MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
In the past two fiscal years, Best Buy has more than doubled the number of
retail locations it operates, revenues have increased by 223% and earnings have
increased by 334%. The fiscal year ended February 26,1994, was highlighted by
the opening of 40 new stores, including entries into the major markets of
Atlanta, Detroit and Phoenix. These new stores, combined with a full year of
operations at the 38 stores opened in the prior year and substantial increases
in computer sales, were the most significant factors in generating revenues of
$3.007 billion in fiscal 1994, an increase of 86% compared to $1.620 billion in
fiscal 1993. Revenues in fiscal 1993 were 74% above the $930 million reported
in fiscal 1992.
Operating income as a percentage of sales increased in fiscal 1994 to 2.6%
compared to 2.2% in fiscal 1993 and 2.0% in fiscal 1992. The increase in
revenues and leveraging of the Company's selling, general and administrative
expenses more than offset lower gross profit margins. Earnings more than
doubled for the third year in a row, increasing 110% in fiscal 1994 to $41.7
million. Fiscal 1993 earnings of $19.9 million were 107% higher than the $9.6
million reported in fiscal 1992. Earnings per share, which reflect a
three-for-two stock split in fiscal 1994 and a subsequent two-for-one stock
split in April 1994, rose 77% to $1.01 as compared to $.57 in fiscal 1993 and
$.33 in fiscal 1992. The earnings noted for fiscal 1994 are before a cumulative
effect adjustment related to adopting the provisions of FAS 109 "Accounting for
Income Taxes."
REVENUES
The following table presents the Company's revenues, percentage increases in
revenues, comparable store sales increases, average revenues per store and
number of stores open for each of the last three fiscal years.
1994 1993 1992
---------- ---------- -----------
($ amounts in 000)
Revenues . . . . . . . . . . . $3,007,000 $1,620,000 $930,000
Percentage increase
in revenues. . . . . . . . . 86% 74% 40%
Comparable store
sales increase . . . . . . . 27% 19% 14%
Average revenues
per store. . . . . . . . . . $ 22,600 $ 17,600 $ 14,300
Number of stores
open at end of year. . . . . 151 111 73
Sales levels achieved at stores in the new markets Best Buy entered in fiscal
1994 have been higher on average than the Company's existing markets, which is
particularly significant in light of well established competition in the new
markets. Increasing consumer confidence, improving economic conditions,
increasing market share and expanded product lines contributed to the year over
year increases in sales at existing stores. Strong comparable store sales gains
were achieved for the third year in a row despite a very competitive retail
environment. The comparable store sales growth in fiscal 1994 was driven by a
significant increase in sales of computers which experienced a comparable store
sales increase of 69% over fiscal 1993. Sales of home office products, which
include computers and related equipment, increased to $1.042 billion compared to
$434 million in fiscal 1993 and $203 million in fiscal 1992. In fiscal 1994,
the Company significantly expanded its selection of computer products to include
such name brands as Apple, Compaq, Dell, Hewlett Packard and Toshiba. The home
office product category was 35% of total Company sales in fiscal 1994, up from
27% in fiscal 1993. Sales in the entertainment software category, which
includes compact discs, computer software and prerecorded cassettes and videos,
increased to 12% of total sales in fiscal 1994 from 9% in fiscal 1993.
Management expects that the growth in the home office and entertainment software
categories will continue to exceed the growth in other categories and that
computers will represent an increasing percentage of total Company sales.
_________________________
BEST BUY CO., INC. 14
- - --------------------------------------------------------------------------------
(continued)
The 74% increase in revenues in fiscal 1993 compared to fiscal 1992 was the
result of the addition of 38 stores and comparable store sales increase of 19%.
The Company opened 14 stores in the Chicago market in fiscal 1993 and added
another 10 stores to this market in fiscal 1994.
The conversion of stores to the Concept II store format was completed in fiscal
1994 with the conversion of the remaining 23 traditional stores. All 151 stores
operated by the Company are now using the non-commissioned format the Company
introduced in fiscal 1990. In addition, during fiscal 1994, the Company
increased its prototype store sizes to 36,000 and 45,000 square feet, compared
to mainly 28,000 square foot stores in prior years. This increased space has
enabled the Company to offer a greater product selection and generate higher
sales volume per store. In particular, the additional space has been used to
accomodate the growing home office and entertainment software product
categories.
In June 1993, the Company introduced its private label credit card program and
expanded its offerings of consumer financing alternatives. These financing
options include combinations of no interest and deferred payments, depending on
the length of the financing term. At February 26, 1994, there were over 700,000
cardholders with available credit exceeding $1.5 billion. Management believes
that the availability of these financing offers and the increased store size
have contributed to the comparable store sales increases and the success of the
new stores.
Revenues from extended service plans declined to .7% of total revenues in fiscal
1994 compared to 1.3% in fiscal 1993 and 2.2% in fiscal 1992. The decline is
due not only to increasing product sales but to the Company's decision to reduce
its emphasis on the sale of these plans. The Company also sells these plans at
prices substantially below its competitors and has occasionally included these
plans as promotional items with selected product sales.
The Company's expansion plans for fiscal 1995 include the opening of
approximately 50 new stores. New markets to be entered are primarily in the
eastern and southeastern United States, along with Los Angeles and Las Vegas in
the west. In addition to the new markets that the Company will be entering,
approximately 15 of the new stores will be added to existing markets to maximize
the return on advertising costs and other fixed costs of operation. The
prototype store size for most of the stores to be opened in fiscal 1995 is
approximately 45,000 square feet. Management expects that changing technology,
in particular in the home office market for multimedia computer systems and
software, coupled with new product introductions, including direct broadcast
satellite, will be factors in increasing sales volume at existing and future
stores.
