Extending our
Leadership
Best Buy Co., Inc.
Fiscal 2002 Annual Report
Extending our Leadership
Our Vision: Making Life Fun and Easy
Best Buy Co., Inc. (NYSE: BBY) is North America’s No.1 specialty retailer.
We currently operate Best Buy, the top U.S. retailer of technology and entertainment
products and services with nearly 500 stores; Future Shop, the leading Canadian
retailer of technology and entertainment products and services with 95 stores;
Magnolia Hi-Fi, a 13-store retailer of top-of-the-line consumer electronics in the
Pacific Northwest; Media Play, a retailer of family entertainment software products
with
7
6 stores; On Cue and Sam Goody, which sell movies, music and gaming
products and services for young adults through approximately 850 stores located
in small market strip centers and urban malls; and Suncoast, a mall-based retailer
of movies with approximately 400 stores.
Key wins from fiscal 2002:
• Revenues grew 28 percent to $19.6 billion.
• Earnings increased more than 40 percent to $5
7
0 million.
• Operating margins rose 0.90 percentage points to 4.8 percent
of revenues.
• Comparable store sales gained 1.9 percent.
• We acquired Future Shop, Canada’s leading specialty retailer.
• We opened 62 Best Buy stores, including our entry into Seattle.
• We met our operating goals for Musicland’s first full year of business.
Goals for fiscal 2003:
• Boost revenues and earnings by 1
7
to 21 percent.
• Increase comparable store sales by 3 to 4 percent at our
U.S. stores and
7
to 9 percent at our Canadian stores.
• Open more than 100 stores across our various brands.
• Continue to improve our retail execution and build on our
No.1 relationship with the customer.
• Leverage capabilities and competencies across
the company.
Table of Contents
2 Letter to Shareholders
6 Best Buy
9 Musicland
12 Future Shop
14 Magnolia Hi-Fi
16 Company Snapshot
18 Ten-Year Financial Highlights
20 Management’s Discussion
and Analysis
34 Consolidated Financial Statements
56 Glossary
58 Directors and Officers
59 Shareholder Information
60 Store Counts
Leadership in retailing often is defined as
having the greatest market share. By that
definition, Best Buy is the leading specialty
retailer in North America, generating
revenues in fiscal 2002 of nearly $20 billion.
As a result, we have captured a 14-percent
U.S. market share of the consumer electronics,
home office and entertainment software
categories. While we continue to develop
plans to increase our market share, we
already lead the United States in sales of
consumer electronics, computers, music and
movies, and we rank third in sales of major
appliances. Through our November 2001
acquisition of Future Shop, we have expanded
our leadership position in speciality retailing
to all of North America as well.
We compare our performance with that of
the nation’s best-in-class retailers, including
Bed Bath & Beyond, Home Depot, Kohls,
Target, Wal-Mart and Walgreens. Last year,
we had one of the best performances in that
group in terms of revenue growth, sales
productivity, inventory turns, earnings growth
and return on equity.
In the past year, for example, we increased
revenues by 28 percent to $19.6 billion,
driven by the opening of 62 new Best Buy
stores, the inclusion of revenues from acquired
businesses and a comparable store sales gain
at Best Buy stores of 1.9 percent. We achieved
those results amid a national recession, the
war on terrorism and weakness in sales of
two major products, desktop computers and
prerecorded music.
Thanks to the continuing strength of our
employees’ retail execution and customer
preference for our store format, our sales
productivity at Best Buy stores reached $830
per square foot.
Despite a volatile economy, we kept Best Buy
stores’ inventory turns steady at the retail
industry-leading level of
7
.5 times, while
enhancing our in-stock position.
We achieved these results by sharpening our
supply chain management, demand forecasting,
logistics, transportation and pricing systems.
Our net earnings grew to $5
7
0 million,
reflecting increased revenues, a richer
product assortment and controlled expenses.
Our earnings growth rate exceeded
40 percent last year.
These results translated into a 26-percent
return on average equity.
Letter to Shareholders
Extending our Leadership in Retailing
2
Living our Values
To explain how we lead, I would like to
address our core values, which have driven
our culture of innovation. Throughout our
36-year history, we have been guided by this
core set of values. We place importance on
having fun while being the best. We seek
to learn from challenge and change. We
understand the need to act with respect, humil-
ity and integrity. We believe in unleashing the
power of our people.
Because we strive for excellence and
embrace change, we can do more than
simply grow. We also foster innovation. That
is a prime reason why we have been able to
establish and maintain our leadership in the
retail industry.
Fostering Innovation
Examples of our innovation are many.
Consider our demand forecasting systems,
which enabled us to finish a robust holiday
selling season with strong in-stock levels.
Our advertising effectiveness systems help us
maximize the efficiency of our marketing
budget and predict with a higher degree
of accuracy how our Sunday circular will
impact sales the following week. Our supply
chain management enables us to plan for
model transitions, to avoid markdowns and
to launch new products as soon as they
become available.
Our knowledge management systems allow
our 90,000 employees to share information
about everything from car stereo installation
tips to selling techniques. Thanks to our
leadership in these key competitive areas, we
now set the benchmark for our industry in
financial strength as well, affording us the
flexibility to invest for future growth and to
return fully 1.5 percent of our pretax earnings
to our communities.
The skill sets, processes and systems we have
built – which we call our “structural capital” –
are important not only to the future success
of Best Buy stores, but to the vitality of
our acquired businesses. The centerpiece of
our strategy is a continued expansion of our
Best Buy stores, including 60 new U.S. stores
per year for at least the next four years, as
well as comparable store sales gains. That
base serves as a strong foundation to the next
part of our strategy: namely, extending our
leadership into new spaces by leveraging our
structural capital.
Best Buy Co., Inc. 3
1998 1999 2000 2001 2002
Return on Average
Common Equity
Our return on equity compares favorably
with that of other national retailers.
1
7
.0%
2
7
.6%
32.6%
2
7
.1%
26.3%
4 Letter to Shareholders
Specifically, where might our
leadership take us in the future?
• New markets, including approximately
240 more Best Buy stores, as we fill out
our U.S. presence; up to 800 additional
small-market Sam Goody stores, which
serve a new, rural consumer; new stores in
Canada, as we launch the Best Buy brand
in that market and expand our Future Shop
position; and up to 130 more Magnolia
Hi-Fi stores for affluent consumers, building
on our West Coast presence.
• New levels of sales productivity, particu-
larly at our Musicland stores, where we
expect to sharpen our focus on entertain-
ment for the young, fun consumer.
• New products and services for existing
customers at all of our stores, as we take
advantage of the expanding digital
product cycle.
• New levels of financial performance,
including operating margin expansion at
all of our stores.
• New countries, whether we enter through
acquisition or organic growth.
Ultimately, our goal is to extend our leadership
to become the top specialty retailer in the world.
I announced this spring my intention to step
aside as CEO effective in June 2002,
triggering a succession plan developed some
time ago. I am proud to say that I have
developed a top-notch team of executives to
take the helm, including several Best Buy
veterans. My confidence in them will enable
me to balance my life, pursue special interests
and spend time developing Best Buy’s future
leaders as well as working with management
on long-range growth prospects. I intend to
stay active as Chairman of the Board of the
company I founded, of which I remain our
single largest shareholder.
I consider Best Buy to be my best investment.
In the last five years, our stock provided
the highest total return to shareholders of
all stocks in the S&P 500. Our goal is
to continue providing to shareholders top-
quartile performance, with revenues and
earnings growth of 1
7
to 21 percent annually.
I am truly excited about our many possibilities
because I know that our team, when faced
with a challenge, is inspired rather than
discouraged. Our company culture thrives on
growth, change and innovation. We know
the importance of remaining in lock step with
our customers to earn their continued loyalty
and to remain their retailer of choice.
My heartfelt thanks goes out to all of our
employees, for continuing to embrace new
challenges as our company expands; to our
board, for its guidance and direction as we
strive to extend our leadership into new spaces;
to
our vendors, for their ongoing partnership;
and to our shareholders, for your continued
support of our company.
Richard M. Schulze
Founder, Chairman & CEO
5
We had a banner year
at Best Buy stores
Despite a national recession, our sales for the
fiscal year increased by 12 percent to $17.0
billion, driven by new stores and comparable
store sales gains of 1.9 percent. We boosted
our operating margin by 120 basis points
and increased our market share to 14 percent.
We maintained industry-leading inventory
turns at
7
.5 times. We continued to excel in
sales of digital products, which comprised
1
7
percent of sales last year, compared with
12 percent the prior year. In addition, our
e-commerce site ranked third in the country,
based on customer visits; nearly 40 percent of
customers shopping our stores said they had
visited us online prior to their purchase.
While our performance in the past year was
strong, it is by no means the end of the story.
Our goal is not only to be a leader, but to
define what leadership means in retailing. To
achieve that, we must continue to improve
and to grow.
Growing Organically
In the coming year, we plan to continue our
revenue growth by opening approximately
60 more stores, half of which will be in our
30,000-square-foot format and half in our
45,000-square-foot format. This year we plan
to enter five states and expand our metro-
politan New York presence, including our first
store in Manhattan.
We also have the opportunity to increase the
productivity of our existing stores. Our newest
store design, called Concept 5, facilitates
growth by showcasing the newest digital
technologies. It offers improved placement of
products to encourage the sale of services
and accessories along with each device. Its
flexible architecture allows us to adjust easily
the space we allocate to each product
category. The single-queue checkout and
convenience store reduce waiting time and
make it more fun. The transaction center lets
customers sit and have a relaxed discussion
during more complex purchases. In fiscal
2003 all our new stores will utilize this new
design, and we expect to remodel 10 stores
using this design as well.
In addition, we expect to boost store
productivity by enhancing our sales training,
building customer loyalty, improving our
supply chain management and more closely
synchronizing our e-commerce business with
our stores to give customers access to us
wherever, whenever and however they want it.
Extending our Leadership
into New Technologies
6 Business Review: Best Buy
Best Buy Co., Inc. 7
1998 1999 2000 2001 2002
12,694
14,01
7
16,205
19,010
21,599
Retail Selling Space (Best Buy Stores) (in thousands of square feet)
We plan to continue opening approximately 60 stores per year. In fiscal 2003,
we expect to enter five states: Alaska, Idaho, Utah, West Virginia and Wyoming.
We believe that we can modestly improve our
operating margins as we increase sales of
digital products and leverage our expenses
over our national franchise. Finally, we are
preparing to re-engineer our appliance busi-
ness, including enhancements to the customer
experience, which we expect to boost sales
and profitability in the next two years.
Expanding our Services
Another major opportunity for us is developing
deeper relationships with customers through
growth in the services we offer to our customers.
Whether we are installing a digital television,
connecting a car DVD player, configuring a
computer or delivering appliances, we already
are known for offering services. We have
invested in this business for the past three
years in order to improve customer satisfaction.
We have begun to offer new types of services
as well. For example, we are the top retailer
of subscriptions to MSN, Microsoft’s Internet
service provider. We have seen early success
with other subscription-based models, such
as satellite radio. In the future, as consumers
begin to embrace new delivery models for
entertainment and information, and as the
networked home arrives, we want our
customers to think of Best Buy.
Services, like accessories, are an integral part
of the package of products and services we
provide to customers. Together they provide an
excellent avenue for leveraging our greatest
asset: the customer relationships we have
created through our stores.
Anticipating Challenges
In the fast-paced world of retailing, only those
who anticipate and respond to challenges in
the environment succeed. For example,
in anticipation of continued price pressures
and competition from mass merchandisers, we
have expanded our assortment and invested
in added employee training to support sales
of complex digital products and services.
We also are partnering with key stakeholders
in the entertainment business to explore a
competitive alternative for consumers who
download entertainment software. In addition,
we are partnering with our vendors to
increase our mutual profitability so that they
can invest in the development of tomorrow’s
products and services.
With an experienced management team,
a culture that embraces change and the
desire to lead through innovation, we have
much reason for optimism about the future
of Best Buy.
8 Business Review: Best Buy
In its first full year of operation within Best Buy,
Musicland stores achieved their performance
goals. Expense reductions enabled the busi-
ness to post a modest operating profit,
despite the national recession and a decline
in mall traffic.
One reason we acquired Musicland was to
attract a differentiated customer of technology
and entertainment products, including more
young people and the rural consumer. The
convenience-based strategy also presents a
shopping alternative to Best Buy stores, which
offer a destination shopping experience. Our
intention was to transform the Musicland
business, improve the customer experience,
diversify the revenue mix and thereby boost
sales productivity and profitability. We also
viewed the small-market stores as an attractive
growth opportunity.
Diversifying the Product Mix
Sales of prerecorded music remained soft
during the year, reflecting file sharing, Internet
downloading and slower sales of top hits.
We are working on a strategy to reverse the
trend, including enhancing our own Internet
entertainment site and exploring subscription-
based models. Yet sales of prerecorded music
are expected to remain soft for the coming
year as well, so our emphasis at Musicland
stores – and at Best Buy stores -- will be on
increasing sales of other entertainment
software, particularly DVD movies and
video gaming.
Our first objective was to launch a new mix of
products at our mall-based Sam Goody
stores, which sell entertainment products and
services to young, fun entertainment consumers.
Today we operate 615 Sam Goody stores,
which average 4,800 square feet.
We doubled the assortment of DVD movies
and introduced video gaming, categories
which carry lower margins but are growing
at triple-digit rates. We also introduced
hardware products that play music and
movies, a natural extension of the product
mix. As a result, increased sales from these
categories offset expected declines in sales of
prerecorded music.
Extending our Leadership
with New Customers
Business Review: Musicland 9
10 Business Review: Musicland
We introduced video gaming
at most of our Sam Goody
stores in fiscal 2002 as part of
our remerchandising strategy.
