Shareholders' Equity

Stock Compensation Plans

Our 2004 Omnibus Stock and Incentive Plan, as amended (the "Omnibus Plan"), authorizes us to grant or issue non-qualified stock options, incentive stock options, share awards and other equity awards up to a total of 64.5 million shares. We have not granted incentive stock options under the Omnibus Plan. Under the terms of the Omnibus Plan, awards may be granted to our employees, officers, advisors, consultants and directors. Awards issued under the Omnibus Plan vest as determined by the Compensation and Human Resources Committee of our Board of Directors at the time of grant. At March 3, 2012, a total of 22.7 million shares were available for future grants under the Omnibus Plan.

Upon adoption and approval of the Omnibus Plan, all of our previous equity incentive compensation plans were terminated. However, existing awards under those plans continued to vest in accordance with the original vesting schedule and will expire at the end of their original term.

Our outstanding stock options have a 10-year term. Outstanding stock options issued to employees generally vest over a four-year period, and outstanding stock options issued to directors vest immediately upon grant. Share awards vest based either upon attainment of specified goals or upon continued employment. Outstanding share awards that are not time-based typically vest at the end of a three-year incentive period based either upon our total shareholder return ("TSR") compared to the TSR of companies that comprise Standard & Poor's 500 Index or growth in our common stock price ("market-based"), or upon the achievement of company or personal performance goals ("performance-based"). We have time-based share awards that vest in their entirety at the end of three- and four-year periods and time-based share awards where 25% of the award vests on the date of grant and 25% vests on each of the three anniversary dates thereafter.

Our 2003 Employee Stock Purchase Plan permitted and our 2008 Employee Stock Purchase Plan permits our employees to purchase our common stock at a 15% discount from the market price of the stock at the beginning or at the end of a semi-annual purchase period, whichever is less.

Stock-based compensation expense was as follows in fiscal 2012, 2011 and 2010:



	2012		2011			2010
Stock options	$	76	$	90		$	85
Share awards
Market-based	—		4			8
Performance-based	—		(1		)	1
Time-based	33		16			10
Employee stock purchase plans	11		12			14
Total	$	120	$	121		$	118

Stock Options

Stock option activity was as follows in fiscal 2012:



	Stock Options		Weighted- Average Exercise Price per Share		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at February 26, 2011	35,587,000		$	38.97
Granted	3,973,000		27.50
Exercised	(1,126,000	)	24.61
Forfeited/Canceled	(2,633,000	)	39.87
Outstanding at March 3, 2012	35,801,000		$	38.08	5.9	$	4
Vested or expected to vest at March 3, 2012	34,099,000		$	38.36	5.8	$	4
Exercisable at March 3, 2012	24,403,000		$	40.21	4.8	$	4

The weighted-average grant-date fair value of stock options granted during fiscal 2012, 2011 and 2010 was $7.94, $11.97 and $12.69, respectively, per share. The aggregate intrinsic value of our stock options (the amount by which the market price of the stock on the date of exercise exceeded the exercise price of the option) exercised during fiscal 2012, 2011 and 2010, was $6, $52 and $28, respectively. At March 3, 2012, there was $83 of unrecognized compensation expense related to stock options that is expected to be recognized over a weighted-average period of 1.3 years.

Net cash proceeds from the exercise of stock options were $27, $134 and $96 in fiscal 2012, 2011 and 2010, respectively.

The actual income tax benefit realized from stock option exercises was $2, $19 and $10, in fiscal 2012, 2011 and 2010, respectively.

In fiscal 2012, 2011 and 2010, we estimated the fair value of each stock option on the date of grant using a lattice model with the following assumptions:



Valuation Assumptions⁽¹⁾	2012		2011		2010
Risk-free interest rate⁽²⁾	0.1% – 3.6%		0.2% – 3.9%		0.2% – 3.8%
Expected dividend yield	2.3	%	1.5	%	1.6	%
Expected stock price volatility⁽³⁾	37	%	36	%	42	%
Expected life of stock options (in years)⁽⁴⁾	6.2		6.1		6.1


(1)	Forfeitures are estimated using historical experience and projected employee turnover.


(2)	Based on the U.S. Treasury constant maturity interest rate whose term is consistent with the expected life of our stock options.


