Best Buy 2012 Annual Report Download - page 60

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60
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
In addition to the risks inherent in our operations, we are exposed to certain market risks, including adverse changes in foreign
currency exchange rates and interest rates.
Foreign Currency Exchange Rate Risk
We have market risk arising from changes in foreign currency exchange rates related to our International segment operations.
On a limited basis, we use forward foreign exchange contracts to hedge the impact of fluctuations in foreign currency exchange
rates. Our Canada, Europe and China businesses enter into the contracts primarily to hedge certain non-functional currency
transaction exposures.
The aggregate notional amount related to our foreign exchange forward contracts outstanding at March 3, 2012, and
February 26, 2011, was $238 million and $757 million, respectively. The fair value recorded on our Consolidated Balance
Sheet related to our foreign exchange forward contracts outstanding at March 3, 2012, and February 26, 2011, was $(1) million
and $(1) million, respectively. The amount recorded in our Consolidated Statement of Earnings related to all contracts settled
and outstanding was a gain of $11 million in fiscal 2012, and a gain of $24 million in fiscal 2011.
The overall weakness of the U.S. dollar compared to the U.K. pound, Canadian dollar, and Chinese Renminbi since the end of
fiscal 2011 has had a positive overall impact on our revenue and net earnings as the foreign denominations translated into more
U.S. dollars. It is not possible to determine the exact impact of foreign currency exchange rate fluctuations; however, the effect
on reported revenue and net earnings can be estimated. We estimate that foreign currency exchange rate fluctuations had a net
favorable impact on our revenue and net earnings in fiscal 2012 of approximately $456 million and $2 million, respectively.
Similarly, we estimate that the overall weakness of the U.S. dollar had a favorable impact on our revenue and net earnings in
fiscal 2011 of approximately $302 million and $7 million, respectively.
Interest Rate Risk
Short- and long-term debt
At March 3, 2012, our short- and long-term debt was comprised primarily of credit facilities, our 2013 Notes, our 2016 Notes
and our 2021 Notes. We currently do not manage the interest rate risk on our debt through the use of derivative instruments.
Our credit facilities' interest rates may be reset due to fluctuations in a market-based index, such as the federal funds rate,
LIBOR, or the base rate or prime rate of our lenders. A hypothetical 100-basis-point change in the interest rates on the
outstanding balance of our credit facilities at March 3, 2012, and February 26, 2011, would change our annual pre-tax earnings
by $5 million and $6 million, respectively.
There is no interest rate risk associated with our 2013 Notes, our 2016 Notes or 2021 Notes, as the interest rates are fixed at
6.75%, 3.75% and 5.5%, respectively, per annum.
Long-term investments in debt securities
At March 3, 2012, our long-term investments in debt securities were comprised of ARS. These investments are not subject to
material interest rate risk. A hypothetical 100-basis-point change in the interest rate on such investments at March 3, 2012, and
February 26, 2011, would change our annual pre-tax earnings by $1 million and $1 million, respectively. We do not manage
interest rate risk on our investments in debt securities through the use of derivative instruments.
Other Market Risks
Investments in auction rate securities
At March 3, 2012, we held $82 million in investments in ARS, which includes a $6 million pre-tax temporary impairment,
compared to $110 million in investments in ARS and a $5 million pre-tax temporary impairment at February 26, 2011. Given
current conditions in the ARS market as described above in the Liquidity and Capital Resources section, included in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of Operations, of this Annual Report on Form 10-
K, we may incur additional temporary unrealized losses or other-than-temporary realized losses in the future if market
conditions were to persist and we were unable to recover the cost of our ARS investments. A hypothetical 100-basis-point loss
from the par value of these investments at March 3, 2012, and February 26, 2011, would result in an impairment of $1 million
and $1 million, respectively.