Best Buy 2012 Annual Report Download - page 58

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Description Judgments and Uncertainties Effect if Actual Results Differ From Assumptions
Costs Associated With Exit Activities
When necessary, we vacate stores and other
locations prior to the expiration of the related
lease. For vacated locations with remaining
lease commitments, we record an expense for
the difference between the present value of
our future lease payments and related costs
(e.g., real estate taxes and common area
maintenance) from the date of closure through
the end of the remaining lease term, net of
expected future sublease rental income.
Our estimate of future cash flows is based on
historical experience; our analysis of the
specific real estate market, including input
from independent real estate firms; and
economic conditions that can be difficult to
predict. Cash flows are discounted using a
risk-free interest rate that coincides with the
remaining lease term.
The liability recorded for location closures
contains uncertainties because management is
required to make assumptions and to apply
judgment to estimate the duration of future
vacancy periods, the amount and timing of
future settlement payments, and the amount
and timing of potential sublease rental income.
When making these assumptions, management
considers a number of factors, including
historical settlement experience, the owner of
the property, the location and condition of the
property, the terms of the underlying lease, the
specific marketplace demand and general
economic conditions.
We have not made any material changes in the
accounting methodology we use to establish our location
closing liability during the past three fiscal years.
We do not believe there is a reasonable likelihood that
there will be a material change in the estimates or
assumptions we use to calculate our location closing
liability. However, if actual results are not consistent with
our estimates or assumptions, we may be exposed to
losses or gains that could be material.
A 10% change in our location closing liability at March
3, 2012, would have affected net earnings by
approximately $9 million in fiscal 2012.
Stock-Based Compensation
We have a stock-based compensation plan,
which includes non-qualified stock options
and nonvested share awards, and an employee
stock purchase plan. See Note 1, Summary of
Significant Accounting Policies, and Note 10,
Shareholders' Equity, to the Notes to
Consolidated Financial Statements, included
in Item 8, Financial Statements and
Supplementary Data, of this Annual Report on
Form 10-K, for a complete discussion of our
stock-based compensation programs.
We determine the fair value of our non-
qualified stock option awards at the date of
grant using option-pricing models. Non-
qualified stock option awards are primarily
valued using a lattice model.
We determine the fair value of our market-
based and performance-based nonvested share
awards at the date of grant using generally
accepted valuation techniques and the closing
market price of our stock.
Management reviews its assumptions and the
valuations provided by independent third-
party valuation advisors to determine the fair
value of stock-based compensation awards.
Option-pricing models and generally accepted
valuation techniques require management to
make assumptions and to apply judgment to
determine the fair value of our awards. These
assumptions and judgments include estimating
the future volatility of our stock price,
expected dividend yield, future employee
turnover rates and future employee stock
option exercise behaviors. Changes in these
assumptions can materially affect the fair
value estimate.
Performance-based nonvested share awards
require management to make assumptions
regarding the likelihood of achieving company
or personal performance goals.
We do not believe there is a reasonable likelihood there
will be a material change in the future estimates or
assumptions we use to determine stock-based
compensation expense. However, if actual results are not
consistent with our estimates or assumptions, we may be
exposed to changes in stock-based compensation expense
that could be material.
If actual results are not consistent with the assumptions
used, the stock-based compensation expense reported in
our financial statements may not be representative of the
actual economic cost of the stock-based compensation.
A 10% change in our stock-based compensation expense
for the year ended March 3, 2012, would have affected
net earnings by approximately $7 million in fiscal 2012.
Self-Insured Liabilities
We are self-insured for certain losses related
to health, workers' compensation and general
liability claims, as well as customer warranty
and insurance programs, although we obtain
third party insurance coverage to limit our
exposure to these claims. We maintain wholly-
owned insurance captives to manage a portion
of these self-insured liabilities.
When estimating our self-insured liabilities,
we consider a number of factors, including
historical claims experience, demographic
factors, severity factors and valuations
provided by independent third-party actuaries.
Periodically, we review our assumptions and
the valuations provided by independent third-
party actuaries to determine the adequacy of
our self-insured liabilities.
Our self-insured liabilities contain
uncertainties because management is required
to make assumptions and to apply judgment to
estimate the ultimate cost to settle reported
claims and claims incurred but not reported at
the balance sheet date.
We have not made any material changes in the
accounting methodology we use to establish our self-
insured liabilities during the past three fiscal years.
We do not believe there is a reasonable likelihood that
there will be a material change in the estimates or
assumptions we use to calculate our self-insured
liabilities. However, if actual results are not consistent
with our estimates or assumptions, we may be exposed to
losses or gains that could be material.
A 10% change in our self-insured liabilities at March 3,
2012, would have affected net earnings by approximately
$8 million in fiscal 2012.