodwill impairment, no significant intervening event occurred in these operations that would have materially affected our financial condition, results of operations, liquidity or other factors had it been recorded during fiscal 2012. For further information about our fiscal 2012 restructuring and the nature of the charges we recorded, refer to Note 7, Restructuring Charges. For further information about the goodwill impairment, refer to Goodwill and Intangible Assets below, as well as Note 2, Profit Share Buy-Out.

In preparing the accompanying consolidated financial statements, we evaluated the period from March 4, 2012 through the date the financial statements were issued for material subsequent events requiring recognition or disclosure. Other than the fiscal 2013 restructuring announced in March 2012, as described in Note 17, Subsequent Event, no such events were identified for this period.
Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. ("GAAP") requires us to make estimates and assumptions. These estimates and assumptions affect the reported amounts in the Consolidated Balance Sheets and Consolidated Statements of Earnings, as well as the disclosure of contingent liabilities. Future results could be materially affected if actual results were to differ from these estimates and assumptions.

Fiscal Year

Our fiscal year ends on the Saturday nearest the end of February. Fiscal 2012 included 53 weeks and fiscal 2011 and 2010 each included 52 weeks.

On November 2, 2011, our Board of Directors approved a change in our fiscal year-end from the Saturday nearest the end of February to the Saturday nearest the end of January, effective beginning with our fiscal year 2013. As a result of this change, our fiscal year 2013 transition period will be 11 months and will end on February 2, 2013, and we will begin consolidating the results of our Europe, China and Mexico operations on a one-month lag, compared to a two-month lag in fiscal year 2012, to continue aligning our fiscal reporting periods with statutory filing requirements in certain foreign jurisdictions. We will begin filing our quarterly reports on Form 10-Q based on the new fiscal year-end beginning with the first quarter of fiscal year 2013. We also currently plan to report the first quarter of fiscal year 2013 as a three-month period, which will include the results of the last month of fiscal year 2012.

Cash and Cash Equivalents

Cash primarily consists of cash on hand and bank deposits. Cash equivalents consist of money market funds, U.S. Treasury bills, commercial paper and time deposits such as certificates of deposit with an original maturity of three months or less when purchased. The amounts of cash equivalents at March 3, 2012, and February 26, 2011, were $343 and $120, respectively, and the weighted-average interest rates were 0.1% and 0.3%, respectively.

Outstanding checks in excess of funds on deposit (book overdrafts) totaled $80 and $57 at March 3, 2012, and February 26, 2011, respectively, and are reflected within Accounts payable in our Consolidated Balance Sheets.

Receivables

Receivables consist principally of amounts due from mobile phone network operators for commissions earned; banks for customer credit card, certain debit card and electronic benefits transfer (EBT) transactions; and vendors for various vendor funding programs.

We establish allowances for uncollectible receivables based on historical collection trends and write-off history. Our allowances for uncollectible receivables were $72 and $107 at March 3, 2012, and February 26, 2011, respectively.

Merchandise Inventories

Merchandise inventories are recorded at the lower of cost using either the average cost or first-in first-out method, or market. In-bound freight-related costs from our vendors are included as part of the net cost of merchandise inventories. Also included in the cost of inventory are certain vendor allowances that are not a reimbursement of specific, incremental and identifiable costs to promote a vendor's products. Other costs associated with acquiring, storing and transporting merchandise inventories to our retail stores are expensed as incurred and included in cost of goods sold.

Our inventory valuation reflects adjustments for anticipated physical inventory losses (e.g., theft) that have occurred since the last physical inventory. Physical inventory counts are taken on a regular basis to ensure that the inventory reported in our consolidated financial statements is properly stated.

Our inventory valuation also reflects markdowns for the excess of the cost over the amount we expect to realize from the ultimate sale or other disposal of the inventory. Markdowns establish a new cost basis for our inventory. Subsequent changes in facts or circumstances do not result in the reversal of previously recorded markdowns or an increase in that newly established cost basis.

Restricted Assets

Restricted cash and investments in debt securities totaled $461 and $490, at March 3, 2012, and February 26, 2011, respectively, and are included in Other current assets or Equity and Other Investments in our Consolidated Balance Sheets. Such balances are pledged as collateral or restricted to use for vendor payables, general liability insurance, workers' compensation insurance and warranty programs.

Property and Equipment

Property and equipment are recorded at cost. We compute depreciation using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of their estimated useful lives or the period from the date the assets are placed in service to the end of the initial lease term. Leasehold improvements made significantly after the initial lease term are depreciated over the shorter of their estimated useful lives or the remaining lease term, including renewal periods, if reasonably assured. Accelerated depreciation methods are generally used for income tax purposes.

When property is retired or otherwise disposed of, the cost and accumulated depreciation are removed from our Consolidated Balance Sheets and any resulting gain or loss is reflected in our Consolidated Statements of Earnings.

Repairs and maintenance costs are charged directly to expense as incurred. Major renewals or replacements that substantially extend the useful life of an asset are capitalized and depreciated.

Costs associated with the acquisition or development of software for internal use are capitalized and amortized over the expected useful life of the software, from three to seven years. A subsequent addition, modification or upgrade to internal-use software is capitalized to the extent that it enhances the software's functionality or extends its useful life. Capitalized software is included in fixtures and equipment. Software maintenance and training costs are expensed in the period incurred.

Property under capital lease is comprised of buildings and equipment used in our retail operations and corporate support functions. The related depreciation for capital lease assets is included in depreciation expense. The carrying value of property under capital lease was $69 and $74 at March 3, 2012, and February 26, 2011, respectively, net of accumulated depreciation of $60 and $45, respectively.

Estimated useful lives by major asset category are as follows:
Asset
Life
(in years)
Buildings
25-50
Leasehold improvements
3-25
Fixtures and equipment
3-20
Property under capital lease
2-20


Impairment of Long-Lived Assets and Costs Associated With Exit Activities

Long-lived assets, such as property and equipment, 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 underperformance relative to historical or planned operating results, significant changes in the manner of use 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 disposition of the asset (if any) are less than the carrying value of the asset. When an impairment loss is recognized, the carrying amount of the asset is reduced to its estimated fair value based on quoted market prices or other valuation techniques (e.g., 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.
The present value of costs associated with location closings, primarily future lease costs (net of expected sublease income), are charged to earnings when we have ceased using the specific location. We accelerate depreciation on property and equipment we expect to retire when a decision is made to abandon a location.

At March 3, 2012, and February 26, 2011, the obligation associated with location closings was $138 and $76, respectively, and is included within Accrued liabilities and Long-term liabilities in our Consolidated Balance Sheets. The obligation associated with location closings at March 3, 2012, included amounts associated with our fiscal 2012 and fiscal 2011 restructuring activities and the obligation associated with location closings at February 26, 2011, included amounts associated with our fiscal 2011 restructuring activities.

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 lease agreements generally range from 10 to 20 years. 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 March 3, 2012, and February 26, 2011, deferred rent included in Accrued liabilities in our Consolidated Balance Sheets was $42 and $34, respectively, and deferred rent included in Long-term liabilities in our Consolidated Balance Sheets was $317 and $343, 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 in 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. 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 reporting units with goodwill balances at the beginning of fiscal 2012 were Best Buy Domestic, Best Buy Canada, Five Star China and Best Buy Europe.

The impairment test 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. If the fair value exceeds carrying value, then we conclude 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.

We carry forward the detailed determination of the fair value of a reporting unit in our annual goodwill impairment analysis if three criteria are met: (1) the assets and liabilities that make up the reporting unit have not changed significantly since the most recent detailed fair value determination; (2) the most recent detailed fair value determination resulted in an amount that exceeded the carrying amount of the reporting unit by a substantial margin; and (3) based on an analysis of events that have occurred since the most recent detailed fair value determination, the likelihood that current fair value is less than the current carrying amount of the reporting unit is remote. For all other reporting units, we perform a detailed determination of fair value of the reporting unit.

