Best Buy 2005 Annual Report Download - page 84

Download and view the complete annual report

Please find page 84 of the 2005 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 118

  • 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

$ in millions, except per share amounts
We have a stock-based compensation plan that includes
Advertising Costs stock options and restricted stock. We also have an
Advertising costs, which are included in SG&A, are employee stock purchase plan. We continue to apply
expensed the first time the advertisement runs. Advertising Accounting Principles Board (APB) Opinion No. 25,
costs consist primarily of print and television Accounting for Stock Issued to Employees, and related
advertisements as well as promotional events. Gross Interpretations in accounting for these plans. Accordingly,
advertising expenses, before expense reimbursement from no compensation expense has been recognized for stock
vendor allowances, for fiscal 2005, 2004 and 2003 were option grants, as the exercise price equals the stock price
$712, $675 and $567, respectively. on the date of grant. In addition, compensation expense
has not been recognized for our employee stock purchase
Pre-Opening Costs plan as it is intended to be a plan that qualifies under
Non-capital expenditures associated with opening new Section 423 of the Internal Revenue Code of 1986, as
stores are expensed as incurred. amended. Restricted stock awards result in compensation
expense as discussed in Note 5, Shareholders’ Equity.
Stock-Based Compensation We expect to include the total expense associated with
In December 2002, the Financial Accounting Standards stock-based compensation issued to employees and
Board (FASB) issued SFAS No. 148, Accounting for Stock- directors in our consolidated statement of earnings,
Based Compensation — Transition and Disclosure. SFAS beginning in the first quarter of fiscal 2006. See New
No. 148 requires expanded and more prominent Accounting Standards, below for a discussion of our
disclosure in both annual and interim financial statements transition to SFAS No. 123(R), Share-Based Payments.
about the method of accounting for stock-based
compensation and the effect of the method on reported
results.
The table below illustrates the effect on net earnings and earnings per share as if we had applied the fair value
recognition provisions of SFAS No. 123 to stock-based compensation for each of the last three fiscal years.
2005 2004 2003
Net earnings, as reported $ 984 $ 705 $ 99
Add: Stock-based compensation expense included in reported net earnings, net of
tax(1) (1) 5 1
Deduct: Stock-based compensation expense determined under fair value method for
all awards, net of tax(2) (60) (101) (85)
Net earnings, pro forma $ 923 $ 609 $ 15
Earnings per share:
Basic — as reported $3.02 $2.18 $0.31
Basic — pro forma $2.83 $1.88 $0.05
Diluted — as reported $2.94 $2.13 $0.31
Diluted — pro forma $2.80 $1.88 $0.05
(1) Amounts represent the after-tax compensation costs for restricted stock awards.
(2) In the fourth quarter of fiscal 2005, we increased our expected participant 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
stock option forfeitures reduced our fiscal 2005 pro forma stock-based compensation expense. Fiscal 2005 pro forma stock-based
compensation expense may not be indicative of future stock-based compensation expense.
68