COMPONENTS OF EARNINGS
The following table sets forth selected operating results as a percentage of
revenues for each of the last three fiscal years.
1994 1993 1992
----- ----- -----
Gross profit . . . . . . . . . 15.2% 17.5% 19.5%
Selling, general and
administrative expenses. . . 12.6 15.3 17.5
Operating Income . . . . . . . 2.6 2.2 2.0
Earnings before accounting
change . . . . . . . . . . . 1.4 1.2 1.0
Gross profit margin over the past three fiscal years has been impacted by
promotional pricing associated with the entry into several new competitive
markets, the change in sales mix towards lower margin computer products, the
reduced emphasis on the sale of higher margin extended service plans and the
increased competition in most of the Company's product
_________________________
15 BEST BUY CO., INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
(continued)
categories. While competition in the new markets entered during fiscal 1994 and
1993 resulted in lower product margins, sales in these markets have exceeded
initial expectations as the Company believes its retail format and marketing
programs have quickly provided it with significant market share. An increase in
inventory shrink also impacted profit margins in fiscal 1994. Profit from
extended service plans, before allocation of any selling, general and
administrative expenses, was $12.5 million in fiscal 1994, up from $12.0 million
in fiscal 1993 and $12.3 million in fiscal 1992.
Management expects that competition in all product categories will remain strong
in the coming year and pressure on margins will continue although the annual
rate of decline is expected to slow. Management believes that its full service
capabilities, financing alternatives and low operating expenses are distinct
advantages over other retailers which will result in increasing market share.
Management also anticipates that the increased sales volume will enable the
Company to purchase merchandise at more favorable prices, somewhat mitigating
the impact of price competition.
Selling, general and administrative expenses declined to 12.6% of sales in
fiscal 1994, compared to 15.3% and 17.5% in fiscal 1993 and 1992,
respectively. The decline in this ratio has more than offset the reduction in
gross profit margin. As the Company added stores and generated increased sales
volume per store, the ability to leverage those fixed costs of operations has
increased. The addition of stores within markets also increases the cost
effectiveness of the Company's advertising expenditures. Sales per employee
have increased over each of the last three years as the corporate and support
functions handle increased volumes without proportionally increasing costs. The
transition to a non-commissioned sales environment has also reduced the
operating expense ratio. Pre-opening costs totaled $7.3 million in fiscal 1994
compared to $6.2 million in fiscal 1993 and $2.3 million in fiscal 1992.
Management expects that selling, general and administrative expenses will
continue to decline as a percentage of sales.
Interest expense in fiscal 1994 increased over the prior two years as a result
of the financing used for store development and higher inventories to support
the sales growth. Interest on the Company's senior subordinated notes, issued in
October 1993, was the principal reason for the higher interest expense in 1994.
The Company's effective tax rate in fiscal 1994 increased to 39.0% principally
as a result of the increase in the federal statutory rate to 35%. Changes in
the mix of states in which the Company does business and the level of tax-exempt
investment income have also impacted the Company's effective tax rate in the
last three years. The Company adopted the provisions of FAS 109 "Accounting for
Income Taxes," effective as of the beginning of fiscal 1994. The effect of the
adoption was a charge to net earnings of $425,000, or $.01 per share. At
February 26,1994, the Company had deferred tax assets of $20 million which are
expected to be recovered through future taxable income.
LIQUIDITY AND CAPITAL RESOURCES
Best Buy has financed its growth over the last two fiscal years primarily
through the use of capital raised in the public markets. Funds from operations
and other financing transactions have also been used to support the significant
growth. Since November 1991, the Company has raised approximately $175 million
through the issuance of Common Stock, including $86 million in net proceeds of
a 7.02 million share public offering in
_________________________
BEST BUY CO., INC. 16
- - --------------------------------------------------------------------------------
(continued)
May 1993. The Company's issuance of $150 million senior subordinated notes in
October 1993 resulted in proceeds to the Company of $146 million, after
underwriting costs. The sale and leaseback of 17 stores in April 1993 also
generated $44 million in cash.
Proceeds from these financing transactions were used for the development of
stores and to increase inventories to the level required to support the higher
sales volumes reported in the last two fiscal years. In the past two years the
Company more than doubled the number of stores it operates, opening 38 new
stores in fiscal 1993, followed by 40 stores in fiscal 1994. Capital
expenditures of $101 million in fiscal 1994 and $75 million in fiscal 1993
included new store site acquisition and development costs of approximately $50
million. In addition to new stores, the Company undertook remodeling and
expansion projects to complete the conversion of its stores to the Concept II
store format in fiscal 1994. These renovations accommodate the space
requirements necessary for the increasing levels of computer and entertainment
software sales. In those locations where expansion was not practical the Company
relocated stores to a larger location. Management expects this trend of
relocation of selected stores to higher sales volume locations and expansion of
selling space at existing stores to continue in locations where economic
conditions warrant.
Current assets increased to $765 million at February 26, 1994, compared to $305
million at February 27, 1993, primarily as a result of the increased inventory
levels supporting the higher sales. The addition of 40 new stores and store
expansions and relocations added approximately $180 million in inventory. The
balance of the inventory increase reflects additional inventory in the Company's
distribution facilities for the replenishment of the new stores, higher
inventory levels in the existing stores to improve the Company's overall product
in-stock position, an expanded product assortment, and the higher sales growth
being experienced. Increases in trade payables and secured inventory financing
arrangements supported approximately 50% of the increase in inventory.