Musicland Comps vs. Mall Traffic
Comparable store sales at Musicland outperformed the
National Retail Traffic Index
TM
after we remerchandised
Sam Goody stores in early fiscal 2002.
3%
0
-3%
-6%
Q1 Q2 Q3 Q4
-6.1% -0.4% 0.3% 1.2%
-0.
7
%-3.1% -6.
7
%-6.8%
Testing a new mix of products at the small-
market On Cue stores was our second
objective for the fiscal year. These 6,000-
square-foot stores target rural entertainment
enthusiasts with movies, music and books.
The test included an expanded assortment of
DVD movies and the introduction of video
gaming, as well as a narrowed assortment
of books. Results were favorable, and we
expect to remerchandise all 230 of the
small-market stores prior to the fiscal 2003
holiday selling season.
We also piloted a new identity for On Cue
stores, which are similar in size and product
mix to Sam Goody stores, yet have low brand
recognition. Results were very clear and very
positive. We found that stores opening with
the name of Sam Goody had significantly
higher sales than identical stores opening as
On Cue. We now plan to change all of the
On Cue stores to the Sam Goody name by
the fall of 2002.
We believe that the small-market stores offer
a significant vehicle for growth. They offer
sales as strong as that of our mall-based Sam
Goody stores, combined with a significantly
lower expense structure. We plan to open 30
small-market Sam Goody stores in fiscal
2003. The following year, we plan to embark
on a 10-year expansion plan, with a goal of
opening up to 800 stores.
Third, we identified several practices that
were transferable to Musicland, including
advertising effectiveness, merchandising,
in-store standard operating procedures and
vendor relationships.
We began to leverage those competencies at
Musicland in fiscal 2002 and expect to
continue that work in fiscal 2003. Leveraging
company competencies is our primary goal
in fiscal 2003 at 400 Suncoast stores, a
mall-based retailer of movies in a 2,400-
square-foot format, known for its high level
of service, which attracts movie enthusiasts;
and
7
6 Media Play stores, a family-oriented,
big-box retailer of entertainment software and
books in a 45,000-square-foot format.
For our fourth objective, we integrated all of
our staff functions with Best Buy stores and
produced the savings that we had expected.
Transforming the Stores
Yet significant challenges remain if we are
to succeed in increasing our share of the
spending of our core entertainment customers.
The next step after remerchandising our
stores is to transform them, which will require
additional investments.
Our fiscal 2003 goals include:
• Continue diversifying the product mix,
reducing our reliance on prerecorded music.
• Build the value of our online offering as
more consumers opt for digital delivery
of music.
• Enhance the point-of-sale systems and
adjust the labor model so we can sell
more services.
• Improve our merchandising and increase
the number of interactive displays.
• Increase advertising effectiveness.
Best Buy Co., Inc. 11
Future Shop, Canada’s top retailer of
technology and entertainment products,
posted significant increases in sales during
fiscal 2002. Since we acquired the 95-store
chain in November 2001, its total sales rose
9.8 percent compared with the prior year’s
pro forma sales. Comparable store sales rose
by 1
7
.4 percent, driven by the strength of the
digital product cycle.
We chose to acquire Future Shop because
it accelerated our plans to become the largest
retailer of technology and entertainment
products throughout North America. In addition,
we believed that the acquisition would create
value for shareholders, as it was immediately
accretive to earnings and it advanced our
revenue goals for Canada by at least three
years. Through the acquisition, we also added
top-notch employees who are familiar with
the country’s unique competitive dynamics.
Future Shop supplies us with important
avenues for growth as well. We expect to
open eight or nine more Future Shop stores in
Canada in fiscal 2003 and believe that we
have significant opportunity to increase sales
in this highly fragmented market.
We also believe that we can boost
Future Shop’s operating margins by leveraging
our structural capital, including knowledge
about in-store standard operating procedures,
supply chain management, advertising,
merchandising and other proprietary
Best Buy processes.
Early successes for
Future Shop include:
• We completed the acquisition using a
collaborative process and met our initial
goals for employee retention.
• We took several important steps to
increase customer loyalty. We outsourced
the call center to provide 24-hour service,
seven days a week. We expanded the
customer research program and retained a
premier insurance company to underwrite
product warranties.
• We opened an automated 450,000-
square-foot distribution center in Ontario to
support store growth.
Our goals for fiscal 2003 include:
• Launch Best Buy stores in Canada. We
expect to open six to eight stores this fall in
the Greater Toronto area, which will be our
first international Best Buy stores. All of the
stores will utilize the Concept 5 format.
• Begin leveraging Best Buy’s expertise in
key areas, including supply chain manage-
ment and advertising effectiveness.
• Continue to execute the Future Shop busi-
ness plan, which includes the opening of
another eight to nine new stores across
Canada in fiscal 2003.
Extending our Leadership
into New Markets
12 Business Review: Future Shop
Best Buy Co., Inc. 13
Future Shop stores, which average
26,000 square feet, cater to consumers
in Canada ages 25 to 44. Our stores
are known as the place to “get it first.”
Our Magnolia Hi-Fi stores had a challenging
fiscal 2002. Comparable store sales at this
retailer of high-end consumer electronics
declined during the year amid a national
recession and high unemployment in the
Pacific Northwest, where most of these stores
operate. Total sales decreased 5.4 percent to
$99 million, as negative comparable store
sales offset strong gains in the two newest
stores in California and at Magnolia Hi-Fi’s
Design Center in Seattle, which provides
custom installations of home theater systems.
Founded in 1954, the chain has flourished
largely due to its reputation for superior service.
Magnolia Hi-Fi expanded to California more
than one year ago as part of a test of whether
the stores could be successful outside their
traditional market. We are pleased with the
strong consumer acceptance we enjoyed,
which resulted in strong positive comparable
store sales at our California stores.
We continue to believe that Magnolia Hi-Fi
has the potential to expand to 150 stores
nationwide. Before we embark on an aggres-
sive growth strategy for the chain, we believe
that we must refine the store concept and
broaden the scope of products and services
we offer to our existing customer base, which
includes affluent early adopters of technology,
typically ages 25 to 54.
Our goals for fiscal 2003 include:
• Increase the store count by nearly 50
percent. We expect to open six additional
California stores with an average of
11,000 square feet. The new stores would
bring our total to 19 stores.
• Expand the product and service offering
to include popular digital products. The
current offering focuses on home theater
systems and select consumer electronics.
We expect to increase the digital imaging
product assortment and launch digital
services and personal digital assistants.
• Prepare the chain for aggressive growth.
We plan to build the management and staff
infrastructure, and partner with Best Buy’s
top-notch real estate team to determine
locations for future stores.
•
Use the Company’s knowledge management
systems for merchants in different business
units to share information about products,
features, prices and services sought by
early adopter customers.
Extending our Leadership
into New Locations
14 Business Review: Magnolia Hi-Fi
Expanding our Presence
We plan to open six Magnolia Hi-Fi stores
in fiscal 2003 and expand our offering at
existing locations.
Best Buy Co., Inc. 15
© 2001 Twentieth Century Fox Film Corporation
Company Snapshot
16 Company Snapshot
199
7
1998 1999 2000 2001 2002
Stock Price Performance
Our stock price has dramatically outperformed the
S&P 500 and an index of our peers, including retailers
such as Circuit City, Radio Shack and Home Depot.
The Wall Street Journal ranked our stock No.1 in total
return to shareholders over the last five years.
1998 1999 2000 2001 2002
Gross Profit Percentage
Our 2002 gross profit percentage improvement reflects
our Musicland acquisition, a richer product mix, fewer
markdowns and lower consumer financing costs.
1998 1999 2000 2001 2002
Revenues (in millions)
We have grown revenues by an average rate of
20 percent per year through new stores, sales
increases at existing stores and acquisitions.
1998 1999 2000 2001 2002
Operating Income Percentage
Our operating income rate has increased by 2.8 percent
of sales, reflecting improvements in our gross margin.
2.0%
3.5%
4.3%
3.9%
4.8%
15.
7
%
18.0%
19.2 %
20.0%
22.6%
$8,338
$10,065
$12,494
$15,32
7
$19,59
7
100
644
2,005
2,0
7
6
1,
7
34
2,942
166
295
365
286
341
135
162
181
166
150
Best Buy
Musicland
International
Best Buy
Peer Group
S&P 500
Best Buy Co., Inc. 17
199
7
1998 1999 2000 2001 2002
Earnings Per Share
Our diluted earnings per share growth reflects the increase
in our gross profit percentage, new stores, expense controls
and acquisitions.
($.02)
$.30
1998 1999 2000 2001 2002
Store Count
Our number of retail stores has increased dramatically
with the addition of Musicland and Future Shop.
Product Sales Mix
(Best Buy Stores)
Consumer electronic sales surpassed
home office sales in fiscal 2002, reflecting
strength in sales of digital products.
1998 1999 2000 2001 2002
Inventory Turns (Best Buy Stores)
Inventory management remains a strength of the company.
We held inventory turns steady in fiscal 2002 despite soft
sales of high-turning desktop computers.
2001 2002
Digital Products Percentage
(Best Buy Stores)
Digital product sales grew to 1
7
% of total sales in
fiscal 2002 as the product cycle continued to expand.
33% Consumer Electronics 31% Home Office
6% Appliances
8% Other
22% Entertainment Software
$.69
$1.0 9
$1.24
$1.
77
284
311
35
7
1,
7
41
1,910
5.6
6.6
7
.2
7
.6
7
.5
12%
1
7
%
Best Buy
Musicland
Magnolia Hi-Fi
International
Please read this table in conjunction with Management’s Discussion
and Analysis of Results of Operations and Financial Condition,
beginning on page 20, and the Consolidated Financial Statements
and Notes, beginning on page 34.
(1)
Both fiscal 2001 and 1996 included 53 weeks. All other periods
presented included 52 weeks.
(2)
During the third quarter of fiscal 2002, we acquired the common
stock of Future Shop Ltd. During the fourth quarter of fiscal 2001,
we acquired the common stock of Musicland Stores Corporation
(Musicland) and Magnolia Hi-Fi, Inc. (Magnolia Hi-Fi). The
results of operations of these businesses are included from their
dates of acquisition.
18 10-Year Financial Highlights
$ in millions, except per share amounts
Fiscal Year
(1)
2002
(2)
2001
(2)
2000 1999 1998
Statement of Earnings Data
Revenues $ 19,59
7
$ 15,32
7
$12,494 $10,065 $ 8,338
Gross profit 4,430 3,059 2,393 1,815 1,312
Selling, general and
administrative expenses 3,493 2,455 1,854 1,464 1,146
Operating income 937 604 539 351 166
Net earnings (loss) 570 396 34
7
216 82
Per Share Data
(3)
Net earnings (loss) $1.
77
$ 1.24 $ 1.09 $ .69 $ .30
Common stock price: High 51.4
7
59.25 53.6
7
32.6
7
10.20
Low 22.42 14.00 2
7
.00 9.83 1.44
Operating Statistics
Comparable store sales change
(4)
1.9% 4.9% 11.1% 13.5% 2.0%
Inventory turns
(5)
7
.5
7
.6
7
.2 6.6 5.6
Gross profit percentage 22.6% 20.0% 19.2% 18.0% 15.
7
%
Selling, general and administrative
expense percentage
1
7
.8% 16.0% 14.8% 14.5% 13.
7
%
Operating income percentage 4.8% 3.9% 4.3% 3.5% 2.0%
Average revenues per store
(6)
$38 $39 $3
7
$34 $30
Year-End Data
Working capital $ 881 $ 214 $ 453 $ 662 $ 666
Total assets 7,375 4,840 2,995 2,532 2,0
7
0
Long-term debt, including current portion 820 296 31 61 225
Convertible preferred securities — ———230
Shareholders’ equity 2,521 1,822 1,096 1,034 536
Number of stores
Best Buy 481 419 35
7
311 284
Magnolia Hi-Fi 13 13 ———
Musicland 1,321 1,309 ———
International 95 ————
Total retail square footage (000s)
Best Buy 21,599 19,010 16,205 14,017 12,694
Magnolia Hi-Fi 133 133 ———
Musicland 8,806 8,
77
2 ———
International 1,923 — ———
10-Year Financial Highlights
(3)
Earnings per share is presented on a diluted basis and reflects a
three-for-two stock split in May 2002; two-for-one stock splits in
March 1999, May 1998 and April 1994; and a three-for-two
stock split in September 1993.
(4)
Comparable stores are stores open at least 14 full months,
include remodeled and expanded locations and, for all periods
presented, reflect Best Buy stores only. Relocated stores are
excluded from the comparable store sales calculation until at
least 14 full months after reopening. Acquired stores will be
included in the comparable store sales calculation beginning
with the first full quarter following the first anniversary of the date
of acquisition.
(5)
Inventory turns reflect Best Buy stores only and are calculated
based upon a monthly average of inventory balances.
(6)
Average revenues per store reflect Best Buy stores only and
are based upon total revenues for the period divided by the
weighted average number of stores open during the fiscal year.
Best Buy Co., Inc.
19
$ in millions, except per share amounts
1997 1996 1995 1994 1993
$
7
,
7
58 $
7
,215 $ 5,080 $ 3,00
7
$1,620 35.6% 20.4%
1,046 934 690 45
7
284 ——
1,006 814 568 380 248 ——
40 120 122
77
36 4
7
.9% 8
7
.
7
%
(6) 46 58 41 20 50.4% —
$ (.02) $ .18 $ .21 $ .1
7
$.10
4.3
7
4.94
7
.54 5.24 2.61
1.31 2.13 3.69 1.81 .
7
8
(4.7%) 5.5% 19.9% 26.9% 19.4%
4.6 4.8 4.
7
5.0 4.8
13.5% 12.9% 13.6% 15.2% 1
7
.5%
13.0% 11.3% 11.2% 12.6% 15.3%
.5% 1.
