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8-K 1 bby8k32912.htm 8-K
Washington, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) March 29, 2012
(Exact name of registrant as specified in its charter)
Minnesota
(State or other jurisdiction
of incorporation)
1-9595
(Commission
File Number)
7601 Penn Avenue South
Richfield, Minnesota
(Address of principal executive offices)
41-0907483
(IRS Employer
Identification No.)
55423
(Zip Code)
Registrant’s telephone number, including area code (612) 291-1000
N/A
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant
under any of the following provisions:
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Results of Operations and Financial Condition.
On March 29, 2012, Best Buy Co., Inc. (“Best Buy” or the “registrant”) issued a news release announcing its results of operations
for the fourth quarter and fiscal year ended March 3, 2012. In the news release, the registrant also provided its financial outlook and
earnings guidance for the twelve months ending February 2, 2013, which includes the results of the five weeks ended March 3,
2012, as a result of the change in fiscal year announced by the registrant on November 7, 2011.
The registrant is scheduled to conduct an earnings conference call at 10:30 a.m. Eastern Time on March 29, 2012. The earnings
conference call is expected to be available live on the registrant’s Web site at www.investors.bestbuy.com.
The news release issued on March 29, 2012, is furnished as Exhibit No. 99.1 to this Current Report on Form 8-K. Best Buy’s
Annual Report to Shareholders and its reports on Forms 10-K, 10-Q and 8-K and other publicly available information should be
consulted for other important information about the registrant.
On March 29, 2012, as described below under Item 7.01 of this Current Report on Form 8-K, the registrant posted supplementary
financial information for fiscal years 2011 and 2012, recast to reflect results based on the registrant’s new fiscal year. The registrant
is furnishing, as Exhibit No. 99.2 to this Current Report on Form 8-K, the supplementary financial information posted on March 29,
2012.
The information in Item 2.02 of this Current Report on Form 8-K, including Exhibits No. 99.1 and 99.2 hereto, shall not be deemed
“filed” for purposes of Section 18 of the U.S. Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that
Section unless the registrant specifically incorporates it by reference in a document filed under the U.S. Securities Act of 1933, as
amended, or the U.S. Securities Exchange Act of 1934, as amended.
Item 2.05
Costs Associated with Exit or Disposal Activities.
On March 29, 2012, Best Buy also announced a transformation strategy, consisting of a series of actions intended to improve
operating performance. The actions include closure of U.S. Best Buy big box stores, changes to the store and corporate operating
models, and other measures intended to reduce costs associated with product life-cycle management and supply chain. The costs of
implementing the changes primarily consist of lease exit costs, employee severance and fixed asset impairments.
The registrant will begin initiating the announced actions in the first quarter of fiscal 2013 and expects to complete the actions by
the end of fiscal 2013. The registrant preliminarily expects to incur total pre-tax restructuring charges of between $300 million and
$350 million related to the actions. Given the timing of these actions, the registrant estimates that between $140 million and $160
million of the charges will be recorded in the first quarter of fiscal 2013, consisting primarily of employee severance and fixed asset
impairments. The lease exit costs will be recorded throughout the remainder of fiscal 2013 as the stores are closed. The total
charges include between $270 million and $310 million of cash payments.
The amount of the restructuring charges noted above are estimates, and the actual charges may vary materially based on various
factors, including but not limited to the following: the timing of store closures; level of employee terminations; factors relating to
real estate, such as sale proceeds and the timing and amount of sublease income and other related expenses; and changes in
management’s assumptions.
Additional information regarding the restructuring is included under the caption “Actions to Transform Business Operations” on
pages two to four of the news release issued on March 29, 2012, which additional information is filed as Exhibit No. 99.1 to this
Current Report on Form 8-K. The balance of the news release shall not be deemed “filed” under this Item 2.05 for purposes of
Section 18 of the U.S. Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that Section unless the
registrant specifically incorporates it by reference in a document filed under the U.S. Securities Act of 1933, as amended, or the
U.S. Securities Exchange Act of 1934, as amended.
Item 7.01
Regulation FD.
In addition, on March 29, 2012, the registrant posted supplementary financial information for fiscal years 2011 and 2012, recast to
reflect results based on the registrant’s new fiscal year. As announced on November 7, 2011, Best Buy will change its fiscal year to
end on the Saturday nearest the end of January of each calendar year, effective beginning in the first quarter of fiscal 2013. The
supplementary financial information is available on the registrant’s Web site at www.investors.bestbuy.com.
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The registrant is furnishing, as Exhibit No. 99.2 to this Current Report on Form 8-K, the supplementary financial information
posted on March 29, 2012.
The information in Item 7.01 of this Current Report on Form 8-K, including the supplementary financial information attached as
Exhibit 99.2 hereto, shall not be deemed “filed” for purposes of Section 18 of the U.S. Securities Exchange Act of 9134, as
amended, or otherwise subject to liability of that Section unless the registrant specifically incorporates it by reference in a
document filed under the U.S. Securities Act of 1933, as amended, or the U.S. Securities Exchange Act of 1934, as amended.
Some of the matters discussed in this Current Report on Form 8-K (including Exhibit 99.1) constitute forward-looking statements
within the meaning of the “safe-harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forwardlooking statements include statements other than those made solely with respect to historical fact and are based on the intent, belief
or current expectations of the registrant and/or its management. The registrant’s business and operations are subject to a variety of
risks and uncertainties that might cause actual results to differ materially from those projected by any forward-looking statements.
Factors that could cause such differences include, but are not limited to, the risk factors set forth in the registrant’s filings with the
U.S. Securities and Exchange Commission.
Item 9.01
Financial Statements and Exhibits.
(d) Exhibits.
The following are furnished as Exhibits to this Current Report on Form 8-K.
Exhibit No.
Description of Exhibit
99.1
News release issued March 29, 2012 (furnished pursuant to Item 2.02 and filed (but only in part)
pursuant to Item 2.05). Any internet address provided in this release is for information purposes only
and is not intended to be a hyperlink. Accordingly, no information at any internet address is included
herein.
99.2
Supplementary financial information posted March 29, 2012 (furnished pursuant to Item 7.01). Any
internet address provided is for information purposes only and is not intended to be a hyperlink.
