Best Buy 2012 Annual Report Download - page 76

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$ in millions, except per share amounts or as otherwise noted
76
information becomes available. We include our liability for unrecognized tax benefits, including accrued penalties and interest,
in Accrued income taxes and Long-term liabilities on our Consolidated Balance Sheets and in Income tax expense in our
Consolidated Statements of Earnings.
Accrued Liabilities
The major components of accrued liabilities at March 3, 2012, and February 26, 2011, were deferred revenue, state and local
tax liabilities, rent-related liabilities including accrued real estate taxes, loyalty program liabilities and self-insurance reserves.
Long-Term Liabilities
The major components of long-term liabilities at March 3, 2012, and February 26, 2011, were unrecognized tax benefits, rent-
related liabilities, deferred revenue, deferred compensation plan liabilities and self-insurance reserves.
Foreign Currency
Foreign currency denominated assets and liabilities are translated into U.S. dollars using the exchange rates in effect at our
consolidated balance sheet date. For operations reported on a two-month lag, we use the exchange rates in effect two months
prior to our consolidated balance sheet date. Results of operations and cash flows are translated using the average exchange
rates throughout the period. The effect of exchange rate fluctuations on translation of assets and liabilities is included as a
component of shareholders' equity in accumulated other comprehensive income. Gains and losses from foreign currency
transactions, which are included in SG&A, have not been significant.
Revenue Recognition
Our revenue arises primarily from sales of merchandise and services. We also record revenue from sales of extended warranties
and other service contracts, commissions earned from various customer subscriptions, fees earned from private label and co-
branded credit card agreements and amounts billed to customers for shipping and handling. Revenue excludes sales taxes
collected.
We recognize revenue when the sales price is fixed or determinable, collection is reasonably assured and the customer takes
possession of the merchandise, or in the case of services, the service has been provided. Revenue is recognized for store sales
when the customer receives and pays for the merchandise. For online sales, we defer revenue and the related product costs for
shipments that are in-transit to the customer, and recognize revenue at the time the customer receives the product. Online
customers typically receive goods within a few days of shipment. Revenue from merchandise sales and services is reported net
of sales returns, including an estimate of future returns based on historical return rates, with a corresponding reduction to cost
of sales. Our sales returns reserve was $18 and $15, at March 3, 2012, and February 26, 2011, respectively.
We sell extended warranties and other service contracts that typically have terms ranging from three months to four years. We
also receive commissions for customer subscriptions with various third parties, notably from mobile phone network operators.
In instances where we are deemed to be the obligor on the service contract or subscription, the service and commission revenue
is deferred and recognized ratably over the term of the service contract or subscription period. In instances where we are not
deemed to be the obligor on the service contract or subscription, commissions are recognized in revenue when such
commission has been earned, primarily driven by customer activation. Service and commission revenues earned from the sale
of extended warranties represented 2.7%, 2.6% and 2.7% of revenue in fiscal 2012, 2011 and 2010, respectively.
For revenue transactions that involve multiple deliverables, we defer the revenue associated with any undelivered elements.
The amount of revenue deferred in connection with the undelivered elements is determined using the relative fair value of each
element, which is generally based on each element's relative retail price.
At March 3, 2012, and February 26, 2011, deferred revenue included within Accrued liabilities and Long-term liabilities in our
Consolidated Balance Sheets was $565 and $499, respectively.
For additional information related to our credit card arrangements, see Credit Services and Financing, below.
For additional information regarding our customer loyalty programs, see Sales Incentives, below.