7
% 2.4% 2.6% 2.2%
$29$31$28$23 $18
$ 563 $ 585 $ 609 $ 363 $ 119
1,
7
40 1,892 1,50
7
952 439
238 230 241 220 54
230 230 230 ——
429 430 376 311 182
2
7
2 251 204 151 111
—————
—————
—————
12,026 10,
77
1 8,041 5,072 3,250
—————
—————
—————
5-Year
Compound
Annual
Growth Rate
10 -Year
Compound
Annual
Growth Rate
Overview
Best Buy Co., Inc. is North America’s No. 1 specialty
retailer of consumer electronics, home office equipment,
entertainment software and appliances. In November of
fiscal 2002, we acquired Future Shop Ltd. (Future Shop).
Future Shop currently operates 95 stores and is Canada’s
largest specialty retailer of name-brand consumer electronics,
home office equipment, entertainment software and appli-
ances. During the fourth quarter of fiscal 2001, we
acquired Musicland Stores Corporation (Musicland) and
Magnolia Hi-Fi, Inc. (Magnolia Hi-Fi). Musicland is pri-
marily a mall-based national retailer of prerecorded music,
movies and other entertainment-related products with
1,321 stores. Magnolia Hi-Fi is a Seattle-based retailer of
high-end consumer electronics with 13 stores. All three
acquisitions were accounted for using the purchase
method. Under this method, the net assets and results of
operations of those businesses are included in our
consolidated financial statements from their respective
dates of acquisition. We currently operate three reportable
segments: Best Buy, Musicland and International. The
Best Buy segment aggregates all operations exclusive of
Musicland and International operations. The International
segment was established in the third quarter of fiscal 2002
in connection with our acquisition of Future Shop.
Our fiscal year ended March 2, 2002, contained 52
weeks. Fiscal 2001 and 2000 contained 53 weeks and
52 weeks, respectively.
20 MD&A
Management’s Discussion and Analysis of Results of
Operations and Financial Condition
Results of Operations
Consolidated
The following table presents selected consolidated financial data for each of the past three fiscal years ($ in millions,
except per share amounts):
Pro forma
2002 2001 2001
(1)
2000
Revenues $ 19,597 $ 15,327 $ 17,621 $ 12,494
Revenues % change
28% 23% — 24%
Comparable stores sales % gain
(2)
1.9% 4.9% 4.9% 11.1%
Gross profit as a % of revenues
22.6% 20.0% 21.8% 19.2%
SG&A as a % of revenues
17.8% 16.0% 17.8% 14.8%
Operating income
$ 937 $ 604 $ 703 $ 539
Operating income as a % of revenues
4.8% 3.9% 4.0% 4.3%
Net earnings
$ 570 $ 396 $ 425 $ 347
Diluted earnings per share
(3)
$1.77 $ 1.24 $ 1.33 $ 1.09
(1)
Pro forma information reflects combined results of operations at Best Buy, Musicland and Future Shop. Musicland’s results of operations
are presented as if it had been acquired at the beginning of fiscal 2001 and include amortization of goodwill. Future Shop’s results of
operations are presented as if it had been acquired at the beginning of November in fiscal 2001 and do not include amortization
of goodwill. Pro forma results are unaudited.
(2)
Comparable stores are stores open at least 14 full months, include remodeled and expanded locations and, for all periods presented,
reflect Best Buy stores only. Relocated stores are excluded from the comparable store sales calculation until at least 14 full months after
reopening. Acquired stores will be included in the comparable store sales calculation beginning with the first full quarter following the
first anniversary of the date of acquisition.
(3)
The diluted earnings per share amounts above have been restated to reflect a three-for-two stock split effective on May 10, 2002.
Net earnings for fiscal 2002 increased 44%, growing to
a record $570 million, compared with $396 million in
fiscal 2001 and $347 million in fiscal 2000. Earnings
per diluted share increased to $1.
77
in fiscal 2002,
compared with $1.24 in fiscal 2001 and $1.09 in
fiscal 2000.
Our net earnings increase was primarily driven by an
improved gross profit rate, new store growth, expense
controls and the inclusion of operations from acquired
businesses. Revenues compared with the last fiscal year’s
reported results grew 28%. Approximately half of the
increase in revenues was due to new Best Buy stores
opened in the past two fiscal years, including 62 new
stores opened in fiscal 2002. The remainder of the
increase was due to the inclusion of revenues from
acquired businesses. The 1.9% increase in comparable
Best Buy store sales was offset by the inclusion of an extra
week of operations in fiscal 2001, which increased fiscal
2001 revenues by approximately $280 million.
Our improved gross profit rate was due to increased sales
of higher-margin digital products, improved supply chain
management and more effective promotional strategies.
In addition, the inclusion of Musicland’s higher-margin
sales mix increased our gross profit rate by approximately
1.1% of revenues.
Our selling, general and administrative expenses (SG&A)
rate was 17.8% of revenues, an increase of 1.8% of
revenues over last fiscal year. The inclusion of Musicland’s
higher expense structure increased our SG&A rate by
approximately 1.4% of revenues. The remainder of the
increase was primarily due to the impact of operating
expenses increasing at a faster rate than comparable store
sales, as well as increased performance-based
compensation, higher depreciation expenses related to
capital investments and increased charitable giving. The
increase was partially offset by reduced outside consulting
costs, improved productivity and comparison with prior
fiscal year expenses, which included the launch of
BestBuy.com
™
, our entry into the New York market and the
write-off of certain e-commerce investments.
Fiscal 2001 revenues were $15.3 billion, compared with
$12.5 billion in fiscal 2000. The majority of the increase
in revenues, compared with the prior fiscal year, was due
to the addition of 62 Best Buy stores, a full year of
operations at the 4
7
Best Buy stores opened in fiscal
2000 and a 4.9% comparable store sales increase at
Best Buy stores. The remainder of the increase resulted
from the inclusion of revenues generated by Musicland
and Magnolia Hi-Fi from their dates of acquisition and
the inclusion of a 53rd week that added approximately
$280 million in revenues. The Best Buy comparable store
sales increase reflected the strength of the digital product
cycle and benefits from our enhanced operating model
that included an improved merchandise assortment, higher
in-stock positions and more consistent store execution.
Gross profit in fiscal 2001 increased to 20.0% of
revenues, compared with 19.2% of revenues in fiscal
2000, mainly due to improved product margins and a
more profitable sales mix that resulted from increased sales
of digital products and higher-end, more fully featured
products. In addition, the inclusion of Musicland’s higher
margin sales mix increased our gross profit rate by
approximately 0.2% of revenues.
Our SG&A rate increased to 16.0% of revenues in fiscal
2001, compared with 14.8% in fiscal 2000, primarily
due to our increased investment in strategic initiatives and
a more modest sales growth environment. In addition, the
launch and operation of BestBuy.com, expenses related to
our entry into the New York market and the write-off of
certain e-commerce investments also impacted our SG&A
rate in fiscal 2001.
Best Buy Co., Inc. 21
In addition to traditional financial measurements, we use
Economic Value Added (EVA
®
) to measure our financial
performance and manage our allocation of capital
resources. Also, a portion of executive incentive compen-
sation is related to the achievement of targeted levels of
annual EVA improvement. EVA is a financial performance
measurement that includes the economic cost of assets
employed. We use EVA as one of several internal financial
measures, and it is not intended to represent a measure of
financial performance with respect to accounting principles
generally accepted in the United States. Other organiza-
tions that use EVA as a measurement of financial
performance may define and calculate EVA differently.
22 MD&A
Segment Performance
Best Buy
The following table presents selected financial data for the Best Buy segment for each of the past three fiscal years
($ in millions):
Segment Performance Summary
(1)
(unaudited) 2002 2001 2000
Revenues $17,115 $15,189 $12,494
Comparable stores sales % gain
(2)
1.9% 4.9% 11.1%
Gross profit as a % of revenues
21.2% 19.8% 19.2%
SG&A as a % of revenues
16.0% 15.8% 14.8%
Operating income
$ 886 $ 611 $ 539
Operating income as a % of revenues
5.2% 4.0% 4.3%
(1)
Aggregate results of our businesses other than Musicland and International.
(2)
Includes only sales at Best Buy stores open at least 14 full months, and includes remodeled and expanded locations. Relocated stores
are excluded from the comparable store sales calculation until they have been reopened for at least 14 full months.
Best Buy revenues for fiscal 2002 increased 13% to
$17.1 billion, compared with $15.2 billion in fiscal
2001. Approximately half of the increase in revenues was
due to new Best Buy stores opened in the past two fiscal
years, including 62 new stores in fiscal 2002. The 1.9%
increase in comparable Best Buy store sales was offset by
the inclusion of an extra week of operations in fiscal
2001, which increased fiscal 2001 revenues by
approximately $280 million. The Best Buy comparable
store sales increase was primarily the result of sales gains
in the entertainment software and consumer electronics
product categories, partially offset by sales declines in
the home office and appliances categories. The introduction
of new gaming platforms, increased availability of existing
consoles and strong sales of DVD movies led to double-
digit comparable store sales growth in the entertainment
software category. The growth in the entertainment
software category was partially offset by soft sales of
prerecorded music resulting from the general absence of
new releases with strong consumer appeal, an increase in
the downloading of music via Internet sites and greater
consumer awareness of CD recording technology. Within
the consumer electronics category, digital products,
including digital televisions, DVD hardware, digital
cameras and digital camcorders, experienced the largest
comparable store sales increases. Digital products
comprised 1
7
% of the sales mix in fiscal 2002, compared
with 12% in the last fiscal year. Soft sales of desktop and
configure-to-order computers as well as reduced prices for
computer peripherals resulted in a comparable store sales
decline in the home office product category. The decline
was partially offset by increased sales of notebook
computers and wireless communication devices. In the
aggregate, sales of personal computers declined due to
weaker consumer demand for desktop computers and
challenging economic conditions. Appliance sales were
soft primarily as a result of increased competition and a
general slowdown in consumer demand throughout
the industry. Overall, we believe our improved supply
chain management and consistent store execution also
contributed to increased revenues and market share gains.
Gross profit in fiscal 2002 increased to 21.2% of revenues,
up from 19.8% of revenues last fiscal year. Approximately
half of the increase was due to a more profitable sales mix;
the remainder of the increase was due to reduced
markdowns resulting from improved supply chain
management and more effective promotional strategies,
as well as lower costs associated with consumer financing
offers. Sales in the higher -margin consumer electronics
and entertainment software product categories increased
faster than sales in the home office category, which
includes lower-margin personal computers. We continued
to benefit from expansion in the digital product category,
as margin rates on digital products typically are higher
than on analog products. Inventory turns for Best Buy stores
declined slightly to
7
.5 times in fiscal 2002, compared
with last fiscal year’s
7
.6 times, due to a sales mix shift
from faster-turning computers to consumer electronics,
improved in-stock positions and modest comparable store
sales growth. Lower costs associated with consumer
financing offers resulted from reduced interest rates
and more favorable terms related to a new private-label
credit card agreement.
Our SG&A rate increased to 16.0% of revenues in fiscal
2002, compared with 15.8% in the prior fiscal year. The
increase was primarily due to expenses associated with
less mature stores, the deleveraging effect of modest
comparable store sales growth, increased performance-
based compensation expense related to our 44% increase
in net earnings and increased depreciation expense
resulting from capital investments in new Best Buy stores
and core financial and operating systems. We also
increased our charitable giving in fiscal 2002. Our
increased expenses were partially offset by reduced
advertising expenditures as a percentage of revenues,
Best Buy Co., Inc. 23
For fiscal 2002, Musicland revenues were $1.9 billion,
slightly lower than last year’s pro forma results.
Comparable store sales decreased 0.9% for the fiscal year
primarily due to reduced mall traffic and softness in sales
of prerecorded music and VHS movies. The comparable
store sales decline was partially offset by increased
sales of DVD movies and the introduction of new gaming
hardware and software.
Musicland’s fiscal 2002 gross profit margin of 35.0% of
revenues declined by 1.9% of revenues compared with
last year’s pro forma results. The decline was primarily due
to a change in the product mix, including soft sales of
prerecorded music and increased sales of lower-margin
DVD movies and gaming hardware and software.
24 MD&A
Musicland
The following table presents selected financial data for the Musicland segment for each of the past two fiscal years
($ in millions):
Segment Performance Summary Pro forma
(unaudited) 2002 2001
(1)
Revenues $1,886 $1,915
Comparable stores sales % change
(2)
(0.9%) (0.
7
%)
Gross profit as a % of revenues
35.0% 36.9%
SG&A as a % of revenues
33.5% 32.9%
Operating income
$29 $
77
Operating income as a % of revenues 1.6% 4.0%
(1)
Pro forma results of operations at Musicland, including the amortization of goodwill, as though it had been acquired at the
beginning of fiscal 2001.
(2)
Includes sales at Musicland stores open at least 12 months. Relocated stores are included in the comparable store sales calculation.
improved productivity and comparison with prior fiscal
year expenses, which included the launch of BestBuy.com,
our entry into the New York market and the write-off of
certain e-commerce investments. In addition, our focus on
controlling expenses, such as corporate hiring and outside
consulting costs, positively impacted our SG&A rate.
Overall, the results of operations at Magnolia Hi-Fi did not
significantly impact the Best Buy segment’s financial results.
During fiscal 2002, we opened 62 new Best Buy stores,
including 20 stores in our 30,000-square-foot format.
The openings brought our total to 481 stores, compared
with 419 stores at the end of fiscal 2001. In addition, we
remodeled three Best Buy stores and expanded two
Best Buy stores during fiscal
2002
, compared with no
remodeled stores and two expanded stores in fiscal
2001
.
Magnolia Hi-Fi
continued to operate 13 stores,
unchanged from
fiscal 2001.
