Best Buy 2014 Annual Report Download - page 56

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A 10% change in our closed location liability at February 1, 2014, would have affected net earnings by approximately
$8 million in fiscal 2014.
Stock-Based Compensation
We have a stock-based compensation plan, which includes non-qualified stock options, nonvested share awards, and an
employee stock purchase plan. We determine the fair value of our non-qualified stock option awards using option-pricing
models. We determine the fair value of nonvested share awards with market conditions using Monte-Carlo simulation. We
determine the fair value of nonvested share awards that vest based upon performance or time conditions at the closing market
price of our stock, reduced by the present value of expected dividends during the vesting period where the recipient has no
dividend rights. Compensation expense is recognized over the requisite service period for awards expected to vest.
Management's key assumptions are developed with input from independent third-party valuation advisors.
Valuation techniques used 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 and correlations between our returns and
peer company returns. Changes in these assumptions can materially affect the fair value estimate.
Estimation of awards that will ultimately vest requires judgment for the amounts that will be forfeited due to failure to fulfill
service conditions or to achieve company or personal performance goals. To the extent actual results or updated estimates differ
from our current estimates, such amounts are recorded as a cumulative adjustment in the period estimates are revised. Changes
in estimates can materially affect compensation expense within individual periods.
Estimates and assumptions are based upon information currently available, including historical experience and current business
and economic conditions. 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. A 10% change in our stock-based compensation
expense for the year ended February 1, 2014, would have affected net earnings by approximately $6 million in fiscal 2014.
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.
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. Our self-insured liabilities
involve uncertainty 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 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 February 1, 2014, would have
affected net earnings by approximately $5 million in fiscal 2014.
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.
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 utilize foreign exchange forward contracts to manage foreign currency exposure to certain forecast
inventory purchases and recognized receivable and payable balances. Our primary objective in holding derivatives is to reduce
the volatility of net earnings and cash flows associated with changes in foreign currency exchange rates. Our foreign currency
risk management strategy includes derivatives that are not designated as hedging instruments, which generally have terms of up
to 12 months. The aggregate notional amount related to our foreign exchange forward contracts outstanding at February 1,
2014, and February 2, 2013, was $157 million and $173 million, respectively. The fair value recorded on our Consolidated
Balance Sheets related to our foreign exchange forward contracts outstanding at February 1, 2014, and February 2, 2013, was
$(3) million and $1 million, respectively. The amount recorded in our Consolidated Statements of Earnings related to all
contracts settled and outstanding was a gain of $4 million in fiscal 2014 (12-month) and a gain of $1 million in fiscal 2013 (11-
month).