BBY » Topics » Earnings per Share

This excerpt taken from the BBY 10-K filed May 10, 2005.

Earnings per Share

We adopted EITF Issue No. 04-08, The Effect of Contingently Convertible Instruments on Diluted Earnings per Share, in the fourth quarter of fiscal 2005. EITF Issue No. 04-08 requires us to include in our diluted earnings per share calculation the potentially dilutive shares issuable as if our convertible debentures due in 2022 had been converted into shares of our common stock. In accordance with EITF Issue No. 04-08, we have restated prior periods. The effect of adopting EITF Issue No. 04-08 reduced earnings per share from continuing operations by $0.03, $0.03 and $0.01 for fiscal 2005, 2004 and 2003, respectively.

Basic earnings per share is computed based on the weighted average number of common shares outstanding. Diluted earnings per share is computed based on the weighted average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued. Potentially dilutive shares of common stock include stock options, unvested restricted stock awards, shares issuable under our ESPP as well as common shares that would have resulted from the assumed conversion of our convertible debentures (see Note 4, Debt). Since the potentially dilutive shares related to the convertible debentures are included in the calculation, the related interest, net of tax, is added back to income from continuing operations, as the interest would not have been paid if the convertible debentures were converted to common stock.

The computation of dilutive shares outstanding excluded options to purchase 6.3 million, 15.9 million and 24.6 million shares as of February 26, 2005; February 28, 2004; and March 1, 2003, respectively, because such outstanding options' exercise prices were greater than the average market price of our common shares and, therefore, the effect would be antidilutive (i.e., including such options would result in higher earnings per share).

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The following table presents a reconciliation of the numerators and denominators of basic and diluted earnings per share from continuing operations for fiscal 2005, 2004 and 2003:

 
  2005

  2004

  2003


Numerator:                  
  Earnings from continuing operations, basic   $ 934   $ 800   $ 622
Adjustment for assumed dilution:                  
  Interest on convertible debentures due in 2022, net of tax     7     6     6
   
 
 
Earnings from continuing operations, diluted   $ 941   $ 806   $ 628
   
 
 
Denominator (in millions):                  
 
Weighted average common shares outstanding

 

 

325.9

 

 

323.3

 

 

321.1
Effect of dilutive securities:                  
  Shares from assumed conversion of convertible debentures     5.8     5.8     5.8
  Stock options and other     4.9     4.8     3.8
   
 
 
Weighted average common shares outstanding, assuming dilution     336.6     333.9     330.7
   
 
 
Basic earnings per share — continuing operations   $ 2.87   $ 2.47   $ 1.93
Diluted earnings per share — continuing operations   $ 2.79   $ 2.41   $ 1.90
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