Accordingly, no information at any internet address is included herein.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
BEST BUY CO., INC.
(Registrant)
Date: March 29, 2012
By: /s/ SUSAN S. GRAFTON
Susan S. Grafton
Senior Vice President, Controller and Chief Accounting
Officer
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10-K 1 bby-201210k.htm 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________________________
FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 3, 2012
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from
to
Commission file number 1-9595
________________________________
BEST BUY CO., INC.
(Exact name of registrant as specified in its charter)
Minnesota
41-0907483
State or other jurisdiction of
incorporation or organization
(I.R.S. Employer
Identification No.)
7601 Penn Avenue South
Richfield, Minnesota
55423
(Zip Code)
(Address of principal executive offices)
Registrant’s telephone number, including area code 612-291-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock, par value $.10 per share
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
____________________________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. x Yes o No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes x No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. x Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files). x Yes o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) o Yes x No
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The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of August 27, 2011, was
approximately $6.6 billion, computed by reference to the price of $24.79 per share, the price at which the common equity was last sold on
August 27, 2011, as reported on the New York Stock Exchange-Composite Index. (For purposes of this calculation all of the registrant’s directors
and executive officers are deemed affiliates of the registrant.)
As of April 26, 2012, the registrant had 342,198,524 shares of its Common Stock issued and outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement dated on or about May 9, 2012 (to be filed pursuant to Regulation 14A within
120 days after the registrant’s fiscal year-end of March 3, 2012), for the regular meeting of shareholders to be held on June 21, 2012
(“Proxy Statement”), are incorporated by reference into Part III.
CAUTIONARY STATEMENT PURSUANT TO THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934,
as amended (“Exchange Act”), 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 on Form 10-K are forward-looking statements and may be identified by the use of words such as “anticipate,” “believe,”
“estimate,” “expect,” “intend,” “foresee,” “plan,” “project,” “outlook,” and other words and terms of similar meaning. 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 future results to differ materially from the anticipated results expressed in such forward-looking
statements. Readers should review Item 1A, Risk Factors, of this Annual Report on Form 10-K for a description of important
factors that could cause our future results to differ materially from those contemplated by the forward-looking statements made in
this Annual Report on Form 10-K. Our forward-looking statements speak only as of the date of this report or as of the date they are
made, and we undertake no obligation to update our forward-looking statements.
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BEST BUY FISCAL 2012 FORM 10-K
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
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Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Selected Financial Data.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Quantitative and Qualitative Disclosures About Market Risk.
Financial Statements and Supplementary Data.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Controls and Procedures.
Other Information.
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31
32
60
61
110
110
110
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance.
Executive Compensation.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Certain Relationships and Related Transactions, and Director Independence.
Principal Accounting Fees and Services.
111
111
111
112
112
112
Exhibits, Financial Statement Schedules.
Signatures
113
113
116
PART IV
Item 15.
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Business.
Risk Factors.
Unresolved Staff Comments.
Properties.
Legal Proceedings.
Mine Safety Disclosures.
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PART I
Item 1. Business.
Unless the context otherwise requires, the use of the terms “we,” “us” and “our” in this Annual Report on Form 10-K refers to Best
Buy Co., Inc. and, as applicable, its consolidated subsidiaries.
Description of Business
We are a multinational retailer of consumer electronics, computing and mobile phone products, entertainment products, appliances
and related services. We operate retail stores and call centers and conduct online retail operations under a variety of brand names
such as Best Buy (BestBuy.com, BestBuy.ca), Best Buy Mobile (BestBuyMobile.com), The Carphone Warehouse
(CarphoneWarehouse.com), Five Star, Future Shop (FutureShop.ca), Geek Squad, Magnolia Audio Video, Pacific Sales and The
Phone House (PhoneHouse.com). References to our Web site addresses do not constitute incorporation by reference of the
information contained on the Web sites.
Information About Our Segments
During fiscal 2012, we operated two reportable segments: Domestic and International. The Domestic segment is comprised of the
operations in all states, districts and territories of the U.S., operating under various brand names including, but not limited to,
Best Buy, Best Buy Mobile, Geek Squad, Magnolia Audio Video and Pacific Sales.
The International segment is comprised of: (i) all Canada operations, operating under the brand names Best Buy, Best Buy Mobile,
Cell Shop, Connect Pro, Future Shop and Geek Squad; (ii) all Europe operations, operating under the brand names The Carphone
Warehouse, The Phone House and Geek Squad; (iii) all China operations, operating under the brand name Five Star and (iv) all
Mexico operations, operating under the brand names Best Buy and Geek Squad.
Financial information about our segments is included in Item 7, Management’s Discussion and Analysis of Financial Condition and
Results of Operations, and Note 14, Segment and Geographic Information, of the Notes to Consolidated Financial Statements,
included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.
Domestic Segment
We were incorporated in the state of Minnesota in 1966 as Sound of Music, Inc. Today, our U.S. Best Buy stores offer our
customers a wide variety of consumer electronics, computing and mobile phone products, entertainment products, appliances and
related services with variations on product assortments, staffing, promotions and store design to address specific customer groups
and local market needs.
In fiscal 2001, we acquired Magnolia Hi-Fi, Inc. — a Seattle-based, high-end retailer of audio and video products and services —
to access an upscale customer segment. Today, we operate Magnolia Home Theater store-within-a-store experiences in certain U.S.
Best Buy stores, offering customers high-end electronics with specially trained employees. In fiscal 2010, we also began operating
Magnolia Design Center store-within-a-store experiences to further enhance the unique product offerings and high-touch customer
service provided by the Magnolia brand in select U.S. Best Buy stores.
In fiscal 2003, we acquired Geek Squad Inc. Geek Squad provides repair, support and installation services. We acquired Geek
Squad to further our plans of providing technology support services to customers. Geek Squad service is available in all U.S.
Best Buy branded stores.
In fiscal 2007, we acquired California-based Pacific Sales Kitchen and Bath Centers, Inc. (“Pacific Sales”). Pacific Sales
specializes in the sale and installation of high-end and mass-market premium brand kitchen appliances, plumbing fixtures and home
entertainment products, with a focus on builders and remodelers. In fiscal 2011, we also began integrating Pacific Sales into select
U.S. Best Buy stores via our store-within-a-store experience, offering customers many of the same products and services offered in
that brand’s stand-alone store format.