Receivables, which consist principally of receivables from credit card sales,
increased due to the higher sales volume reported in February 1994 as compared
to February 1993. Receivables from sales on the Company's private label credit
card are sold without recourse to an unrelated third party.
The Company currently has a revolving credit facility that provides for
borrowings of $40 million throughout the year and an additional $85 million on
a seasonal basis. Borrowings under the facility are unsecured and are limited
to a borrowing base based upon certain percentages of inventories. This
agreement expires June 30, 1995, and the Company has an option to extend the
facility for an additional year. The Company also has $175 million available
under financing facilities provided by unrelated commercial credit corporations.
The $150 million of senior subordinated notes issued in October 1993 are due in
2000 and pay semi-annual interest at 8-5/8%. In fiscal 1994, the Company
acquired its new corporate headquarters using an $8.7 million contract for deed
due in June 1996.
The Company's announced expansion plans for fiscal 1995 include the addition of
approximately 50 new stores. The Company will also expand its distribution
capabilities through the construction of a 700,000 square foot facility in
Virginia and the addition of 200,000 square feet to its facility in Oklahoma.
In addition, the Company intends to add a 240,000 square foot entertainment
software distribution facility in Minneapolis and a distribution center to
service stores in the western states. The Company's practice is to lease,
rather than own, it's retail locations. Conditions in certain markets will
require the Company to acquire and develop certain of the new store sites. The
Company expects that it
_________________________
17 BEST BUY CO., INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
(continued)
may develop up to half of the new stores to be opened in fiscal 1995.
Management is pursuing a number of financing alternatives for the development
and lease of these locations, including sale/leaseback transactions and lease
programs. Each new store requires on average $3.0 million in working capital
for merchandise inventory (net of vendor financing), fixtures and leasehold
improvements. Management expects that there will be adequate funds available
at reasonable rates to finance the $200 million of planned capital expenditures
in fiscal 1995. Approximately $130 million is expected to be recovered through
sale/leaseback transactions or other long term lease financing arrangements.
The increase in the number of stores and the addition of distribution
facilities, as well as the expansion of selected product lines, will increase
the level of inventory. The Company's vendors have traditionally supplied
approximately 50% of the inventory financing through normal trade terms and this
practice is expected to continue. Management expects that the growth in stores
and sales volume in fiscal 1995 will need to be financed, in part, through an
increase in the borrowing capacity of the bank revolving credit facility.
Management believes that the borrowing capacity and terms of an increased credit
facility will be successfully negotiated and will meet the Company's working
capital needs for the coming year.
QUARTERLY RESULTS AND SEASONALITY
Similar to most retailers, the Company's business is seasonal. Revenues and
earnings are lower during the first half of each fiscal year and are greater
during the second half, which includes the Christmas selling season. The timing
of new store openings and general economic conditions may affect future
quarterly results of the Company.
The following table sets forth the Company's unaudited quarterly operating
results for each quarter of fiscal 1994 and fiscal 1993 (in 000, except per
share data).
Fiscal 1994
May 29 Aug. 28 Nov. 27 Feb. 26
1993 1993 1993 1994
-------- -------- -------- ----------
Revenues . . . . . . $441,919 $562,980 $808,476 $1,193,159
Gross profit . . . . 74,476 94,198 121,108 167,143
Operating
income . . . . . . 3,674 13,090 20,849 39,565
Net earnings . . . . 1,091 7,594 11,161 21,439
Net earnings
per share. . . . . .04 .18 .26 .50
Fiscal 1993
May 30 Aug. 29 Nov. 28 Feb. 27
1992 1992 1992 1993
-------- -------- -------- --------
Revenues . . . . . . $246,481 $285,430 $474,442 $613,625
Gross profit . . . . 49,344 54,129 77,802 102,759
Operating
income . . . . . . 2,533 4,655 9,825 18,895
Net earnings . . . . 1,244 2,615 5,220 10,776
Net earnings
per share. . . . . .04 .07 .15 .31
The quarter ended May 29, 1993 includes the cumulative effect of a change in
accounting that reduced earnings by $425 ($.01 per share).
COMMON STOCK PRICES
Quarter 1st 2nd 3rd 4th
- - ------------------------------------------------------------------------------------------
Fiscal 1994: High. . . . . . . $16 5/32 $16 1/2 $31 7/16 $27 11/16
Low . . . . . . . 11 7/32 10 27/32 16 3/32 18 13/16
Fiscal 1993: High. . . . . . . $ 9 11/32 $ 6 3/8 $11 27/32 $15 23/32
Low . . . . . . . 5 7/32 4 23/32 5 1/2 10 25/32
- - ------------------------------------------------------------------------------------------
Best Buy's Common Stock is traded on the New York Stock Exchange, symbol BBY
Stock prices reflect a three-for-two stock split September 1, 1993 and a
two-for-one stock split April 28, 1994.
