Best Buy 2007 Annual Report Download - page 85

Download and view the complete annual report

Please find page 85 of the 2007 Best Buy annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 119

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119

$ in millions, except per share amounts
70
based compensation awards. We elected the modified
prospective transition method as permitted by SFAS
No. 123(R). Under this transition method, stock-based
compensation expense in fiscal 2007 and 2006 includes:
(i) compensation expense for all stock-based compensation
awards granted prior to, but not yet vested as of
February 26, 2005, based on the grant date fair value
estimated in accordance with the original provisions of
SFAS No. 123, Accounting for Stock-Based Compensation;
and (ii) compensation expense for all stock-based
compensation awards granted subsequent 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 our consolidated
statement of earnings in fiscal 2007 and 2006 was $121
($82, net of tax) and $132 ($87, net of tax), respectively. 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 fiscal 2006, we applied Accounting Principles
Board (“APB”) Opinion No. 25, Accounting for Stock Issued
to Employees, and related Interpretations in accounting for
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 (“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.
We recognized compensation expense for time-based share
awards on a straight-line basis over the vesting period (or to
an employee’s eligible retirement date, if earlier) based on
the fair value of the award on the grant date. We
recognized compensation expense for market-based share
awards based on 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 ultimately expected to vest. We
recognized compensation expense for performance-based
awards on a straight-line basis over the requisite service
period (or to an employee’s eligible retirement date, if
earlier) based on management’s estimate of the likelihood
of achieving company or personal performance goals. If an
award recipient’s relationship with us is terminated, all
shares still subject to restrictions are forfeited and returned
to the plan.
Stock-based compensation income recognized in fiscal
2005 on a pre-tax basis was $1. The fiscal 2005 income
reflects a 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
In November 2005, the FASB issued FSP No. FAS 123(R)-3,
Transition Election Related to Accounting for Tax Effects of
Share-Based Payment Awards. During the third quarter of
fiscal 2007, we elected to adopt the alternative transition
method provided in FSP No. FAS 123(R)-3 to calculate the
tax effects of stock-based compensation. The alternative
transition method includes simplified methods to determine
the beginning balance of the additional paid-in capital
(“APIC”) pool related to the tax effects of stock-based
compensation, and to determine the subsequent impact on
the APIC pool and the statement of cash flows of the tax
effects of stock-based awards that were fully vested and
outstanding upon the adoption of SFAS No. 123(R).
In accordance with SFAS No. 154, Accounting Changes and
Error Corrections, this change in accounting principle has been
applied retrospectively to our fiscal 2006 consolidated statement
of cash flows. The effect on the consolidated statement of cash
flows was a decrease in operating activities with an offsetting
increase in financing activities of $22 in fiscal 2006. The
adoption of FSP No. FAS 123(R)-3 did not have an impact
on our operating income, net earnings or shareholders’
equity.