Best Buy 2005 Annual Report Download - page 60

Effect if Actual Results Differ from
Description Judgments and Uncertainties Assumptions
Self-Insured Liabilities
We are self-insured for certain losses Our self-insured liabilities contain We have not made any material changes
related to health, workers’ compensation, uncertainties because the calculation in the accounting methodology used to
general liability and auto insurance. requires management to make assumptions establish our self-insured liabilities during
However, we obtain third-party insurance regarding and apply judgment to estimate the past three fiscal years.
coverage to limit our exposure to these the ultimate cost to settle reported claims We do not believe there is a reasonable
claims. and claims incurred but not reported as of likelihood that there will be a material
the balance sheet date.
When estimating our self-insured liabilities, change in the future assumptions or
we consider a number of factors, including estimates we use to calculate our self-
historical claims experience, demographic insured liabilities. However, if actual results
factors, severity factors and valuations are not consistent with our assumptions
provided by independent third-party and estimates, we may be exposed to
actuaries. losses or gains that could be material.
Periodically, management reviews its A 10% change in our self-insured liabilities
assumptions and the valuations provided at February 26, 2005, would have
by independent third-party actuaries to affected net earnings by approximately
determine the adequacy of our self-insured $5 million for the fiscal year ended
liabilities. February 26, 2005.
Costs Associated with Exit Activities
We occasionally vacate stores and other The calculation of our location closing We have not made any material changes
locations prior to the expiration of the liability contains uncertainties because it in the accounting methodology used to
related lease. For vacated locations that requires management to make assumptions establish our location closing liability
are under long-term leases, we record an regarding and to apply judgment to during the past three fiscal years.
expense for the difference between our estimate the timing and duration of future We do not believe there is a reasonable
future lease payments and related costs vacancy periods, the amount and timing of likelihood that there will be a material
(e.g., real estate taxes and common area future settlement payments, and the change in the future assumptions or
maintenance) from the date of closure amount and timing of potential future estimates we use to calculate our location
through the end of the remaining lease sublease rental income. When making closing liability. However, if actual results
term, net of expected future sublease rental these assumptions, management considers are not consistent with our assumptions
income. a number of factors, including historical and estimates, we may be exposed to
settlement experience, the owner of the
Our cash flows are discounted using a losses or gains that could be material.
property, the location and condition of the
risk-free interest rate that coincides with property, the terms of the underlying lease, A 10% change in our location closing
the remaining lease term. Our estimate of the specific marketplace demand and liability at February 26, 2005, would have
future cash flows is based on historical general economic conditions. affected net earnings by approximately
experience; our analysis of the specific real $2 million for the fiscal year ended
estate market, including input from February 26, 2005.
independent real estate firms; and
economic conditions that can be difficult to
predict.
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