_________________________
BEST BUY CO., INC. 18
SELECTED FINANCIAL AND OPERATING DATA
1994(1) 1993 1992 1991(2) 1990(3)
---------- ---------- -------- -------- --------
FISCAL PERIOD ($ in 000, except per share amounts)
STATEMENT OF EARNINGS DATA:
Revenues . . . . . . . . . . . . . . . . . $3,006,534 $1,619,978 $929,692 $664,823 $512,850
Gross profit . . . . . . . . . . . . . . . 456,925 284,034 181,062 141,657 120,341
Selling, general, and
administrative expenses. . . . . . . . . 379,747 248,126 162,286 130,681 107,194
Operating income . . . . . . . . . . . . . 77,178 35,908 18,776 10,976 13,147
Earnings before cumulative
effect of accounting change. . . . . . . 41,710 19,855 9,601 4,540 5,683
Net earnings (loss). . . . . . . . . . . . 41,285 19,855 9,601 (9,457) 5,683
PER SHARE DATA:(4)
Earnings before cumulative
effect of accounting change. . . . . . . $ 1.01 $ .57 $ .33 $ .18 $ .23
Net earnings (loss). . . . . . . . . . . . 1.00 .57 .33 (.38) .23
Common stock price - High. . . . . . . . . 31 7/16 15 23/32 11 25/32 3 21/32 2 29/32
- Low . . . . . . . . . 10 27/32 4 23/32 2 21/32 1 1/2 1 7/8
Book value per share . . . . . . . . . . . 7.46 5.29 4.68 2.28 2.66
Primary weighted average
shares outstanding (000s). . . . . . . . 41,336 34,776 28,848 24,852 24,798
OPERATING AND OTHER DATA:
Comparable store sales increase(5) . . . . 26.9% 19.4% 14.0% 1.0% 0.3%
Number of stores (end of period) . . . . . 151 111 73 56 49
Average revenues per store(6). . . . . . . $ 22,600 $ 17,600 $ 14,300 $ 12,400 $ 11,500
Gross profit percentage. . . . . . . . . . 15.2% 17.5% 19.5% 21.3% 23.5%
Selling, general, and administrative
expense percentage . . . . . . . . . . . 12.6% 15.3% 17.5% 19.7% 20.9%
Operating income percentage. . . . . . . . 2.6% 2.2% 2.0% 1.6% 2.6%
Inventory turns(7) . . . . . . . . . . . . 5.0x 4.8x 5.1x 4.5x 3.7x
Capital expenditures . . . . . . . . . . . $ 101,412 $ 74,891 $ 25,279 $ 20,267 $ 9,660
Number of employees. . . . . . . . . . . . 15,200 9,600 5,500 4,300 3,900
BALANCE SHEET DATA (at period end):
Working capital. . . . . . . . . . . . . . $ 362,582 $ 118,921 $126,817 $ 64,623 $ 78,398
Property and equipment, net. . . . . . . . 172,724 126,442 58,250 39,572 27,359
Total assets . . . . . . . . . . . . . . . 952,494 439,142 337,218 185,528 156,787
Long-term debt, including
current portion. . . . . . . . . . . . . 219,710 53,870 52,980 35,695 35,283
Shareholders' equity . . . . . . . . . . . 311,444 182,283 157,568 56,741 66,150
<FN>
This table should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the Financial
Statements and Notes thereto.
(1) During fiscal 1994, the Company adopted FAS 109, resulting in a cumulative
effect adjustment of ($425) or ($.01) per share.
(2) During fiscal 1991, the Company changed its method of accounting for
extended service plans, resulting in a cumulative effect adjustment of
($13,997) or ($.56) per share.
(3) Fiscal 1990 had approximately 11 months because the Company changed its
fiscal year to a 52/53 week period ending on the Saturday closest to the
last day in February of each year. All other fiscal years contained 52
weeks.
(4) All per share amounts have been adjusted to reflect a three-for-two stock
split in September 1993 and a two-for-one stock split in April 1994.
(5) Comparable stores are stores open at least 14 full months.
(6) Average revenues per store are based upon total revenues for the period
divided by the weighted average number of stores open during such period.
(7) Inventory turns are calculated based upon a rolling 12 month average of
inventory balances.
_________________________
19 BEST BUY CO., INC.
BALANCE SHEETS
- - --------------------------------------------------------------------------------------------------------------
($ in 000, except per share amounts) February 26 February 27
1994 1993
----------- -----------
ASSETS
Current Assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 59,872 $ 7,138
Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,944 37,968
Merchandise inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . 637,950 249,991
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,088 9,497
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 756 332
----------- -----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 764,610 304,926
Property and Equipment:
Land and buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,660 45,676
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,279 33,222
Furniture, fixtures and equipment. . . . . . . . . . . . . . . . . . . . . . . 122,683 76,806
Property under capital leases. . . . . . . . . . . . . . . . . . . . . . . . . 17,870 14,163
----------- -----------
233,492 169,867
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . 60,768 43,425
----------- -----------
Net property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . 172,724 126,442
Other Assets:
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,078 6,284
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,082 1,490
----------- -----------
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,160 7,774
----------- -----------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $952,494 $439,142
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Note payable, bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,700
Obligations under financing arrangements . . . . . . . . . . . . . . . . . . . $ 11,156 4,871
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294,060 118,338
Accrued salaries and related expenses. . . . . . . . . . . . . . . . . . . . . 19,319 12,350
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,754 18,221
Deferred service plan revenue and warranty reserve . . . . . . . . . . . . . . 19,146 16,240
Accrued income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,694 6,545
Current portion of long term debt. . . . . . . . . . . . . . . . . . . . . . . 8,899 5,740
----------- -----------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 402,028 186,005
Deferred Service Plan Revenue and Warranty Reserve . . . . . . . . . . . . . . . 28,211 22,724
Long Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210,811 48,130
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, $1.00 par value:
Authorized - 400,000 shares; Issued and Outstanding - none
Common stock, $.10 par value:
Authorized - 120,000,000 shares; Issued and Outstanding 41,742,000
and 34,486,000 shares, respectively. . . . . . . . . . . . . . . . . . . . . 2,087 1,149
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 224,089 137,151
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,268 43,983
----------- -----------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . 311,444 182,283
----------- -----------
Total Liabilities and Shareholders' Equity . . . . . . . . . . . . . . . . $ 952,494 $ 439,142
----------- -----------
----------- -----------
See notes to financial statements.
