Best Buy 2006 Annual Report Download - page 88

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$ in millions, except per share amounts
74
The fair value of each non-qualified stock option was estimated on the date of grant using alattice model in fiscal 2006 and
the Black-Scholes option-pricing model in fiscal 2005 and 2004, with the following assumptions:
Valuation Assumptions(1)
Feb. 25,
2006
Lattice
Feb. 26,
2005
Black-Scholes
Feb. 28,
2004
Black-Scholes
Risk-free interest rate(2)4.3% - 4.6% 3.4% 3.3%
Expected dividend yield 0.8%0.9% 0.8%
Expected stock pricevolatility (3)40%40% 60%
Expected life of non-qualified stock options (in years) (4)6.1 5.5 5.5
(1)Forfeitures are estimated using historical experience and projected employee turnover.
(2)Based on the Treasury constant maturity interest rate whose term is consistent with the expected life of our non-qualified stock options.
(3)Beginning in fiscal 2005, we use an outside valuation advisor to assist us in projecting expected stock pricevolatility. We consider
both the historical volatility of our stock price as well as implied volatilities from exchange-traded options on our stock. Prior to fiscal
2005, expected stock price volatility was based primarily on historical experience.
(4)We estimate the expected life of non-qualified stock options based upon historicalexperience.
Net cash proceeds from the exercise of non-qualified stock
options were $257, $220 and $114 for fiscal 2006, 2005
and 2004, respectively.
The actual income taxbenefit realized from non-qualified
stock option exercises totaled $53,$59 and $41, forfiscal
2006, 2005 and 2004, respectively.
Market-Based Share Awards
The fair value of market-based share awards is determined based on generally accepted valuation techniques and the
closingmarket price of ourstock on the date of grant. A summary of the status of our market-based nonvestedshare awards
at February 25, 2006,and changes during fiscal 2006, is as follows:
Market-Based Nonvested Share Awards Shares
Fair
Value
Outstanding at February 26, 2005 2,297,000 $ 29.20
Granted 654,000 34.12
Vested — —
Forfeited/Canceled (273,000 ) 29.57
Outstanding at February 25, 2006 2,678,000 $ 30.36
Market-based share awards were first granted infiscal
2004. No market-based share awards vested during
fiscal2006 or 2005. At February 25, 2006, there was
$33 of unrecognized compensation expense related to
market-based nonvested share awards that is expectedto
be recognized over a weighted-average period of 1.4
years.