Best Buy Co., Inc. 25
Future Shop revenues were $596 million in fiscal 2002,
a 10% increase compared with last year’s pro forma
results. For the year, comparable store sales increased
17.4%, before the impact of foreign currency exchange
rate fluctuations. The comparable store sales gains were
driven by increased sales of entertainment software
products and consumer electronics, which includes the
rapidly expanding digital product category.
In fiscal 2002, Future Shop’s gross profit was 23.4% of
revenues, a decrease of 0.9% of revenues compared with
last year’s pro forma results. The decline was mainly due
to a shift in the sales mix driven by increased sales of
lower-margin entertainment software products. The impact
of the sales mix shift was partially offset by lower costs
associated with consumer financing offers due to lower
interest rates and more favorable terms related to a new
private-label credit card agreement.
For the year, the SG&A rate was 19.
7
% of revenues,
compared with 21.4% of revenues last year, on a pro
forma basis. Increased leverage resulting from strong
comparable store sales gains and controlled expenses
contributed to the SG&A rate decrease.
International
The following table presents selected financial data for the International segment for each of the past two fiscal years
($ in millions):
Segment Performance Summary Pro forma
(unaudited) 2002
(1)
2001
(2)
Revenues $596 $543
Comparable stores sales % gain
(3)
17.4% —
Gross profit as a % of revenues
23.4% 24.3%
SG&A as a % of revenues
19.7% 21.4%
Operating income
$22 $16
Operating income as a % of revenues
3.7% 2.9%
(1)
Results of operations at Future Shop since its acquisition at the beginning of November fiscal 2002.
(2)
Pro forma information presents the results of operations of Future Shop as though it had been acquired at the beginning of November
fiscal 2001.
(3)
Includes sales at Future Shop stores open at least 14 full months, and includes remodeled and expanded locations. Relocated stores
are excluded from the comparable store sales calculation until they have been reopened for at least 14 full months. The comparable
store sales calculation excludes the impact of foreign currency exchange rate fluctuations.
The SG&A rate was 33.5% of revenues in fiscal 2002
compared with a pro forma rate of 32.9% last fiscal year.
The SG&A rate increase was primarily the result of the
deleveraging impact of the comparable store sales
decline, higher distribution costs and increased expenses
associated with the remerchandising of Sam Goody stores,
partially offset by reduced advertising expenditures. In
addition, both fiscal 2002 and pro forma 2001 included
approximately $16 million of goodwill amortization.
Goodwill amortization will cease at the beginning of
fiscal 2003 with our adoption of SFAS No. 142,
Goodwill and Other Intangible Assets.
26 MD&A
Consolidated Results
Net Interest (Expense) Income
Net interest expense was $1 million in fiscal 2002,
compared with net interest income of $37 million last
fiscal year. Fiscal 2002 included an $8 million pre-tax
charge from the early retirement of debt acquired as part
of the Musicland acquisition. The balance of the change
in net interest resulted primarily from lower yields on
short-term investments as the average interest rate declined
by more than 2% compared with last fiscal year. The
impact of lower short -term investment yields was partially
offset by higher average cash balances resulting from
strong operating cash flows and net proceeds from the
issuance of convertible debentures.
Net interest income increased to $37 million in fiscal
2001 compared with $24 million in fiscal 2000. The
increase was due to higher cash balances compared with
the prior fiscal year. The higher cash balances were the
result of cash flows generated from operations, including
improved inventory management and a $200 million
investment in Best Buy common stock by Microsoft
Corporation as part of a strategic alliance. Interest expense
on Musicland debt and lost interest income on the cash
used to acquire Musicland and Magnolia Hi-Fi reduced
net interest income by approximately $4 million.
Effective Income Tax Rate
Our effective income tax rate increased to 39.1%, up from
38.3% last fiscal year. The increase in the effective income
tax rate was primarily due to the nondeductibility of
goodwill amortization expense resulting from our acquisi-
tions in the fourth quarter of fiscal 2001.
Our effective income tax rate in fiscal 2001 was 38.3%,
unchanged from fiscal 2000. Historically, our effective tax
rate has been impacted primarily by the taxability of
investment income and state income taxes.
Liquidity and Capital Resources
Summary
We improved our financial position in fiscal 2002 while
continuing to make significant investments in new growth
initiatives, including the $
3
77
million, or $368 million net of
cash acquired, acquisition of Future Shop. Cash and cash
equivalents increased to $1.9 billion at the end of fiscal
2002, compared with $
7
4
7
million at the end of
fiscal 2001. Working capital, the excess of current assets
over current liabilities, increased to $881 million at the end
of fiscal 2002, compared with $214 million at the end of
fiscal 2001. In fiscal 2002, strong operating cash flows
and net proceeds from the issuance of convertible
debentures strengthened our liquidity position; however,
our long-term debt-to-capitalization ratio increased to
24% at the end of fiscal 2002, compared with 9% at the
end of fiscal 2001.
Cash Flows
Cash provided by operating activities was $1.6 billion
in fiscal 2002, compared with $808 million in fiscal
2001 and $
77
6 million in fiscal 2000. The increase in
operating cash flows in fiscal 2002, compared with the
prior fiscal year, was driven by increased net earnings
and cash generated from changes in net operating assets
and liabilities. The changes were related to increased
accounts payable balances due to higher business volume
and timing of invoice payments, as well as increased
accrued income taxes. In addition, other liabilities
increased due to business growth, advances received
under vendor alliances, increased gift card liabilities and
higher accrued performance-based compensation
expenses resulting from our improvement in net earnings.
The changes were partially offset by increased ending
inventory, which resulted from the operations of 62 new
Best Buy stores and improved in-stock levels.
Net cash used in investing activities in fiscal 2002 was
$965 million, compared with $1.0 billion and $416 million
Best Buy Co., Inc. 27
in fiscal 2001 and 2000, respectively. In fiscal 2002,
cash was used for business acquisitions, construction of
new retail locations, information systems improvements
and other additions to property, plant and equipment,
including construction of a new corporate headquarters
and expansion of our distribution facilities. The primary
purpose of the cash investment activity was to support our
expansion plans, improve our operational efficiency and
enhance shareholder value. Strong operating cash flows
more than offset cash used to fund our business expansion
plans, construct new stores and fund strategic initiatives.
In fiscal 2002 and 2001, net cash provided by financing
activities was $495 million and $218 million, respectively,
while $395 million was used in financing activities in
fiscal 2000. We raised $
7
26 million, net of offering
expenses, through the issuance of convertible debentures
in fiscal 2002. The proceeds of the issuance will be used
for general corporate purposes. Favorable market
conditions were also a factor in the decision to issue
convertible debentures. In addition, we retired $266
million in Senior Subordinated Notes due 2003 and
2008 acquired as part of the Musicland acquisition.
Fiscal 2001 included a $200 million investment by
Microsoft Corporation in our common stock. For more
information regarding the convertible debentures and
retirement of debt, refer to note 3 of the Notes to
Consolidated Financial Statements on page 43.
Sources of Liquidity
Funds generated by operations and existing cash and
cash equivalents continue to be our most significant
sources of liquidity. We currently believe funds generated
from the expected results of operations and available cash
and cash equivalents will be sufficient to finance
anticipated expansion plans and strategic initiatives for the
next fiscal year. In addition, our revolving credit facility is
available for additional working capital needs or
investment opportunities. Our liquidity is not currently
dependent on the use of off-balance sheet financing
arrangements other than operating leases.
We have a $200 million unsecured revolving credit
facility scheduled to mature in March 2005 and, as a
result of the Future Shop acquisition, a $44 million secured
revolving credit facility that will expire in fiscal 2003. The
$44 million facility increases to $53 million on a seasonal
basis. We also have a $200 million inventory financing
line. Borrowings under this line are collateralized by a
security interest in certain merchandise inventories
approximating the outstanding borrowings. We received
no advances under the $200 million credit facility or the
inventory financing line in fiscal 2002 or 2001.
Future Shop had peak borrowings under the $44 million
credit facility of $32 million and $39 million in fiscal
2002 and 2001, respectively.
Our credit ratings as of March 2, 2002, were as follows:
Rating Agency Rating Outlook
Fitch BBB Stable
Moody’s Baa3 Stable
Standard & Poor’s BBB- Negative
Factors that can impact our credit rating include changes
in the economic environment, conditions in the retail and
consumer electronics industries, our financial position and
changes in our business strategy. We do not currently
foresee any reasonable circumstances under which our
credit rating would be significantly downgraded.
However, if a significant downgrade were to occur, it
could adversely impact, among other things, our future
borrowing costs, access to capital markets, vendor financ-
ing terms and future new store operating lease costs.
In addition, the conversion rights of the holders of our
convertible debentures could be accelerated if our credit
rating were to be downgraded.
28 MD&A
The following table presents information regarding available commercial commitments and their expiration dates
by fiscal year ($ in millions):
Available Commercial Commitments
Expires
Amount 2003 2004 2005 2006 Thereafter
Lines of credit
(1)
$ 222 $ 31 $ — $ — $ 191 $ —
Master lease agreement 23 ———23 —
Inventory financing line 200 200 ————
Total $ 445 $ 231 $ — $ — $ 214 $ —
(1)
Our $44 million revolving credit facility increases to $53 million on a seasonal basis. Nine million dollars of our $200 million line
of credit were committed to stand-by letters of credit.
Contractual Obligations and Available Commercial Commitments
The following table presents information regarding contractual obligations by fiscal year ($ in millions):
Contractual Obligations
Payments Due
2003 2004 2005 2006 2007 Thereafter
Operating leases $472 $459 $417 $376 $361 $2,698
Long-term debt 7 6 3 40 1 763
Purchase commitments 120 5 ————
Total $599 $470 $420 $416 $362 $3,461
Note: For more information regarding operating leases, long-term debt and purchase commitments, refer to notes 3, 5 and
9, respectively, in the Notes to Financial Statements beginning on page 39.
Best Buy Co., Inc. 29
Debt and Capital
In fiscal 2002, we completed two private offerings of
convertible debentures due June 27, 2021, and Jan. 15,
2022, respectively, with a combined initial principal
amount at maturity of $894 million. The proceeds from the
offerings, net of offering expenses, were $726 million. We
may redeem, and holders of the debentures may require
us to purchase, all or part of the debentures on certain
dates or upon the occurrence of certain events as specified
in the respective agreements. In addition, in the event that
certain conditions are satisfied, holders may surrender
their debentures for conversion, which would increase the
number of shares of our common stock outstanding and
have a dilutive impact on our reported earnings per share.
For additional information regarding the convertible
debentures, refer to note 3 of the Notes to Consolidated
Financial Statements on page 43.
Our ability to access our credit facilities is subject to our
compliance with the terms and conditions of the credit
facilities, including financial covenants. The financial
covenants require us to have minimum earnings before
interest, taxes, depreciation and amortization (EBITDA),
and a minimum net worth, as well as to maintain other
financial ratios. As of the end of fiscal 2002, we were in
compliance with all such covenants. In addition, in the
event we were to default on any of our other debt, it
would constitute default under our credit facilities as well.
Our current practice is to lease rather than own real estate.
For those sites developed using working capital, we
generally sell and lease back those properties under long-
term lease agreements. In fiscal 2002, recoverable costs
from the developed properties decreased $25 million
compared with the prior fiscal year as we sold properties
to unrelated third parties and leased them back under
operating leases. In addition, in fiscal 2002 we utilized a
$60 million master lease facility to finance new store
development. Expenditures for stores developed under this
financing facility are recorded on the balance sheet as
property under capital lease with a corresponding lease
obligation liability. At the end of fiscal 2002, $39 million
in capitalized leases related to new stores had been
financed under the master lease agreement.
In fiscal 2000, our Board of Directors authorized the
purchase of up to $400 million of our common stock from
time to time through open-market purchases. The stock
purchase program has no stated expiration date.
Approximately 2.9 million shares were purchased under this
plan during fiscal 2000 at a cost of $100 million. No
additional purchases were made in fiscal 2002 or 2001.
Significant Accounting Policies
Revenue Recognition
We recognize revenues from the sale of merchandise at
the time the merchandise is sold. Service revenues are
recognized at the time the service is provided, the sale
price is fixed or determinable, and collectibility is
reasonably assured.
We sell extended service contracts, called Performance
Service Plans, on behalf of an unrelated third party. In
jurisdictions where we are not deemed to be the obligor
on the contract at the time of sale, commissions are
recognized in revenues at the time of sale. In jurisdictions
where we are deemed to be the obligor on the contract
at the time of sale, commissions are recognized in
revenues ratably over the term of the service contract.
30 MD&A
Inventory Reserves
We maintain inventory at the lower of cost or market.
Markdown reserves are established based primarily on
forecasted consumer demand, inventory aging and
technological obsolescence. If our estimates regarding
consumer demand are inaccurate or changes in technology
impact demand for certain products in an unforeseen
manner, we could be exposed to losses in excess of our
established reserves.
Independent physical inventory counts are taken on a
regular basis at all locations that hold inventory to ensure
the amounts reflected in our consolidated financial
statements are properly stated. During the interim period
between physical inventory counts, we accrue for
anticipated physical inventory losses on a location-by-
location basis, based on historical results and current
trends. If our estimates regarding physical losses are
inaccurate, we could be exposed to losses in excess of
our established reserves.
Long-Lived Assets
Long-lived assets such as property, plant and equipment;
goodwill; software; and investments are reviewed for
impairment when events or changes in circumstances indicate
the carrying value of the assets may not be recoverable. We
would recognize an impairment loss when estimated future
undiscounted cash flows expected to result from the use of the
asset and its value upon disposal are less than its carrying
amount. If our estimates regarding future undiscounted cash
flows or useful lives were to change, we could be exposed
to losses that are material in nature.