(3)	We use an outside valuation advisor to assist us in projecting expected stock price volatility. We consider both the historical volatility of our stock price as well as implied volatilities from exchange-traded options on our stock.


(4)	We estimate the expected life of stock options based upon historical experience.

Market-Based Share Awards

The fair value of market-based share awards is determined based on generally accepted valuation techniques and the closing market price of our stock on the date of grant. A summary of the status of our nonvested market-based share awards at March 3, 2012, and changes during fiscal 2012, is as follows:



Market-Based Share Awards	Shares		Weighted-Average Fair Value per Share
Outstanding at February 26, 2011	193,000		$	52.19
Granted	—		—
Vested	—		—
Forfeited/Canceled	(193,000	)	52.19
Outstanding at March 3, 2012	—		$	—

We recognize expense for market-based share awards on a straight-line basis over the requisite service period (or to an employee's eligible retirement date, if earlier). At March 3, 2012, compensation expense had been fully recognized.

Performance-Based Share Awards

The fair value of performance-based share awards is determined based on the closing market price of our stock on the date of grant. A summary of the status of our nonvested performance-based share awards at March 3, 2012, and changes during fiscal 2012, is as follows:



Performance-Based Share Awards	Shares		Weighted-Average Fair Value per Share
Outstanding at February 26, 2011	2,179,000		$	41.64
Granted	—		—
Vested	(2,000	)	44.94
Forfeited/Canceled	(1,265,000	)	41.96
Outstanding at March 3, 2012	912,000		$	41.20

At March 3, 2012, there was no compensation expense related to nonvested performance-based share awards that we expect to recognize.

Time-Based Share Awards

The fair value of time-based share awards is determined based on the closing market price of our stock on the date of grant. A summary of the status of our nonvested time-based share awards at March 3, 2012, and changes during fiscal 2012, is as follows:



Time-Based Share Awards	Shares		Weighted-Average Fair Value per Share
Outstanding at February 26, 2011	2,171,000		$	36.60
Granted	2,647,000		25.65
Vested	(665,000	)	35.01
Forfeited/Canceled	(229,000	)	33.55
Outstanding at March 3, 2012	3,924,000		$	29.63

At March 3, 2012, there was $80 of unrecognized compensation expense related to nonvested time-based share awards that we expect to recognize over a weighted-average period of 2.6 years.

Employee Stock Purchase Plans

In fiscal 2012, 2011 and 2010, we estimated the fair value of stock-based compensation expense associated with our employee stock purchase plans on the purchase date using the Black-Scholes option-pricing valuation model, with the following assumptions:



Valuation Assumptions	2012		2011		2010
Risk-free interest rate⁽¹⁾	0.1	%	0.2	%	0.3	%
Expected dividend yield	2.4	%	1.4	%	1.5	%
Expected stock price volatility⁽²⁾	38	%	29	%	53	%
Expected life of employee stock purchase plan options (in months)⁽³⁾	6		6		6


(1)	Based on the U.S. Treasury constant maturity interest rate whose term is consistent with the expected life of employee stock purchase plan shares.


(2)	We consider both the historical volatility of our stock price as well as implied volatilities from exchange-traded options on our stock.


(3)	Based on semi-annual purchase period.

In fiscal 2012, 2011 and 2010, 1.4 million, 1.3 million and 1.2 million shares, respectively, were purchased through our employee stock purchase plans. The weighted-average fair values of shares purchased pursuant to the plans during fiscal 2012, 2011 and 2010, were $6.76, $9.54 and $11.34, respectively. At March 3, 2012, and February 26, 2011, plan participants had accumulated $11 and $19, respectively, to purchase our common stock pursuant to these plans.

Earnings per Share

We compute our basic earnings per share based on the weighted-average number of common shares outstanding, and our diluted earnings per share 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 securities include stock options, nonvested share awards and shares issuable under our employee stock purchase plan, as well as common shares that would have resulted from the assumed conversion of our convertible debentures. During the fourth quarter of fiscal 2012, we repurchased and redeemed all of the remaining outstanding convertible debentures (see Note 8, Debt). Since the potentially dilutive shares related to the convertible debentures are included in the computation, the related interest expense, net of tax, is added back to net earnings, as the interest would not have been paid if the convertible debentures had been converted to common stock. Nonvested market-based share awards and nonvested performance-based share awards are included in the average diluted shares outstanding each period if established market or performance criteria have been met at the end of the respective periods.

