Best Buy 2011 Annual Report Download - page 83

$ in millions, except per share amounts or as otherwise noted
realized. A number of years may elapse before a particular matter, for which we have established a liability, is audited and
effectively settled. We adjust our liability for unrecognized tax benefits in the period in which we determine the issue is
effectively settled with the tax authorities, the statute of limitations expires for the relevant taxing authority to examine the
tax position or when more information becomes available. We include our liability for unrecognized tax benefits, including
accrued penalties and interest, in accrued income taxes and other long-term liabilities on our consolidated balance sheets
and in income tax expense in our consolidated statements of earnings.
Accrued Liabilities
The major components of accrued liabilities at February 26, 2011, and February 27, 2010, were deferred revenue, state
and local tax liabilities, rent-related liabilities including accrued real estate taxes, loyalty program liabilities and self-
insurance reserves.
Long-Term Liabilities
The major components of long-term liabilities at February 26, 2011, and February 27, 2010, were unrecognized tax
benefits, rent-related liabilities, deferred revenue, deferred income tax liabilities, deferred compensation plan liabilities and
self-insurance reserves.
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. For operations reported on a two-month lag, we use the exchange rates in effect
two months prior to 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
Our revenue arises primarily from sales of merchandise and services. We also record revenue from sales of extended
warranties and other service contracts, commissions earned from various customer subscriptions, fees earned from private
label and co-branded credit card agreements and amounts billed to customers for shipping and handling. Revenue
excludes sales taxes collected.
We recognize revenue when the sales price is fixed or determinable, collectability is reasonably assured and the customer
takes possession of the merchandise, or in the case of services, at the time the service is provided. Revenue is recognized
for store sales when the customer receives and pays for the merchandise. For online sales, we defer revenue and the
related product costs for shipments that are in-transit to the customer, and recognize revenue at the time the customer
receives the product. Online customers typically receive goods within a few days of shipment. Revenue from merchandise
sales and services is reported net of sales returns, including an estimate of future returns based on historical return rates.
Our sales returns reserve, which represents the gross profit effect of our sales returns, was $15 and $17, at February 26,
2011, and February 27, 2010, respectively.
We sell extended warranties and other service contracts that typically have terms ranging from three months to four years.
We also receive commissions for customer subscriptions with various third parties, notably from mobile phone network
operators. In instances where we are deemed to be the obligor on the service contract or subscription, the service and
commission revenue is deferred and recognized ratably over the term of the service contract or subscription period. In
instances where we are not deemed to be the obligor on the service contract or subscription, commissions are recognized
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