In fiscal 2007, we also developed the Best Buy Mobile concept through a management consulting agreement with U.K.-based The
Carphone Warehouse Group PLC (“CPW”). Best Buy Mobile provides a comprehensive assortment of mobile phones, accessories
and related services using experienced sales personnel, now in all U.S. Best Buy stores, as well as stand-alone stores.
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In fiscal 2012, we acquired mindSHIFT Technologies, Inc (“mindSHIFT”), a managed service provider for small and mid-sized
businesses, providing cloud services, data center services and professional services throughout the U.S.
In the future, we expect to see a reduction in the number of large-format stores, a reduction in square footage for certain of our
large-format stores and a continuation of the growth in small-format Best Buy Mobile stores.
International Segment
Our International segment was established in fiscal 2002 with our acquisition of Future Shop Ltd., Canada’s largest consumer
electronics retailer. Since that acquisition, we have operated a dual-brand strategy in Canada by introducing the Best Buy brand,
which allows us to retain Future Shop’s brand equity and attract more customers by offering a choice of distinct store experiences.
In fiscal 2007, we acquired a 75% interest in Jiangsu Five Star Appliance Co., Ltd. (“Five Star”), one of China’s largest appliance
and consumer electronics retailers. In fiscal 2009, we acquired the remaining 25% interest in Five Star.
In fiscal 2009, we acquired a 50% share in Best Buy Europe Distributions Limited (“Best Buy Europe”). Best Buy Europe is a
venture with CPW, consisting of CPW’s former retail and distribution business with nearly 2,400 small-format The Carphone
Warehouse and The Phone House stores, online channels, device insurance operations, and mobile and fixed-line
telecommunication services.
In fiscal 2009, we also expanded our Best Buy Mobile operations to Canada by opening stand-alone stores. We now also offer the
Best Buy Mobile store-within-a-store experience in all Canadian Best Buy branded stores. Also in fiscal 2009, we opened our first
Best Buy branded store in Mexico, located in Mexico City.
As of the end of fiscal 2012, we had closed all of our large-format Best Buy branded stores in China, Turkey and the U.K.
In order to align our fiscal reporting periods and comply with statutory filing requirements in certain foreign jurisdictions, we
consolidate the financial results of our Europe, China and Mexico operations on a two-month lag. Consistent with such
consolidation, the financial and non-financial information presented in this Annual Report on Form 10-K relative to our Europe,
China and Mexico operations is also presented on a two-month lag.
Operations
Domestic Segment
Our Domestic segment is primarily managed by product and service categories, with separate leadership teams responsible for each
category. These teams are responsible for determining how their products and services are marketed through our three primary
channels – retail stores, online and call centers. In addition to these teams, separate teams manage core capabilities (e.g., human
resources and real estate management) and channel operations. Retail store operations are divided into territories and districts based
on geography and store size. District managers monitor store operations and meet regularly with store managers to discuss
performance.
Our U.S. Best Buy, U.S. Best Buy Mobile, Magnolia Audio Video and Pacific Sales stores have developed procedures for
inventory management, transaction processing, customer relations, store administration, product sales and services, staff training
and merchandise display that are standardized within each store brand. Corporate retail management for each store brand generally
controls advertising, merchandise purchasing and pricing, as well as inventory policies. All stores within each store brand generally
operate in the same manner under the standard procedures adjusted to local customer needs.
International Segment
Located throughout eight European countries, The Carphone Warehouse and The Phone House stores are significantly smaller than
our Best Buy branded stores and employ sales associates that provide independent advice on the service and hardware best suited to
each customer. Most phone sales require in-store registration with the mobile phone network operator facilitated by our employees,
allowing the customer to leave the store with a fully active phone and a service contract. Advertising, merchandise purchasing and
pricing and inventory policies for these stores are controlled by corporate retail management in each respective local market.
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Canada store operations are organized to support two principal store brands. Future Shop stores have predominantly commissioned
sales associates, whereas employees in Best Buy branded stores in Canada, like employees in U.S. Best Buy stores, are
noncommissioned. Each store brand has national management that monitors store operations. All Canada stores use a standardized
operating system that includes procedures for inventory management, transaction processing, customer relations, store
administration, staff training and merchandise display. Advertising, merchandise purchasing and pricing and inventory policies are
centrally controlled. Our Best Buy Mobile stores in Canada employ an operating model similar to that used in our U.S. Best Buy
Mobile stores.
Our Five Star stores primarily utilize vendor employees and full-time sales associates to sell our products. Corporate retail
management generally controls advertising, merchandise purchasing and pricing, and inventory policies, although management for
individual regions within our Five Star brand may vary these operations locally to adapt to customer needs.
Our Best Buy branded stores in Mexico employ an operating model similar to that used in our U.S. Best Buy stores.
Merchandise and Services
Domestic Segment
U.S. Best Buy stores and the related online channel have offerings in six revenue categories: Consumer Electronics, Computing and
Mobile Phones, Entertainment, Appliances, Services and Other. Consumer Electronics consists primarily of video and audio
products. Video products include televisions, e-Readers, navigation products, digital cameras and accessories, digital camcorders
and accessories and DVD and Blu-ray players. Audio products include MP3 players and accessories, home theater audio systems
and components, musical instruments and mobile electronics such as car stereo and satellite radio products. The Computing and
Mobile Phones revenue category includes notebook and desktop computers, tablets, monitors, mobile phones and related
subscription service commissions, hard drives and other storage devices, networking equipment, office supplies and other related
accessories such as printers. The Entertainment revenue category includes video gaming hardware and software, DVDs, Blu-rays,
CDs, digital downloads and computer software. The Appliances revenue category includes both major and small appliances. The
Services revenue category consists primarily of service contracts, extended warranties, computer-related services, product repair,
and delivery and installation for home theater, mobile audio and appliances. The Other revenue category includes non-core
offerings such as snacks and beverages.
