Best Buy 2006 Annual Report Download - page 81

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$ in millions, except per share amounts
67
PART II
expense related to the fair value of our stock-based
compensation awards. We elected the modified prospective
transition methodaspermitted by SFAS No. 123(R). Under
this transition method, stock-based compensation expense
for the fiscal year ended February 25, 2006,includes:
(i) compensation expense for all stock-basedcompensation
awards granted prior to, but not yet vested asof
February 26, 2005, basedon the grant date fair value
estimated in accordance with the original provisions of
SFAS No. 123, Accounting for Stock-Based Compensation ;
and (ii) compensation expensefor all stock-based
compensation awards grantedsubsequent to February 26,
2005, based on the grant-date fair value estimated in
accordance with the provisions of SFAS No. 123(R). We
recognize compensation expense on a straight-line basis
over the requisite service period of the award (or to an
employee’s eligible retirement date, if earlier). Total stock-
based compensation expense included in ourconsolidated
statement of earnings for fiscal 2006 was $132 ($87, net of
tax). In accordance with the modified prospective transition
method of SFAS No. 123(R), financial results for prior
periods have not been restated.
APB Opinion No. 25
Prior to February 27, 2005, we applied Accounting
Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and relatedInterpretations in
accountingfor stock-based compensation awards. Prior to
fiscal 2006, no stock-based compensation expense was
recognized in our consolidated statements of earnings for
non-qualified stock options, as the exercise price was equal
to the market price of our stock on the date of grant. In
addition, we did not recognize any stock-based
compensation expense for our Employee Stock Purchase
Plan (ESPP), as it was intended to be a plan that qualifies
under Section 423 of the Internal Revenue Code of 1986,
as amended. However, we did recognize stock-based
compensation expense for share awards.
Compensation expense for time-based share awards was
recognized on a straight-line basis over the vesting period
based on the fair value of the award onthe grant date.
Compensation expense for market-based share awards was
recognized each reporting period basedon the current
stock price, the number of shares expected to ultimately vest
and the vesting period. Outside valuation advisors assisted
us in determining the number of shares expected to
ultimately vest. If anaward recipient’s relationship with us is
terminated, all shares still subject to restrictions are forfeited
and returned to the plan.
Stock-basedcompensation (income) expense recognized in
fiscal 2005 and 2004 on apre-tax basis, was $(1) and
$8, respectively. The fiscal 2005 income reflectsa change
in vesting assumptions based on our total shareholder
return relative to the performance of the Standard & Poor’s
500 Index (S&P 500) and an increase in our expected
forfeiture rate.
Transition
Prior to the adoption of SFAS No. 123(R), we reported all
tax benefits resultingfrom the exercise of non-qualified
stock optionsas operating cash flows in our consolidated
statements of cash flows. In accordance with SFAS
No. 123(R), our fiscal 2006 consolidatedstatement of cash
flows includes the excess taxbenefits from the exercise of
non-qualified stock options as financing cash flows. For the
fiscal yearended February 25, 2006, $33 of excess tax
benefits was reported asfinancing cash flows rather than
operating cash flows.
In November 2005, the FASB issued FSP No. FAS 123(R)-3,
Transition Election Related to Accounting for the Tax Effects
of Share-Based Payment Awards. FSP No. FAS 123(R)-3
provides an alternative method ofcalculating the excess tax
benefits available to absorb tax deficiencies recognized
subsequent to the adoption of SFAS No. 123(R). The
calculation of excess tax benefits reported as an operating
cash outflowand a financing inflow in the statement of cash
flows required by FSP No. FAS 123(R)-3 under the
alternative method, differs from that required by SFAS
No. 123(R). Wehave until November 2006 to make a one-
time election to adopt the alternative method. We are
currently evaluating FSP No. FAS 123(R)-3; however, the
one-time election is not expected to affect operating income
or net earnings.