Best Buy 2005 Annual Report Download - page 82

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$ in millions, except per share amounts
finance company on invoices we owe them. Amounts due ultimate outcome of tax audits. We adjust our annual
under the facilities are collateralized by a security interest effective income tax rate as additional information on
in certain merchandise inventories. The amounts extended outcomes or events becomes available.
bear interest, if we exceed certain terms, at rates specified
Long-Term Liabilities
in the agreements. We impute interest based on our
borrowing rate where there is an average balance The major components of long-term liabilities at
outstanding. Imputed interest is not significant. Certain February 26, 2005, and February 28, 2004, included
agreements have provisions that entitle the lenders to a deferred compensation plan liabilities, long-term
portion of the cash discounts provided by the suppliers. rent-related liabilities, deferred income taxes and
advances received under vendor alliance programs.
At February 26, 2005, and February 28, 2004, $68 and
$70, respectively, were outstanding and $157 and $140, Foreign Currency
respectively, were available for use under these inventory
financing facilities. Foreign currency denominated assets and liabilities are
translated into U.S. dollars using the exchange rates in
Prior to the fourth quarter of fiscal 2005, amounts related effect at the balance sheet date. Results of operations and
to inventory financing facilities were classified as accounts cash flows are translated using the average exchange
payable. These amounts have been reclassified to accrued rates throughout the period. The effect of exchange rate
liabilities on the consolidated balance sheets. Prior year fluctuations on translation of assets and liabilities is
amounts have been reclassified to conform to the included as a component of shareholders’ equity in
current-year presentation. accumulated other comprehensive income. Gains and
losses from foreign currency transactions, which are
Income Taxes
included in SG&A, have not been significant.
We account for income taxes under the liability method.
Under this method, deferred tax assets and liabilities are Revenue Recognition
recognized for the estimated future tax consequences We recognize revenue from the sale of merchandise at
attributable to differences between the financial statement the time the customer takes possession of the
carrying amounts of existing assets and liabilities and merchandise. We recognize service revenue at the time
their respective tax bases, and operating loss and tax the service is provided, the sales price is fixed or
credit carryforwards. Deferred tax assets and liabilities determinable, and collectibility is reasonably assured.
are measured using enacted income tax rates in effect for Proceeds from the sale of gift cards are deferred until the
the year in which those temporary differences are customer uses the gift card to acquire merchandise or
expected to be recovered or settled. The effect on deferred services. Amounts billed to customers for shipping and
tax assets and liabilities of a change in income tax rates handling are included in revenue. An allowance has been
is recognized in our statement of earnings in the period established for estimated sales returns.
that includes the enactment date. A valuation allowance is
recorded to reduce the carrying amounts of deferred tax We sell extended service contracts on behalf of an
assets if it is more likely than not that such assets will not unrelated third party. In jurisdictions where we are not
be realized. deemed to be the obligor on the contract, commissions
are recognized in revenue at the time of sale. In
In determining our provision for income taxes, we use an jurisdictions where we are deemed to be the obligor on
annual effective income tax rate based on expected the contract, commissions are recognized in revenue
annual income, permanent differences between book and ratably over the term of the service contract.
tax income, and statutory income tax rates. The effective
income tax rate also reflects our assessment of the
66