U.S. Best Buy Mobile offerings are included in our Computing and Mobile Phones and Services revenue categories. Revenue from
U.S. Best Buy Mobile stand-alone stores is primarily derived from mobile phone hardware, subscription service commissions from
mobile phone network operators and associated mobile phone accessories.
Magnolia Audio Video stores have offerings in two revenue categories: Consumer Electronics and Services. Consumer electronics
consists of video and audio products. Video products include televisions, DVD and Blu-ray players and accessories. Audio
products include home theater audio systems and components, mobile electronics and accessories. The services revenue category
consists primarily of home theater system installation as well as extended warranties.
Pacific Sales stores have offerings in three revenue categories: Appliances, Consumer Electronics and Services. Appliances
consists of major appliances, evenly split between high-end and mass-market premium brands, and plumbing, which consists of
kitchen and bath fixtures including faucets, sinks, toilets and bath tubs. Consumer Electronics consists of video and audio products,
including televisions and home theater systems. The Services revenue category consists primarily of extended warranties,
installation and repair services.
The offerings from our managed service provider for small and mid-sized businesses, mindSHIFT, are included in our Services
revenue category and consist primarily of information technology-related service contracts.
International Segment
Our The Carphone Warehouse and The Phone House stores in Europe have offerings in two revenue categories: Computing and
Mobile Phones and Services. Computing and Mobile Phones consists primarily of mobile phone hardware, subscription service
commissions from mobile phone network operators, associated mobile phone accessories and tablets. Services consists of insurance
operations, providing protection primarily for the replacement of a lost, stolen or damaged mobile phones and tablets, as well as
mobile and fixed-line telecommunication services, billing management services and Geek Squad repair services.
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In Canada, the Future Shop and Best Buy branded stores have offerings in five revenue categories: Consumer Electronics,
Computing and Mobile Phones, Entertainment, Services and Other, and at Future Shop only, a sixth revenue category, Appliances.
Consumer Electronics consists of video and audio products. Video products include televisions, e-Readers, navigation products,
digital cameras and accessories, digital camcorders and accessories and DVD and Blu-ray players. Audio products encompass MP3
players and accessories, home theater audio systems and components, musical instruments and mobile electronics such as car stereo
and accessories. The Computing and Mobile Phones revenue category includes notebook and desktop computers, tablets, monitors,
mobile phones and related subscription service commissions, hard drives and other storage devices, networking equipment, office
supplies and related accessories such as printers. The Entertainment revenue category includes video game hardware and software,
DVDs, Blu-rays, CDs and computer software. The Appliances revenue category includes both major and small appliances. The
Services revenue category includes extended warranties, repair, delivery, computer-related services and home theater installation.
The Other revenue category includes non-core offerings such as snacks and beverages.
Although Future Shop and Best Buy branded stores in Canada offer similar revenue categories (except for major Appliances, which
are only offered at Future Shop stores), there are differences in product brands and depth of selection within revenue categories.
Further, Geek Squad services are only available in the Best Buy branded stores with Future Shop’s service offerings branded as
Connect Pro.
Canada Best Buy Mobile offerings are included in our Computing and Mobile Phones revenue category. Revenue from Canada
Best Buy Mobile stand-alone stores is primarily derived from mobile phone hardware, subscription service commissions from
mobile phone network operators and related mobile phone accessories.
In China, our Five Star stores have offerings in four revenue categories: Appliances, Consumer Electronics, Computing and Mobile
Phones and Services. Our Five Star stores do not carry products in our Entertainment revenue category. The Appliances revenue
category includes both major and small appliances, air conditioners and housewares. The Consumer Electronics revenue category
consists of video and audio products, including televisions, digital cameras, MP3 players and accessories. The Computing and
Mobile Phones revenue category includes desktop and notebook computers, tablets, mobile phones, traditional telephones and
accessories. The Services revenue category includes extended warranties, repair, delivery, computer-related services and
installation.
Our Best Buy branded stores in Mexico have offerings in six revenue categories: Consumer Electronics, Computing and Mobile
Phones, Entertainment, Appliances, Services and Other, with products and services similar to those of our U.S. Best Buy stores.
Distribution
Domestic Segment
Generally, U.S. Best Buy, U.S. Best Buy Mobile, Magnolia Audio Video and Pacific Sales stores’ merchandise, except for major
appliances and large-screen televisions, is shipped directly from manufacturers to our distribution centers located throughout the
U.S. Major appliances and large-screen televisions are shipped to satellite warehouses in each major market. These stores are
dependent upon the distribution centers for inventory storage and shipment of most merchandise. However, in order to meet release
dates for selected products and to improve inventory management, certain merchandise is shipped directly to our stores from
manufacturers and distributors. Contract carriers ship merchandise from the distribution centers to stores, though Pacific Sales
stores’ merchandise is generally fulfilled directly to customers through a distribution center in California. Generally, U.S. Best Buy
online merchandise sales are either picked up at U.S. Best Buy stores or fulfilled directly to customers through our distribution
centers.
International Segment
Our small-format The Carphone Warehouse and The Phone House stores’ merchandise is shipped directly from our suppliers to our
distribution centers across Europe. Contract carriers ship merchandise from the distribution centers to stores. Stores hold the
immediate stock requirement and the distribution center in each market holds additional inventory.
Our Canada stores’ merchandise is shipped directly from our suppliers to our distribution centers in British Columbia and Ontario.
Our Canada stores are dependent upon the distribution centers for inventory storage and shipment of most merchandise. However,
in order to meet release dates for selected products and to improve inventory management, certain merchandise is shipped directly
to our stores from manufacturers and distributors. Contract carriers ship merchandise from the distribution centers to stores.
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We receive our Five Star stores’ merchandise at nearly 50 distribution centers and warehouses located throughout the Five Star
retail chain, the largest of which is located in Nanjing, Jiangsu Province. Our Five Star stores are dependent upon the distribution
centers for inventory storage and the shipment of most merchandise to our stores or customers. Large merchandise, such as major
appliances, is generally fulfilled directly to customers through our distribution centers and warehouses.
Our Best Buy branded stores in Mexico have distribution methods similar to that of our U.S. Best Buy stores.