Our detailed impairment analysis involves the use of a discounted cash flow ("DCF") model. Significant management judgment is necessary to evaluate the impact of operating and macroeconomic changes on each reporting unit. Critical assumptions include projected comparable store sales growth, store count, gross profit rates, selling, general and administrative expense ("SG&A") rates, working capital fluctuations, capital expenditures and terminal growth rates, as well as an appropriate discount rate. Discount rates are determined separately for each reporting unit using the capital asset pricing model. We also use comparable market earnings multiple data and our company's market capitalization to corroborate our reporting unit valuations.

Goodwill Impairment

For the Best Buy Domestic, Best Buy Canada and Five Star China reporting units, we utilized the carry-forward methodology outlined above in completing the fiscal 2012 goodwill impairment reviews. For each of these reporting units, we determined that the fair value of goodwill remained substantially in excess of carrying values. No goodwill impairments were recorded in fiscal 2011 or fiscal 2010.

Refer to Note 2, Profit Share Buy-Out, for further information on the $1,207 goodwill impairment attributable to the Best Buy Europe reporting unit recorded in the fourth quarter of fiscal 2012.

Tradenames and Customer Relationships

We have an indefinite-lived tradename related to Pacific Sales included within our Domestic segment. We also have indefinite-lived tradenames related to Future Shop, Five Star, The Carphone Warehouse and The Phone House included within our International segment.

We have definite-lived intangible assets related to customer relationships acquired as part of our acquisition of mindSHIFT within our Domestic segment, and Best Buy Europe within our International segment.

Our valuation of identifiable intangible assets acquired is based on information and assumptions available to us at the time of acquisition, using income and market approaches to determine fair value. We amortize definite-lived intangible assets over their estimated useful lives. We do not amortize our indefinite-lived tradenames, but test for impairment annually, or when indications of potential impairment exist.

We utilize the relief from royalty method to determine the fair value of each of our indefinite-lived tradenames. If the carrying value exceeds the fair value, we recognize an impairment loss in an amount equal to the excess. Significant management judgment is necessary to determine key assumptions, including projected revenue, royalty rates and appropriate discount rates. Royalty rates used are consistent with those assumed for original purchase accounting. Other assumptions are consistent with those we use for goodwill impairment testing purposes.

The changes in the carrying amount of goodwill and indefinite-lived tradenames by segment were as follows in fiscal 2012, 2011 and 2010:
 
Goodwill
 
Indefinite-Lived Tradenames
 
Domestic

 
International

 
Total

 
Domestic

 
International

 
Total

Balances at February 28, 2009
$
434

 
$
1,769

 
$
2,203

 
$
32

 
$
72

 
$
104

Purchase accounting adjustments(1)

 
48

 
48

 

 

 

Changes in foreign currency exchange rates

 
201

 
201

 

 
8

 
8

Balances at February 27, 2010
434

 
2,018

 
2,452

 
32

 
80

 
112

Acquisitions

 
5

 
5

 

 

 

Impairments(2)

 

 

 
(10
)
 

 
(10
)
Sale of business(3)
(12
)
 

 
(12
)
 
(1
)
 

 
(1
)
Changes in foreign currency exchange rates

 
9

 
9

 

 
4

 
4

Balances at February 26, 2011
422

 
2,032

 
2,454

 
21

 
84

 
105

Acquisitions(4)
94

 

 
94

 
1

 

 
1

Impairments

 
(1,207
)
 
(1,207
)
 

 

 

Sale of business

 
(7
)
 
(7
)
 
(3
)
 
(2
)
 
(5
)
Changes in foreign currency exchange rates

 
1

 
1

 

 
1

 
1

Other(5)

 

 

 

 
28

 
28

Balances at March 3, 2012
$
516

 
$
819

 
$
1,335

 
$
19

 
$
111

 
$
130

(1)
The adjustment in fiscal 2010 related to the finalization of the purchase price allocations from our acquisitions of Best Buy Europe and Five Star.
(2)
As part of our fiscal 2011 restructuring activities, we recorded an impairment charge related to certain indefinite-lived tradenames in our Domestic segment. See Note 7, Restructuring Charges, for further information.
(3)
As a result of the sale of our Speakeasy business in the second quarter of fiscal 2011, we eliminated the carrying value of the related goodwill and indefinite-lived tradenames as of the date of sale.
(4)
Represents goodwill acquired, primarily as a result of the mindSHIFT acquisition. See Note 4, Acquisitions, for further information.
(5)
Represents the transfer of certain definite-lived tradenames (at their net book value) to indefinite-lived tradenames following our decision to no longer phase out certain tradenames. We believe these tradenames will continue to contribute to our future cash flows indefinitely.

The following table provides the gross carrying amount of goodwill and cumulative goodwill impairment losses:
 
March 3, 2012
 
February 26, 2011
 
Gross Carrying
Amount
 
Cumulative
Impairment
 
Gross Carrying
Amount
 
Cumulative
Impairment
Goodwill
$
2,596

 
$
(1,261
)
 
$
2,519

 
$
(65
)


Our tradenames and customer relationships were as follows:
 
March 3, 2012
 
February 26, 2011
 
Tradenames

 
Customer
Relationships

 
Tradenames

 
Customer
Relationships

Indefinite-lived
$
130

 
$

 
$
105

 
$

Definite-lived

 
229

 
28

 
203

Total
$
130

 
$
229

 
$
133

 
$
203



The following table provides the gross carrying amount and related accumulated amortization of definite-lived intangible assets:
 
March 3, 2012
 
February 26, 2011
 
Gross Carrying
Amount

 
Accumulated Amortization

 
Gross Carrying
Amount

 
Accumulated Amortization

Tradenames
$

 
$

 
$
73

 
$
(45
)
Customer relationships
453

 
(224
)
 
383

 
(180
)
Total
$
453

 
$
(224
)
 
$
456

 
$
(225
)


Total amortization expense was $48, $82, and $88 in fiscal 2012, 2011, and 2010, respectively. At March 3, 2012, future amortization expense for identifiable intangible assets for the next five fiscal years was expected to be:
Fiscal Year
 
2013
$
40

2014
40

2015
40

2016
40

2017
22

Thereafter
47



Lease Rights

Lease rights represent costs incurred to acquire the lease of a specific commercial property. Lease rights are recorded at cost and are amortized to rent expense over the remaining lease term, including renewal periods, if reasonably assured. Amortization periods range up to 15 years, beginning with the date we take possession of the property.

The following table provides the gross carrying amount and related accumulated amortization of lease rights:
 
March 3, 2012
 
February 26, 2011
 
Gross Carrying
Amount

 
Accumulated
Amortization

 
Gross Carrying
Amount

 
Accumulated
Amortization

Lease rights
$
130

 
$
(73
)
 
$
131

 
$
(57
)


Lease rights amortization expense was $13, $14 and $18 in fiscal 2012, 2011 and 2010, respectively. We expect current lease rights amortization expense to be approximately $7 for each of the next five fiscal years.

Investments

Debt Securities

Our long-term investments in debt securities are comprised of auction-rate securities ("ARS"). Based on our ability to market and sell these instruments, we classify ARS as available-for-sale and carry them at fair value. ARS were intended to behave like short-term debt instruments because their interest rates reset periodically through an auction process, typically at intervals of seven, 28 and 35 days. Investments in these securities can be sold for cash at par value on the auction date if the auction is successful. The majority of our ARS are AAA/Aaa-rated and collateralized by student loans, which are guaranteed 95% to 100% by the U.S. government. We also hold ARS that are in the form of municipal revenue bonds, which are AA/Aa-rated and insured by bond insurers. We do not have any investments in securities that are collateralized by assets that include mortgages or subprime debt. Our intent with these investments is to recover the full principal amount through a successful auction process, a sale outside of the auction process, a refinancing or settlement upon maturity. See Note 5, Investments, for further information.

