Best Buy 2005 Annual Report Download - page 83

$ in millions, except per share amounts
U.S. Best Buy stores. Points earned enable members to
Sales Incentives receive a certificate that may be redeemed on future
We frequently offer sales incentives that entitle our purchases at U.S. Best Buy stores. We account for our
customers to receive a reduction in the price of a product customer loyalty program in accordance with Emerging
or service. Sales incentives include discounts, coupons and Issues Task Force (EITF) Issue No. 00-22, Accounting for
other offers that entitle a customer to receive a reduction ‘‘Points’’ and Certain Other Time-Based or Volume-Based
in the price of a product or service by submitting a claim Sales Incentive Offers, and Offers for Free Products or
for a refund or rebate. For sales incentives in which we Services to Be Delivered in the Future. The value of points
are the obligor, the reduction in revenue is recognized at earned by our loyalty program members is included in
the time the product is sold. accrued liabilities and recorded as a reduction of revenue
We have a customer loyalty program which allows at the time the points are earned, based on the
members to earn points for each purchase completed at percentage of points that are projected to be redeemed.
Costs 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 SG&A
• Total cost of products sold including: • Payroll and benefit costs for retail and corporate
— Freight expenses associated with moving employees;
merchandise inventories from our vendors to our • Occupancy costs of retail, services and corporate
distribution centers; facilities;
— Vendor allowances that are not a reimbursement of • Depreciation related to retail, services and corporate
specific, incremental and identifiable costs to assets;
promote a vendor’s products; • Advertising;
• Costs of services provided; • Vendor allowances that are a reimbursement of specific,
• Physical inventory losses; incremental and identifiable costs to promote a vendor’s
• Markdowns; products;
• Customer shipping and handling expenses; • Outside service fees;
• Costs associated with operating our distribution network, • Long-lived asset impairment charges; and
including payroll and benefit costs, occupancy costs, • Other administrative costs, such as credit card service
and depreciation; and fees, supplies, and travel and lodging.
• Freight expenses associated with moving merchandise
inventories from our distribution centers to our retail
stores.
incurred. All other vendor allowances, including vendor
Vendor Allowances allowances received in excess of our cost to promote a
We receive vendor allowances for various programs, vendor’s product, are initially deferred and recorded as a
primarily volume incentives and reimbursements for reduction of merchandise inventories. The deferred
specific costs such as markdowns, margin protection and amounts are then included as a reduction of cost of goods
advertising. Vendor allowances provided as a sold when the related product is sold. Vendor allowances
reimbursement of specific, incremental and identifiable included in SG&A were approximately $140, $92 and
costs incurred to promote a vendor’s products are $118, in fiscal 2005, 2004 and 2003, respectively.
included as an expense reduction when the cost is
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