_________________________
BEST BUY CO., INC. 20
STATEMENTS OF EARNINGS
- - -----------------------------------------------------------------------------------------------------------------------------
($ in 000, except per share amounts) February 26 February 27 February 29
FOR THE FISCAL YEARS ENDED 1994 1993 1992
----------- ----------- -----------
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,006,534 $1,619,978 $929,692
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,549,609 1,335,944 748,630
----------- ----------- -----------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 456,925 284,034 181,062
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . 379,747 248,126 162,286
----------- ----------- -----------
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,178 35,908 18,776
Interest expense, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,800 3,883 3,415
----------- ----------- -----------
Earnings before income taxes and cumulative
effect of change in accounting principle . . . . . . . . . . . . . . . . . . . 68,378 32,025 15,361
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,668 12,170 5,760
----------- ----------- -----------
Earnings before cumulative effect of change
in accounting principle. . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,710 19,855 9,601
Cumulative effect of change in accounting for income taxes . . . . . . . . . . . (425)
----------- ----------- -----------
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 41,285 $ 19,855 $ 9,601
----------- ----------- -----------
----------- ----------- -----------
Earnings per share:
Earnings before cumulative effect of change in
accounting principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1 01 $ .57 $ .33
Cumulative effect of change in accounting for income taxes . . . . . . . . . . (.01)
----------- ----------- -----------
Net earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.00 $ .57 $ .33
----------- ----------- -----------
----------- ----------- -----------
Weighted average common shares outstanding (000) . . . . . . . . . . . . . . . . 41,336 34,776 28,848
----------- ----------- -----------
----------- ----------- -----------
See notes to financial statements.
_________________________
21 BEST BUY CO., INC.
STATEMENTS OF CASH FLOWS
- - -----------------------------------------------------------------------------------------------------------------------------
($ in 000) February 26 February 27 February 29
FOR THE FISCAL YEARS ENDED 1994 1993 1992
----------- ----------- -----------
OPERATING ACTIVITIES
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 41,285 $ 19,855 $ 9,601
Charges to earnings not affecting cash:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . 22,412 14,832 10,013
Loss on disposal of property and equipment . . . . . . . . . . . . . . . . . 719 545 437
Cumulative effect of change in accounting for income taxes . . . . . . . . . 425
----------- ----------- -----------
64,841 35,232 20,051
Changes in operating assets and liabilities:
Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,976) (21,987) (7,265)
Merchandise inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . (387,959) (114,153) (40,154)
Deferred income taxes and prepaid expenses . . . . . . . . . . . . . . . . . (5,234) (2,063) (225)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,722 49,668 26,770
Other current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 33,014 16,106 7,062
Deferred service plan revenues and warranty reserve. . . . . . . . . . . . . 8,393 6,148 16
----------- ----------- -----------
Total cash provided by (used in) operating activities. . . . . . . . . . . (126,199) (31,049) 6,255
----------- ----------- -----------
INVESTING ACTIVITIES
Additions to property and equipment. . . . . . . . . . . . . . . . . . . . . . (101,412) (74,891) (25,279)
Sale of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . 44,506 27 114
Decrease (increase) in other assets. . . . . . . . . . . . . . . . . . . . . . (6,592) (1,180) 358
----------- ----------- -----------
Total cash used in investing activities. . . . . . . . . . . . . . . . . . (63,498) (76,044) (24,807)
----------- ----------- -----------
FINANCING ACTIVITIES
Borrowings on revolving credit line. . . . . . . . . . . . . . . . . . . . . . 79,500 298,900 47,200
Payments on revolving credit line. . . . . . . . . . . . . . . . . . . . . . . (83,200) (295,200) (47,200)
Long-term debt borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . 160,310 29,700 15,018
Long-term debt payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,977) (37,515) (1,696)
Common stock issued. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,513 4,860 91,226
Increase (decrease) in obligations under
financing arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,285 697 (270)
----------- ----------- -----------
Total cash provided by financing activities. . . . . . . . . . . . . . . . 242,431 1,442 104,278
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . 52,734 (105,651) 85,726
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . 7,138 112,789 27,063
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . . . . $ 59,872 $ 7,138 $112,789
----------- ----------- -----------
----------- ----------- -----------
Supplemental cash flow information:
Non-cash investing and financing activities:
Capital lease additions. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,807 $ 8,705 $ 3,963
Land and building acquired on contract for deed. . . . . . . . . . . . . . . $ 8,700
Cash paid during the period for:
Interest (net of amount capitalized) . . . . . . . . . . . . . . . . . . . . $ 5,360 $ 5,385 $ 4,460
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,442 $ 7,174 $ 4,753
See notes to financial statements
_________________________
BEST BUY CO., INC. 22
STATEMENTS OF SHAREHOLDERS' EQUITY
- - --------------------------------------------------------------------------------------------------------------
($ in 000) Common Additional Retained
stock paid-in capital earnings
------ --------------- --------
BALANCES AT MARCH 2, 1991. . . . . . . . . . . . . . . . . . $ 829 $ 41,385 $14,527
Sale of common stock . . . . . . . . . . . . . . . . . . . . 270 87,705
Stock options exercised. . . . . . . . . . . . . . . . . . . 23 1,937
Tax benefit from stock options exercised . . . . . . . . . . 1,291
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . 9,601
------ -------- -------
BALANCES AT FEBRUARY 29, 1992. . . . . . . . . . . . . . . . 1,122 132,318 24,128
Stock options exercised. . . . . . . . . . . . . . . . . . . 27 2,311
Tax benefit from stock options exercised . . . . . . . . . . 2,522
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . 19,855
------ -------- -------
BALANCES AT FEBRUARY 27, 1993. . . . . . . . . . . . . . . . 1,149 137,151 43,983
Sale of common stock . . . . . . . . . . . . . . . . . . . . 234 85,294
Stock options exercised. . . . . . . . . . . . . . . . . . . 10 977
Tax benefit from stock options exercised . . . . . . . . . . 1,363
Effect of three-for-two stock split. . . . . . . . . . . . . 694 (696)
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . 41,285
------ -------- -------
BALANCES AT FEBRUARY 26, 1994. . . . . . . . . . . . . . . . $2,087 $224,089 $85,268
------ -------- -------
------ -------- -------
See notes to financial statements.