In accordance with our investment policy, we place our investments in debt securities with issuers who have high-quality credit and limit the amount of investment exposure to any one issuer. The primary objective of our investment activities is to preserve principal and maintain a desired level of liquidity to meet working capital needs. We seek to preserve principal and minimize exposure to interest rate fluctuations by limiting default risk, market risk and reinvestment risk.
Marketable Equity Securities

We also periodically invest in marketable equity securities and classify them as available-for-sale. Investments in marketable equity securities are included in Equity and Other Investments in our Consolidated Balance Sheets, and are reported at fair value based on quoted market prices. All unrealized holding gains and losses are reflected net of tax in accumulated other comprehensive income in shareholders' equity.

Other Investments

We also have investments that are accounted for on either the cost method or the equity method that we include in Equity and Other Investments in our Consolidated Balance Sheets.

We review the key characteristics of our debt, marketable equity securities and other investments portfolio and their classification in accordance with GAAP on a quarterly basis, or when indications of potential impairment exist. If a decline in the fair value of a security is deemed by management to be other-than-temporary, we write down the cost basis of the investment to fair value, and the amount of the write-down is included in net earnings.

Insurance

We are self-insured for certain losses related to health, workers' compensation and general liability claims, although we obtain third-party insurance coverage to limit our exposure to these claims. A portion of these self-insured losses are managed through a wholly-owned insurance captive. We estimate our self-insured liabilities using a number of factors, including historical claims experience, an estimate of incurred but not reported claims, demographic factors and severity factors, and utilizing valuations provided by independent third-party actuaries. Our self-insured liabilities included in the Consolidated Balance Sheets were as follows:
 
March 3,
2012

 
February 26, 2011

Accrued liabilities
$
77

 
$
81

Long-term liabilities
47

 
49

Total
$
124

 
$
130



Income Taxes

We account for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured pursuant to tax laws using rates we expect to apply to taxable income in the years in which we expect those temporary differences to be recovered or settled. We recognize the effect of a change in income tax rates on deferred tax assets and liabilities in our Consolidated Statements of Earnings in the period that includes the enactment date. We record a valuation allowance to reduce the carrying amounts of deferred tax assets if it is more likely than not that such assets will not be realized.

In determining our provision for income taxes, we use an annual effective income tax rate based on annual income, permanent differences between book and tax income, and statutory income tax rates. The effective income tax rate also reflects our assessment of the ultimate outcome of tax audits. We adjust our annual effective income tax rate as additional information on outcomes or events becomes available. Discrete events such as audit settlements or changes in tax laws are recognized in the period in which they occur.

Our income tax returns, like those of most companies, are periodically audited by U.S. federal, state and local and foreign tax authorities. These audits include questions regarding our tax filing positions, including the timing and amount of deductions and the allocation of income among various tax jurisdictions. At any one time, multiple tax years are subject to audit by the various tax authorities. In evaluating the tax benefits associated with our various tax filing positions, we record a tax benefit for uncertain tax positions using the highest cumulative tax benefit that is more likely than not to be realized. A number of years may elapse before a particular matter, for which we have established a liability, is audited and effectively settled. We adjust our liability for unrecognized tax benefits in the period in which we determine the issue is effectively settled with the tax authorities, the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available. We include our liability for unrecognized tax benefits, including accrued penalties and interest, in Accrued income taxes and Long-term liabilities on our Consolidated Balance Sheets and in Income tax expense in our Consolidated Statements of Earnings.

Accrued Liabilities

The major components of accrued liabilities at March 3, 2012, and February 26, 2011, were deferred revenue, state and local tax liabilities, rent-related liabilities including accrued real estate taxes, loyalty program liabilities and self-insurance reserves.

Long-Term Liabilities

The major components of long-term liabilities at March 3, 2012, and February 26, 2011, were unrecognized tax benefits, rent-related liabilities, deferred revenue, deferred compensation plan liabilities and self-insurance reserves.

Foreign Currency

Foreign currency denominated assets and liabilities are translated into U.S. dollars using the exchange rates in effect at our consolidated balance sheet date. For operations reported on a two-month lag, we use the exchange rates in effect two months prior to our consolidated balance sheet date. Results of operations and cash flows are translated using the average exchange rates throughout the period. The effect of exchange rate fluctuations on translation of assets and liabilities is included as a component of shareholders' equity in accumulated other comprehensive income. Gains and losses from foreign currency transactions, which are included in SG&A, have not been significant.

Revenue Recognition

Our revenue arises primarily from sales of merchandise and services. We also record revenue from sales of extended warranties and other service contracts, commissions earned from various customer subscriptions, fees earned from private label and co-branded credit card agreements and amounts billed to customers for shipping and handling. Revenue excludes sales taxes collected.

We recognize revenue when the sales price is fixed or determinable, collection is reasonably assured and the customer takes possession of the merchandise, or in the case of services, the service has been provided. Revenue is recognized for store sales when the customer receives and pays for the merchandise. For online sales, we defer revenue and the related product costs for shipments that are in-transit to the customer, and recognize revenue at the time the customer receives the product. Online customers typically receive goods within a few days of shipment. Revenue from merchandise sales and services is reported net of sales returns, including an estimate of future returns based on historical return rates, with a corresponding reduction to cost of sales. Our sales returns reserve was $18 and $15, at March 3, 2012, and February 26, 2011, respectively.

We sell extended warranties and other service contracts that typically have terms ranging from three months to four years. We also receive commissions for customer subscriptions with various third parties, notably from mobile phone network operators. In instances where we are deemed to be the obligor on the service contract or subscription, the service and commission revenue is deferred and recognized ratably over the term of the service contract or subscription period. In instances where we are not deemed to be the obligor on the service contract or subscription, commissions are recognized in revenue when such commission has been earned, primarily driven by customer activation. Service and commission revenues earned from the sale of extended warranties represented 2.7%, 2.6% and 2.7% of revenue in fiscal 2012, 2011 and 2010, respectively.

For revenue transactions that involve multiple deliverables, we defer the revenue associated with any undelivered elements. The amount of revenue deferred in connection with the undelivered elements is determined using the relative fair value of each element, which is generally based on each element's relative retail price.

At March 3, 2012, and February 26, 2011, deferred revenue included within Accrued liabilities and Long-term liabilities in our Consolidated Balance Sheets was $565 and $499, respectively.

For additional information related to our credit card arrangements, see Credit Services and Financing, below.

For additional information regarding our customer loyalty programs, see Sales Incentives, below.

Gift Cards

We sell gift cards to our customers in our retail stores, through our Web sites and through selected third parties. We do not charge administrative fees on unused gift cards, and our gift cards do not have an expiration date. We recognize revenue from gift cards when: (i) the gift card is redeemed by the customer, or (ii) the likelihood of the gift card being redeemed by the customer is remote ("gift card breakage"), and we determine that we do not have a legal obligation to remit the value of unredeemed gift cards to the relevant jurisdictions. We determine our gift card breakage rate based upon historical redemption patterns. Based on our historical information, the likelihood of a gift card remaining unredeemed can be determined 24 months after the gift card is issued. At that time, we recognize breakage income for those cards for which the likelihood of redemption is deemed remote and we do not have a legal obligation to remit the value of such unredeemed gift cards to the relevant jurisdictions. Gift card breakage income is included in revenue in our Consolidated Statements of Earnings.

Gift card breakage income was as follows in fiscal 2012, 2011 and 2010:
 
2012

 
2011

 
2010

Gift card breakage income
$
54

 
$
51

 
$
41


Credit Services and Financing

In the U.S., we have private-label and co-branded credit card agreements with banks for the issuance of promotional financing and customer loyalty credit cards bearing the Best Buy brand. Under the agreements, the banks manage and directly extend credit to our customers. Cardholders who choose a private-label credit card can receive low- or zero-interest promotional financing on qualifying purchases.

