Best Buy 2012 Annual Report Download - page 77

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$ in millions, except per share amounts or as otherwise noted
77
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 revenue 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 breakage income for those cards for which the likelihood of redemption
is deemed remote and we do not have a legal obligation to remit the value of such unredeemed gift cards to the relevant
jurisdictions. Gift card breakage income is included in revenue in our Consolidated Statements of Earnings.
Gift card breakage income was as follows in fiscal 2012, 2011 and 2010:
2012 2011 2010
Gift card breakage income $ 54 $ 51 $ 41
Credit Services and Financing
In the U.S., we have private-label and co-branded credit card agreements with banks for the issuance of promotional financing
and customer loyalty credit cards bearing the Best Buy brand. Under the agreements, the banks manage and directly extend
credit to our customers. Cardholders who choose a private-label credit card can receive low- or zero-interest promotional
financing on qualifying purchases.
The banks are the sole owner of the accounts receivable generated under the programs and absorb losses associated with non-
payment by the cardholders and fraudulent usage of the accounts. Accordingly, we do not hold any consumer receivables
related to these programs. We earn revenue from fees the banks pay to us based on the number of credit card accounts activated
and card usage. In accordance with accounting guidance for revenue arrangements with multiple deliverables, we defer revenue
received from cardholder account activations and recognize revenue on a straight-line basis over the remaining term of the
applicable agreement with the banks. The banks may also reimburse us for certain costs such as tender costs and Reward Zone
points associated with our programs. We pay financing fees, which are recognized as a reduction of revenue, to the banks, and
these fees are variable based on certain factors such as the London Interbank Offered Rate ("LIBOR"), charge volume and/or
the types of promotional financing offers.
We also have similar agreements for the issuance of private-label and/or co-branded credit cards with banks for our businesses
in Canada, China and Mexico, which we account for consistent with the U.S. credit card agreements.
In addition to our private-label and co-branded credit cards, we also accept Visa®, MasterCard®, Discover®, JCB® and
American Express® credit cards, as well as debit cards from all major international networks.
Sales Incentives
We frequently offer sales incentives that entitle our customers to receive a reduction in the price of a product or service. Sales
incentives include discounts, coupons and other offers that entitle a customer to receive a reduction in the price of a product or
service either at the point of sale or by submitting a claim for a refund or rebate. For sales incentives issued to a customer in
conjunction with a sale of merchandise or services, for which we are the obligor, the reduction in revenue is recognized at the
time of sale, based on the retail value of the incentive expected to be redeemed.
Customer Loyalty Programs
We have customer loyalty programs which allow members to earn points for each qualifying purchase. Points earned enable
members to receive a certificate that may be redeemed on future purchases at our Best Buy branded stores. There are two ways
that members may participate and earn loyalty points.
First, we have customer loyalty programs where members earn points for each purchase. Depending on the customer's
membership level within our loyalty program, certificates expire either three or six months from the date of issuance. The retail
value of points earned by our loyalty program members is included in accrued liabilities and recorded as a reduction of revenue
at the time the points are earned, based on the percentage of points that are projected to be redeemed.