INDEPENDENT AUDITORS' REPORT
- - --------------------------------------------------------------------------------
Shareholders and Board of Directors
Best Buy Co., Inc.
Minneapolis, Minnesota
We have audited the accompanying balance sheets of Best Buy Co., Inc. (the
Company) as of February 26, 1994, and February 27, 1993, and the related
statements of earnings, shareholders' equity, and cash flows for the years ended
February 26, 1994, February 27, 1993, and February 29, 1992. 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 generally accepted auditing
standards. 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, such financial statements present fairly, in all material
respects, the financial position of Best Buy Co., Inc., as of February 26, 1994
and February 27, 1993, and the results of its operations and cash flows for the
years ended February 26, 1994, February 27, 1993, and February 29, 1992, in
conformity with generally accepted accounting principles.
As discussed in Note 7 to the financial statements, the Company changed its
method of accounting for income taxes during the year ended February 26, 1994.
Deloitte & Touche
Minneapolis, Minnesota
April 13, 1994
________________________
23 BEST BUY CO., INC
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
($ in 000, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of business:
The Company sells consumer electronics, personal computer and other home
office products, major appliances, entertainment software, and related
accessories through its retail stores.
Cash and cash equivalents:
The Company considers all short-term investments with a maturity of three
months or less when purchased to be cash equivalents.
Merchandise inventories:
Merchandise inventories are recorded at the lower of average cost or
market.
Property and equipment:
Property and equipment are recorded at cost. Depreciation, including
amortization of property under capital leases, is computed on 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.
Accounts payable:
Under the Company's cash management system, checks issued but not cleared
through the bank account frequently result in a cash overdraft in the
accounting records. Overdraft balances of $90,119 and $46,548 at February
26, 1994, and February 27, 1993, respectively, are included in accounts
payable.
Pre-opening costs:
Costs incurred in connection with the opening of new stores are expensed in
the year the store is opened. Pre-opening costs were $7,335, $6,231 and
$2,295 in fiscal 1994, 1993, and 1992, respectively.
Deferred service plan revenue and warranty reserve:
Revenue from the sale of extended service contracts, net of direct selling
expenses, is recognized straight-line over the life of the contract. Costs
related to servicing the plans are expensed as incurred. Estimated costs
of promotional contracts, included with products at no cost to the
consumer, are accrued as warranty reserve at the time of product sale.
Earnings per share:
Earnings per share is computed on the basis of the weighted average number
of common shares outstanding during each period, adjusted for 1,300,000,
902,000 and 1,458,000 incremental shares assumed issued on the exercise of
stock options in fiscal 1994, 1993 and 1992, respectively. In September
1993, the Company effected a three-for-two stock split in the form of a 50%
stock dividend. In April 1994, the Company effected a two-for-one stock
split payable in the form of a stock dividend. All common share and per
share information has been adjusted to reflect both splits.
Fiscal year:
The Company's fiscal year ends on the Saturday nearest the end of February.
All years presented contained 52 weeks.
2. OBLIGATIONS UNDER FINANCING ARRANGEMENTS:
The Company has two inventory financing credit lines, which total
approximately $175,000. Borrowings are collaterized by a security interest
in certain merchandise inventories approximating the outstanding
borrowings. The lines have provisions that give the financing sources a
portion of the cash discounts provided by the manufacturers.
3. BORROWINGS:
February 26 February 27
1994 1993
----------- -----------
Senior Subordinated Notes . . . . . . . $150,000
Subordinated Notes. . . . . . . . . . . 21,904 $21,904
Equipment financing loans . . . . . . . 25,306 19,957
Obligations under capital
leases. . . . . . . . . . . . . . . . 13,800 12,009
Contract for deed . . . . . . . . . . . 8,700
----------- -----------
219,710 53,870
Less:
Current portion of long
term debt . . . . . . . . . . . . . . 8,899 5,740
----------- -----------
$210,811 $48,130
----------- -----------
----------- -----------
_________________________
BEST BUY CO., INC. 24
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
($ in 000, except per share amounts)
Credit Agreement:
The Company has a credit agreement (the "Agreement") that contains a
revolving credit facility under which the Company can borrow up to
$125,000. The Agreement provides that up to $40,000 of the facility is
available at all times and an additional $85,000 is available from August 1
to December 31. The Agreement expires in June 1995, and the Company has
the option to extend the Agreement for an additional year.
Borrowings under the facility are unsecured. Interest on borrowings is at
the agent bank's reference rate or LIBOR plus a specified margin. The
Company also pays certain commitment and agent fees.