The banks are the sole owner of the accounts receivable generated under the programs and absorb losses associated with non-payment by the cardholders and fraudulent usage of the accounts. Accordingly, we do not hold any consumer receivables related to these programs. We earn revenue from fees the banks pay to us based on the number of credit card accounts activated and card usage. In accordance with accounting guidance for revenue arrangements with multiple deliverables, we defer revenue received from cardholder account activations and recognize revenue on a straight-line basis over the remaining term of the applicable agreement with the banks. The banks may also reimburse us for certain costs such as tender costs and Reward Zone points associated with our programs. We pay financing fees, which are recognized as a reduction of revenue, to the banks, and these fees are variable based on certain factors such as the London Interbank Offered Rate ("LIBOR"), charge volume and/or the types of promotional financing offers.

We also have similar agreements for the issuance of private-label and/or co-branded credit cards with banks for our businesses in Canada, China and Mexico, which we account for consistent with the U.S. credit card agreements.

In addition to our private-label and co-branded credit cards, we also accept Visa®, MasterCard®, Discover®, JCB® and American Express® credit cards, as well as debit cards from all major international networks.

Sales Incentives

We frequently offer sales incentives that entitle our customers to receive a reduction in the price of a product or service. Sales incentives include discounts, coupons and other offers that entitle a customer to receive a reduction in the price of a product or service either at the point of sale or by submitting a claim for a refund or rebate. For sales incentives issued to a customer in conjunction with a sale of merchandise or services, for which we are the obligor, the reduction in revenue is recognized at the time of sale, based on the retail value of the incentive expected to be redeemed.

Customer Loyalty Programs

We have customer loyalty programs which allow members to earn points for each qualifying purchase. Points earned enable members to receive a certificate that may be redeemed on future purchases at our Best Buy branded stores. There are two ways that members may participate and earn loyalty points.

First, we have customer loyalty programs where members earn points for each purchase. Depending on the customer's membership level within our loyalty program, certificates expire either three or six months from the date of issuance. The retail value of points earned by our loyalty program members is included in accrued liabilities and recorded as a reduction of revenue at the time the points are earned, based on the percentage of points that are projected to be redeemed.
Second, under our co-branded credit card agreements with banks, we have a customer loyalty credit card bearing the Best Buy brand. Cardholders earn points for purchases made at our stores and related Web sites in the U.S., as well as purchases at other merchants. Points earned entitle cardholders to receive certificates that may be redeemed on future purchases at our stores and related Web sites. Certificates expire either three or six months from the date of issuance. The retail value of points earned by our cardholders is included in accrued liabilities and recorded as a reduction of revenue at the time the points are earned, based on the percentage of points that are projected to be redeemed.

We recognize revenue when: (i) a certificate is redeemed by the customer, (ii) a certificate expires or (iii) the likelihood of a certificate being redeemed by a customer is remote ("certificate breakage"). We determine our certificate breakage rate based upon historical redemption patterns.

Cost of Goods Sold and Selling, General and Administrative Expenses

The following table illustrates the primary costs classified in each major expense category:
Cost of Goods Sold
 
Total cost of products sold including:
 
 
 
Freight expenses associated with moving merchandise inventories from our vendors to our distribution centers;
 
 
 
Vendor allowances that are not a reimbursement of specific, incremental and identifiable costs to promote a vendor's products; and
 
 
 
Cash discounts on payments to merchandise vendors;
 
Cost of services provided including:
 
 
 
Payroll and benefits costs for services employees; and
 
 
 
Cost of replacement parts and related freight expenses;
 
Physical inventory losses;
 
Markdowns;
 
Customer shipping and handling expenses;
 
Costs associated with operating our distribution network, including payroll and benefit costs, occupancy costs, and depreciation; and
 
Freight expenses associated with moving merchandise inventories from our distribution centers to our retail stores.
SG&A
 
Payroll and benefit costs for retail and corporate employees;
 
Occupancy and maintenance costs of retail, services and corporate facilities;
 
Depreciation and amortization related to retail, services and corporate assets;
 
Advertising costs;
 
Vendor allowances that are a reimbursement of specific, incremental and identifiable costs to promote a vendor's products;
 
Tender costs, including bank charges and costs associated with credit and debit card interchange fees;
 
Charitable contributions;
 
Outside and outsourced service fees;
 
Long-lived asset impairment charges; and
 
Other administrative costs, such as supplies, and travel and lodging.


Vendor Allowances

We receive funds from vendors for various programs, primarily as reimbursements for costs such as markdowns, margin protection, advertising and sales incentives.

Vendor allowances provided as a reimbursement of specific, incremental and identifiable costs incurred to promote a vendor's products are included as an expense reduction when the cost is incurred. All other vendor allowances are generally in the form of receipt-based funds or sell-through credits. Receipt-based funds are generally determined based on our level of inventory purchases and initially deferred and recorded as a reduction of merchandise inventories. The deferred amounts are then included as a reduction of cost of goods sold when the related product is sold. Sell-through credits are generally based on the number of units we sell over a specified period and are recognized when the related product is sold.

Vendor allowances included in SG&A for reimbursement of specific, incremental and identifiable costs to promote and sell a vendor's products were $33, $69 and $139 in fiscal 2012, 2011 and 2010, respectively. A change in the form of vendor contracts in 2011 has led to a higher proportion of vendor allowances being classified within cost of goods sold.

Advertising Costs

Advertising costs, which are included in SG&A, are expensed the first time the advertisement runs. Advertising costs consist primarily of print and television advertisements as well as promotional events. Net advertising expenses were $995, $862 and $709 in fiscal 2012, 2011 and 2010, respectively. Allowances received from vendors for advertising of $98 in fiscal 2010 were classified as reductions of advertising expenses. As a result of a change in the form of vendor contracts, we received no allowances from vendors for advertising expenses that were deemed specific, incremental and identifiable in fiscal 2012 or fiscal 2011.

Pre-Opening Costs

Non-capital expenditures associated with opening new stores are expensed as incurred.

Stock-Based Compensation

We apply the fair value recognition provisions of accounting guidance as they relate to our stock-based compensation, which require us to recognize expense for the fair value of our stock-based compensation awards. We recognize compensation expense on a straight-line basis over the requisite service period of the award (or to an employee's eligible retirement date, if earlier).

New Accounting Standards

Goodwill Impairment — In September 2011, the Financial Accounting Standards Board (“FASB”) issued new guidance simplifying how to test goodwill for impairment. Under the new guidance, entities may make a qualitative assessment of the likelihood of goodwill impairment in order to determine whether a detailed quantitative analysis is required. This new guidance is effective for fiscal years and interim periods beginning after December 15, 2011. As such, we will adopt the new guidance in our fiscal quarter ending May 5, 2012. We do not believe our adoption of the new guidance will have an impact on our consolidated financial position, results of operations or cash flows.

Comprehensive Income — In June 2011, the FASB issued new guidance on the presentation of comprehensive income. Specifically, the new guidance requires an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. This new guidance is effective for fiscal years and interim periods beginning after December 15, 2011. As such, we will adopt the new guidance in our fiscal quarter ending May 5, 2012.

