Best Buy 2007 Annual Report Download - page 77

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$ in millions, except per share amounts
62
Accounting for the Tax Effects of Share-Based
Payment Awards. This election resulted in the
reclassification of excess tax benefits from operating
activities to financing activities, as presented in the
statement of cash flows. See Stock-Based
Compensation below, for further details.
These reclassifications had no effect on previously reported
operating income, net earnings or shareholders’ equity.
Change in Accounting Principle
During the fourth quarter of fiscal 2007, we elected to
change our accounting principle to recognize the purchase
and sale of investments in marketable debt and equity
securities on the trade date. Prior to the fourth quarter of
fiscal 2007, we recognized these transactions in our
consolidated financial statements on the settlement date. We
concluded that use of the trade date was preferable to the
settlement date as trade date reflects the risks and rewards of
investment ownership on a more timely basis. In addition, this
method more closely aligns with the standard methodology
utilized by our new investment custodian to account for
investment transactions. In accordance with Statement of
Financial Accounting Standards (“SFAS”) No. 154,
Accounting Changes and Error Corrections, this change in
accounting principle has been applied retrospectively to our
consolidated financial statements for all prior periods. This
change in accounting principle had no effect on previously
reported operating income, net earnings, shareholders’
equity or cash flows. The effect on the consolidated balance
sheets for each applicable quarter was as follows in fiscal
2007 and 2006 (unaudited):
2007 2006
3rd
Quarter
2nd
Quarter
4th
Quarter
1st
Quarter
Cash and cash equivalents
As reported $ 1,202 $1,104 $ 748 $ 458
As adjusted 1,208 1,104 748 458
Short-term investments
As reported 1,513 1,564 3,051 2,148
As adjusted 1,802 1,534 3,041 2,101
Receivables
As reported 1,112 483 439 350
As adjusted 1,115 513 449 413
Accrued liabilities
As reported 1,315 958 878 741
As adjusted 1,613 958 878 757
This change in accounting principle had no effect on any
quarter of fiscal 2007 or 2006 other than those in the table
above.
Use of Estimates in the Preparation of Financial
Statements
The preparation of financial statements in conformity with
accounting principles generally accepted in the United
States (“GAAP”) requires us to make estimates and
assumptions. These estimates and assumptions affect the
reported amounts in the consolidated balance sheets and
statements of earnings, as well as the disclosure of
contingent liabilities. Future results could be materially
affected if actual results differ from these estimates and
assumptions.
Fiscal Year
Our fiscal year ends on the Saturday nearest the end of
February. Fiscal 2007 included 53 weeks and fiscal 2006
and 2005 each included 52 weeks.
Cash and Cash Equivalents
Cash primarily consists of cash on hand and bank deposits.
Cash equivalents primarily consist of money market
accounts and other highly liquid investments with an
original maturity of three months or less when purchased.
We carry these investments at cost, which approximates
market value. The amounts of cash equivalents at March 3,
2007, and February 25, 2006, were $695 and $350,
respectively, and the weighted-average interest rates were
4.8% and 3.3%, respectively.
Outstanding checks in excess of funds on deposit (“book
overdrafts”) totaled $183 and $230 at March 3, 2007, and
February 25, 2006, respectively, and are reflected as
current liabilities in our consolidated balance sheets.
Merchandise Inventories
Merchandise inventories are recorded at the lower of
average cost 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