The Agreement contains covenants that require maintenance of certain
financial ratios and place limits on annual capital expenditures. The
Agreement also provides that once a year, the Company must repay any
amounts outstanding, and for a period of not less than 60 days thereafter,
the aggregate principal amount outstanding is limited to $10,000. There
were no balances outstanding under the facility at February 26, 1994. At
February 27, 1993 there was $3,700 outstanding under the previous facility.
Senior Subordinated Notes:
In October 1993, the Company issued $150,000 of senior subordinated notes.
The notes mature on October 1, 2000, and bear interest at 8-5/8%. The
Company may, at its option, redeem the notes prior to maturity at 102.5%
and 101.25% of par in 1998 and 1999, respectively. The Company may be
required to offer early redemption in the event of a change in control, as
defined.
The notes are unsecured and subordinate to the prior payment of all senior
debt, which approximates $58,962 at February 26, 1994. The indenture also
contains provisions, which limit the amount of additional borrowings the
Company may incur and limit the Company's ability to pay dividends and make
other restricted payments.
Subordinated Notes:
The Company has an $18,000 unsecured, subordinated note outstanding which
bears interest at 9.95% and matures on July 30, 1999. In addition, the
Company has $3,904 of unsecured, subordinated notes due June 15, 1997 which
bear interest at 9%.
Equipment Financing Loans:
The equipment financing loans require monthly or quarterly payments and
have maturity dates between June 1996 and October 1998. The interest rates
on these loans range from 7.54% to 11.15%. Furniture and fixtures with a
book value of $23,704 are pledged against these loans.
Contract For Deed:
The Company purchased its corporate office building on a contract for deed.
The contract for deed calls for semiannual interest payments of $430 with
payment of the contract balance on June 12, 1996.
Obligations Under Capital Leases:
The present value of future minimum lease payments relating to certain
equipment and a distribution center has been capitalized. The capitalized
cost is $17,870 and $14,163 at February 26, 1994, and February 27, 1993,
respectively. The net book value of assets under capital leases was
$13,439 and $12,060 at February 26, 1994 and February 27, 1993,
respectively.
Future maturities of debt:
Capital Other
Fiscal year Leases Debt
---------- ----------
1995. . . . . . . . . . . . . . . . . . $ 3,138 $ 6,422
1996. . . . . . . . . . . . . . . . . . 2,872 6,452
1997. . . . . . . . . . . . . . . . . . 2,540 14,697
1998. . . . . . . . . . . . . . . . . . 6,126 9,005
1999. . . . . . . . . . . . . . . . . . 534 1,334
Later years . . . . . . . . . . . . . . 104 168,000
---------- ----------
15,314 $205,910
----------
----------
Less amount representing
interest. . . . . . . . . . . . . . . 1,514
----------
Minimum lease payments. . . . . . . . . 13,800
Less current portion. . . . . . . . . . 2,477
----------
Long-term portion . . . . . . . . . . . $11,323
----------
----------
The fair value of the Company's financial instruments, including those with
quoted market prices, approximates carrying value.
_________________________
25 BEST BUY CO., INC.
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
($ in 000, except per share amounts)
4. OPERATING LEASE COMMITMENTS AND RELATED PARTY TRANSACTIONS:
The Company conducts the majority of its retail and distribution operations
from leased locations. The Company completed the sale/leaseback of 17
stores in fiscal 1994, resulting in net proceeds of approximately $44,600,
with no gain or loss recognized. The Company also leases various equipment
under operating leases and, prior to January 1994, its corporate
headquarters were located in leased facilities. These leases require
payment of real estate taxes, insurance, and maintenance. Most of the
leases contain renewal options and escalation clauses, and several require
contingent rents based on specified percentages of sales. Certain leases
also contain covenants with regard to maintenance of financial ratios.
Future minimum lease obligations by year (not including percentage rentals)
for these operating leases at February 26, 1994, are as follows:
Fiscal year
1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 38,954
1996. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,457
1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,772
1998. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,625
1999. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,244
Later years . . . . . . . . . . . . . . . . . . . . . . . . 311,310
The composition of the total rental expenses for all operating leases
during the last three fiscal years, including leases of building and
equipment, is as follows:
1994 1993 1992
------- ------- -------
Minimum rentals . . . . . . . . $37,673 $22,757 $16,153
Percentage rentals. . . . . . . 439 405 388
------- ------- -------
$38,112 $23,162 $16,541
------- ------- -------
------- ------- -------
Five stores are leased from the Company's CEO and principal shareholder,
his spouse, or partnerships in which he is a partner. Rent expense under
these leases during the last three fiscal years was as follows:
1994 1993 1992
------- ------- -------
Minimum rentals . . . . . . . . $1,049 $1,051 $1,049
Percentage rentals. . . . . . . 423 405 388
------- ------- -------
$1,472 $1,456 $1,437
------- ------- -------
------- ------- -------
5. RETIREMENT SAVINGS PLAN:
The Company has a retirement savings plan for employees meeting certain age
and service requirements. The plan provides for a Company matching
contribution which is subject to annual approval. This matching
contribution was $906, $697 and $531 during fiscal 1994, 1993 and 1992,
respectively.
6. SHAREHOLDERS' EQUITY:
Public Offerings:
In June 1993, the Company completed a public offering of 7,020,000 shares
of Common Stock, including the underwriters' overallotment, at $12.83 per
share. Net proceeds of the offering were $85,528 after deducting the
underwriting discount and offering expenses of $4,562.
