Best Buy 2007 Annual Report Download - page 82

Download and view the complete annual report

Please find page 82 of the 2007 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 119

  • 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
  • 119

$ in millions, except per share amounts
67
PART II
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
exposures associated with our various tax filing positions,
we record reserves for probable exposures. A number of
years may elapse before a particular matter, for which we
have established a reserve, is audited and fully resolved or
clarified. We adjust our tax contingencies reserve and
income tax provision in the period in which actual results of
a settlement with tax authorities differs from our established
reserve, the statute of limitations expires for the relevant
taxing authority to examine the tax position or when more
information becomes available. We include our tax
contingencies reserve, including accrued penalties and
interest, in accrued income taxes on our consolidated
balance sheets and in income tax expense in our
consolidated statements of earnings.
In July 2006, the FASB issued FASB Interpretation (“FIN”)
No. 48, Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109. In May 2007, the
FASB issued FSP FIN No. 48-1, Definition of “Settlement” in
FASB Interpretation No.48. We will adopt FIN No. 48 and FSP
FIN No. 48-1 beginning in the first quarter of fiscal 2008. See
New Accounting Standards below for further details.
Long-Term Liabilities
The major components of long-term liabilities at March 3,
2007, and February 25, 2006, included long-term
rent-related liabilities, deferred compensation plan
liabilities, self-insurance reserves and advances received
under vendor alliance programs.
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. 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
We recognize revenue when the sales price is fixed or
determinable, collectibility is reasonably assured and the
customer takes possession of the merchandise, or in the
case of services, at the time the service is provided.
Amounts billed to customers for shipping and handling are
included in revenue. Revenue is reported net of estimated
sales returns and excludes sales taxes.
We estimate our sales returns reserve based on historical
return rates. We initially established our sales returns
reserve in the fourth quarter of fiscal 2005. Our sales
returns reserve was $104 and $78, at March 3, 2007, and
February 25, 2006, respectively.
We sell extended service contracts on behalf of an
unrelated third party. In jurisdictions where we are not
deemed to be the obligor on the contract, commissions are
recognized in revenue at the time of sale. In jurisdictions
where we are deemed to be the obligor on the contract,
commissions are recognized in revenue ratably over the
term of the service contract. Commissions represented
2.2%, 2.5% and 2.6% of revenues in fiscal 2007, 2006
and 2005, 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. See additional
information regarding our customer loyalty program in
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 income 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