Best Buy 2013 Annual Report Download - page 52

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52
future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and
estimates, and such differences could be material.
Our significant accounting policies are discussed in Note 1, Summary of Significant Accounting Policies, of the Notes to
Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Transition
Report on Form 10-K. We believe that the following accounting estimates are the most critical to aid in fully understanding and
evaluating our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from
the need to make estimates about the effect of matters that are inherently uncertain. We have reviewed these critical accounting
estimates and related disclosures with the Audit Committee of our Board.
Except where noted, we have not made any material changes to the accounting methodologies for the areas described below.
Inventory
We value our inventory at the lower of cost or market through the establishment of markdown and inventory loss adjustments.
Markdown adjustments reflect the excess of the cost over the amount we expect to realize from the ultimate sale or other
disposal of the inventory, and establish a new cost basis. Subsequent changes in facts or circumstances do not result in the
reversal of previously recorded markdowns or an increase in that newly established cost basis. Markdown adjustments involve
uncertainty because the calculations require management to make assumptions and to apply judgment regarding inventory
aging, forecast consumer demand, the promotional environment and technological obsolescence.
We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we
use to calculate our markdowns. However, if estimates regarding consumer demand are inaccurate or changes in technology
affect demand for certain products in an unforeseen manner, we may be exposed to losses or gains that could be material. A
10% change in our markdown reserve percentage at February 2, 2013, would have affected net earnings by approximately
$9 million in fiscal 2013 (11-month).
Inventory loss adjustments reflect anticipated physical inventory losses (e.g., theft) that have occurred since the last physical
inventory. Physical inventory counts are taken on a regular basis and results are used in estimating inventory loss rates.
Inventory loss adjustments involve uncertainty because the calculations require management to make assumptions and to apply
judgment regarding a number of factors, including historical results and current inventory loss trends.
We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we
use to calculate our inventory loss adjustment. However, if our estimates regarding physical inventory losses are inaccurate, we
may be exposed to losses or gains that could be material. A 10% change in our physical inventory loss percentage at February
2, 2013, would have affected net earnings by approximately $7 million in fiscal 2013 (11-month).
Vendor Allowances
We receive funds from vendors for various programs, primarily as reimbursements for costs such as markdowns, margin
protection, advertising and sales incentives. Vendor allowances provided as a reimbursement of specific, incremental and
identifiable costs incurred to promote a vendor's products are included as an expense reduction when the cost is incurred. All
other vendor allowances are recorded as a reduction of the cost of merchandise.
Based on the provisions of our vendor agreements, we develop vendor fund accrual rates by estimating the point at which we
will have completed our performance under the agreement and the deferred amounts will be earned. We perform analyses and
review historical trends to ensure the deferred amounts earned are appropriately recorded. Certain of our vendor agreements
contain purchase volume incentives that provide for increased funding when graduated purchase volumes are met. Amounts
accrued throughout the year are based on estimates of future activity levels, and could be impacted if actual purchase volumes
differ.
We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we
use to calculate our vendor receivables. However, if actual results are not consistent with the assumptions and estimates used,
we may be exposed to additional adjustments that could materially, either positively or negatively, impact our gross profit rate
and inventory. A 10% difference in our vendor receivables at February 2, 2013, would have affected net earnings by
approximately $45 million in fiscal 2013 (11-month).
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