Best Buy 2006 Annual Report Download - page 74

$ in millions, except per share amounts
60
Fiscal Year
Our fiscal yearends on the Saturday nearest the end of
February. Fiscal 2006, 2005and 2004 each included 52
weeks. Fiscal 2007 will include 53 weeks.
Cash and Cash Equivalents
Cash primarily consists of cashon hand and bank deposits.
Cash equivalents primarily consist of money market
accounts and other highly liquid investments with an
original maturity of three months or less when purchased.
We carrythese investments at cost, which approximates
market value. The amount of cash equivalents at
February 25, 2006, and February 26, 2005, was$350
and$39, respectively, and the weighted-average interest
rates were 3.3%and 1.5%, respectively.
Prior to the third quarterof fiscal 2006, we classified
variable-rate demand notes as cash equivalents. These
securities are now classified as short-term investments.
Prior-yearamounts have been reclassified toconform with
the current-year presentation.See Note 3, Investments , for
further details.
Outstandingchecks in excess of funds on deposit totaled
$230 and $393 at February 25, 2006, and February 26,
2005, respectively, and are reflected as current liabilities in
our consolidatedbalance sheets.
Merchandise Inventories
Merchandise inventories are recorded at the lower of
average cost or market. In-bound freight-related costs from
ourvendors are included as part of the net cost of
merchandise inventories. Also included in the cost of
inventory are certain vendor allowances that are not a
reimbursement of specific, incremental and identifiable
costs to promote a vendor’s products. Other costs
associated with acquiring, storing and transporting
merchandise inventories to our retail stores are expensed as
incurred and included in cost of goods sold.
Our inventory loss reserve represents anticipated physical
inventory losses (e.g., theft) that have occurred since the last
physical inventory date. Independent physical inventory
counts are taken on a regular basis to ensure that the
inventory reported in our consolidated financial statements
is properly stated. During the interim periodbetween
physical inventory counts, we reserve for anticipated
physical inventory losses on a location-by-location basis.
Our markdown reserve represents the excess of the carrying
value, typically average cost, over the amount we expect to
realize from the ultimate sale or other disposal of the
inventory. Markdowns establish a new cost basisfor our
inventory. Subsequent changes in facts or circumstances do
not result in the restoration of previously recorded
markdowns or an increase in that newly established cost
basis.
Restricted Assets
Included in other current assets were $178 and $158 in
restricted cash balances at February 25, 2006, and
February 26,2005, respectively. Such balances are
pledged as collateral or restricted to use for general liability
insurance, workers’ compensation insurance andwarranty
programs.
Property and Equipment
Property andequipment are recorded at cost. We compute
depreciation using the straight-line method over the
estimateduseful lives of the assets. Leasehold improvements
are depreciated over the shorter of their estimated useful
lives orthe period from the date the assets are placed in
service to the end of the initial lease term. Leasehold
improvements made significantly after the initial lease term
are depreciated over the shorter of their estimated useful
lives or the remaining lease term, including renewal
periods, if reasonably assured. Accelerated depreciation
methods are generally used for income tax purposes.
Repairs andmaintenance costs are charged directly to
expense as incurred. Majorrenewals or replacements that
substantially extend the useful life ofan asset are capitalized
and depreciated.
Costs associated with the acquisition or development of
software for internal use are capitalized andamortized over
the expected useful life of the software, from three to seven
years. A subsequent addition, modification orupgrade to