Tax Contingencies
Domestic and foreign tax authorities frequently audit us.
These audits include questions regarding the timing and
amount of deductions and the allocation of income among
various tax jurisdictions. In evaluating the exposure
associated with our various filing positions, we record
reserves for probable exposures. To the extent we prevail
in matters for which accruals have been established or are
required to pay amounts in excess of our reserves, our
effective tax rate in a given financial statement period may
be materially impacted. As of the end of fiscal 2002,
three and two of our open tax years were undergoing
examination by the United States Internal Revenue Service
and Revenue Canada, respectively.
New Accounting Pronouncements
A discussion of recently issued accounting pronouncements
is described in note 1 of the Notes to Consolidated
Financial Statements on page 39.
Outlook for Fiscal 2003
Looking forward to fiscal 2003, we are projecting earnings
growth of approximately 1
8
% to 21% from $1.
77
per
share in fiscal 2002 to approximately $2.10 to $2.1
7
per share in fiscal 2003. We expect the earnings growth
to be driven by a 1
7
% to 20% increase in revenues,
maintaining the gross profit rate we delivered in fiscal
2002 and modestly reducing our SG&A rate. The
projected earnings increase reflects a reduction in
Musicland’s operating income from $29 million in fiscal
2002 to approximately break-even in fiscal 2003 due
to continued transformation initiatives. The reduction in
Musicland’s operating income is net of the $16 million
decrease in Musicland’s goodwill amortization expense
as a result of adopting SFAS No. 142,
Goodwill and
Other Intangible Assets
, at the beginning of fiscal 2003.
In addition, our projections assume that the U.S. economy
will continue to gradually improve in fiscal 2003.
We expect total revenues to grow from $19.6 billion in
fiscal 2002 to between $23.0 billion and $23.5 billion
Best Buy Co., Inc. 31
in fiscal 2003 due to new store growth, comparable store
sales gains and the inclusion of a full year of Future Shop
revenues. In fiscal 2003, comparable store sales are
expected to increase by approximately 3% to 4%.
In fiscal 2003, our gross profit rate is expected to remain
essentially even with the fiscal 2002 rate based on
anticipated gross profit rate improvement at Best Buy
stores and International, offset by a planned gross profit
rate decline at Musicland. The anticipated gross profit rate
improvement at Best Buy stores and International is based
on a more profitable sales mix resulting from an increase
in sales of higher-margin digital products. However, the
rate of improvement is likely to be less than experienced in
the prior fiscal year, as these and other products become
more widely distributed through mass merchandisers and
discount chains. Musicland’s planned gross profit rate
decline in fiscal 2003 is due to the continued shift in the
sales mix from higher-margin sales of prerecorded music
to lower-margin sales of DVD movies and video gaming.
Our SG&A rate is expected to decrease modestly in fiscal
2003. The expected decrease is due to expense leverage,
primarily in the second half of our fiscal year, as a result
of the anticipated increase in comparable store sales and
the expanding store base. The SG&A rate decline resulting
from increased expense leverage will be partially offset by
higher depreciation expenses related to our increased levels
of capital spending in fiscal 2003 and higher medical
coverage costs for our employees.
We anticipate net interest income for fiscal 2003 of
approximately $6 million, consistent with fiscal 2002,
excluding the $8 million pre-tax charge from the early
retirement of debt incurred in the second quarter of
fiscal 2002.
Our effective tax rate is expected to decrease modestly in
fiscal 2003 as a result of the discontinued amortization of
nondeductible goodwill.
We expect fiscal 2003 capital expenditures to be
approximately $1 billion, exclusive of amounts expended
on property development that will be recovered through
the sale and lease back of the properties. The capital
spending will support the opening of approximately 60
Best Buy stores in the United States and six to eight in
Canada, 30 small-market Sam Goody stores, eight to
nine Future Shop stores and six Magnolia Hi-Fi stores.
About half of the new U.S. Best Buy stores are expected
to be 45,000-square-foot, Concept 5 store formats, and
the other half are expected to be 30,000-square-foot,
smaller market Concept 5 store formats. In addition, fiscal
2003 capital spending will support the continued
development of our information systems and infrastructure,
the continued construction of our new corporate
headquarters and the transformation and integration of
Musicland and Future Shop stores.
Beginning in the first quarter of fiscal 2003, we will report
two segments, Domestic and International. The Domestic
segment will be comprised of operations at Best Buy’s
U.S., Musicland and Magnolia Hi-Fi stores. The
International segment will be comprised of Best Buy’s
Canadian and Future Shop operations. The primary
reasons for this change are the significant similarities of their
respective products and markets, the leveraging of our
buying and distribution functions and the merging of many
of our operational functions into a shared services model
in the first quarter of fiscal 2003.
32 MD&A
Quarterly Results and Seasonality
Similar to many retailers, our business is seasonal. Revenues and earnings are typically greater during the second half of the
fiscal year, which includes the holiday selling season. The timing of new store openings, costs associated with acquisitions
and development of new businesses, and general economic conditions also may affect our future quarterly results.
The following tables show selected unaudited quarterly operating results and high and low prices of our common stock
for each quarter of fiscal 2002 and 2001.
($ in millions, except per share amounts)
Quarter
(1) (2)
1st 2nd 3rd 4th
Fiscal 2002
Revenues
$3,697 $4,164 $4,756 $6,980
Comparable store sales change
(3)
(3.1%) 2.8% 1.6% 4.5%
Gross profit $ 846 $ 948 $1,028 $1,608
Operating income 90 148 129 570
Net earnings 55 85 80 350
Diluted earnings per share
(4)
.17 .26 .25 1.08
Fiscal 2001
Revenues $2,964 $3,169 $3,732 $5,462
Comparable store sales change
(3)
9.5% 5.1% 5.9% 1.8%
Gross profit $ 606 $ 648 $ 689 $1,116
Operating income 109 115 85 295
Net earnings 72 77 57 190
Diluted earnings per share
(4)
.23 .24 .18 .60
(1)
During the third quarter of fiscal 2002, we acquired the common stock of Future Shop Ltd. Future Shop’s results of operations were
included from the date of acquisition.
(2)
The fourth quarter of fiscal 2001 included 14 weeks. All other quarters included 13 weeks. Also, during the fourth quarter of fiscal
2001, we acquired the common stock of Musicland Stores Corporation and Magnolia Hi-Fi, Inc. The results of operations of those
businesses were included from their dates of acquisition.
(3)
Best Buy stores only. The comparable store sales increase for the fourth quarter of fiscal 2002 was based upon the comparable
13-week period for the prior fiscal year. The comparable store sales increase for the fourth quarter of fiscal 2001 was based upon
the comparable 14-week period for the prior fiscal year.
(4)
The diluted earnings per share amounts above have been restated to reflect a three-for-two stock split, effective on May 10, 2002.
Best Buy Co., Inc. 33
Forward-Looking Statements
Section 2
7
A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934,
as amended, provide a “safe harbor” for forward-looking
statements to encourage companies to provide prospective
information about their companies. With the exception of
historical information, the matters discussed in this annual
report are forward-looking statements and may be identified
by the use of words such as “believe,”“expect,”
“anticipate,”“plan,”“estimate,”“intend” and “potential.”
Such statements reflect our current view with respect to future
events and are subject to certain risks, uncertainties and
assumptions. A variety of factors could cause our actual
results to differ materially from the anticipated results
expressed in such forward-looking statements, including,
among other things, general economic conditions,
acquisitions and development of new businesses, product
availability, sales volumes, profit margins, weather, foreign
currency fluctuation, availability of suitable real estate
locations, and the impact of labor markets and new
product introductions on our overall profitability. Readers
should review our Current Report on Form 8-K filed May
16, 2001, which describes additional important factors
that could cause actual results to differ materially from
those contemplated by the forward-looking statements
made in this annual report.
Common Stock Prices
Quarter 1st 2nd 3rd 4th
Fiscal 2002
High
$41.5
7
$46.60 $48.00 $51.4
7
Low 22.42 35.45 26.68 43.43
Fiscal 2001
High $59.25 $53.
7
9 $49.42 $34.00
Low 31.50 38.33 20.33 14.00
Our common stock is traded on the New York Stock Exchange under the ticker symbol BBY. As of March 28, 2002,
there were 2,013 holders of record of Best Buy common stock. We have not historically paid, and have no current plans
to pay, cash dividends on our common stock. The stock prices above have been restated to reflect a three-for-two stock
split, effective on May 10, 2002.
34 Consolidated Balance Sheets
$ in millions, except per share amounts
March 2, March 3,
Assets 2002 2001
Current Assets
Cash and cash equivalents $1,855 $747
Receivables
247 209
Recoverable costs from developed properties
79 104
Merchandise inventories
2,258 1, 76 7
Other current assets 172 102
Total current assets
4,611 2,929
Property and Equipment
Land and buildings 242 171
Leasehold improvements
680 557
Fixtures and equipment
1,759 1,259
Property under capital lease 39 –
2,720 1,987
Less accumulated depreciation and amortization 823 543
Net property and equipment
1,897 1,444
Goodwill, Net
77
3 385
Other Assets 94 82
Total Assets $7,375 $4,840
See Notes to Consolidated Financial Statements.
Consolidated Balance Sheets
Best Buy Co., Inc. 35
$ in millions, except per share amounts
March 2, March 3,
Liabilities and Shareholders’ Equity 2002 2001
Current Liabilities
Accounts payable $2,449 $1,773
Accrued compensation and related expenses
253 154
Accrued liabilities
770 546
Accrued income taxes
251 127
Current portion of long-term debt 7 115
Total current liabilities
3,730 2,715
Long-Term Liabilities 311 122
Long-Term Debt 813 181
Shareholders’ Equity
Preferred stock, $1.00 par value: Authorized — 400,000 shares;
Issued and outstanding — none
— —
Common stock, $.10 par value: Authorized — 1 billion shares;
Issued and outstanding — 319,128,000 and
312,207,000 shares, respectively
31 31
Additional paid-in capital
702 567
Retained earnings
1,794 1,224
Accumulated other comprehensive loss (6) —
Total shareholders’ equity 2,521 1,822
Total Liabilities and Shareholders’ Equity $7,375 $4,840
See Notes to Consolidated Financial Statements.
36 Consolidated Statements of Earnings
Consolidated Statements of Earnings
$ in millions, except per share amounts
March 2, March 3, Feb. 26,
For the Fiscal Years Ended 2002 2001 2000
Revenues $19,597 $15,327 $12,494
Cost of goods sold 15,167 12,268 10,101
Gross profit
4,430 3,059 2,393
Selling, general and administrative expenses 3,493 2,455 1,854
Operating income
937 604 539
Net interest (expense) income (1) 37 24
Earnings before income tax expense
936 641 563
Income tax expense 366 245 216
Net earnings $ 570 $ 396 $ 347
Basic earnings per share $ 1.80 $1.28 $1.13
Diluted earnings per share
$1.
77
$ 1.24 $ 1.09
Basic weighted average common
shares outstanding (in millions)
316.0 310.0 306.3
Diluted weighted average common
shares outstanding (in millions)
322.5 319.0 318.9
See Notes to Consolidated Financial Statements.
Consolidated Statements of Cash Flows 37
$ in millions
March 2, March 3, Feb. 26,
For the Fiscal Years Ended 2002 2001 2000
Operating Activities
Net earnings $ 570 $ 396 $ 347
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation
289 167 104
Deferred income taxes
23 43 30
Amortization of goodwill
20 2 —
Other
46 18 4
Changes in operating assets and liabilities,
net of acquired assets and liabilities:
Receivables
(18) (7) (57)
Merchandise inventories
(330) (144) (137)
Other assets
(39) (16) (7)
Accounts payable
529 16 302
Other liabilities
278 199 92
Accrued income taxes 210 134 98
Total cash provided by operating activities 1,578 808
77
6
Investing Activities
Additions to property and equipment (627) (658) (361)
Acquisitions of businesses, net of cash acquired
(368) (326) —
Decrease (increase) in recoverable costs from
developed properties
30 (31) (21)
Increase in other assets — (15) (34)
Total cash used in investing activities (965) (1,030) (416)
Financing Activities
Net proceeds from issuance of long-term debt 726 ——
Long-term debt payments
(279) (17 ) (30 )
Issuance of common stock
48 235 32
Repurchase of common stock — — (397)
Total cash provided by (used in) financing activities 495 218 ( 395)
Increase (Decrease) in Cash and Cash Equivalents 1,108 (4) (35)
Cash and Cash Equivalents at Beginning of Year 747 751 786
Cash and Cash Equivalents at End of Year $ 1,855 $747 $751
Supplemental Disclosure of Cash Flow Information
Income tax paid $139 $62 $83
Interest paid
25 75
Capital lease obligations
39 ——
See Notes to Consolidated Financial Statements.
Consolidated Statements of Cash Flows
38 Consolidated Statements of Changes in Shareholders’ Equity
$ and shares in millions
Accumulated
Additional Other
Common Common Paid-In Retained
Comprehensive
Shares Stock Capital Earnings Loss Total
Balances at Feb. 27, 1999 305 $30 $523 $ 481 $ — $1,034
Stock options exercised 6 1 33 ——34
Tax benefit from stock options exercised ——79 ——79
Repurchase of common stock (10) (1) (397) ——(398)
Net earnings ———347 — 347
Balances at Feb. 26, 2000 301 30 238 828 — 1,096
Stock options exercised 6 — 36 ——36
Tax benefit from stock options exercised ——93 ——93
Stock issuance 5 1 200 ——201
Net earnings ———396 — 396
Balances at March 3, 2001 312 31 567 1,224 — 1,822
Stock options exercised
7 — 49 ——49
Tax benefit from stock options exercised ——86 ——86
Translation adjustments and other ———— (6) (6)
Net earnings ———570 — 570
Balances at March 2, 2002 319 $31 $702 $1,794 $ (6) $2,521
See Notes to Consolidated Financial Statements.
