Best Buy 2002 Annual Report Download - page 42

40 Notes to Consolidated Financial Statements
Goodwill
Goodwill is the excess of the purchase price over the fair
value of identifiable net assets acquired in business
combinations accounted for under the purchase method.
We periodically review goodwill for impairment and
assess whether significant events or changes in business
circumstances indicate that the carrying value of the
goodwill may not be recoverable. An impairment loss
would be recorded in the period such determination is
made. Accumulated amortization was $22 and $2 in fiscal
2002 and 2001, respectively. See note 2 for additional
discussion regarding goodwill.
Revenue Recognition
We recognize revenues from the sale of merchandise at the
time the merchandise is sold. We recognize service revenues
at the time the service is provided, the sales price is fixed
or determinable and collectibility is reasonably assured.
We sell extended service contracts, called Performance
Service Plans, on behalf of an unrelated third party. In
jurisdictions where we are not deemed to be the obligor
on the contract at the time of sale, commissions are
recognized in revenues at the time of sale. In jurisdictions
where we are deemed to be the obligor on the contract
at the time of sale, commissions are recognized in
revenues ratably over the term of the service contract.
Sales Incentives
We periodically offer sales incentives that entitle our
customers to receive a reduction in the price of a product
or service. For sales incentives in which we are the
obligor, the reduction in revenues is recognized at the time
the product or service is sold.
Shipping and Handling Costs
Amounts billed to customers for shipping and handling are
included in revenues. The related costs are included in
cost of goods sold.
Foreign Currency
Foreign currency denominated assets and liabilities are
translated into U.S. dollars using the exchange rates in
effect at the 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 recorded
as a component of shareholders’ equity. Gains and losses
from foreign currency transactions are included in selling,
general and administrative expenses.
Comprehensive Income
Comprehensive income is net earnings, plus certain other
items that are recorded directly to shareholders’ equity. The
only significant item currently applicable to us is foreign
currency translation adjustments, which were not significant.
Stock-Based Compensation
We account for employee stock-based compensation using
the intrinsic value method as prescribed under Accounting
Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and related Interpretations. We
also present pro forma net earnings and earnings per share
in note 4 as if we had adopted Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation.
Pre-Opening Costs
Non-capital expenditures associated with opening new
stores are expensed as incurred.
Advertising Costs
Advertising costs, which are included in selling, general
and administrative expenses, are expensed the first time the
advertisement runs. Gross advertising expenses, prior to
reimbursement through cooperative advertising agreements,
for fiscal 2002, 2001 and 2000 were $540, $479
and $374, respectively.
$ in millions, except per share amounts