Suppliers and Inventory
Our strategy depends, in part, upon our ability to offer customers a broad selection of name-brand products and, therefore, our
success is dependent upon satisfactory and stable supplier relationships. In fiscal 2012, our 20 largest suppliers accounted for just
over 60% of the merchandise we purchased, with five suppliers — Apple, Samsung, Hewlett-Packard, Sony and Toshiba —
representing 40% of total merchandise purchased. The loss of or disruption in supply from any one of these major suppliers could
have a material adverse effect on our revenue and earnings. We generally do not have long-term written contracts with our major
suppliers that would require them to continue supplying us with merchandise. We have no indication that any of our suppliers plan
to discontinue selling us merchandise. At various times throughout fiscal 2012, our ability to maintain satisfactory sources of
supply for certain products was directly affected by supply chain interruptions in the industry caused by natural disasters in foreign
countries. However, we generally expect that adequate sources of supply will be available for the various types of merchandise we
sell.
We carefully monitor and manage our inventory levels to match quantities on hand with consumer demand as closely as possible.
Key elements to this inventory management process include, without limitation, the following:
•
•
•
•
continuous monitoring of historical and projected consumer demand;
continuous monitoring and adjustment of inventory receipt levels;
agreements with vendors relating to reimbursement for the cost of markdowns or sales incentives; and
agreements with vendors relating to return privileges for certain products.
We also have a global sourcing operation in China in order to design, develop, test and contract manufacture our own line of
exclusive brand products.
Store Development
Our store development program has historically focused on testing stores in new markets; adding stores within existing markets;
and relocating, remodeling and expanding existing stores in order to offer new products and services to our customers.
In our Domestic segment, our current store development strategy is focused on increasing our retail points of presence, while
decreasing our overall store square footage, for increased flexibility in a multi-channel environment. This includes our plans to
remodel existing key stores in test markets with our new “Connected Store” format in fiscal 2013, as well as increasing the number
of small-format Best Buy Mobile stand-alone stores. We announced plans to close approximately 50 large-format Best Buy branded
stores in the U.S. in fiscal 2013 and explore options for downsizing other stores throughout our portfolio.
In our International segment, we have recently exited or closed our large-format Best Buy branded stores in the China, Turkey, and
U.K. markets. We intend to focus our international store strategy on areas we believe offer the best opportunity for profitable
growth, such as Five Star in China and our small-format The Carphone Warehouse and The Phone House stores in Europe.
Domestic Segment
During fiscal 2012, we opened 135 new stores and closed five stores in our Domestic segment. Although we have closed all of our
Geek Squad stand-alone stores, we offer Geek Squad support services, as well as the Best Buy Mobile store-within-a-store
experience, in all U.S. Best Buy stores.
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The following tables show our Domestic segment stores open at the beginning and end of each of the last three fiscal years:
U.S. Best Buy
Stores
U.S. Best Buy
Mobile
Stand-Alone
Stores
Pacific Sales
Stores
Magnolia
Audio
Video Stores
Stores closed
1,099
7
(3)
177
128
—
35
—
(1)
6
—
(1)
Total stores at end of fiscal 2012
1,103
305
34
5
U.S. Best Buy
Stores
U.S. Best Buy
Mobile
Stand-Alone
Stores
Pacific Sales
Stores
Magnolia
Audio
Video Stores
Geek Squad
Stand-Alone
Stores
Stores closed
1,069
31
(1)
74
103
—
35
—
—
6
—
—
6
—
(6)
Total stores at end of fiscal 2011
1,099
177
35
6
—
U.S. Best Buy
Stores
U.S. Best Buy
Mobile
Stand-Alone
Stores
Pacific Sales
Stores
Magnolia
Audio
Video Stores
Geek Squad
Stand-Alone
Stores
Stores closed
1,023
46
—
38
36
—
34
1
—
6
—
—
6
—
—
Total stores at end of fiscal 2010
1,069
74
35
6
6
Total stores at end of fiscal 2011
Stores opened
Total stores at end of fiscal 2010
Stores opened
Total stores at end of fiscal 2009
Stores opened
International Segment
During fiscal 2012, we opened 219 new stores, primarily within our Best Buy Europe and Five Star operations, and closed 114
stores in our International segment, primarily within our Best Buy Europe business. Our small-format stores in Europe tend to have
a greater number of store openings and closings compared to our other store formats, as we continually reposition and resize stores
in certain markets and locations in order to optimize overall performance. We offer Geek Squad support services in all Best Buy
branded stores and within select The Carphone Warehouse and The Phone House stores in the U.K and Spain, as well as similar
Connect Pro branded services in Future Shop stores. We offer the Best Buy Mobile store-within-a-store experience in all Best Buy
branded stores in Canada, with a similar Cell Shop branded concept in the majority of Future Shop stores.
The following tables show our International segment stores open at the beginning and end of each of the last three fiscal years:
Canada
Europe
The Carphone
Warehouse
and The Phone
House Stores
Future
Shop
Stores
Stores closed
2,357
145
(109)
Total stores at end of fiscal 2012
2,393
Total stores at end of fiscal 2011
Stores opened
China
Mexico
Best Buy
Stores
Best Buy
Mobile
Stand-Alone
Stores
Five Star
Stores
Best Buy
Stores
146
5
(2)
71
6
—
10
20
—
166
41
(3)
6
2
—
149
77
30
204
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Canada
Europe
The Carphone
Warehouse
and The Phone
House Stores
Future
Shop
Stores
Stores closed
2,371
85
(99)
Total stores at end of fiscal 2011
2,357
Total stores at end of fiscal 2010
Stores opened
Mexico
Best Buy
Stores
Best Buy
Mobile
Stand-Alone
Stores
Five Star
Stores
Best Buy
Stores
144
2
—
64
7
—
4
6
—
158
12
(4)
5
1
—
146
71
10
166
6
Canada
Europe
The Carphone
Warehouse
and The Phone
House Stores
Future
Shop
Stores
Stores closed
2,380
79
(88)
Total stores at end of fiscal 2010
2,371
Total stores at end of fiscal 2009
Stores opened
China
China
Mexico
Best Buy
Stores
Best Buy
Mobile
Stand-Alone
Stores
Five Star
Stores
Best Buy
Stores
139
5
—
58
6
—
3
1
—
164
6
(12)
1
4
—
144
64
4
158
5
The store activity tables above exclude the impact of our recently closed large-format Best Buy branded stores in China, Turkey
and the U.K., as well as recently sold The Phone House stores in Belgium, all of which are now included in the results of our
discontinued operations.
