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 employee compensation for each of the last three fiscal
years.
2003
2002
2001
Net earnings, as reported
$ 99
$ 570
$ 396
Add: Stock-based
employee compensation expense included in
reported net earnings, net of tax(1)
1
1
—
Deduct: Stock-based
compensation expense determined under fair value method for all awards,
net of tax
(85)
(59)
(44)
Net earnings,
pro forma
$ 15
$ 512
$ 352
Earnings per share:
Basic – as reported
$ 0.31
$ 1.80
$ 1.28
Basic – pro forma
$ 0.05
$ 1.62
$ 1.14
Diluted – as reported
$ 0.30
$ 1.77
$ 1.24
Diluted – pro forma
$ 0.05
$ 1.61
$ 1.11
(1)Amounts represent the
after-tax compensation costs for restricted stock awards.
The fair value of each
stock option was estimated on the date of the grant using the Black-Scholes
option-pricing model with the following assumptions:
2003
2002
2001
Risk-free interest rate
4.2%
4.9%
6.1%
Expected dividend yield
0%
0%
0%
Expected stock price
volatility
60%
55%
60%
Expected life of stock
options
5.0 years
4.5 years
4.5 years
The weighted average
fair value of options granted during fiscal 2003, 2002 and 2001 used
in computing pro forma compensation expense was $23.91, $18.60 and
$23.06 per share, respectively.
Pre-Opening Costs
Non-capital expenditures associated with opening new stores are
expensed as incurred.
Advertising Costs
Advertising costs, which are included in SG&A, are expensed the first
time the advertisement runs. Gross advertising expenses, before
expense reimbursement from vendor allowances, for fiscal 2003, 2002
and 2001 were $567, $493 and $479, respectively, for continuing
operations.
Derivative Financial Instruments
SFAS No.133, Accounting for Derivative Instruments and Hedging
Activities, requires that all derivatives be recorded on the balance
sheet at fair value. At March 1, 2003, the fair value of an existing
interest-rate swap was not significant.
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