In November 1991, the Company completed a public offering of 8,100,000
shares of Common Stock at $11.50 per share. Proceeds from this offering
were $87,975 after deducting the underwriting discount and offering
expenses of $5,175.
Stock options:
The Company sponsors two non-qualified stock option plans for directors and
key employees. These plans provide for the issuance of up to 8,150,000
shares. Options may be granted only to employees or directors at option
prices not less than the fair market value of the Company's Common Stock on
the date of the grant. At February 26, 1994, options to purchase 3,144,000
shares are outstanding under these plans. In addition, at February 26,
1994, an option to purchase 26,000 shares is outstanding to an officer, not
pursuant to a plan.
_________________________
BEST BUY CO., INC. 26
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
($ in 000, except per share amounts)
Option activity for each of the years in the period ended February 26,
1994, is as follows:
Option price
Shares per share
--------- -------------
Outstanding March 2, 1991 . . . . . . . . 2,271,000 $2.21 - 5.56
Granted . . . . . . . . . . . . . . . . 603,000 3.50 - 10.31
Exercised . . . . . . . . . . . . . . . (690,000) 2.21 - 3.76
Cancelled . . . . . . . . . . . . . . . (93,000) 2.75 - 5.56
---------
Outstanding February 29, 1992 . . . . . . 2,091,000 2.21 - 10.31
Granted . . . . . . . . . . . . . . . . 912,000 5.89 - 6.29
Exercised . . . . . . . . . . . . . . . (837,000) 2.21 - 6.29
Cancelled . . . . . . . . . . . . . . . (45,000) 2.21 - 6.29
---------
Outstanding February 27, 1993 . . . . . . 2,121,000 2.21 - 10.31
Granted . . . . . . . . . . . . . . . . 1,391,000 11.23 - 13.58
Exercised . . . . . . . . . . . . . . . (240,000) 2.21 - 10.31
Cancelled . . . . . . . . . . . . . . . (102,000) 2.21 - 12.00
---------
Outstanding February 26, 1994 . . . . . . 3,170,000 2.21 - 13.58
---------
---------
Exercisable February 26, 1994 . . . . . . 934,000 $ 2.21 - 13.58
---------
---------
7. INCOME TAXES:
In fiscal 1994, the Company adopted FASB Statement No. 109 "Accounting for
Income Taxes" (FAS 109) and changed its method of accounting for income
taxes from the deferred method to the liability method required by FAS 109.
As permitted by FAS 109, prior years' financial statements have not been
restated, and the effect on pre-tax income in the current year is not
significant. The cumulative effect of the change as of February 28, 1993
was a charge to earnings of $425.
Deferred taxes under FAS 109 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 as of
February 26, 1994 consist of the following:
Deferred service plan revenue and
warranty reserve. . . . . . . . . . . . . . . . . . . . . $18,625
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . 3,326
Compensation and benefits . . . . . . . . . . . . . . . . . 1,547
Other-net . . . . . . . . . . . . . . . . . . . . . . . . . 766
-------
Total deferred tax assets . . . . . . . . . . . . . . . 24,264
-------
Property and equipment. . . . . . . . . . . . . . . . . . . 3,988
Other-net . . . . . . . . . . . . . . . . . . . . . . . . . 110
-------
Total deferred tax liabilities. . . . . . . . . . . . . 4,098
-------
Net deferred tax assets . . . . . . . . . . . . . . . . . . $20,166
-------
-------
The deferred income tax expense (benefit) under the previous method of
accounting for income taxes for fiscal 1993 and 1992 is comprised of the
following:
1993 1992
------- -------
Deferred service plan revenue
and warranty reserve. . . . . . . . . . . . $(2,308) $ (161)
Depreciation expense. . . . . . . . . . . . . 826 483
Inventory cost capitalization . . . . . . . . (497) (176)
Reserves for losses
not currently deductible. . . . . . . . . . (558) (50)
Other . . . . . . . . . . . . . . . . . . . . (50) (93)
------- -------
$(2,587) $ 3
------- -------
------- -------
The provision for income taxes consists of the following:
1994 1993 1992
------- ------- -------
Current:
Federal . . . . . . . . . . $25,909 $12,129 $4,637
State . . . . . . . . . . . 5,882 2,628 1,120
------- ------- -------
31,791 14,757 5,757
------- ------- -------
Deferred:
Federal . . . . . . . . . . (4,620) (2,118) 2
State . . . . . . . . . . . (503) (469) 1
------- ------- -------
(5,123) (2,587) 3
------- ------- -------
Provision for
income taxes. . . . . . . . $26,668 $12,170 $5,760
------- ------- -------
------- ------- -------
Following is a reconciliation of the provision for income
taxes to the Federal statutory rate:
1994 1993 1992
------- ------- -------
Federal income tax at
the statutory rate. . . . . $23,932 $10,888 $5,223
State income taxes,
net of federal benefit. . . 3,320 1,412 750
Effect of tax rate change
on deferred taxes . . . . . (309)
Tax exempt investment
income. . . . . . . . . . . (341) (228) (281)
Other . . . . . . . . . . . . 66 98 68
------- ------- -------
Provision for income
taxes . . . . . . . . . . . $26,668 $12,170 $5,760
------- ------- -------
------- ------- -------
Effective tax rate. . . . . . 39.0% 38.0% 37.5%
------- ------- -------
------- ------- -------
8. LEGAL PROCEEDINGS:
The Company is involved in various legal proceedings arising during the
normal course of conducting business. Management believes that the resolution
of these proceedings will not have any material adverse impact on the Company's
financial condition.
_________________________
27 BEST BUY CO., INC.