Fiscal 2013 Store Opening and Closing Plans
As part of our current store development strategy focused on increasing retail points of presence while decreasing our overall
square footage, we plan to open approximately 100 small-format Best Buy Mobile stand-alone stores and close approximately 50
large-format Best Buy branded stores in the U.S. in fiscal 2013. Our International store development strategy consists primarily of
opening approximately 50 Five Star stores in China, including 14 new mobile store-within-a-store concepts.
Intellectual Property
We own or have the right to use valuable intellectual property such as trademarks, service marks and tradenames, including, but not
limited to, “Best Buy,” “Best Buy Mobile,” “The Carphone Warehouse,” “Dynex,” “Five Star,” “Future Shop,” “Geek Squad,”
“Init,” “Insignia,” “Magnolia,” “mindSHIFT,” “Pacific Sales,” “The Phone House” and “Rocketfish,” and our “Yellow Tag” logo.
We have secured domestic and international trademark and service mark registrations for many of our brands. We have also secured
patents for many of our inventions. We believe our intellectual property has significant value and is an important factor in the
marketing of our company, our stores, our products and our Web sites.
Seasonality
Our business, like that of many retailers, is seasonal. Historically, we have realized more of our revenue and a large portion of our
earnings in the fiscal fourth quarter, which includes the majority of the holiday shopping season in the U.S., Europe and Canada,
than in any other fiscal quarter.
Working Capital
We fund our business operations through a combination of available cash and cash equivalents, short-term investments and cash
flows generated from operations. In addition, our revolving credit facilities are available for additional working capital needs, for
general corporate purposes and investment opportunities. Our working capital needs are typically greatest in the months leading up
to the holiday shopping season as we purchase inventories in advance of expected sales.
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Customers
We do not have a significant concentration of sales with any individual customer and, therefore, the loss of any one customer would
not have a material impact on our business. No single customer has accounted for 10% or more of our total revenue.
Backlog
Our stores, call centers and online shopping sites do not have a material amount of backlog orders.
Government Contracts
No material portion of our business is subject to renegotiation of profits or termination of contracts or subcontracts at the election
of any government or government agencies or affiliates.
Competition
Our primary competitors are consumer electronics retailers including vendors who offer their products direct to the consumer,
internet-based businesses, wholesale clubs, discount chains and home-improvement superstores.
Some of our competitors operate low cost operating structures and seek to compete for sales purely on price. In addition, in the
U.S., internet-only operators receive an exemption from collecting sales taxes for sales in certain states. We believe this advantage
will continue to be eroded as sales tax rules are re-evaluated at both the state and federal level. We carefully monitor pricing offered
by our competitors and continuously adjust our pricing and promotions to maintain our competitiveness. In most of our locations,
we offer some form of price-match to our store-based competitors. In order to allow this, we are focused on maintaining efficient
operations, leveraging the economies of scale available to us and our global vendor partnerships.
In addition to price, we believe our ability to deliver a high quality customer experience offers us a key competitive advantage. We
believe our dedicated and knowledgeable people, integrated store and online channels, broad product assortment, range of focused
service and support offerings, distinct store formats and brand marketing strategies are important ways in which we maintain this
advantage.
Research and Development
We have not engaged in any material research and development activities during the past three fiscal years.
Environmental Matters
While seeking and discovering new and innovative ways to engage our customers in the connected world, we also strive to lessen
our impact on the environment. Our energy efficiency strategy includes end-to-end efforts to reduce energy use in our own internal
operations and of the products and services we offer our customers. And with an expanding selection of our internally developed
exclusive brand products, we continue to make efforts to provide products that use less energy, are made of non-toxic materials and
are packaged in more responsible ways.
Our energy efficient practices include a centralized automated energy management system for our U.S. Best Buy stores and retail
energy reports by store. We continue to evolve our High Performance Building Program as we remodel and update locations. For
example, where economically viable, during remodels we are installing skylights and dimmable lighting which enables us to reduce
our energy consumption. These energy efficiency improvements, as well as process enhancements, have helped us reduce our own
carbon footprint. In calendar 2010, we set a new long-term goal of reducing our carbon dioxide emissions by 20% by calendar 2020
(over a 2009 baseline). During calendar 2011, our retail stores, distribution centers and corporate offices reduced over 59,000
metric tons of carbon dioxide (CO2) emissions, an “absolute” decrease of 7.5% from the previous calendar year.
We continue to experience consumer demand for environmentally-friendly products and services, which leads us to focus on
providing energy efficient products and a means to recycle old products. Our U.S. Best Buy customers purchased over 24 million
ENERGY STAR® qualified products in calendar 2011. Through our ENERGY STAR® program, we helped our customers realize
utility bill savings of over $143 million in calendar 2011. This energy savings equates to just over 2 billion pounds of CO2
avoidance, or the equivalent of removing 180,000 cars from the road. We are also investing in a number of technologies and
partnerships that increase our product and service offerings to our customers including: home automation; alternative fuel sources
and transportation; and partnerships with utility companies in 23 states in the U.S. that will allow for more affordable consumer
purchases of energy efficient products.
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Our nationwide consumer electronics take-back program allows customers to bring many consumer electronics products to our
U.S. stores for free recycling. This recycling program is available in all U.S. Best Buy stores. We also collect old, inefficient
appliances for recycling through a haul-away program. Best Buy has publicly committed to recycle 1 billion pounds of consumer
goods. Through this program, Best Buy helps to reduce the overall energy impact of our supply chain and minimize the impact of
mining for raw material. Since June 2008, when our goal was announced, we have diverted 500 million pounds from the waste
stream. We project attaining our goal in 2014.
Continued efforts to be more environmentally conscious in our exclusive brands packaging focused on the use of recycled
materials, non-solvent coatings and organic inks where possible. Through a variety of opportunities, we reduced plastic usage by
713 tons and eliminated 803 tons of PVC from our exclusive brands packaging during fiscal 2012.
