Best Buy 1999 Annual Report Download - page 38

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NOT E S T O CONS OL I DAT ED F I NANCI AL S T AT E ME NT S
E S T U Y O N C
5. SHAREHOLDERS’ EQUITY
Stock Options:
The Company currently sponsors two non-qualified stock option plans for employees and one non-qualified
stock option plan for directors. These plans provide for the issuance of up to 48,800,000 shares. Options may
be granted only to employees or directors at option prices not less than the fair market value of the Company’s
common stock on the date of the grant. In addition, two plans expired in fiscal 1998 that still have outstanding
options. At February 27, 1999, options to purchase 19,139,000 shares are outstanding under all of these plans.
Pursuant to SFAS No. 123, the Company has elected to account for its stock option plans under the provisions
of APB Opinion No. 25. Accordingly, no compensation cost has generally been recognized for stock options
granted. Had the Company adopted SFAS No. 123, the pro forma effects on net earnings, basic earnings per share
and diluted earnings per share would have been as follows:
1999 1998 1997
Net Earnings
As reported $ 2 2 4 ,437 $ 94,45 3 $ 1,748
Pro forma 209,412 88,6 1 4 (1,196 )
Basic Earnings Per Share
As reported $ 1.13 $ .5 4 $ .0 1
Pro forma 1.05 .51 ( .01 )
Diluted Earnings Per Share
As reported $ 1.07 $ .5 2 $ .0 1
Pro forma 1.00 .49 ( .01 )
The fair value of each option was estimated on the date of the grant using the Black-Scholes option pricing
model with the following assumptions:
1999 1998 1997
Risk-free interest rate 5.6% 6.8% 6.2%
Expected dividend yield 0% 0% 0 %
Expected stock price volatility 50% 60% 40%
Expected life of options 4 .9 years 4.2 years 4.3 years
The pro forma effect on net earnings and earnings per share is not representative of the pro forma net earnings
in future years because it does not take into consideration pro forma compensation expense related to grants
made prior to 1996.
The weighted average fair value of options granted during fiscal 1999, 1998 and 1997 used in computing pro
forma compensation expense was $8.58, $1.74 and $1.26 per share, respectively.
In February 1997, the Company canceled 6,556,000 options, representing approximately half of the outstanding
options granted to employees since April 1993, with exercise prices ranging from $2.80 to $9.55 and granted
the same number of new options with an exercise price of $2.16. Options issued to the Company’s CEO and
president were not included in the repricing.
$ in thousands, except per share amounts