Best Buy 2008 Annual Report Download - page 80

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$ in millions, except per share amounts or as otherwise noted
For additional information regarding our customer loyalty Customer Loyalty Programs
program, see Sales Incentives, below. We have customer loyalty programs which allow members to
earn points for each qualifying purchase. Points earned enable
Gift Cards members to receive a certificate that may be redeemed on
We sell gift cards to our customers in our retail stores, through future purchases at our Best Buy stores in the U.S., Canada
our Web sites, and through selected third parties. We do not and China. There are two ways that members may participate
charge administrative fees on unused gift cards, and our gift and earn loyalty points.
cards do not have an expiration date. We recognize revenue First, we have customer loyalty programs where members earn
from gift cards when: (i) the gift card is redeemed by the points for each purchase completed at U.S., Canada and
customer, or (ii) the likelihood of the gift card being redeemed China Best Buy stores or through our BestBuy.com and
by the customer is remote (‘‘gift card breakage’’), and we BestBuy.ca Web sites. We account for our customer loyalty
determine that we do not have a legal obligation to remit the program in accordance with Emerging Issues Task Force
value of unredeemed gift cards to the relevant jurisdictions. We (‘‘EITF’’) Issue No. 00-22, Accounting for ‘‘Points’’ and Certain
determine our gift card breakage rate based upon historical Other Time-Based or Volume-Based Sales Incentive Offers, and
redemption patterns. Based on our historical information, the Offers for Free Products or Services to Be Delivered in the
likelihood of a gift card remaining unredeemed can be Future. The retail value of points earned by our loyalty
determined 24 months after the gift card is issued. At that program members is included in accrued liabilities and
time, we recognize breakage income for those cards for which recorded as a reduction of revenue at the time the points are
the likelihood of redemption is deemed remote and we do not earned, based on the percentage of points that are projected
have a legal obligation to remit the value of such unredeemed to be redeemed. Prior to October 2006, we charged a loyalty
gift cards to the relevant jurisdictions. Gift card breakage program membership fee which was initially deferred and then
income is included in revenue in our consolidated statements recognized in revenue ratably over the membership period.
of earnings. Beginning in October 2006, we no longer charge a
We began recognizing gift card breakage income during the membership fee for our customer loyalty programs.
third quarter of fiscal 2006. Gift card breakage income was as Second, we have a private label and co-branded credit card
follows in fiscal 2008, 2007 and 2006: agreement with a third-party bank (‘‘Bank’’) for the issuance of
2008 2007(1) 2006(1) a promotional financing or customer loyalty credit card bearing
the Best Buy brand. The Bank is the sole owner of the
Gift card breakage income $34 $46 $43
accounts issued under the program and absorbs losses
(1) Due to the resolution of certain legal matters associated with gift associated with non-payment by the cardholders and
card liabilities, we recognized $19 and $27 of gift card breakage
fraudulent usage of the accounts. Cardholders who choose the
income in fiscal 2007 and 2006, respectively, that related to prior
fiscal years. private label promotional financing credit card receive low- or
zero-interest financing on qualifying purchases. Cardholders
Sales Incentives who choose the customer loyalty co-branded credit card earn
points for purchases made at Best Buy stores and Web sites in
We frequently offer sales incentives that entitle our customers to
the U.S. and Canada, as well as purchases at other
receive a reduction in the price of a product or service. Sales
merchants. Points earned enable cardholders to receive
incentives include discounts, coupons and other offers that
certificates that may be redeemed on future purchases at Best
entitle a customer to receive a reduction in the price of a
Buy stores and Web sites in the U.S. and Canada. Certificates
product or service by submitting a claim for a refund or
expire six months from the date of issuance. The retail value of
rebate. For sales incentives issued to a customer in conjunction
points earned by our cardholders is included in accrued
with a sale of merchandise or services, for which we are the
liabilities and recorded as a reduction of revenue at the time
obligor, the reduction in revenue is recognized at the time of
the points are earned, based on the percentage of points that
sale, based on the retail value of the incentive expected to be
are projected to be redeemed. We recognize revenue from
redeemed.
certificates when: (i) the certificate is redeemed by the
customer, (ii) the certificate expires or (iii) the likelihood of the
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