Best Buy 2012 Annual Report Download - page 78

$ in millions, except per share amounts or as otherwise noted
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Second, under our co-branded credit card agreements with banks, we have a customer loyalty credit card bearing the Best Buy
brand. Cardholders earn points for purchases made at our stores and related Web sites in the U.S., as well as purchases at other
merchants. Points earned entitle cardholders to receive certificates that may be redeemed on future purchases at our stores and
related Web sites. Certificates expire either three or six months from the date of issuance. The retail value of points earned by
our cardholders 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.
We recognize revenue when: (i) a certificate is redeemed by the customer, (ii) a certificate expires or (iii) the likelihood of a
certificate being redeemed by a customer is remote ("certificate breakage"). We determine our certificate breakage rate based
upon historical redemption patterns.
Cost of Goods Sold and Selling, General and Administrative Expenses
The following table illustrates the primary costs classified in each major expense category:
Cost of Goods Sold
• Total cost of products sold including:
— Freight expenses associated with moving merchandise inventories from our vendors to our distribution centers;
— Vendor allowances that are not a reimbursement of specific, incremental and identifiable costs to promote a
vendor's products; and
— Cash discounts on payments to merchandise vendors;
• Cost of services provided including:
— Payroll and benefits costs for services employees; and
— Cost of replacement parts and related freight expenses;
• Physical inventory losses;
• Markdowns;
• Customer shipping and handling expenses;
• Costs associated with operating our distribution network, including payroll and benefit costs, occupancy costs, and
depreciation; and
• Freight expenses associated with moving merchandise inventories from our distribution centers to our retail stores.
SG&A
• Payroll and benefit costs for retail and corporate employees;
• Occupancy and maintenance costs of retail, services and corporate facilities;
• Depreciation and amortization related to retail, services and corporate assets;
• Advertising costs;
• Vendor allowances that are a reimbursement of specific, incremental and identifiable costs to promote a vendor's
products;
• Tender costs, including bank charges and costs associated with credit and debit card interchange fees;
• Charitable contributions;
• Outside and outsourced service fees;
• Long-lived asset impairment charges; and
• Other administrative costs, such as supplies, and travel and lodging.
Vendor Allowances
We receive funds from vendors for various programs, primarily as reimbursements for costs such as markdowns, margin
protection, advertising and sales incentives.
Vendor allowances provided as a reimbursement of specific, incremental and identifiable costs incurred to promote a vendor's
products are included as an expense reduction when the cost is incurred. All other vendor allowances are generally in the form
of receipt-based funds or sell-through credits. Receipt-based funds are generally determined based on our level of inventory
purchases and initially deferred and recorded as a reduction of merchandise inventories. The deferred amounts are then