Best Buy 2008 Annual Report Download - page 61

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Effect if Actual Results Differ From
Description Judgments and Uncertainties Assumptions
Costs Associated With Exit Activities
We occasionally vacate stores and other The liability recorded for location closures We have not made any material changes
locations prior to the expiration of the contains uncertainties because in the accounting methodology used to
related lease. For vacated locations that management is required to make establish our location closing liability
are under long-term leases, we record an assumptions and to apply judgment to during the past three fiscal years.
expense for the difference between our estimate the duration of future vacancy We do not believe there is a reasonable
future lease payments and related costs periods, the amount and timing of future likelihood that there will be a material
(e.g., real estate taxes and common area settlement payments, and the amount and change in the estimates or assumptions we
maintenance) from the date of closure timing of potential sublease rental income. use to calculate our location closing
through the end of the remaining lease When making these assumptions, liability. However, if actual results are not
term, net of expected future sublease rental management considers a number of consistent with our estimates or
income. factors, including historical settlement assumptions, we may be exposed to losses
experience, the owner of the property, the
Our estimate of future cash flows is based or gains that could be material.
location and condition of the property, the
on historical experience; our analysis of the terms of the underlying lease, the specific A 10% change in our location closing
specific real estate market, including input marketplace demand and general liability at March 1, 2008, would have
from independent real estate firms; and economic conditions. affected net earnings by approximately
economic conditions that can be difficult to $2 million in fiscal 2008.
predict. Cash flows are discounted using a
risk-free interest rate that coincides with the
remaining lease term.
Stock-Based Compensation
We have a stock-based compensation plan, Option-pricing models and generally We do not believe there is a reasonable
which includes non-qualified stock options accepted valuation techniques require likelihood there will be a material change
and nonvested share awards, and an management to make assumptions and to in the future estimates or assumptions we
employee stock purchase plan. See apply judgment to determine the fair value use to determine stock-based compensation
Note 1, Summary of Significant Accounting of our awards. These assumptions and expense. However, if actual results are not
Policies, and Note 5, Shareholders’ Equity, judgments include estimating the future consistent with our estimates or
to the Notes to Consolidated Financial volatility of our stock price, expected assumptions, we may be exposed to
Statements, included in Item 8, Financial dividend yield, future employee turnover changes in stock-based compensation
Statements and Supplementary Data, of this rates and future employee stock option expense that could be material.
Annual Report on Form 10-K, for a exercise behaviors. Changes in these If actual results are not consistent with the
complete discussion of our stock-based assumptions can materially affect the fair assumptions used, the stock-based
compensation programs. value estimate. compensation expense reported in our
We determine the fair value of our Performance-based nonvested share financial statements may not be
non-qualified stock option awards at the awards require management to make representative of the actual economic cost
date of grant using option-pricing models. assumptions regarding the likelihood of of the stock-based compensation.
Non-qualified stock option awards granted achieving company or personal A 10% change in our stock-based
through fiscal 2005 were valued using a performance goals. compensation expense for the year ended
Black-Scholes model. Non-qualified stock March 1, 2008, would have affected net
option awards granted after fiscal 2005 earnings by approximately $7 million in
were primarily valued using a lattice fiscal 2008.
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.
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