Fair Value Measurement — In April 2011, the FASB issued new guidance to achieve common fair value measurement and disclosure requirements between GAAP and International Financial Reporting Standards. This new guidance amends current fair value measurement and disclosure guidance to include increased transparency around valuation inputs and investment categorization. This new guidance is effective for fiscal years and interim periods beginning after December 15, 2011. As such, we will adopt the new guidance in our fiscal quarter ending May 5, 2012. We do not believe our adoption of the new guidance will have an impact on our consolidated financial position, results of operations or cash flows.
Profit Share Buy-Out
Profit Share Buy-Out
Profit Share Buy-Out

During fiscal 2008, we entered into a profit-sharing agreement with Carphone Warehouse Group plc ("Carphone Warehouse") (the "profit share agreement"). Under the terms of this agreement, Carphone Warehouse provided expertise and certain other resources to enhance our mobile telephone retail business ("Best Buy Mobile") in return for a share of incremental profits generated in excess of defined thresholds.
During fiscal 2009, we acquired a 50% controlling interest in the retail business of Carphone Warehouse, subsequently renamed Best Buy Europe Distributions Limited ("Best Buy Europe"), which included the profit share agreement with Best Buy Mobile. Carphone Warehouse holds a 50% noncontrolling interest in Best Buy Europe. Following the acquisition of Best Buy Europe, payments made by Best Buy Mobile to Best Buy Europe were recorded as SG&A expense in Best Buy Mobile (Domestic segment), and an SG&A reduction in Best Buy Europe (International segment). Carphone Warehouse's 50% share of the net earnings of Best Buy Europe, which includes the profit share agreement, is recorded in Net (earnings) from continuing operations attributable to noncontrolling interests within our Consolidated Statements of Earnings.

In November 2011, we announced strategic changes in respect of Best Buy Europe, including an agreement to buy out Carphone Warehouse's interest in the profit share agreement for $1,303 (the "Mobile buy-out"), subject to the approval of Carphone Warehouse shareholders. The Mobile buy-out was completed during the fourth quarter of fiscal 2012.

Financial Reporting Impact of the Mobile Buy-out

We accounted for the Mobile buy-out transaction as a $1,303 payment to terminate the future payments due under the profit share agreement with Best Buy Europe, thereby eliminating Carphone Warehouse's interest in the profits. This payment was presented within Net (earnings) from continuing operations attributable to noncontrolling interests in our Consolidated Statements of Earnings, consistent with the financial reporting of the previous recurring payments made pursuant to the profit share agreement. In the Consolidated Statements of Cash Flows, the payment to Carphone Warehouse is included within Payment to noncontrolling interest, as part of cash flows from financing activities.

Goodwill Impairment – Best Buy Europe

The Best Buy Europe reporting unit comprises our 50% controlling interest in Best Buy Europe, which includes the profit share agreement with Best Buy Mobile. Based upon the preliminary purchase price allocation for the Best Buy Europe acquisition in the second quarter of fiscal 2009, we recorded $1,491 of goodwill. The goodwill balance attributable to our Best Buy reporting unit has fluctuated over time as a result of changes in foreign currency exchange rates. No impairment had been recorded through the end of the third quarter of fiscal 2012.

At the time of the announcement of the Mobile buy-out in November 2011, we also announced the closure of our large-format Best Buy branded stores in the U.K. As of the end of the third quarter of fiscal 2012 and in light of these strategic decisions, we performed an interim evaluation of potential impairment of goodwill associated with the Best Buy Europe reporting unit. The fair value of the reporting unit, which reflected the exit plans for our large-format Best Buy branded stores in the U.K. and the fair value of the profit share agreement indicated by the Mobile buy-out price agreed upon with Carphone Warehouse, was determined to be in excess of the carrying value of the Best Buy Europe reporting unit as of the end of the third quarter of fiscal 2012. However, if the shareholders of Carphone Warehouse were to approve the Mobile buy-out, we estimated that substantially all of the goodwill associated with the Best Buy Europe reporting unit would be impaired in the absence of forecast cash flows to the reporting unit under the profit share agreement.

On January 24, 2012, the shareholders of Carphone Warehouse approved the Mobile buy-out and thus the transaction became unconditional. We conducted an impairment review of the goodwill associated with the Best Buy Europe reporting unit as of this date. Following the elimination of the profit share agreement from Best Buy Europe and the closure of large-format Best Buy branded stores in the U.K., the remaining fair value of the Best Buy Europe reporting unit is entirely attributable to its small-format store retail operations. Management determined the fair value of the reporting unit by reference to estimated future cash flows discounted to present value using a discount rate of 9.0%. The reporting unit fair value determined was also corroborated by reference to market data. The fair value determined was less than the carrying value of Best Buy Europe, and therefore further analysis was conducted to determine the implied fair value of goodwill. This included first determining the fair value of all identifiable tangible and intangible assets and liabilities attributable to Best Buy Europe, in a manner consistent with purchase accounting methodology. Once complete, the aggregate fair value of all assets and liabilities was compared to the reporting unit fair value determined, to ascertain the implied fair value of goodwill. Based on this analysis, it was determined that goodwill attributable to the Best Buy Europe reporting unit, representing $1,207 as of January 24, 2012, had been fully impaired. The impairment loss was recorded in the Goodwill impairment line within our Consolidated Statements of Earnings in the fourth quarter of fiscal 2012.

Acceleration of Intervening Event

The results of Best Buy Europe are recorded on a two-month lag. However, as described in Note 1, Summary of Significant Accounting Policies, the Mobile buy-out in January 2012 constituted a significant intervening event. Consequently, the recording of all accounting impacts arising from the Mobile buy-out, including the goodwill impairment, was accelerated and recorded in the fourth quarter of fiscal 2012 due to their significance to our consolidated financial statements.
Discontinued Operations
Discontinued Operations
Discontinued Operations

During fiscal 2011 and the first three quarters of fiscal 2012, we determined that the aggregate financial results from discontinued operations were not material, and therefore, we did not separately present discontinued operations in our consolidated financial statements. During the fourth quarter of fiscal 2012, we determined that with the discontinuation of our large-format Best Buy branded stores in the U.K., aggregate discontinued operations were material and would require separate presentation. We therefore commenced discontinued operations presentation during the fourth quarter of fiscal 2012, and included the results of all operations discontinued during fiscal 2012 and fiscal 2011. We did not discontinue any operations during fiscal 2010. The discontinued operations presentation has been retrospectively applied to all prior periods presented.

Discontinued operations comprise the following:

Domestic Segment

Speakeasy – During the second quarter of fiscal 2011, we completed the sale of Speakeasy to Covad Communications. Speakeasy's operations primarily comprised internet-based telephony services. In consideration for the sale of Speakeasy, Best Buy received cash consideration and a minority equity interest in the combined operations. We do not exercise significant influence over the combined operations. Based upon the fair value of the consideration received and the carrying value of Speakeasy at closing, we recorded a pre-tax gain on sale of $7 in the second quarter of fiscal 2011.

Napster – During the third quarter of fiscal 2012, we sold certain assets comprising the domestic operations of Napster, Inc. to Rhapsody International and ceased operations in the U.S. Napster's operations comprised digital media download and streaming services in the U.S. In consideration for the sale of these assets, Best Buy received a minority investment in Rhapsody International. We do not exercise significant influence over Rhapsody International.

International Segment

Best Buy China – During the fourth quarter of fiscal 2011, we announced the restructuring of our eight large-format Best Buy branded stores in China. The closure of Best Buy branded stores was completed in the first quarter of fiscal 2012. Our fiscal 2011 restructuring activities included plans to restructure the large-format Best Buy branded stores in China.

Best Buy Turkey – During the fourth quarter of fiscal 2011, we announced the closure of our two large-format Best Buy branded stores in Turkey. The exit activities were completed during the second quarter of fiscal 2012, at which time we recorded a $4 pre-tax gain on the sale of certain assets related to the stores.

Best Buy U.K. – During the third quarter of fiscal 2012, we announced the closure of our eleven large-format Best Buy branded stores in the U.K. We completed the exit activities associated with these stores during the fourth quarter of fiscal 2012.

Belgium – During the fourth quarter of fiscal 2012, Best Buy Europe sold its retail business in Belgium, consisting of 82 small-format The Phone House stores, to Belgacom S.A. As a result of the sale, a pre-tax gain of $5 was recorded in fiscal 2012.

