Best Buy 2003 Annual Report Download - page 164
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Stock Issued to Employees, and related Interpretations in accounting for these plans. Accordingly, no compensation expense has been
recognized for stock option plans, as the exercise price equals the stock price on the date of grant.
50
$ in millions, except per share amounts
The table below illustrates the effect on net earnings and earnings per share as if we had applied the fair value recognition provisions
of SFAS No. 123 to stock−based employee compensation for each of the last three fiscal years.
2003 2002 2001
Net earnings, as reported $ 99 $ 570 $ 396
Add: Stock−based employee compensation expense included in
reported net earnings, net of tax(1) 1 1 —
Deduct: Stock−based compensation expense determined under fair
value method for all awards, net of tax (85) (59) (44)
Net earnings, pro forma $ 15 $ 512 $ 352
Earnings per share:
Basic—as reported $ 0.31 $ 1.80 $ 1.28
Basic—pro forma $ 0.05 $ 1.62 $ 1.14
Diluted—as reported $ 0.30 $ 1.77 $ 1.24
Diluted—pro forma $ 0.05 $ 1.61 $ 1.11
(1) Amounts represent the after−tax compensation costs for restricted stock awards.
The fair value of each stock option was estimated on the date of the grant using the Black−Scholes option−pricing model with the
following assumptions:
2003 2002 2001
Risk−free interest rate 4.2% 4.9% 6.1%
Expected dividend yield 0% 0% 0%
Expected stock price volatility 60% 55% 60%
Expected life of stock options 5.0 years 4.5 years 4.5 years
The weighted average fair value of options granted during fiscal 2003, 2002 and 2001 used in computing pro forma compensation
expense was $23.91, $18.60 and $23.06 per share, respectively.
Pre−Opening Costs
Non−capital expenditures associated with opening new stores are expensed as incurred.
Advertising Costs
Advertising costs, which are included in SG&A, are expensed the first time the advertisement runs. Gross advertising expenses, before
expense reimbursement from vendor allowances, for fiscal 2003, 2002 and 2001 were $567, $493 and $479, respectively, for
continuing operations.
Derivative Financial Instruments
SFAS No.133, Accounting for Derivative Instruments and Hedging Activities, requires that all derivatives be recorded on the balance
sheet at fair value. At March 1, 2003, the fair value of an existing interest−rate swap was not significant.
Change in Accounting Principles—Goodwill and Vendor Allowances