Best Buy 2008 Annual Report Download - page 60

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Effect if Actual Results Differ From
Description Judgments and Uncertainties Assumptions
Revenue Recognition
See Note 1, Summary of Significant Our revenue recognition accounting We have not made any material changes
Accounting Policies, to the Notes to methodology contains uncertainties in the accounting methodology used to
Consolidated Financial Statements, because it requires management to make measure sales returns or recognize revenue
included in Item 8, Financial Statements assumptions regarding and to apply for our gift card and customer loyalty
and Supplementary Data, of this Annual judgment to estimate future sales returns programs during the past three fiscal years
Report on Form 10-K, for a complete and the amount and timing of gift cards except for the change made in the third
discussion of our revenue recognition and loyalty program points projected to be quarter of fiscal 2006 related to gift card
policies. redeemed by gift card recipients and breakage income (see Note 1, Summary of
members of our loyalty program. Our Significant Accounting Policies, to the Notes
We recognize revenue, net of estimated estimate of the amount and timing of sales to Consolidated Financial Statements for
returns, at the time the customer takes returns and gift cards or points projected to further information).
possession of the merchandise or receives be redeemed is based primarily on
services. We estimate the liability for sales We do not believe there is a reasonable
historical transaction experience.
returns based on our historical return likelihood that there will be a material
levels. change in the future estimates or
assumptions we use to measure sales
We sell gift cards to customers in our retail returns or recognize revenue for our gift
stores, through our Web sites and through card and customer loyalty programs.
selected third parties. A liability is initially However, if actual results are not consistent
established for the cash value of the gift with our estimates or assumptions, we may
card. We recognize revenue from gift cards be exposed to losses or gains that could be
when: (i) the card is redeemed by the material.
customer; or (ii) the likelihood of the gift
card being redeemed by the customer is A 10% change in our sales return reserve
remote (‘‘gift card breakage’’). We at March 1, 2008, would have affected net
determine our gift card breakage rate earnings by approximately $1 million in
based upon historical redemption patterns, fiscal 2008.
which show that after 24 months, we can A 10% change in our unredeemed gift
determine the portion of the liability where card breakage rate at March 1, 2008,
redemption is remote. would have affected net earnings by
We have a customer loyalty program which approximately $6 million in fiscal 2008.
allows members to earn points for each A 10% change in our customer loyalty
purchase completed at any of our Best Buy program liability at March 1, 2008, would
stores in the U.S., Canada and China, have affected net earnings by
through our BestBuy.com and BestBuy.ca approximately $5 million in fiscal 2008.
Web sites or when using our customer
loyalty program credit card. Points earned
enable members to receive a certificate
that may be redeemed on future purchases
at Best Buy stores and Web sites in the U.S.
and Canada. The value of points earned
by our loyalty program members is
included in accrued liabilities and recorded
as a reduction in revenue at the time the
points are earned, based on the value of
points that are projected to be redeemed.
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