Best Buy 2016 Annual Report Download - page 75

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67
Revenue is recognized for store sales when the customer receives and pays for merchandise. In the case of items paid for in
store but subsequently delivered to the customer, revenue is recognized once delivery has been completed.
For transactions initiated online, customers choose whether to collect merchandise from one of our stores (“in-store pick up”)
or have it delivered to them (typically using third party parcel delivery companies). For in-store pick up, we recognize revenue
once the customer has taken possession of merchandise. For items delivered directly to the customer, we recognize revenue
when delivery has been completed. Any fees charged to customers for delivery are also recognized when delivery has been
completed.
Services
Revenue related to consultation, design, installation, set-up, repair and educational classes are recognized once the service is
complete. We sell various protection plans with extended warranty coverage for merchandise and technical support to assist
customers in using their devices. Such plans have terms typically ranging from one month to five years. For extended warranty
protection, third party insurers assume all risk associated with the coverage and are deemed to be the legal obligor. We record
the net commissions we receive (the amount charged to the customer less the amount remitted to the insurer) as revenue when
the corresponding merchandise revenue is recognized.
For technical support contracts, we assume responsibility for fulfilling the support to customers and we recognize the
associated revenue either on a straight-line basis over the life of the contracts, or, if sufficient history is available, on a
consumption basis.
Credit card revenue
We offer promotional financing and credit cards issued by third-party banks that manage and directly extend credit to our
customers. The banks are the sole owners of the accounts receivable generated under the program and accordingly, we do not
hold any consumer receivables related to these programs. We are eligible to receive a profit share from our banking partners
based on the performance of the programs. We record such profit share as revenue once the portfolio period to which it relates
is complete and we have sufficient evidence to estimate the amount.
Gift cards
We sell gift cards to our customers in our retail stores, online and through select 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. Gift card breakage income is included in revenue in our Consolidated Statements of Earnings. Gift card breakage
income was $65 million, $19 million and $53 million in fiscal 2016, 2015 and 2014, respectively.
Sales Incentives
We frequently offer sales incentives that entitle our customers to receive a gift card at time of purchase or a reduction in the
price of a product or service either at the point of sale or by submitting a claim for a refund (for example coupons, rebates,
etc.). For sales incentives issued to the customer in conjunction with a sale of merchandise or services, the reduction in revenue
is recognized at the time of sale, based on the expected 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. Depending on the
customer's membership level within our loyalty program, certificates expirations typically range from 2 to 12 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.
We recognize revenue when: (i) a certificate is redeemed by the customer; (ii) a certificate expires, or (iii) the likelihood of a
certificate being redeemed by a customer is remote ("certificate breakage"). We determine our certificate breakage rate based
upon historical redemption patterns.