Best Buy 2015 Annual Report Download - page 74

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Table of Contents
67
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 $25 million and $13 million at January 31, 2015, and February 1, 2014, respectively.
We sell service contracts and extended warranties that typically have terms ranging from 3 months to 4 years. We also receive
commissions for customer subscriptions with various third parties, including 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 commissions have been
earned, primarily driven by commencement of service to the customer. Service and commission revenues earned from the sale
of extended warranties represented 2.1%, 2.2% and 2.5% of revenue in fiscal 2015, 2014 and 2013 (11-month), 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 January 31, 2015, and February 1, 2014, short-term deferred revenue was $376 million, of which $50 million is included in
current liabilities held for sale, and $399 million, respectively. At January 31, 2015, and February 1, 2014, deferred revenue
included within long-term liabilities in our Consolidated Balance Sheets was $49 million and $50 million, respectively.
For additional information related to our credit card arrangements and customer loyalty programs, see Credit Services and
Financing and Sales Incentives, respectively, below.
Gift Cards
We sell gift cards to our customers in our retail stores, through our websites and through selected third parties. We do not
charge administrative fees on unused gift cards and our gift cards do not have an expiration date. We recognize revenue from
gift cards when: (i) the gift card is redeemed by the customer, or (ii) the likelihood of the gift card being redeemed by the
customer is remote ("gift card breakage"), and we determine that we do not have a legal obligation to remit the value of
unredeemed gift cards to the relevant jurisdictions. We determine our gift card breakage rate based upon historical redemption
patterns. Based on our historical information, the likelihood of a gift card remaining unredeemed can be determined 24 months
after the gift card is issued. At that time, we recognize breakage income for those cards for which the likelihood of redemption
is deemed remote and we do not have a legal obligation to remit the value of such unredeemed gift cards to the relevant
jurisdictions. Gift card breakage income is included in revenue in our Consolidated Statements of Earnings.
Gift card breakage income was as follows in fiscal 2015, 2014 and 2013 (11-month) ($ in millions):
12-Month 12-Month 11-Month
2015 2014 2013
Gift card breakage income $ 19 $ 53 $ 46
Credit Services and Financing
In the U.S., we have an agreement with a bank for the issuance of promotional financing and customer loyalty credit cards
bearing the Best Buy brand. Under the agreement, the bank manages and directly extends credit to our customers. Cardholders
who choose promotional financing can receive deferred-interest financing on qualifying purchases. The bank is the sole owner
of the accounts receivable generated under the program and accordingly, we do not hold any consumer receivables related to
these programs. We earn revenue from the bank based primarily on the performance of the portfolio.