Consolidated Statements of
Changes in Shareholders’ Equity
Notes to Consolidated Financial Statements 39
$ in millions, except per share amounts
1. Summary of Significant Accounting
Policies
Description of Business
Best Buy Co., Inc. is North America’s No. 1 specialty
retailer of name-brand consumer electronics, home office
equipment, entertainment software and appliances. We
operate three segments: Best Buy, Musicland and
International. Best Buy is a specialty retailer of consumer
electronics, home office equipment, entertainment
software and appliances comprised of 481 stores in 44
states. Also included in the Best Buy segment is Seattle-
based Magnolia Hi-Fi, a high-end retailer of audio and
video products with 13 stores. Musicland, with more than
1,320 locations in the United States, Puerto Rico and the
U.S. Virgin Islands, is primarily a mall-based retailer of
prerecorded music, movies and other entertainment-
related products. International is comprised of Future
Shop, which currently operates 95 stores and is Canada’s
largest consumer electronics retailer, offering products
similar to Best Buy.
Basis of Presentation
The consolidated financial statements include the accounts
of Best Buy Co., Inc. and its subsidiaries. Significant
intercompany accounts and transactions have been
eliminated. All subsidiaries are wholly owned.
Use of Estimates in the Preparation of
Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires us to
make estimates and assumptions. These estimates and
assumptions affect the reported amounts in the consolidated
balance sheets and statements of earnings, as well as the
disclosure of contingent liabilities. Actual results could
differ from these estimates and assumptions.
Fiscal Year
Our fiscal year ends on the Saturday nearest the end of
February. Fiscal 2002 and 2000 each included 52
weeks, while fiscal 2001 included 53 weeks.
Cash and Cash Equivalents
We consider highly liquid investments with a maturity
of three months or less when purchased to be cash
equivalents. These investments are carried at cost, which
approximates market value.
Recoverable Costs From
Developed Properties
The costs of acquisition and development of properties
that we intend to sell and lease back or recover from
landlords within one year are included in current assets.
Merchandise Inventories
Merchandise inventories are recorded at the lower of cost
or market. The primary methods used to determine cost are
the average cost and retail inventory methods.
Property and Equipment
Property and equipment are recorded at cost.
Depreciation is computed using the straight-line method
over the estimated useful lives of the assets or, in the case
of leasehold improvements, over the shorter of the estimated
useful lives or lease terms. When indicators of impairment
exist, we evaluate long-lived assets for impairment using
an undiscounted cash flow analysis.
Estimated useful lives by major asset category are as follows:
Asset Life (in years)
Buildings 30–40
Leasehold improvements 10 –20
Fixtures and equipment 3–15
Property under capital lease 5–20
Notes to Consolidated Financial Statements
40 Notes to Consolidated Financial Statements
Goodwill
Goodwill is the excess of the purchase price over the fair
value of identifiable net assets acquired in business
combinations accounted for under the purchase method.
We periodically review goodwill for impairment and
assess whether significant events or changes in business
circumstances indicate that the carrying value of the
goodwill may not be recoverable. An impairment loss
would be recorded in the period such determination is
made. Accumulated amortization was $22 and $2 in fiscal
2002 and 2001, respectively. See note 2 for additional
discussion regarding goodwill.
Revenue Recognition
We recognize revenues from the sale of merchandise at the
time the merchandise is sold. We recognize service revenues
at the time the service is provided, the sales price is fixed
or determinable and collectibility is reasonably assured.
We sell extended service contracts, called Performance
Service Plans, on behalf of an unrelated third party. In
jurisdictions where we are not deemed to be the obligor
on the contract at the time of sale, commissions are
recognized in revenues at the time of sale. In jurisdictions
where we are deemed to be the obligor on the contract
at the time of sale, commissions are recognized in
revenues ratably over the term of the service contract.
Sales Incentives
We periodically offer sales incentives that entitle our
customers to receive a reduction in the price of a product
or service. For sales incentives in which we are the
obligor, the reduction in revenues is recognized at the time
the product or service is sold.
Shipping and Handling Costs
Amounts billed to customers for shipping and handling are
included in revenues. The related costs are included in
cost of goods sold.
Foreign Currency
Foreign currency denominated assets and liabilities are
translated into U.S. dollars using the exchange rates in
effect at the balance sheet date. Results of operations and
cash flows are translated using the average exchange
rates throughout the period. The effect of exchange rate
fluctuations on translation of assets and liabilities is recorded
as a component of shareholders’ equity. Gains and losses
from foreign currency transactions are included in selling,
general and administrative expenses.
Comprehensive Income
Comprehensive income is net earnings, plus certain other
items that are recorded directly to shareholders’ equity. The
only significant item currently applicable to us is foreign
currency translation adjustments, which were not significant.
Stock-Based Compensation
We account for employee stock-based compensation using
the intrinsic value method as prescribed under Accounting
Principles Board (APB) Opinion No. 25,
Accounting for
Stock Issued to Employees
, and related Interpretations. We
also present pro forma net earnings and earnings per share
in note 4 as if we had adopted Statement of Financial
Accounting Standards (SFAS) No. 123,
Accounting for
Stock-Based Compensation
.
Pre-Opening Costs
Non-capital expenditures associated with opening new
stores are expensed as incurred.
Advertising Costs
Advertising costs, which are included in selling, general
and administrative expenses, are expensed the first time the
advertisement runs. Gross advertising expenses, prior to
reimbursement through cooperative advertising agreements,
for fiscal 2002, 2001 and 2000 were $540, $479
and $374, respectively.
$ in millions, except per share amounts
Best Buy Co., Inc. 41
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 2, 2002, the
fair value of existing interest-rate swaps was not significant.
Reclassifications
Certain previous year amounts have been reclassified
to conform to the current year presentation. These
reclassifications had no impact on net earnings or
financial position.
New Accounting Standards
In June 2001, the Financial Accounting Standards Board
(FASB) issued SFAS No. 141,
Business Combinations, and
No. 142,
Goodwill and Other Intangible Assets, effective
for fiscal years beginning after Dec. 15, 2001. Under
these new standards, all acquisitions subsequent to June
30, 2001, must be accounted for by the purchase method
of accounting, and goodwill is no longer amortized over
its useful life. Rather, goodwill will be subject to an
annual impairment test based on its fair value. Separable
intangible assets that are determined to have a finite life
will continue to be amortized over their useful lives. We are
currently evaluating these pronouncements to determine the
impact, if any, they may have on our net earnings or
financial position.
In August 2001, the FASB issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets
, effective for fiscal years beginning after Dec. 15,
2001. This statement develops one accounting model
(based on the model in SFAS No. 121) for long-lived
assets to be disposed of, expands the scope of discontinued
operations and modifies the accounting for discontinued
operations. The adoption of this new statement is not
expected to have material impact on our net earnings or
financial position.
2. Acquisitions
Effective Nov. 4, 2001, we acquired all of the common
stock of Future Shop for $377, or $368 net of cash
acquired, including transaction costs. We acquired Future
Shop to further our expansion plans and increase
shareholder value. The acquisition was accounted for
using the purchase method in accordance with SFAS
No. 141. Accordingly, the net assets were recorded at
their estimated fair values, and operating results were
included in our financial statements from the date of
acquisition. The purchase price was allocated on a
preliminary basis using information currently available.
The allocation of the purchase price to the assets and
liabilities acquired will be finalized in fiscal 2003. We
will adjust the allocation of the purchase price after
obtaining more information regarding asset valuations,
liabilities assumed and revisions of preliminary estimates of
fair values made at the date of purchase. The preliminary
allocations resulted in goodwill of approximately $406,
which is non-deductible for tax purposes. Under SFAS
No.142, goodwill is not amortized.
The preliminary purchase price allocation was as follows:
Merchandise inventories $169
Property and equipment 108
Other assets 40
Goodwill 406
Current liabilities (342)
Long-term debt, including current portion (13)
$368
During the fourth quarter of fiscal 2001, we acquired the
common stock of Magnolia Hi-Fi for $88 in cash, including
transaction costs, and the common stock of Musicland for
$425, including transaction costs, plus long-term debt
valued at $2
7
1. The acquisitions were accounted for
$ in millions, except per share amounts
42 Notes to Consolidated Financial Statements
using the purchase method in accordance with APB
Opinion No. 16,
Business Combinations, and No. 17,
Intangible Assets. The allocation of the purchase prices to
the assets and liabilities acquired was finalized in the
fourth quarter of fiscal 2002 and resulted in goodwill of
$395, of which $326 is non-deductible for tax purposes.
The goodwill was being amortized on a straight-line basis
over 20 years and is included in selling, general and
administrative expenses. Goodwill amortization associated
with the acquisitions of Magnolia Hi-Fi and Musicland will
cease at the beginning of fiscal 2003 with the adoption
of SFAS No. 142. Application of the nonamortization
provision of the new standard is expected to result in an
increase in our net earnings of approximately $18 per year.
The following unaudited pro forma data sets forth the
consolidated results of operations as though Musicland
and Future Shop had been acquired as of the beginning
of fiscal 2001:
2002 2001
Revenues $20,392 $18,392
Net earnings
5
7
0 428
Basic earnings per share
1.80 1.38
Diluted earnings per share
1.
77
1.34
Pro forma information related to the acquisition of
Magnolia Hi-Fi is not presented, as the operating results
of Magnolia Hi-Fi would not have had a material impact
on our results of operations.
The pro forma results include goodwill amortization of
$16, for Musicland only, and other adjustments, principally
the loss of interest income on cash used to finance the
acquisitions. The pro forma results for fiscal 2001 exclude
costs expected to be incurred in connection with the
integration and transformation of acquired businesses.
The pro forma results are not necessarily indicative of what
actually would have occurred had the acquisitions been
completed as of the beginning of fiscal 2001, nor are
they necessarily indicative of future consolidated results.
$ in millions, except per share amounts
Best Buy Co., Inc. 43
Convertible Debentures
In January 2002, we sold, in a private offering, convert-
ible subordinated debentures having an aggregate princi-
pal amount of $402. The proceeds from the offering, net
of $6 in offering expenses, were $396. The debentures
mature in 20 years and are callable at our option on or
after Jan. 15, 2007. Holders may require us to purchase
all or a portion of their debentures on Jan. 15, 2007;
Jan. 15, 2012; and Jan. 15, 2017, at a purchase price
equal to 100% of the principal amount of the debentures
plus accrued and unpaid interest up to but not including
the date of purchase. The debentures will be convertible
into shares of our common stock at a conversion rate of
14.4927 shares per $0.001 principal amount of
debentures, equivalent to an initial conversion price of
$69.00 per share, if the closing price of our common
stock exceeds a specified price for a specified period of
time, or otherwise upon the occurrence of certain events.
The debentures have an initial interest rate of 2.25%. The
interest rate may be reset, but will not fall below 2.25% or
above 3.25%, on July 15, 2006; July 15, 2011; and July
15, 2016. The debentures are guaranteed on an unse-
cured and subordinated basis by Best Buy Stores, L.P., our
wholly owned indirect subsidiary. On Feb. 28, 2002, we
filed a Registration Statement on Form S-3 with the
Securities and Exchange Commission to register the
debentures, the guarantee and the underlying shares of
common stock. As of May 1, 2002, the Registration
Statement had not yet been declared effective.
3. Debt
March 2, March 3,
2002 2001
Convertible debentures, unsecured, due 2021,
initial interest rate 2.75%
$341 $ —
Convertible subordinated debentures, unsecured, due 2022,
initial interest rate 2.25%
402 —
Subordinated notes, face amount $110, unsecured, due 2003,
interest rate 9.0%, effective rate 8.9%
— 110
Senior subordinated notes, face amount $150, unsecured, due 2008,
interest rate 9.9%, effective rate 8.5%
5 161
Capital lease obligations, due 2006, interest rate 5.9%
39 —
Mortgage and other debt, interest rates ranging from 4.0% to 9.2% 33 25
Total debt
820 296
Less: current portion (7) (115)
Long-term debt $813 $181
The mortgage and other debt are secured by certain property and equipment with a net book value of $43 and $44
at March 2, 2002, and March 3, 2001, respectively.
$ in millions, except per share amounts
44 Notes to Consolidated Financial Statements
In June 2001, we sold, in a private offering, convertible
debentures having an initial aggregate principal amount
at maturity of $492. The proceeds from the offering, net
of $7 in offering expenses, were $330. The debentures
mature in 20 years and are callable at our option on or
after June 27, 2004. Holders may require us to purchase
all or a portion of their debentures on June 27, 2004;
June 27, 2009; and June 27, 2014, at a purchase price
equal to the accreted value of the debentures plus accrued
and unpaid cash interest up to but not including the date
of purchase. The debentures will be convertible into shares
of our common stock at a conversion rate of 11.80
7
1
shares per $0.001 initial principal amount at maturity of
debentures, equivalent to an initial conversion price of
$5
7
.91 per share, if the closing price of our common
stock exceeds a specified price for a specified period of
time, or otherwise upon the occurrence of certain events.
The debentures have an initial yield to maturity of 2.75%,
including a cash payment of 1.0% and an initial accretion
rate of 1.75%. The yield to maturity may be reset, but
may not fall below 2.75% or above 3.75%, on
Dec. 27, 2003; Dec. 27, 2008; and Dec. 27, 2013. The
debentures are guaranteed on an unsecured and
unsubordinated basis by Best Buy Stores, L.P., our wholly
owned indirect subsidiary. The debentures, the guarantee
and the underlying shares of common stock were registered
with the Securities and Exchange Commission pursuant to
a Registration Statement on Form S-3 that was declared
effective on Oct. 9, 2001.
