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36
Advertising
Advertising costs are charged to expense in the period incurred. Cooperative reimbursements from
vendors, which are earned and available, are recorded in the period the related advertising expenditure is
incurred. The following table summarizes advertising costs and cooperative reimbursements for the years
ended December 31, 2003, 2002 and 2001, respectively (in thousands):
2003 2002 2001
Gross advertising expenses $ 91,963 $ 89,079 $ 87,352
Less cooperative reimbursements (27,834) (85,033) (81,843)
Net advertising expenses $ 64,129 $ 4,046 $ 5,509
Cooperative reimbursements are lower in 2003 than in prior years as $60.9 million of vendor consideration
which would have previously been classified as cooperative reimbursements are now classified as a reduction
of cost of sales due to the adoption of Emerging Issues Task Force (“EITF”) Issue No. 02-16, “Accounting for
Consideration Received from a Vendor by a Customer (Including a Reseller of the Vendor’s Products)”
(“EITF 02-16”) on January 1, 2003.
Stock-Based Compensation
At December 31, 2003, we had several stock-based employee compensation plans, which are described more
fully in Note 11. In accordance with Statement of Financial Accounting Standards No. 123, “Accounting for
Stock-Based Compensation” (“SFAS 123”), we account for our stock-based compensation programs according
to the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to
Employees.” Accordingly, compensation expense is recognized to the extent of employee or director services
rendered based on the intrinsic value of compensatory options or shares granted under the plans. The
following table illustrates the effect on net income and earnings per share if we had applied the fair value
recognition provisions of SFAS 123 to stock-based employee compensation for the years ended December 31,
2003, 2002 and 2001, respectively (in thousands, except per share amounts):
2003 2002 2001
Net income, as reported $ 175,186 $ 185,249 $ 168,686
Add stock-based employee compensation
expense included in reported net income,
net of related tax effects 344 649 2,793
Deduct total stock-based employee
compensation expense determined under
fair value based method for all awards, net
of related tax effects (24,709) (26,123) (25,911)
Pro forma net income $ 150,821 $ 159,775 $ 145,568
Basic earnings per share, as reported $ 2.10 $ 2.18 $ 1.97
Diluted earnings per share, as reported $ 2.03 $ 2.10 $ 1.89
Pro forma basic earnings per share $ 1.81 $ 1.88 $ 1.70
Pro forma diluted earnings per share $ 1.75 $ 1.81 $ 1.63