Best Buy 2007 Annual Report Download - page 81

$ in millions, except per share amounts
66
In accordance with our investment policy, we place our
investments with issuers who have high-quality credit and
limit the amount of investment exposure to any one issuer.
We seek to preserve principal and minimize exposure to
interest-rate fluctuations by limiting default risk, market risk
and reinvestment risk.
We also hold investments in marketable equity securities
and classify them as available-for-sale. Investments in
marketable equity securities are included in other assets in
our consolidated balance sheets. Investments in marketable
equity securities are reported at fair value, based on quoted
market prices when available. All unrealized holding gains
or losses are reflected net of tax in accumulated other
comprehensive income in shareholders’ equity.
We review the key characteristics of our debt and
marketable equity securities portfolio and their classification
in accordance with GAAP on an annual basis, or when
indications of potential impairment exist. If a decline in the
fair value of a security is deemed by management to be
other than temporary, the cost basis of the investment is
written down to fair value, and the amount of the write-
down is included in the determination of net earnings.
Insurance
We are self-insured for certain losses related to health,
workers’ compensation and general liability claims,
although we obtain third-party insurance coverage to limit
our exposure to these claims. A portion of these self-insured
losses is managed through a wholly-owned insurance
captive. We estimate our self-insured liabilities using a
number of factors including historical claims experience, an
estimate of incurred but not reported claims, demographic
factors, severity factors and valuations provided by
independent third-party actuaries. Our self-insurance
liabilities included in the consolidated balance sheets were
as follows:
March 3,
2007
Feb.25,
2006
Accrued liabilities $51 $83
Long-term liabilities 44 —
Total $95 $83
Inventory Financing
We have inventory financing facilities through which certain
suppliers receive payments from a designated finance
company on invoices we owe them. Amounts due under the
facilities are collateralized by a security interest in certain
merchandise inventories. The amounts extended bear
interest, if we exceed certain terms, at rates specified in the
agreements. We impute interest based on our borrowing
rate where there is an average balance outstanding.
Imputed interest is not significant. Certain agreements have
provisions that entitle the lenders to a portion of the cash
discounts provided by the suppliers.
At March 3, 2007, and February 25, 2006, $39 and $59,
respectively, were outstanding and included in accrued
liabilities on our consolidated balance sheets; and $196
and $177, respectively, were available for use under these
inventory financing facilities.
Borrowings and payments on our inventory financing
facilities were classified as financing activities in our
consolidated statements of cash flows in other, net.
Income Taxes
We account for income taxes under the liability method.
Under this method, deferred tax assets and liabilities are
recognized for the estimated future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases, and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are
measured using enacted income tax rates in effect for the
year in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets
and liabilities of a change in income tax rates is recognized
in our consolidated statement of earnings in the period that
includes the enactment date. A valuation allowance is
recorded to reduce the carrying amounts of deferred tax
assets if it is more likely than not that such assets will not be
realized.
In determining our provision for income taxes, we use an
annual effective income tax rate based on annual income,
permanent differences between book and tax income, and
statutory income tax rates. The effective income tax rate also
reflects our assessment of the ultimate outcome of tax
audits. We adjust our annual effective income tax rate as
additional information on outcomes or events becomes
available. Discrete events such as audit settlements or
changes in tax laws are recognized in the period in which
they occur.
Our income tax returns, like those of most companies, are
periodically audited by domestic and foreign tax authorities.
These audits include questions regarding our tax filing
positions, including the timing and amount of deductions