Senior Subordinated Notes
Our Musicland subsidiary had $110 of Senior
Subordinated Notes due in 2003 (2003 Notes) and
$161 of Senior Subordinated Notes due in 2008 (2008
Notes) outstanding, which were acquired and recorded at
their fair value as part of the Musicland acquisition.
Fair value was based upon the present value of the
amounts expected to be paid. Both notes contained
change-in-control provisions that required us to offer to
repurchase the notes within 30 to 60 days after our
acquisition of Musicland. Our offer to repurchase both
notes was made on Feb. 12, 2001, at 101.0% of the
aggregate principal amount of the notes plus accrued
interest. The offer expired on March 16, 2001, at which
time $94 of the 2003 Notes had been tendered. In the
second quarter of fiscal 2002, we retired the remainder
of the 2003 notes and all but $5 of the 2008 notes.
Credit Agreement
We have two credit agreements that provide bank revolving
credit facilities under which we can borrow up to $200
and $44, respectively. The $44 facility, which was
acquired in connection with the Future Shop acquisition,
increases to $53 on a seasonal basis. The $200 facility,
entered into in March 2002 which replaced our $100
credit agreement, expires on March 21, 2005, and the
$44 facility expires in fiscal 2003. Borrowings under the
$200 facility are unsecured and bear interest at rates
specified in the credit agreements, as we have
elected. Borrowings under the $44 facility are secured by
merchandise inventories. We also pay certain facility and
agent fees.
The credit agreements contain covenants that require us to
maintain certain financial ratios and minimum net worth.
The $200 agreement also requires that we have no
outstanding principal balance for a period not less than
30 consecutive days, net of cash and cash equivalents.
We had no borrowings under the $100 facility during
fiscal 2002 or 2001. Future Shop had peak borrowings
under the $44 credit facility of $32 and $39 in fiscal
2002 and 2001, respectively.
$ in millions, except per share amounts
Best Buy Co., Inc. 45
Master Lease
In the fourth quarter of fiscal 2001, we entered into a $60
master lease agreement for the purpose of constructing
and leasing new retail locations. At the end of fiscal
2002, $39 in capitalized leases for new stores had been
financed under the master lease agreement.
Inventory Financing
We have a $200 inventory financing line. Borrowings are
collateralized by a security interest in certain merchandise
inventories approximating the outstanding borrowings.
The terms of this arrangement allow us to extend the due
dates of invoices beyond their normal terms. The amounts
extended generally bear interest at a rate approximating
the prime rate. No amounts were extended under this line
in fiscal 2002 or 2001. The line has provisions that give
the financing source a portion of the cash discounts
provided by the manufacturers.
Other
During fiscal 2002, 2001 and 2000, interest expense
totaled $28, $7 and $5, respectively, and is included in
net interest (expense) income. Fiscal 2002 interest
expense includes an $8 pretax charge for the early
retirement of debt. The fair value of long-term debt
approximates $829, which was based primarily on
quotes from external sources.
The future maturities of long-term debt, including capitalized
leases, consist of the following:
Fiscal Year
2003 $ 7
2004 6
2005 3
2006 40
2007 1
Thereafter 763
$820
4. Shareholders’ Equity
Stock Options
We currently sponsor three non-qualified stock option
plans for our employees and our Board of Directors. These
plans provide for the issuance of up to 73.2 million shares
of common stock. Options may be granted only to
employees or directors at exercise prices not less than the
fair market value of our common stock on the date of the
grant. The options vest over a four-year period and expire
over a range of five to 10 years. In addition, there are
options outstanding under two non-qualified stock option
plans that expired in fiscal 1998. At March 2, 2002,
options to purchase 27.5 million shares were outstanding
under all of these plans.
In connection with the Musicland acquisition, certain
outstanding stock options held by employees of Musicland
were converted into options exercisable into our shares of
common stock. These options were fully vested at the time
of conversion and expire based on the remaining option
term of up to 10 years. These options did not reduce the
shares available for grant under any of our other option
plans. The acquisition was accounted for as a purchase
and, accordingly, the fair value of these options was
included as a component of the purchase price using the
Black-Scholes option pricing model.
$ in millions, except per share amounts
46 Notes to Consolidated Financial Statements
As permitted by SFAS No.123, we elected to account for our stock option plans under the provisions of APB Opinion
No. 25. Accordingly, no compensation cost has generally been recognized for stock options granted. Had we adopted
SFAS No.123, the pro forma effects on net earnings, basic earnings per share and diluted earnings per share for the
last three fiscal years would have been as follows:
2002 2001 2000
Net earnings
As reported
$ 570 $ 396 $ 347
Pro forma
512 352 322
Basic earnings per share
As reported
$1.80 $1.28 $1.13
Pro forma
1.62 1.14 1.05
Diluted earnings per share
As reported
$1.
77
$1.24 $1.09
Pro forma 1.61 1.11 1.01
The fair value of each option was estimated on the date of the grant using the Black-Scholes option pricing model with
the following assumptions:
2002 2001 2000
Risk-free interest rate 4.9% 6.1% 6.4%
Expected dividend yield
0% 0% 0%
Expected stock price volatility
55% 60% 50%
Expected life of options
4.5 years 4.5 years 4.5 years
The weighted average fair value of options granted during fiscal 2002, 2001 and 2000 used in computing pro forma
compensation expense was $18.60, $23.06 and $17.06 per share, respectively.
$ in millions, except per share amounts
Best Buy Co., Inc. 47
Option activity for the last three fiscal years was as follows:
Weighted Average
Exercise Price
Shares per Share
Outstanding on Feb. 27, 1999 28,708,000 $ 6.31
Granted 4,561,000 34.65
Exercised (6,259,000) 5.17
Canceled (1,441,000) 12.99
Outstanding on Feb. 26, 2000 25,569,000 11.26
Granted 8,070,000 45.53
Assumed
(1)
461,000 37.21
Exercised (5,720,000) 6.11
Canceled (2,012,000) 26.94
Outstanding on March 3, 2001 26,368,000 22.13
Granted
9,382,000 37.01
Exercised (6,846,000) 6.88
Canceled (1,417,000) 35.98
Outstanding on March 2, 2002 27,487,000 30.29
(1)
Represents Musicland options converted into Best Buy Co., Inc. options in connection with the acquisition.
$ in millions, except per share amounts
48 Notes to Consolidated Financial Statements
Exercisable options at the end of fiscal 2002, 2001 and 2000 were 9.9 million, 9.4 million and 6.9 million, respectively.
The following table summarizes information concerning options outstanding and exercisable as of March 2, 2002:
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (Years) Price Exercisable Price
$ 0 to $ 6.6
7
2,880,000 5.29 $ 2.08 2,735,000 $ 2.19
$ 6.6
7
to $ 13.33 5,476,000 6.15 11.46 3,186,000 11.45
$ 13.33 to $ 20.00 140,000 7.56 16.42 56,000 16.28
$20.00 to $ 26.6
7
76,000 7.62 21.89 38,000 21.27
$26.6
7
to $ 33.33 551,000 7.63 31.02 265,000 31.61
$33.33 to $ 40.00 11,185,000 8.56 36.41 1,814,000 35.15
$40.00 to $ 46.6
7
689,000 9.16 45.34 73,000 44.18
$46.6
7
to $ 53.33 6,487,000 8.10 46.87 1,726,000 46.97
$53.33 to $ 60.00 3,000 8.10 55.09 1,000 55.09
$ 0 to $ 60.00 27,487,000 7.62 $30.29 9,894,000 $20.28
Restricted Stock Plan
We adopted a restricted stock award plan in fiscal 2001.
The plan authorizes us to issue up to 1.5 million shares of
our common stock to our eligible employees, consultants
and independent contractors, as well as to our Board of
Directors. Restricted shares have the same rights as other
shares of common stock, except they are not transferable
until fully vested. Restrictions lapse over a vesting period of
at least three years, during which no more than 25% may
vest at the time of award and no more than 25% on each
anniversary date thereafter. All shares still subject to
restrictions are forfeited and returned to the plan if the plan
participant’s relationship with us is terminated. The number
of shares granted under this plan was not significant
during fiscal 2002 or 2001.
Earnings per Share
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, convertible debentures assuming
certain criteria are met (see note 3), and other stock-based
awards granted under stock-based compensation plans.
The shares related to the convertible debentures were not
included in our diluted earnings per share computation as
the criteria for conversion of the debentures were not met.
We completed a three-for-two stock split effected in the
form of a 50% stock dividend distributed on May 10,
2002; and a two-for-one stock split effected in the form
of a 100% stock dividend distributed on March 18, 1999.
All share and per share information reflects these stock splits.
$ in millions, except per share amounts
Best Buy Co., Inc. 49
Repurchase of Common Stock
In September 1999, our Board of Directors authorized the
purchase of up to $200 of our common stock. This program
was completed with a total of 5.
7
million shares purchased
and retired.
In February 2000, our Board of Directors authorized the
purchase of up to $400 of our common stock from time to
time through open market purchases. This program has no
stated expiration date. As of March 2, 2002, 2.9 million
shares had been purchased and retired at a cost of $100.
No shares were repurchased in fiscal 2002 or 2001.
5. Operating Lease Commitments
We currently lease portions of our corporate facilities and
conduct essentially all of our retail and the majority of our
distribution operations from leased locations. The terms of
the lease agreements generally range from three to
20 years. The leases require payment of real estate taxes,
insurance and common area maintenance in addition to
rent. Most of the leases contain renewal options and
escalation clauses, and certain stores require contingent
rents based on specified percentages of sales. In addition,
certain store leases provide us an early cancellation option
if sales for a designated period do not reach a specified
level as defined in the lease. Other leases contain covenants
related to maintenance of financial ratios. Also, we lease
certain equipment under operating leases. Transaction costs
associated with the sale and lease back of properties and
any gain or loss are recognized over the terms of the lease
agreements. Proceeds from the sale and lease back of
properties are included in the net change in recoverable
costs from developed properties.
The following table presents a reconciliation of the numerators and denominators of basic and diluted earnings per
common share for fiscal 2002, 2001 and 2000:
2002 2001 2000
Numerator:
Net earnings $ 570 $ 396 $ 347
Denominator (in millions):
Weighted average common shares outstanding
316.0 310.0 306.3
Effect of dilutive securities:
Employee stock options 6.5 9.0 12.6
Weighted average common shares
outstanding assuming dilution 322.5 319.0 318.9
Basic earnings per share $ 1.80 $ 1.28 $ 1.13
Diluted earnings per share
$1.
77
$ 1.24 $ 1.09
$ in millions, except per share amounts
50 Notes to Consolidated Financial Statements
Future minimum lease obligations by year (not including
percentage rentals) for all operating leases at March 2,
2002, were as follows:
Fiscal Year
2003 $ 472
2004 459
2005 417
2006 376
2007 361
Thereafter 2,698
6. Benefit Plans
We sponsor retirement savings plans for employees
meeting certain age and service requirements. The plans
provide for Company-matching contributions, which are
subject to annual approval by our Board of Directors. The
total matching contributions were $11, $7 and $5 in
fiscal 2002, 2001 and 2000, respectively.
We have a deferred compensation plan for certain
management employees and directors. The liability for
compensation deferred under this plan was $33 and $28
at March 2, 2002, and March 3, 2001, respectively,
and is included in long-term liabilities. We have elected
to match our liability under the plan through the purchase
of life insurance. The cash value of the insurance, which
includes funding for future deferrals, was $36 and $34 in
fiscal 2002 and 2001, respectively, and is included in
other assets. Both the asset and the liability are carried
at fair value.
The composition of total rental expenses for all operating leases during the past three fiscal years, including leases of
buildings and equipment, was as follows:
2002 2001 2000
Minimum rentals $ 518 $299 $227
Percentage rentals 2 11
$ 520 $300 $228
$ in millions, except per share amounts
Best Buy Co., Inc. 51
7. Income Taxes
The following is a reconciliation of income tax expense to the federal statutory tax rate:
2002 2001 2000
Federal income tax at the statutory rate $328 $224 $197
State income taxes, net of federal benefit
35 27 23
Tax-exempt interest income
(4) (9) (6)
Goodwill amortization
6 ——
Other 1 32
Income tax expense $366 $245 $216
Effective tax rate 39.1% 38.3% 38.3%
Income tax expense consists of the following:
2002 2001 2000
Current:
Federal
$303 $179 $165
State
39 23 21
Foreign 1 ——
343 202 186
Deferred:
Federal
15 38 26
State
2 54
Foreign 6 ——
23 43 30
Income tax expense $ 366 $245 $216
$ in millions, except per share amounts
52 Notes to Consolidated Financial Statements
Deferred taxes are the result of differences between the basis of assets and liabilities for financial reporting and income
tax purposes. Significant deferred tax assets and liabilities consist of the following:
March 2, March 3,
2002 2001
Accrued expenses $78 $46
Deferred revenues
12 13
Compensation and benefits
47 31
Inventory
4 8
Other 34 20
Total deferred tax assets 175 118
Property and equipment
145 93
Convertible debt
5 —
Other 15 5
Total deferred tax liabilities 165 98
Net deferred tax assets $10 $20
8. Segments
We have identified three reportable segments: Best Buy,
Musicland and International. The Best Buy segment
aggregates all of our operations exclusive of Musicland
and International. The Best Buy segment is primarily a
specialty retailer of consumer electronics, home office
equipment, entertainment software and appliances. The
Musicland segment is primarily a mall-based retailer of
prerecorded music, movies and other entertainment -related
products. Musicland was acquired in the fourth quarter of
fiscal 2001. The International segment was established in
connection with the acquisition of Future Shop, a specialty
retailer of consumer electronics, home office equipment,
entertainment software and appliances with operations in
Canada. Future Shop was acquired at the beginning of
November in fiscal 2002. Musicland and International
financial data is included from their respective dates
of acquisition.
