Best Buy 2011 Annual Report Download - page 84

$ in millions, except per share amounts or as otherwise noted
in revenue when such commission has been earned, primarily driven by customer activation. Commissions from the sale of
extended warranties represented 2.0%, 2.0% and 2.0% of revenue in fiscal 2011, 2010 and 2009, 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 February 26, 2011, and February 27, 2010, deferred revenue included within accrued liabilities and long-term
liabilities in our consolidated balance sheets was $499 and $451, 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.
Gift Cards
We sell gift cards to our customers in our retail stores, through our Web sites and through selected third parties. We do
not charge administrative fees on unused gift cards, and our gift cards do not have an expiration date. We recognize
revenue from gift cards when: (i) the gift card is redeemed by the customer, or (ii) the likelihood of the gift card being
redeemed by the customer is remote (‘‘gift card breakage’’), and we determine that we do not have a legal obligation to
remit the value of unredeemed gift cards to the relevant jurisdictions. We determine our gift card breakage rate based
upon historical redemption patterns. Based on our historical information, the likelihood of a gift card remaining
unredeemed can be determined 24 months after the gift card is issued. At that time, we recognize 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.
Gift card breakage income was as follows in fiscal 2011, 2010 and 2009:
2011 2010 2009
Gift card breakage income $53 $43 $38
Credit Services and Financing
In the U.S., we have private-label and co-branded credit card agreements with banks for the issuance of promotional
financing and customer loyalty credit cards bearing the Best Buy brand. Under the agreements, the banks manage and
directly extend credit to our customers. Cardholders who choose a private-label credit card can receive low- or zero-
interest promotional financing on qualifying purchases.
The banks are the sole owner of the accounts receivable generated under the programs and absorb losses associated with
non-payment by the cardholders and fraudulent usage of the accounts. Accordingly, sales generated through our private-
label and co-branded credit cards are not reflected in our receivables. We earn revenue from fees the banks pay to us
based on the number of credit card accounts activated and card usage. In accordance with accounting guidance for
revenue arrangements with multiple deliverables, we defer revenue received from cardholder account activations and
recognize revenue on a straight-line basis over the remaining term of the applicable agreement. The banks may also
reimburse us for certain costs such as tender costs and Reward Zone points associated with our programs. We pay
financing fees, which are recognized as a reduction of revenue, to the banks, and these fees are variable based on certain
factors such as the London Interbank Offered Rate (‘‘LIBOR’’), charge volume and/or the types of promotional financing
offers.
We also have similar agreements for the issuance of private-label and/or co-branded credit cards with banks for our
businesses in Canada, China and Mexico, which we account for consistent with the U.S. credit card agreements.
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