Best Buy 2007 Annual Report Download - page 83

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$ in millions, except per share amounts
68
breakage income for those cards for which the likelihood of
redemption is deemed remote and we do not have a legal
obligation to remit the value of such unredeemed gift cards
to the relevant jurisdictions. Gift card breakage income is
included in revenue in our consolidated statements of
earnings.
We began recognizing gift card breakage income during
the third quarter of fiscal 2006. Gift card breakage income
was as follows in fiscal 2007, 2006 and 2005:
2007(1) 2006(1) 2005
Gift card breakage income $46 $ 43 $ —
(1) Due to the resolution of certain legal matters associated with
gift card liabilities, we recognized $19 and $27 of gift card
breakage income in fiscal 2007 and 2006, respectively, that
related to prior fiscal years.
Sales Incentives
We frequently offer sales incentives that entitle our
customers to receive a reduction in the price of a product or
service. Sales incentives include discounts, coupons and
other offers that entitle a customer to receive a reduction in
the price of a product or service by submitting a claim for a
refund or rebate. For sales incentives issued to a customer
in conjunction with a sale of merchandise or services, for
which we are the obligor, the reduction in revenue is
recognized at the time of sale, based on the retail value of
the incentive expected to be redeemed.
Customer Loyalty Program
We have a customer loyalty program which allows members
to earn points for each qualifying purchase. Points earned
enable members to receive a certificate that may be
redeemed on future purchases at U.S. Best Buy stores.
There are two ways that members may participate and earn
loyalty points.
First, we have a customer loyalty card where members earn
points for each purchase completed at U.S. Best Buy stores
or through our BestBuy.com Web site. We account for our
customer loyalty program in accordance with Emerging
Issues Task Force (“EITF”) Issue No. 00-22, Accounting for
“Points” and Certain Other Time-Based or Volume-Based
Sales Incentive Offers, and Offers for Free Products or
Services to Be Delivered in the Future. The retail value of
points earned by our customer loyalty members is included
in accrued liabilities and recorded as a reduction of
revenue at the time the points are earned, based on the
percentage of points that are projected to be redeemed.
Prior to October 2006, we charged a loyalty program
membership fee which was initially deferred and then
recognized in revenue ratably over the membership period.
Beginning in October 2006, we no longer charge a
membership fee for our customer loyalty program.
Second, we have a co-branded credit card agreement with
a third-party bank (the “Bank”) for the issuance of a
customer loyalty credit card bearing the Best Buy brand.
Cardholders earn points for qualifying purchases, including
purchases made at Best Buy. Points earned enable
cardholders to receive certificates that may be redeemed on
future purchases at U.S. Best Buy stores. The Bank is the
sole owner of the accounts issued under the program and
absorbs losses associated with non-payment by the
cardholders and fraudulent usage of the accounts. We are
responsible for redeeming the points earned by the
cardholders. The Bank pays fees to us based on the number
of credit card accounts activated and card usage, and
reimburses us for certain costs associated with the program.
In accordance with EITF No. 00-21, Revenue Arrangements
with Multiple Deliverables,wedeferrevenuereceivedfrom
cardholder account activations and recognize revenue on a
straight-line basis over the remaining term of the
agreement. Card usage fees are recognized in revenue as
actual credit card usage occurs.