$ in millions, except per share amounts
Best Buy Co., Inc. 53
The following tables present our revenues and operating income (loss) by reportable segment for each of the past three
fiscal years:
2002 2001 2000
Revenues
Best Buy $ 17,115 $ 15,189 $ 12,494
Musicland
1,886 138 —
International 596 ——
Total revenues $ 19,597 $ 15,327 $ 12,494
Operating Income (Loss)
Best Buy $ 886 $ 611 $ 539
Musicland
29 (7) —
International 22 ——
Total operating income (loss)
937 604 539
Net interest (expense) income (1) 37 24
Earnings before income tax expense $ 936 $ 641 $ 563
$ in millions, except per share amounts
54 Notes to Consolidated Financial Statements
Supplemental Segment Information:
2002 2001 2000
Assets
Best Buy $5,672 $3,812 $2,995
Musicland
993 1,028 —
International 710 ——
Total assets $7,375 $4,840 $2,995
Capital Expenditures
Best Buy $ 562 $ 657 $ 361
Musicland
47 1 —
International 18 ——
Total capital expenditures $ 627 $ 658 $ 361
Depreciation and Amortization
Best Buy $ 238 $ 164 $ 104
Musicland
63 5 —
International 8 ——
Total depreciation and amortization $ 309 $ 169 $ 104
9. Commitments and Contingencies
At the end of fiscal 2002, we had commitments for
the purchase and construction of facilities valued at
approximately $125.
We are involved in various legal proceedings arising
during the normal course of conducting business.
Management believes that the resolution of these
proceedings, either individually or in the aggregate, will
not have a significant adverse impact on our consolidated
financial statements.
$ in millions, except per share amounts
Independent Auditor’s Report 55
Shareholders and Board of Directors
Best Buy Co., Inc.
We have audited the accompanying consolidated balance sheets of Best Buy Co., Inc. and subsidiaries as of March 2,
2002, and March 3, 2001, and the related consolidated statements of earnings, changes in shareholders’ equity, and
cash flows for each of the three years in the period ended March 2, 2002. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Best Buy Co., Inc. and subsidiaries at March 2, 2002, and March 3, 2001, and the consolidated results of
their operations and their cash flows for each of the three years in the period ended March 2, 2002, in conformity with
accounting principles generally accepted in the United States.
Minneapolis, Minnesota
April 2, 2002
Independent Auditor’s Report
56 Glossary
advertising effectiveness an analysis of how
advertising and product placements within advertising can
affect sales of specific SKUs
appliances product category includes major
appliances, microwaves, vacuums and housewares
ASP average selling price
big-screen TVs non-projection TVs 31 inches and larger
big-tube TVs 31- to 36-inch TVs that have a picture
tube, as opposed to projection screen
CD-RW rewritable format for CD recording
comparable store sales (comps) a measure of
sales growth that excludes the impact of new stores
opened and relocated stores. Best Buy and Future Shop
comps exclude new stores for 14 months, and Musicland
comps exclude new stores for 12 months
consumer electronics product category includes
TVs, DVD players, speakers, cameras, camcorders, car
stereos, home theater systems, shelf systems, personal
portables, satellite systems and accessories
Concept 5 or C5 the newest Best Buy store format, the
fifth in the Company’s history
cost of goods sold includes the wholesale price of a
product plus the cost of transporting the product to the
distribution center and any sales promotions (such as
interest-free financing)
CTO configure-to-order computers, ordered online or in
the store, personalized to the user’s needs
DDC delivery distribution centers, which handle
appliances and big-screen TVs
DC distribution center, which handles most inventory to be
delivered to the stores (see DDC)
digital products include DVD hardware and software,
digital cameras and camcorders, digital TVs, wireless
communication devices and digital broadcast systems
dot-com an abbreviated term for e-commerce
DSL Digital Subscriber Line for high-speed Internet access
DTV digital television
DVD digital versatile disc (or digital video disc), refers to
hardware and software used for viewing digitally
prerecorded movies
EER Energy Efficiency Rating
entertainment software product category
includes CDs, movies and computer software as well as
video game hardware and software
EVA
®
Economic Value Added, an additional measure of
the Company’s financial performance that includes the
economic cost of assets employed
fiscal year a business calendar including 12 months;
Best Buy’s fiscal year ends on the Saturday nearest
to Feb. 28
GO grand opening of a new store(s)
gross profit revenues minus cost of goods sold
gross profit percentage gross profit divided
by revenues
HDTV high-definition TV, the highest form of digital TV
home office product category includes computers,
printers, scanners, paper, ink and accessories as well as
PDAs and wireless communications devices
HTiB home-theater-in-a-box
Glossary
Best Buy Co., Inc. 57
HTML Hyper Text Mark-Up Language used in
programming for the Internet
ISP Internet service provider
in-stock position the number of SKUs available for
purchase in the stores compared with the merchandise
assortment for that location
inventory turns the number of times the average
inventory is sold annually, based on average monthly
inventory balances
logistics transportation and distribution of products, both
inbound and outbound, between vendors and stores
MAP minimum advertised price
market reaction price in-store price changes in
response to competitors’ prices
MP3 short for MPEG layer 3, provides an efficient
audiocoding scheme that allows compression of audio
files by a factor of 12
NSO new store opening
other product category includes sales of performance
service plans, blank digital media, furniture, storage,
business cases and batteries
operating income percentage operating income
divided by revenues
PDA personal digital assistant
planogram the SKU-assigned layout of a product
category or specific fixture; also known as plano
POS point of sale
PRP Performance Replacement Plan, a contract that
covers replacement of products generally with a retail
selling price of $200 or less
PSP Performance Service Plan, a contract that covers
service and repair for products
P2P or Process to Profits a Best Buy initiative that
includes ad effectiveness, inventory management, sales
proficiency and selling total solutions
SG&A selling, general and administrative costs,
including compensation and benefits, occupancy costs,
administration, advertising, warehousing and
transportation from distribution centers to stores
SG&A percentage SG&A expense divided by revenues
shrink the loss of inventory, such as that due to
damage or theft
SKU stock-keeping unit (an indication of the depth
of assortment)
standard operating platform or SOP a part of
Best Buy culture that relies on documented processes for
handling most aspects of the business
supply chain management the coordination of
inventory management, the merchant group and logistics to
manage the flow of products from the vendor to the customer,
and the flow of information among all of these players
street date date an item is first available for sale.
A “hard” street date is vendor-enforced; a “soft” street date
is an estimated date of arrival but product can be sold
whenever it arrives
TiVo
™
personal video recorder
58 Directors and Officers
Directors and Officers
Richard M. Schulze
Director since 1966
Best Buy Co., Inc.
Founder, Chairman & Chief
Executive Officer
Bradbury H. Anderson
Director since 1986
Best Buy Co., Inc.
Vice Chairman
Robert T. Blanchard
Director since1999
Strategic & Marketing Services
President
Jack W. Eugster
Director since 2001
Musicland Stores Corp.
Retired Chairman, Chief
Executive Officer & President
Kathy J. Higgins Victor
Director since 1999
Centera Corporation
Founder & President
Elliot S. Kaplan
Director since1971
Robins, Kaplan, Miller & Ciresi
L.L.P. Partner
Allen U. Lenzmeier
Director since 2001
Best Buy Co., Inc.
President & Chief Operating
Officer
Mark C. Thompson
Director since 2000
Integration Technology, Inc.
Chairman
Frank D. Trestman
Director since 1984
Trestman Enterprises
President
The Avalon Group
Chairman
Hatim A. Tyabji
Director since 1998
Bytemobile
Executive Chairman
Dr. James C. Wetherbe
Director since 1993
Stevenson Professor of
Information Technology
Texas Tech University
Board of Directors
Executive Officers
Best Buy
Richard M. Schulze
Founder, Chairman & Chief
Executive Officer
Bradbury H. Anderson
Vice Chairman
Allen U. Lenzmeier
President & Chief Operating
Officer
Clark T. Becker
Senior Vice President –
Chief Technology Officer
Nancy C. Bologna
Senior Vice President –
Enterprise Alliances
Peter A. Bosse
Senior Vice President –
Home Solutions
Brian J. Dunn
Executive Vice President –
Retail Sales
Donald G. Eames
Senior Vice President
Business Group Leader –
Division 1
Marc D. Gordon
Executive Vice President &
Chief Information Officer
Thomas C. Healy
President – Best Buy
International
Susan S. Hoff
Senior Vice President –
Public Affairs & IRO
Darren R. Jackson
Senior Vice President –
Finance, Treasurer & Chief
Financial Officer
Joseph M. Joyce
Senior Vice President
General Counsel & Assistant
Secretary
Tamara A. Kozikowski
Senior Vice President –
Real Estate & Property
Development
Michael A. Linton
Executive Vice President &
Chief Marketing Officer
Michael London
Executive Vice President –
General Merchandise
Manager
George Z. Lopuch
Executive Vice President –
Strategic Planning
Michael W. Marolt
Senior Vice President –
Retail Operations
David J. Morrish
Senior Vice President
Business Group Leader –
Computers
Mark D. Overgard
Senior Vice President
Business Group Leader –
Division 2
Joseph S. Pagano
Senior Vice President –
Enterprise Entertainment
Charles A. Scheiderer
Senior Vice President –
Logistics
Philip J. Schoonover
Executive Vice President –
New Business Development
John R. Thompson
Senior Vice President –
Clicks & Mortar
John C. Walden
Executive Vice President –
Human Capital & Leadership
Best Buy Retail Stores
Michael P. Keskey
President
Future Shop Ltd.
Kevin T. Layden
President
Magnolia Hi-Fi, Inc.
James L. Tweten
President
Musicland Stores Corp.
Kevin P. Freeland
President
Redline Entertainment,
Gary L. Arnold
President
Redline Entertainment, Inc.
Shareholder Information 59
General Information
Shareholders may obtain a copy of the most recent quarter’s
financial results by visiting our corporate Web site,
www.BestBuy.com, and then selecting “Investor Relations.”
A Web-based e-mail notification system also is available
to alert subscribers to new press releases, SEC filings,
upcoming events and other significant postings.
Also visit our Web site to obtain product information,
Company background information and current news or to
add your name to our e-mail notification lists.
Or write to:
Best Buy Co., Inc.
Investor Relations Department
P.O. Box 9312
Minneapolis, MN 55440-9312
phone (952) 94
7
-2621
fax (952) 94
7
-2693
Annual Report on Form 10-K
The Company’s Annual Report on Form 10-K is available
by contacting the Securities and Exchange Commission.
General Counsel
Robins, Kaplan, Miller & Ciresi L.L.P.
Minneapolis
Independent Auditors
Ernst & Young LLP
Minneapolis
Annual Shareholders’ Meeting
June 25, 2002, at 2:00 p.m.
University of St. Thomas
Minneapolis Campus
1000 LaSalle Avenue
Minneapolis, MN 55403
Transfer Agent
For information on your stock certificates, such as lost
certificates, name changes and transfers of ownership,
please contact Best Buy’s transfer agent:
EquiServe
P.O. Box 43069
Providence, RI 02940-3069
Phone: (800) 446-261
7
Hearing impaired: (201) 222-4955
www.equiserve.com
Dividend Policy
The company historically has not paid, nor does it have
plans to pay, dividends.
Shareholder Information
60 Store Counts
Company Store Counts
BBY ML MH FS Total
Alabama
4 18 ——22
Alaska
— 10 ——10
Arizona
10 18 ——28
Arkansas
413——17
California
55 139 2 — 196
Colorado
933——42
Connecticut
311——14
District of Columbia
— 2 —— 2
Delaware
21—— 3
Florida
29 44 ——73
Georgia
15 35 ——50
Hawaii
— 6 —— 6
Idaho
— 11 ——11
Illinois
34 65 ——99
Indiana
12 44 ——56
Iowa
630——36
Kansas
516——21
Kentucky
521——26
Louisiana
524——29
Maine
23—— 5
Maryland
12 29 ——41
Massachusetts
10 20 ——30
Michigan
22 51 ——73
Minnesota
16 36 ——52
Mississippi
110——11
Missouri
12 26 ——38
Montana
28——10
Nebraska
310——13
Nevada
48——12
New Hampshire
55——10
New Jersey
11 53 ——64
New Mexico
310——13
BBY ML MH FS Total
New York
17 55 ——72
North Carolina
13 31 ——44
North Dakota
29——11
Ohio
23 59 ——82
Oklahoma
39——12
Oregon
420 3— 27
Pennsylvania
18 53 ——71
Puerto Rico
— 8 —— 8
Rhode Island
11—— 2
South Carolina
518——23
South Dakota
111——12
Tennessee
729——36
Texas
48 78 ——126
Utah
— 17 ——17
Vermont
1 ——— 1
Virgin Islands
— 2 —— 2
Virginia
16 28 ——44
Washington
938 8— 55
West Virginia
— 8 —— 8
Wisconsin
12 36 ——48
Wyoming — 1 —— 1
British Columbia
———19 19
Alberta
———13 13
Saskatchewan
——— 3 3
Manitoba
——— 4 4
Ontario
———34 34
Quebec
———16 16
New Brunswick
——— 2 2
Nova Scotia
——— 2 2
Newfoundland
——— 1 1
Prince Edward Is. ——— 1 1
Store totals 481 1,321 13 95 1,910
BBY = Best Buy ML = Musicland MH = Magnolia Hi- Fi FS = Future Shop
... in Retailing
... into New Technologies
... with New Customers
... into New Markets
Extending our
Leadership
Best Buy Co., Inc.
World Headquarters
P.O. Box 9312
Minneapolis, MN 55440
(952) 94
7
- 2000
www.BestBuy.com
©
2002 Best Buy Co., Inc.