At March 3, 2012, options to purchase 35.8 million shares of common stock were outstanding as follows (shares in millions):



	Exercisable					Unexercisable					Total
	Shares	%		Weighted- Average Price per Share		Shares	%		Weighted- Average Price per Share		Shares	%		Weighted- Average Price per Share
In-the-money	3.6	15	%	$	25.28	2.8	25	%	$	25.07	6.4	18	%	$	25.19
Out-of-the-money	20.8	85	%	42.81		8.6	75	%	36.30		29.4	82	%	40.91
Total	24.4	100	%	$	40.21	11.4	100	%	$	27.30	35.8	100	%	$	38.08

The computation of dilutive shares outstanding excludes the out-of-the-money stock options 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).

The following table presents a reconciliation of the numerators and denominators of basic and diluted earnings per share in fiscal 2012, 2011 and 2010:



	2012⁽¹⁾			2011			2010
Numerator:
Net earnings from continuing operations	$	330		$	1,554		$	1,495
Net (earnings) from continuing operations attributable to noncontrolling interests	(1,387		)	(127		)	(96		)
Net (loss) earnings from continuing operations attributable to Best Buy Co., Inc., basic	(1,057		)	1,427			1,399
Adjustment for assumed dilution:
Interest on convertible debentures due in 2022, net of tax	—			6			6
Net (loss) earnings from continuing operations attributable to Best Buy Co., Inc., diluted	$	(1,057	)	$	1,433		$	1,405
Denominator (in millions):
Weighted-average common shares outstanding	366.3			406.1			416.8
Effect of potentially dilutive securities:
Shares from assumed conversion of convertible debentures	—			8.8			8.8
Stock options and other	—			1.6			1.9
Weighted-average common shares outstanding, assuming dilution	366.3			416.5			427.5
Net (loss) earnings per share from continuing operations attributable to Best Buy Co., Inc.
Basic	$	(2.89	)	$	3.51		$	3.36
Diluted	$	(2.89	)	$	3.44		$	3.29


(1)	The calculation of diluted (loss) per share for fiscal 2012 does not include potentially dilutive securities because their inclusion would be anti-dilutive (i.e., reduce the net loss per share).

Repurchase of Common Stock

In June 2011, our Board of Directors authorized a new $5,000 share repurchase program. The June 2011 program terminated and replaced our prior $5,500 share repurchase program authorized in June 2007. There is no expiration date governing the period over which we can repurchase shares under the June 2011 share repurchase program.

The following table presents the amount and cost of shares we repurchased and retired in fiscal 2012, 2011 and 2010 under the June 2011 program and the June 2007 program (shares in millions):



	2012		2011		2010
June 2011 Program
Total number of shares repurchased	34.5		—		—
Total cost of shares repurchased	$	889	$	—	$	—

June 2007 Program
Total number of shares repurchased	20.1		32.6		—
Total cost of shares repurchased	$	611	$	1,193	$	—

At March 3, 2012, $4,111 remained available for additional purchases under the June 2011 share repurchase program. Repurchased shares have been retired and constitute authorized but unissued shares.

Comprehensive (Loss) Income

Comprehensive (loss) income is computed as net (loss) earnings plus certain other items that are recorded directly to shareholders' equity. In addition to net (loss) earnings, the significant components of comprehensive (loss) income include foreign currency translation adjustments and unrealized gains and losses, net of tax, on available-for-sale marketable equity securities and on derivative instruments. Foreign currency translation adjustments do not include a provision for income tax expense when earnings from foreign operations are considered to be indefinitely reinvested outside the U.S.

Comprehensive (loss) income attributable to Best Buy Co., Inc. was $(1,314), $1,410 and $1,674 in fiscal 2012, 2011 and 2010, respectively.

The components of accumulated other comprehensive income, net of tax, were as follows:



	March 3, 2012			February 26, 2011
Foreign currency translation	$	93		$	102
Unrealized (losses) gains on available-for-sale investments	(3		)	72
Unrealized losses on derivative instruments (cash flow hedges)	—			(1		)
Total	$	90		$	173