Best Buy 2005 Annual Report Download - page 59

Download and view the complete annual report

Please find page 59 of the 2005 Best Buy annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 118

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118

certainty, actual results could differ from our assumptions
Critical Accounting Estimates and estimates, and such differences could be material.
Our consolidated financial statements are prepared in Our significant accounting policies are discussed in
accordance with GAAP. In connection with the Note 1, Summary of Significant Accounting Policies, of
preparation of our financial statements, we are required the Notes to Consolidated Financial Statements, included
to make assumptions and estimates about future events, in Item 8, Financial Statements and Supplementary Data,
and apply judgments that affect the reported amounts of of this Annual Report on Form 10-K. Management
assets, liabilities, revenue, expenses and the related believes that the following accounting estimates are the
disclosures. We base our assumptions, estimates and most critical to aid in fully understanding and evaluating
judgments on historical experience, current trends and our reported financial results, and they require
other factors that management believes to be relevant at management’s most difficult, subjective or complex
the time our consolidated financial statements are judgments, resulting from the need to make estimates
prepared. On a regular basis, management reviews the about the effect of matters that are inherently uncertain.
accounting policies, assumptions, estimates and judgments Management has reviewed these critical accounting
to ensure that our financial statements are presented fairly estimates and related disclosures with the Audit Committee
and in accordance with GAAP. However, because future of our Board of Directors.
events and their effects cannot be determined with
Effect if Actual Results Differ from
Description Judgments and Uncertainties Assumptions
Inventory Reserves
We value our inventory at the lower of the Our markdown reserve contains We have not made any material changes
average cost of the inventory or fair uncertainties because the calculation in the accounting methodology used to
market value through the establishment of requires management to make assumptions establish our markdown or inventory loss
markdown and inventory loss reserves. and to apply judgment regarding reserves during the past three fiscal years.
forecasted consumer demand, the
Our markdown reserve represents the We do not believe there is a reasonable
promotional environment, inventory aging
excess of the carrying value, typically likelihood that there will be a material
and technological obsolescence.
average cost, over the amount we expect change in the future estimates or
to realize from the ultimate sale or other Our inventory loss reserve contains assumptions we use to calculate our
disposal of the inventory. uncertainties because the calculation markdown reserve. However, if estimates
requires management to make assumptions regarding consumer demand are
Our inventory loss reserve represents and to apply judgment regarding a inaccurate or changes in technology affect
anticipated physical inventory losses (e.g., number of factors, including historical demand for certain products in an
theft) that have occurred since the last results and current inventory loss trends. unforeseen manner, we may be exposed to
physical inventory date. Independent losses or gains that could be material. A
physical inventory counts are taken on a 10% difference in our actual markdown
regular basis to ensure that the inventory reserve at February 26, 2005, would have
reported in our consolidated financial affected net earnings by approximately
statements is properly stated. During the $3 million for the fiscal year ended
interim period between physical inventory February 26, 2005.
counts, we reserve for anticipated physical
inventory losses on a location-by-location We do not believe there is a reasonable
basis. likelihood that there will be a material
change in the future estimates or
assumptions we use to calculate our
inventory loss reserve. However, if our
estimates regarding physical inventory
losses are inaccurate, we may be exposed
to losses or gains that could be material. A
10% difference in actual physical inventory
losses reserved for at February 26, 2005,
would have affected net earnings by
approximately $5 million for the fiscal
year ended February 26, 2005.
43