The financial results of discontinued operations for fiscal 2012, 2011 and 2010 were as follows:
 
2012

 
2011

 
2010

Revenue
$
411

 
$
525

 
$
451

 
 
 
 
 
 
Restructuring charges(1)
229

 
75

 

 
 
 
 
 
 
Loss from discontinued operations before income tax benefit
(406
)
 
(260
)
 
(134
)
Income tax benefit
89

 
57

 
33

Gain on sale of discontinued operations
9

 
7

 

Income tax benefit on sale

 
8

 

Net loss from discontinued operations including noncontrolling interests
(308
)
 
(188
)
 
(101
)
Net loss from discontinued operations attributable to noncontrolling interests
134

 
38

 
19

Net loss from discontinued operations attributable to Best Buy Co., Inc.
$
(174
)
 
$
(150
)
 
$
(82
)
(1)
See Note 7, Restructuring Charges, for further discussion of the restructuring charges associated with discontinued operations.
Aquisitions
Acquisitions
Acquisitions

mindSHIFT

In December 2011, we acquired 100% of mindSHIFT Technologies, Inc. ("mindSHIFT"), a managed service provider for small- and mid-sized companies, for $175 (or $168 net of cash acquired). The acquisition date was the close of business on December 28, 2011. We have consolidated mindSHIFT in our financial results as part of our Domestic segment from the date of acquisition. We expect the allocation of the purchase price to the acquired assets and liabilities to be finalized in the first quarter of fiscal 2013. Of the $175 final purchase price, $74 was allocated to customer relationships and $91 was allocated to goodwill, with the remaining $10 allocated primarily to working capital and property, plant and equipment. The customer relationships will be amortized over a weighted average period of 15 years. None of the goodwill is deductible for tax purposes.

We entered into this transaction as mindSHIFT is the leading managed service provider for small and mid-sized business in the U.S. Coupled with our retail, Geek Squad services and Best Buy for Business operations, we anticipate that mindSHIFT will capture a greater share of the small-to-mid-sized managed service provider market.
Investments
Investments
  Investments

Investments were comprised of the following:
 
March 3,
2012

 
February 26,
2011

Short-term investments
 
 
 
Money market fund
$

 
$
2

U.S. Treasury bills

 
20

Total short-term investments
$

 
$
22

 
 
 
 
Equity and other investments
 
 
 
Debt securities (auction rate securities)
$
82

 
$
110

Marketable equity securities
3

 
146

Other investments
55

 
72

Total equity and other investments
$
140

 
$
328



Debt Securities

Our debt securities are comprised of ARS. ARS were intended to behave like short-term debt instruments because their interest rates reset periodically through an auction process, most commonly at intervals of seven, 28 and 35 days. The auction process had historically provided a means by which we could rollover the investment or sell these securities at par in order to provide us with liquidity as needed. As a result, we classify our investments in ARS as available-for-sale and carry them at fair value.

In February 2008, auctions began to fail due to insufficient buyers, as the amount of securities submitted for sale in auctions exceeded the aggregate amount of the bids. For each failed auction, the interest rate on the security moves to a maximum rate specified for each security, and generally resets at a level higher than specified short-term interest rate benchmarks. To date, we have collected all interest due on our ARS and expect to continue to do so in the future. Due to persistent failed auctions, and the uncertainty of when these investments could be liquidated at par, we have classified all of our investments in ARS as non-current assets within Equity and Other Investments in our Consolidated Balance Sheets at March 3, 2012.

We sold $27 of ARS at par during fiscal 2012. However, at March 3, 2012, our entire remaining ARS portfolio, consisting of 17 investments in ARS having an aggregate value at par of $88, was subject to failed auctions.

Our ARS portfolio consisted of the following, at fair value:
Description
Nature of collateral or guarantee
 
March 3,
2012

 
February 26,
2011

Student loan bonds
Student loans guaranteed 95% to 100% by the U.S. government
 
$
80

 
$
108

Municipal revenue bonds
100% insured by AAA/Aaa-rated bond insurers at March 3, 2012
 
2

 
2

Total fair value plus accrued interest(1)
 
 
$
82

 
$
110

(1)
The par value and weighted-average interest rates (taxable equivalent) of our ARS were $88 and $115 and 0.5% and 0.8%, respectively, at March 3, 2012, and February 26, 2011, respectively.

At March 3, 2012, our ARS portfolio was 88% AAA/Aaa-rated, 3% AA/Aa-rated and 9% A/A-rated.

The investment principal associated with failed auctions will not be accessible until successful auctions occur, a buyer is found outside of the auction process, the issuers establish a different form of financing to replace these securities, or final payments are due according to the contractual maturities of the debt issuances, which range from four to 30 years. We do not intend to sell our remaining ARS until we can recover the full principal amount through one of the means described above. In addition, we do not believe it is more likely than not that we would be required to sell our remaining ARS until we can recover the full principal amount based on our other sources of liquidity.

We evaluated our entire ARS portfolio of $88 (par value) for impairment at March 3, 2012, based primarily on the methodology described in Note 6, Fair Value Measurements. As a result of this review, we determined that the fair value of our ARS portfolio at March 3, 2012, was $82. Accordingly, a $6 pre-tax unrealized loss is recognized in accumulated other comprehensive income. This unrealized loss reflects a temporary impairment on all of our investments in ARS. The estimated fair value of our ARS portfolio could change significantly based on future market conditions. We will continue to assess the fair value of our ARS portfolio for substantive changes in relevant market conditions, changes in our financial condition or other changes that may alter our estimates described above.

We may be required to record an additional unrealized holding loss or an impairment charge to earnings if we determine that our ARS portfolio has incurred a further decline in fair value that is temporary or other-than-temporary, respectively. Factors that we consider when assessing our ARS portfolio for other-than-temporary impairment include the duration and severity of the impairment, the reason for the decline in value, the potential recovery period, the nature of the collateral or guarantees in place and our intent and ability to hold an investment.

We had $(3) and $(3) unrealized loss, net of tax, recorded in accumulated other comprehensive income at March 3, 2012, and February 26, 2011, respectively, related to our investments in debt securities.

Marketable Equity Securities

We invest in marketable equity securities and classify them as available-for-sale. Investments in marketable equity securities are classified as non-current assets within Equity and Other Investments in our Consolidated Balance Sheets, and are reported at fair value based on quoted market prices.

Our investments in marketable equity securities were as follows:
 
March 3,
2012

 
February 26,
2011

Common stock of TalkTalk Telecom Group PLC
$

 
$
62

Common stock of Carphone Warehouse Group plc

 
84

Other
3

 

Total
$
3

 
$
146



We purchased shares of The Carphone Warehouse Group PLC (“CPW”) common stock in fiscal 2008, representing nearly 3% of CPW’s then outstanding shares. In March 2010, CPW demerged into two new holding companies: TalkTalk Telecom Group PLC (“TalkTalk”), which is the holding company for the fixed line voice and broadband telecommunications business of the former CPW, and Carphone Warehouse Group plc, which includes the former CPW’s 50% ownership interest in Best Buy Europe. Accordingly, our investment in CPW was exchanged for equivalent levels of investment in TalkTalk and Carphone Warehouse. In the third quarter of fiscal 2012, we sold our shares of TalkTalk and Carphone Warehouse for $112 ($51 for TalkTalk and $61 for Carphone Warehouse) and recognized a $55 pre-tax gain on the sale.

We review all investments for other-than-temporary impairment at least quarterly or as indicators of impairment exist. Indicators of impairment include the duration and severity of the decline in fair value as well as the intent and ability to hold the investment to allow for a recovery in the market value of the investment. In addition, we consider qualitative factors that include, but are not limited to: (i) the financial condition and business plans of the investee including its future earnings potential, (ii) the investee’s credit rating, and (iii) the current and expected market and industry conditions in which the investee operates. If a decline in the fair value of an investment is deemed by management to be other-than-temporary, the cost basis of the investment is written down to fair value, and the amount of the write-down is included in net earnings.

