Best Buy 2015 Annual Report Download - page 55

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may be exposed to losses or gains that could be material. A 10% change in our physical inventory loss estimate at January 31,
2015, would have affected net earnings by approximately $6 million in fiscal 2015.
Vendor Allowances
We receive allowances from certain vendors through a variety of programs and arrangements. We treat such allowances as an
offset to the cost of the product or services provided. Receipt-based funds represent one form of our vendor allowances.
Receipt-based funds are generally determined at an agreed percentage of purchases and are initially deferred and recorded as a
reduction of merchandise inventories. The deferred amounts are then included as a reduction of cost of goods sold when the
related product is sold. We estimate the amount of vendor funding to be deferred and recorded as a reduction of inventory at the
end of each period based on detailed analysis of inventory turns and applicable vendor funding rates.
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 funding deferral. 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 funding deferral at January 31, 2015, would have affected net earnings by
approximately $20 million in fiscal 2015.
We also receive vendor allowances for attaining certain purchase levels. These vendor allowances are accrued as earned over
the incentive period, based on estimates of purchases. Amounts accrued throughout the program year could require adjustment
if actual purchase volumes differ from projected purchase volumes, especially in the case of programs that provide for
increased funding when graduated purchase volumes are met. We believe that our estimate of vendor allowances earned based
on expected volume of purchases over the incentive period is an accurate reflection of the ultimate allowances to be received
from our vendors. Since most volume-based programs apply to a calendar year or our fiscal year, the amount of judgment
required as of any fiscal year end is minimal.
Long-Lived Assets
Long-lived assets other than goodwill and indefinite-lived intangible assets are evaluated for impairment whenever events or
changes in circumstances indicate that the carrying value may not be recoverable.
When evaluating long-lived assets for potential impairment, we first compare the carrying value of the asset to the asset's
estimated future cash flows (undiscounted and without interest charges). If the sum of the estimated future cash flows is less
than the carrying value of the asset, we calculate an impairment loss. The impairment loss calculation compares the carrying
value of the asset to the asset's estimated fair value, which is typically based on estimated discounted future cash flows. We
recognize an impairment loss if the amount of the asset's carrying value exceeds the asset's estimated fair value. If we recognize
an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis. For a depreciable long-lived asset, the
new cost basis is depreciated over the remaining useful life of that asset.
When reviewing long-lived assets for impairment, we group long-lived assets with other assets and liabilities at the lowest level
for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. For long-lived assets
deployed at store locations, we review for impairment at the individual store level. These reviews involve comparing the
carrying value of all land, buildings, leasehold improvements, fixtures and equipment located at each store to the net cash flow
projections for each store. In addition, we conduct separate impairment reviews at other levels as appropriate. For example, a
shared asset such as a distribution center would be evaluated by reference to the aggregate assets, liabilities and projected cash
flows of all areas of the businesses utilizing those shared assets.
Our impairment loss calculations involve uncertainty because they require management to make assumptions and to apply
judgment to estimate future cash flows and asset fair values, including estimating useful lives of the assets and selecting the
discount rate that reflects the risk inherent in future cash flows. If actual results are not consistent with our estimates and
assumptions used in estimating future cash flows and asset fair values, we may be exposed to losses that could be material. We
do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to
calculate long-lived asset impairment losses.