We are not aware of any federal, state or local provisions which have been enacted or adopted regulating the discharge of materials
into the environment, or otherwise relating to the protection of the environment, that have materially affected, or are reasonably
expected to materially affect, our net earnings or competitive position, or have resulted or are reasonably expected to result in
material capital expenditures. See Item 1A, Risk Factors, for additional discussion.
We believe we can continue to reduce energy consumption and carbon emissions in cost effective ways that deliver value to our
shareholders, customers, employees and the communities we serve, whether it’s in our own internal operations or through our work
to connect customers with more energy efficient solutions.
Number of Employees
At the end of fiscal 2012, we employed approximately 167,000 full-time, part-time and seasonal employees worldwide. We
consider our employee relations to be good. We offer our employees a wide array of company-paid benefits that vary within our
company due to customary local practices and statutory requirements, which we believe are competitive in the aggregate relative to
others in our industry.
Financial Information About Geographic Areas
We operate two reportable segments: Domestic and International. Financial information regarding the Domestic and International
geographic areas is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations,
and Note 14, Segment and Geographic Information, of the Notes to Consolidated Financial Statements, included in Item 8,
Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.
Available Information
We are subject to the reporting requirements of the Exchange Act and its rules and regulations. The Exchange Act requires us to
file reports, proxy statements and other information with the U.S. Securities and Exchange Commission (“SEC”). Copies of these
reports, proxy statements and other information can be read and copied at:
SEC Public Reference Room
100 F Street NE
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC
maintains a Web site that contains reports, proxy statements and other information regarding issuers that file electronically with the
SEC. These materials may be obtained electronically by accessing the SEC’s Web site at www.sec.gov.
We make available, free of charge on our Web site, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as
soon as reasonably practicable after we electronically file these documents with, or furnish them to, the SEC. These documents are
posted on our Web site at www.investors.bestbuy.com — select the “Financial Performance” link and then the “SEC Filings” link.
We also make available, free of charge on our Web site, the Corporate Governance Principles of our Board of Directors (“Board”)
and our Code of Business Ethics (including any amendment to, or waiver from, a provision of our Code of Business Ethics)
adopted by our Board, as well as the charters of all of our Board’s committees: Audit Committee, Compensation and Human
Resources Committee, Finance and Investment Policy Committee, Global Strategy Committee and Nominating,
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Corporate Governance and Public Policy Committee. These documents are posted on our Web site at
www.investors.bestbuy.com — select the the “Corporate Governance” link.
Copies of any of the above-referenced documents will also be made available, free of charge, upon written request to:
Best Buy Co., Inc.
Investor Relations Department
7601 Penn Avenue South
Richfield, MN 55423-3645
Item 1A. Risk Factors.
Described below are certain risks that our management believes are applicable to our business and the industry in which we
operate. There may be additional risks that are not presently material or known. You should carefully consider each of the
following risks and all other information set forth in this Annual Report on Form 10-K.
If any of the events described below occur, our business, financial condition, results of operations, liquidity or access to sources of
financing could be materially adversely affected. The following risks could cause our actual results to differ materially from our
historical experience and from results predicted by forward-looking statements made by us or on our behalf related to conditions or
events that we anticipate may occur in the future. The following risks should not be construed as an exhaustive list of all factors
that could cause actual results to differ materially from those expressed in forward-looking statements made by us or on our behalf.
All forward-looking statements made by us or on our behalf are qualified by the risks described below.
If we do not anticipate and respond to changing consumer preferences in a timely manner, our operating results could
materially suffer.
Our business depends, in large part, on our ability to successfully introduce new products, services and technologies to consumers,
the frequency of such introductions, the level of consumer acceptance, and the related impact on the demand for existing products,
services and technologies. Consumers continue to have a wide variety of choices in terms of how and where they purchase these
products, services and technologies. Consumers also continue to benefit from the convergence of technology products, where one
product combines and replaces several others. Failure to accurately predict and adapt to constantly changing consumer tastes,
preferences, spending patterns and other lifestyle decisions, or to effectively address consumer concerns, could have a material
adverse effect on our revenue, results of operations and reputation with our customers.
Economic conditions in the U.S. and key international markets or other conditions leading to a decline in consumer
discretionary spending may materially adversely impact our operating results.
We sell certain products and services that consumers may view as discretionary items rather than necessities. As a result, our results
of operations tend to be more sensitive to changes in macroeconomic conditions that impact consumer spending, including
discretionary spending. Other factors, including consumer confidence, employment levels, interest rates, tax rates, consumer debt
levels, consumers’ ability to obtain credit, and fuel and energy costs could reduce consumer spending or change consumer
purchasing habits. In the past three fiscal years, many of these factors adversely affected consumer spending and, consequently, our
business and results of operations. A slowdown in the U.S. or global economy, continued economic and financial instability in
Europe, or an uncertain economic outlook, could materially adversely affect consumer spending habits and our operating results in
the future.
The domestic and international political situation also affects consumer confidence. The threat or outbreak of domestic or
international terrorism, civil unrest or other hostilities could lead to a decrease in consumer spending. Similarly, an overly
anti-business climate or sentiment could potentially lead consumers to decrease or shift their spending habits. Any of these events
and factors could cause a decrease in revenue or an increase in inventory markdowns or certain operating expenses, which could
materially adversely affect our results of operations.
Other conditions or factors that may impact our results of operations include disruptions to the availability of content such as
sporting events or other televised content. Such disruptions may influence the demand for hardware that our customers purchase to
access such content, as well as the commissions we receive from subscription services. Accordingly, such disruptions could cause a
material adverse effect on our revenue and results of operations.
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Our results of operations could materially deteriorate if we fail to attract, develop and retain qualified employees.