All unrealized holding gains or losses related to our investments in marketable equity securities are reflected net of tax in accumulated other comprehensive income in shareholders' equity. Net unrealized gain, net of tax, included in accumulated other comprehensive income was $0 and $75 at March 3, 2012, and February 26, 2011, respectively.

Other Investments

The aggregate carrying values of investments accounted for using either the cost method or the equity method at March 3, 2012, and February 26, 2011, were $55 and $72, respectively.
Fair Value Measurements
Fair Value Measurements
Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. To measure fair value, we use a three-tier valuation hierarchy based upon observable and non-observable inputs:

Level 1 — Unadjusted quoted prices that are available in active markets for the identical assets or liabilities at the measurement date.

Level 2 — Significant other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly, including:

Quoted prices for similar assets or liabilities in active markets;
Quoted prices for identical or similar assets in non-active markets;
Inputs other than quoted prices that are observable for the asset or liability; and
Inputs that are derived principally from or corroborated by other observable market data.

Level 3 — Significant unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management's estimates of market participant assumptions.

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis

The fair value hierarchy requires the use of observable market data when available. In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability. The following tables set forth by level within the fair value hierarchy, our financial assets and liabilities that were accounted for at fair value on a recurring basis at March 3, 2012, and February 26, 2011, according to the valuation techniques we used to determine their fair values.
 
 
 
Fair Value Measurements Using Inputs Considered as
 
Fair Value at
March 3, 2012

 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

 
Significant
Other
Observable
Inputs
(Level 2)

 
Significant
Unobservable
Inputs
(Level 3)

Assets
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
 
 
 
Money market funds
$
272

 
$
272

 
$

 
$

Other current assets
 
 
 
 
 
 
 
Money market funds (restricted assets)
119

 
119

 

 

U.S. Treasury bills (restricted assets)
30

 
30

 

 

Foreign currency derivative instruments
1

 

 
1

 

Equity and other investments
 
 
 
 
 
 
 
Auction rate securities
82

 

 

 
82

Marketable equity securities
3

 
3

 

 

Other assets
 
 
 
 
 
 
 
Marketable securities that fund deferred compensation
83

 
83

 

 

Liabilities
 
 
 
 
 
 
 
Accrued liabilities
 
 
 
 
 
 
 
Foreign currency derivative instruments
2

 

 
2

 

Long-term liabilities
 
 
 
 
 
 
 
Deferred compensation
62

 
62

 

 


 
 
 
Fair Value Measurements Using Inputs Considered as
 
Fair Value at
February 26, 2011

 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

 
Significant
Other
Observable
Inputs
(Level 2)

 
Significant
Unobservable
Inputs
(Level 3)

Assets
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
 
 
 
Money market funds
$
70

 
$
70

 
$

 
$

Short-term investments
 
 
 
 
 
 
 
Money market fund
2

 

 
2

 

U.S. Treasury bills
20

 
20

 

 

Other current assets


 
 

 
 

 
 

Money market funds (restricted assets)
63

 
63

 

 

U.S. Treasury bills (restricted assets)
105

 
105

 

 

Foreign currency derivative instruments
2

 

 
2

 

Equity and other investments


 
 

 
 

 
 

Auction rate securities
110

 

 

 
110

Marketable equity securities
146

 
146

 

 

Other assets


 
 

 
 

 
 

Marketable securities that fund deferred compensation
83

 
83

 

 

Liabilities


 
 

 
 

 
 

Accrued liabilities
 
 
 
 
 
 
 
Foreign currency derivative instruments
1

 

 
1

 

Long-term liabilities


 
 

 
 

 
 

Deferred compensation
64

 
64

 

 

Foreign currency derivative instruments
2

 

 
2

 



The following table provides a reconciliation between the beginning and ending balances of items measured at fair value on a recurring basis in the tables above that used significant unobservable inputs (Level 3).
 
Debt securities — Auction rate securities only
 
Student
loan
bonds

 
Municipal
revenue
bonds

 
Total

Balances at February 27, 2010
$
261

 
$
19

 
$
280

Changes in unrealized losses in other comprehensive income
(1
)
 
1

 

Sales
(152
)
 
(18
)
 
(170
)
Balances at February 26, 2011
$
108

 
$
2

 
$
110

Changes in unrealized losses in other comprehensive income
(1
)
 

 
(1
)
Sales
(27
)
 

 
(27
)
Balances at March 3, 2012
$
80

 
$
2

 
$
82



The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

Money Market Funds. Our money market fund investments that are traded in an active market were measured at fair value using quoted market prices and, therefore, were classified as Level 1. Our money market fund investments not traded on a regular basis or in an active market, and for which we have been unable to obtain pricing information on an ongoing basis, were measured using inputs other than quoted market prices that are observable for the investments and, therefore, were classified as Level 2.

U.S. Treasury Bills. Our U.S. Treasury notes were classified as Level 1 as they trade with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis.

Foreign Currency Derivative Instruments. Comprised primarily of foreign currency forward contracts and foreign currency swap contracts, our foreign currency derivative instruments were measured at fair value using readily observable market inputs, such as quotations on forward foreign exchange points and foreign interest rates. Our foreign currency derivative instruments were classified as Level 2 as these instruments are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market.

Auction Rate Securities. Our investments in ARS were classified as Level 3 as quoted prices were unavailable due to events described in Note 5, Investments. Due to limited market information, we utilized a DCF model to derive an estimate of fair value. The assumptions we used in preparing the DCF model included estimates with respect to the amount and timing of future interest and principal payments, forward projections of the interest rate benchmarks, the probability of full repayment of the principal considering the credit quality and guarantees in place, and the rate of return required by investors to own such securities given the current liquidity risk associated with ARS.

Marketable Equity Securities. Our marketable equity securities were measured at fair value using quoted market prices. They were classified as Level 1 as they trade in an active market for which closing stock prices are readily available.

Deferred Compensation. Our deferred compensation liabilities and the assets that fund our deferred compensation consist of investments in mutual funds. These investments were classified as Level 1 as the shares of these mutual funds trade with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis.

Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis

Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to our tangible fixed assets, goodwill and other intangible assets, which are remeasured when the derived fair value is below carrying value on our Consolidated Balance Sheets. For these assets, we do not periodically adjust carrying value to fair value except in the event of impairment. When we determine that impairment has occurred, the carrying value of the asset is reduced to fair value and the difference is recorded within Operating income in our Consolidated Statements of Earnings.

With the exception of the goodwill impairment associated with our Best Buy Europe reporting unit described in Note 2, Profit Share Buy-Out, as well as the fixed asset and tradename impairments associated with our fiscal 2012 and fiscal 2011 restructuring activities described in Note 7, Restructuring Charges, we had no significant remeasurements of such assets or liabilities to fair value during fiscal 2012, 2011 and 2010. The following table summarizes the fair value remeasurments recorded for fiscal 2012 and 2011:
 
Fiscal 2012
 
Fiscal 2011
 
Impairments
 
Remaining Net
Carrying Value
 
Impairments
 
Remaining Net
Carrying Value
Continuing operations
 
 
 
 
 
 
 
Goodwill of Best Buy Europe reporting unit
$
1,207

 
$

 
$

 
$

Property and equipment
32

 

 
122

 
49

Total
$
1,239

 
$

 
$
122

 
$
49

Discontinued operations(1)
 
 
 
 
 
 
 
Property and equipment
$
111

 
$

 
$
25

 
$
2

Tradename
3

 

 
10

 
3

Total
$
114

 
$

 
$
35

 
$
5

(1)
Fixed asset and tradename impairments associated with discontinued operations are recorded within Loss from discontinued operations in our Consolidated Statements of Earnings.

