Best Buy 2006 Annual Report Download - page 78

$ in millions, except per share amounts
64
losses is managed through a wholly owned insurance
captive. We estimate our self-insured liabilities using a
number of factors including historical claims experience,
demographic factors, severity factors and valuations
provided by independent third-party actuaries. Our self-
insurance liability was $83 and $80, at February 25,2006,
andFebruary 26, 2005, respectively, and is included in
other current liabilities in our consolidated balance sheets.
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
merchandiseinventories.The amounts extended bear
interest, if we exceed certainterms, at rates specified inthe
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 February 25, 2006, andFebruary 26, 2005, $59 and
$68, respectively, were outstanding and included in
accrued liabilities on our consolidated balance sheets; and
$177 and $157, respectively, were available for use under
these inventory financing facilities.
Income Taxes
We account forincome 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
andliabilities of a change in income tax rates is recognized
in ourconsolidated 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 differencesbetween book and tax income,and
statutory income tax rates. The effective incometax 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.
Long-Term Liabilities
The majorcomponents of long-term liabilities at
February 25,2006, and February26, 2005, included
deferred compensation plan liabilities, long-term
rent-related liabilities and advances received under vendor
alliance programs.
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. Results of
operations andcash 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
We recognize revenue when the sales price is fixed or
determinable, collectibility is reasonably assuredand the
customer takes possession of the merchandise, or in the
case of services, at the time the service is provided.
Amounts billed to customers for shipping and handling are
included in revenue. Revenue is reported netofestimated
sales returns and excludes sales taxes.