Best Buy 2005 Annual Report Download - page 79

$ in millions, except per share amounts
Our markdown reserve represents the excess of the
Cash and Cash Equivalents carrying value, typically average cost, over the amount
Cash primarily consists of cash on hand and bank we expect to realize from the ultimate sale or other
deposits. Cash equivalents primarily consist of money disposal of the inventory.
market accounts and other highly liquid investments with
an original maturity of three months or less when Restricted Assets
purchased. We carry these investments at cost, which Included in other current assets were $158 and $27 in
approximates market value. The amount of cash restricted cash balances as of February 26, 2005, and
equivalents at February 26, 2005, and February 28, February 28, 2004, respectively. Such balances are
2004, was $156 and $73, respectively, and the weighted pledged as collateral or restricted to use for general
average interest rates were 2.9% and 0.9%, respectively. liability insurance, workers’ compensation insurance and
Prior to the fourth quarter of fiscal 2005, we classified warranty programs.
auction-rate debt securities as cash equivalents. These
securities are now classified as short-term investments or Property and Equipment
long-term investments, as appropriate. Prior year amounts Property and equipment are recorded at cost. We
have been reclassified to conform with the current-year compute depreciation using the straight-line method over
presentation. See Note 3, Investments in Debt Securities,the estimated useful lives of the assets. Leasehold
for further information. improvements are depreciated over the shorter of their
Outstanding checks in excess of funds on deposit totaled estimated useful lives or the period from the date the
$393 and $351 at February 26, 2005, and February 28, assets are placed in service to the end of the initial lease
2004, respectively, and are reflected as current liabilities. term. Accelerated depreciation methods are generally
used for income tax purposes.
Merchandise Inventories Repairs and maintenance costs are charged directly to
Merchandise inventories are recorded at the lower of expense as incurred. Major renewals or replacements that
average cost or market. In-bound freight-related costs substantially extend the useful life of an asset are
from our vendors are included as part of the net cost of capitalized and depreciated.
merchandise inventories. Also included in the cost of Costs associated with the acquisition or development of
inventory are certain vendor allowances that are not a software for internal use are capitalized and amortized
reimbursement of specific, incremental and identifiable over the expected useful life of the software, between
costs to promote a vendor’s products. Other costs three to seven years. Subsequent additions, modifications
associated with acquiring, storing and transporting or upgrades to internal-use software are capitalized only
merchandise inventories to our retail stores are expensed to the extent that it enables the software to perform a task
as incurred and included in cost of goods sold. it previously did not perform. Capitalized software is
Our inventory loss reserve represents anticipated physical included in fixtures and equipment. Software maintenance
inventory losses (e.g., theft) that have occurred since the and training costs are expensed in the period incurred.
last physical inventory date. Independent physical Property under master and capital lease is comprised of
inventory counts are taken on a regular basis to ensure retail locations under our master lease program,
that the inventory reported in our consolidated financial equipment used in our retail stores and other facilities.
statements is accurately stated. During the interim period The related depreciation for master and capital lease
between physical inventory counts, we reserve for assets is included in depreciation expense. Accumulated
anticipated physical inventory losses on a
location-by-location basis.
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