Best Buy 2015 Annual Report Download - page 75

Table of Contents
68
We also have agreements for promotional financing and credit cards with banks for our businesses in Canada and Mexico, and
we account for these programs in a manner consistent with the U.S. agreement.
In addition, we also accept Visa®, MasterCard®, Discover®, JCB® and American Express® credit cards, as well as debit cards
from all major international networks.
Sales Incentives
We frequently offer sales incentives that entitle our customers to receive a reduction in the price of a product or service. Sales
incentives include discounts, coupons and other offers that entitle a customer to receive a reduction in the price of a product or
service either at the point of sale or by submitting a claim for a refund or rebate. For sales incentives issued to a customer in
conjunction with a sale of merchandise or services for which we are the obligor, the reduction in revenue is recognized at the
time of sale, based on the expected retail value of the incentive expected to be redeemed.
Customer Loyalty Programs
We have customer loyalty programs which allow members to earn points for each qualifying purchase. Points earned enable
members to receive a certificate that may be redeemed on future purchases at our Best Buy branded stores. There are two
primary ways that members may participate and earn loyalty points.
First, we have customer loyalty programs where members earn points for each purchase. Depending on the customer's
membership level within our loyalty program, certificates expire either 2 or 12 months from the date of issuance. The retail
value of points earned by our loyalty program members 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.
Second, under our credit card agreement, we have a customer loyalty credit card bearing the Best Buy brand. Cardholders earn
points for purchases made at our stores and related websites 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 websites.
Certificates expire either 2 or 12 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.