Best Buy 2013 Annual Report Download - page 74

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74
Long-Term Liabilities
The major components of long-term liabilities at February 2, 2013, and March 3, 2012, were unrecognized tax benefits, rent-
related liabilities, deferred revenue, 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 one-month lag, we use the exchange rates in effect one month
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 in any of the periods presented.
Revenue Recognition
Our revenue arises primarily from sales of merchandise and services. We also record revenue from sales of service contracts,
extended warranties, other commissions and credit card programs. Revenue excludes sales taxes collected.
We recognize revenue when the sales price is fixed or determinable, collection is reasonably assured and the customer takes
possession of the merchandise, or in the case of services, the service has been 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, with a corresponding reduction to cost
of sales. Our sales returns reserve was $14 million and $18 million at February 2, 2013, and March 3, 2012, respectively.
We sell service contracts and extended warranties 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 in revenue when such
commission has been earned, primarily driven by customer activation. Service and commission revenues earned from the sale
of extended warranties represented 2.8%, 2.7% and 2.6% of revenue in fiscal 2013 (11-month), 2012 and 2011, respectively.
For revenue transactions that involve multiple deliverables, we defer the revenue associated with any undelivered elements.
The amount of revenue deferred in connection with the undelivered elements is determined using the relative fair value of each
element, which is generally based on each element's relative retail price.
At February 2, 2013, and March 3, 2012, deferred revenue included within Accrued liabilities in our Consolidated Balance
Sheets was $451 million and $469 million, respectively. At February 2, 2013, and March 3, 2012, deferred revenue included
within Long-term liabilities in our Consolidated Balance Sheets was $62 million and $96 million, respectively.
For additional information related to our credit card arrangements and customer loyalty programs, see Credit Services and
Financing and Sales Incentives, respectively, below.
Gift Cards
We sell gift cards to our customers in our retail stores, through our websites 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.
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