All of the fair value remeasurments included in the table above were based on significant unobservable inputs (Level 3). Refer to Note 1, Summary of Significant Accounting Policies, as well as Note 2, Profit Share Buy-Out, for further information associated with the goodwill impairment. Fixed asset fair values were derived using a DCF model to estimate the present value of net cash flows that the asset or asset group was expected to generate. The key inputs to the DCF model generally included our forecasts of net cash generated from revenue, expenses and other significant cash outflows, such as capital expenditures, as well as an appropriate discount rate. For the tradename, fair value was derived using the relief from royalty method, as described in Note 1, Summary of Significant Accounting Policies. In the case of these specific assets, for which their impairment was the result of restructuring activities, no future cash flows have been assumed as the assets will cease to be used and expected sale values are nominal.

Fair Value of Financial Instruments

Our financial instruments, other than those presented in the disclosures above, include cash, receivables, other investments, accounts payable, other payables and short- and long-term debt. The fair values of cash, receivables, accounts payable, other payables and short-term debt approximated carrying values because of the short-term nature of these instruments. Fair values for other investments held at cost are not readily available, but we estimate that the carrying values for these investments approximate fair value. See Note 8, Debt, for information about the fair value of our long-term debt.
Restructuring Charges
Restructuring Charges
Restructuring Charges

Fiscal 2012 Restructuring

In the third quarter of fiscal 2012, we implemented a series of actions to restructure operations in our Domestic and International segments. The actions within our Domestic segment included a decision to modify our strategy for certain mobile broadband offerings, and in our International segment we closed our large-format Best Buy branded stores in the U.K. to refocus our Best Buy Europe strategy on our small-format stores. In addition, we impaired certain information technology ("IT") assets supporting the restructured activities in our International segment. We view these restructuring activities as necessary to meet our long-term financial performance objectives by refocusing our investments on areas that provided profitable growth opportunities and meet our overall return expectations. All restructuring charges directly related to the large-format Best Buy branded stores in the U.K. are reported within discontinued operations in our Consolidated Statements of Earnings. Refer to Note 3, Discontinued Operations.

We incurred $243 of charges related to the fiscal 2012 restructuring during fiscal 2012. Of the total charges, $23 related to our Domestic segment and consisted primarily of IT asset impairments and other related costs. The remaining $220 of charges related to our International segment and consisted primarily property and equipment impairments, facility closure and other costs, employee termination benefits and inventory write-downs.

We do not expect to incur further material restructuring charges related to our fiscal 2012 restructuring activities in either our Domestic or International segments. We expect to substantially complete these restructuring activities in the first half of fiscal 2013.

All restructuring charges from continuing operations related to our fiscal 2012 restructuring activities are presented in Restructuring charges in our Consolidated Statements of Earnings, whereas all restructuring charges from discontinued operations related to our fiscal 2012 restructuring activities are presented in Loss from discontinued operations in our Consolidated Statements of Earnings. The composition of the restructuring charges we incurred in fiscal 2012 for our fiscal 2012 restructuring activities was as follows:
 
Domestic
 
International
 
Total
Continuing operations
 
 
 
 
 
Property and equipment impairments
$
17

 
$
15

 
$
32

Termination benefits
1

 

 
1

Facility closure and other costs
5

 

 
5

Total
23

 
15

 
38

Discontinued operations
 
 
 
 
 
Inventory write-downs

 
11

 
11

Property and equipment impairments

 
96

 
96

Termination benefits

 
16

 
16

Facility closure and other costs

 
82

 
82

Total

 
205

 
205

Total
$
23

 
$
220

 
$
243



The following table summarizes our restructuring accrual activity during fiscal 2012 related to termination benefits and facility closure and other costs associated with our fiscal 2012 restructuring activities:
 
Termination Benefits
 
Facility
Closure and
Other Costs
 
Total
Balance at February 26, 2011
$

 
$

 
$

Charges
17

 
87

 
104

Cash payments

 

 

Changes in foreign currency exchange rates

 
(2
)
 
(2
)
Balance at March 3, 2012
$
17


$
85

 
$
102



Fiscal 2011 Restructuring

In the fourth quarter of fiscal 2011, we implemented a series of actions to restructure operations in our Domestic and International segments in order to improve performance and enhance customer service. The restructuring actions included plans to improve supply chain and operational efficiencies in our Domestic segment's operations, primarily focused on modifications to our distribution channels and exit from certain digital delivery services within our entertainment product category. The actions also included plans to exit the Turkey market and restructure the Best Buy branded stores in China. As part of the international restructuring, we also impaired certain IT assets supporting the restructured activities in our International segment. We view these restructuring activities as necessary to meet our long-term growth goals by investing in businesses that have the potential to meet our internal rate of return expectations. All restructuring charges directly related to Turkey and China, as well as the Domestic charges directly related to our exit from certain digital delivery services within our entertainment product category, are reported within discontinued operations in our Consolidated Statements of Earnings. Refer to Note 3, Discontinued Operations.

We incurred $222 of charges related to the fiscal 2011 restructuring during the fourth quarter of fiscal 2011. Of the total charges, $50 related to our Domestic segment, primarily for employee termination benefits, property and equipment impairments, intangible asset impairments and inventory write-downs. The remaining $172 of the charges impacted our International segment and related primarily to property and equipment impairments (including the IT assets), inventory write-downs, facility closure and other costs and employee termination benefits.

In fiscal 2012, we incurred an additional $44 of charges related to the fiscal 2011 restructuring activities. Of the total charge, $45 related to our Domestic segment, consisting primarily of property and equipment impairments (notably IT assets), employee termination benefits, intangible asset impairments and other costs associated with the exit from certain digital delivery services within our entertainment product category. Within our Domestic segment, we also incurred additional inventory write-downs as we completed the exit from certain distribution facilities associated with our entertainment product category at the end of fiscal 2012. We do not expect to incur further material restructuring charges related to our fiscal 2011 restructuring activities in fiscal 2013. However, subsequent to the end of fiscal 2012, we sold the previously impaired distribution facility and equipment. Therefore, we will record a reduction in restructuring charges in the first quarter of fiscal 2013 for the amount of gain on sale, thus reducing the cumulative charges under the fiscal 2011 restructuring. The $(1) of net charges in our International segment in fiscal 2012 was the result of employee termination benefits, offset by adjustments to facility closure and other costs from the completion of our exit from the Turkey market and exiting of lease locations in China.

For continuing operations, the inventory write-downs related to our fiscal 2011 restructuring activities are presented in Restructuring charges — cost of goods sold in our Consolidated Statements of Earnings, and the remainder of the restructuring charges are presented in Restructuring charges in our Consolidated Statements of Earnings. However, all restructuring charges from discontinued operations related to our fiscal 2011 restructuring activities are presented in Loss from discontinued operations in our Consolidated Statements of Earnings. The composition of the restructuring charges we incurred in fiscal 2012 and 2011, as well as the cumulative amount incurred through the end of fiscal 2012, for our fiscal 2011 restructuring activities, was as follows:
 
Domestic
 
International
 
Total
 
Fiscal 2012

 
Fiscal 2011

 
Cumulative Amount

 
Fiscal 2012

 
Fiscal 2011

 
Cumulative Amount

 
Fiscal 2012

 
Fiscal 2011

 
Cumulative Amount

Continuing operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Inventory write-downs
$
19

 
$
9

 
$
28

 
$

 
$

 
$

 
$
19

 
$
9

 
$
28

Property and equipment impairments

 
15

 
15

 

 
107

 
107

 

 
122

 
122

Termination benefits
(3
)
 
16

 
13

 

 

 

 
(3
)
 
16

 
13

Facility closure and other costs
4