Best Buy 2006 Annual Report Download - page 82

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$ in millions, except per share amounts
68
The table below illustrates the effect on net earnings andearnings per share as if we had applied the fair value recognition
provisions of SFAS No. 123tostock-based compensation for fiscal 2005and 2004.
2005 2004
Net earnings, as reported $984 $ 705
Add: Stock-based compensation expense included in reported net earnings, net of tax (1)(1)5
Deduct: Stock-based compensation expense determined under fairvalue method for all awards,
net of tax(2)(60 ) (101)
Net earnings, pro forma $923 $ 609
Earnings per share:
Basic — as reported $ 2.01 $ 1 .45
Basic — pro forma $ 1.89 $ 1 .25
Diluted — as reported $1.96 $ 1.42
Diluted — pro forma $1.87 $ 1.25
(1)Amounts represent the stock-based compensation costs, net of tax, recognized under APB Opinion No. 25.
(2)In the fourth quarter of fiscal 2005, weincreased our expected participant non-qualified stock option forfeiture rate as a result of
transferring to a third-party provider certain corporate employees, and the departure of certain senior executives. This higher level of
expected non-qualified stock option forfeitures reduced our fiscal 2005 pro forma stock-based c ompensation expense. Fiscal 2005
pro forma stock-based compensation expense may not be indicative of future stock-based compensation expense.
The weighted-average fair value of non-qualified stock options granted during fiscal 2005 and 2004 used in computing pro
forma compensation expense was$14.18 and $20.62 per share, respectively.
The fair value of each non-qualified stock option was estimated on the date of grant using the Black-Scholes option-pricing
model with the following assumptions:
2005 2004
Risk-free interest rate(1)3.4% 3.3%
Expected dividend yield 0.9% 0.8%
Expected stock pricevolatility (2)40% 60%
Expected life of non-qualified stock options(3)5.5 years 5.5 years
(1)Based on the five-year Treasury constant maturity interest rate whose term is consistent with the expected life of our non-qualified stock
options.
(2)Beginning in fiscal 2005, we used an outside valuation advisor to assist us in projecting the expected stock price volatility. We
considered both historical data and observable market prices of similar equity instruments. Prior to fiscal 2005, expected stock price
volatility was based primarily on historical experience.
(3)We estimated the expected life of non-qualified stock options based upon historical experience.