Our performance is dependent on attracting and retaining qualified employees who are able to develop the skills necessary to
achieve our business strategies. We believe our competitive advantage is providing unique end-to-end solutions for each individual
customer, which requires us to have highly trained and engaged employees. Our success depends in part upon our ability to attract,
develop and retain a sufficient number of qualified employees, including store, service and administrative personnel. The turnover
rate in the retail industry is high, and qualified individuals of the requisite caliber and quantity needed to fill these positions may be
in short supply in some areas. Our inability to recruit a sufficient number of qualified individuals in the future may delay planned
openings of new stores or affect the speed with which we expand our initiatives, our exclusive brands and our international
operations. Delayed store openings, significant increases in employee turnover rates or significant increases in labor costs could
have a material adverse effect on our business, financial condition and results of operations.
We face strong competition from traditional store-based retailers, internet-based businesses, our vendors and other forms
of retail commerce, which could materially adversely affect our revenue and profitability.
The retail business is highly competitive. We compete for customers, employees, locations, products and other important aspects of
our business with many other local, regional, national and international retailers, as well as our vendors who offer their products
and services direct to the consumer. We continue to face pressure from our competitors, some of which have greater market
presence and financial resources than we do. In addition, certain internet-based businesses do not collect and remit state and local
sales taxes in all of the states in which we are required to collect and remit such taxes. These factors could require us to reduce our
prices or increase our costs of doing business. In addition, because our business strategy includes staffing and support models for
both products and services, our cost structure is generally higher than those offering products only. Some of our vendors also
continue to interact directly with customers by embedding their services into the products we sell. As a result of this competition
and the potential for direct product distribution, we may experience lower revenue and/or higher operating costs, which could
materially adversely affect our results of operations.
Our results of operations could materially deteriorate if we fail to maintain positive brand perception and recognition.
We operate a global portfolio of brands with a commitment to customer service and innovation. We believe that recognition and the
reputation of our brands are key to our success. The advent of social media, which uses web-based technologies for interactive
dialogue, represents an increasingly popular outlet for various types of feedback, opinions and criticism surrounding the perception
and reputation of our business and our brands. Damage to the perception or reputation of our brands could result in declines in
customer loyalty, lower employee morale and productivity concerns, and vendor relationship issues, and could ultimately have a
material adverse effect on our business, financial condition and results of operations.
Our growth is dependent on the success of our strategies.
Our growth is dependent on our ability to identify, develop and execute our strategies. Our failure to properly deploy and utilize
capital and other resources may adversely affect our initiatives designed to assist our customers in connecting to a digital lifestyle.
We are focusing on areas where we see the greatest opportunities for growth and profit: growth in connections in mobile phones,
tablets and other computing devices; enhanced digital and e-commerce strategies, including competitive online pricing, broader use
of free shipping, expanded online assortment and the further development of the Best Buy Marketplace; growth in our services
business; and expansion of our established business in China. Likewise, we recently announced a series of actions intended to
transform our business, focusing on improving the customer experience and our financial performance, including the roll-out of our
Connected Store format in select markets. Misjudgments or flaws in our execution of these initiatives and strategies could have a
material adverse effect on our business, financial condition and results of operations. Refer to Item 7, Management’s Discussion
and Analysis of Financial Condition and Results of Operations, for further information surrounding our strategies.
Our ability to generate profitable growth is dependent upon the effective management of our property portfolio.
Our future growth is dependent, in part, on our ability to build, buy or lease new stores. We compete with other retailers and
businesses for suitable locations for our stores. Local land use, local zoning issues, environmental regulations and other regulations
applicable to the types of stores we desire to construct may impact our ability to find suitable locations, and also influence the cost
of building, buying and leasing our stores. We also may have difficulty negotiating real estate purchase agreements and leases on
acceptable terms. Failure to manage effectively these and other similar factors will affect our ability to build, buy and lease new
stores, which may have a material adverse effect on our future profitability.
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We may seek to expand or reposition our business in existing markets in order to attain a greater overall market share. Because our
stores typically draw customers from their local areas, a new store may draw customers away from our nearby existing stores and
may cause customer traffic and comparable store sales performance to decline at those existing stores.
We also open stores in new markets from time to time. The risks associated with entering a new market include difficulties in
attracting customers where there is a lack of customer familiarity with our brands, our lack of familiarity with local customer
preferences, seasonal differences in the market and our ability to obtain the necessary governmental approvals. In addition, entry
into new markets may bring us into competition with new competitors or with existing competitors with a large, established market
presence.
Our current growth strategy includes refocusing our investments on areas that we believe have the potential to meet our rate of
return expectations. We expect to continue the expansion of our small-format Best Buy Mobile stand-alone stores in the U.S. and
our Five Star branded stores in China. We cannot ensure that our new stores, regardless of brand, size, format or market, will be
profitably deployed. As a result, our future profitability may be materially adversely affected.
Additionally, in order to optimize the returns we realize from our property portfolio, we may vacate leased properties or modify the
terms of such leases prior to the termination of the lease. If we are unable to effectively negotiate such changes with the landlords
and/or find suitable subtenants, we may incur excessive lease costs associated with these actions.
The failure to control our costs could have a material adverse impact on our profitability.
Certain elements of our cost structure are largely fixed in nature. Consumer spending remains uncertain, which makes it more
challenging for us to maintain or increase our operating income. As a result, we must continue to control our expense structure.
Failure to manage our labor and benefit rates, advertising and marketing expenses, operating leases, other store expenses or indirect
spending could delay or prevent us from achieving profitability goals or otherwise have a material adverse impact on our results of
operations.
Our liquidity may be materially adversely affected by constraints in the capital markets.
We must have sufficient sources of liquidity to fund our working capital requirements, service our outstanding indebtedness and
finance investment opportunities. Without sufficient liquidity, we could be forced to curtail our operations or we may not be able to
pursue promising business opportunities. The principal sources of our liquidity are funds generated from operating activities,
available cash and cash equivalents, and borrowings under credit facilities and other debt financings.
If our sources of liquidity do not satisfy our requirements, we may have to seek additional financing. The future availability of
financing will depend on a variety of factors, such as economic and market conditions, the availability of credit and our credit
ratings, as well as the possibility that lenders could develop a negative perception of us or the retail industry generally. If required,
we may not be able to obtain additional financing, on favorable terms, or at all.
Changes in our credit ratings may limit our access to capital markets and materially increase our borrowing costs.
In fiscal 2012, Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services maintained their corporate and debt ratings
at investment grade level with a stable outlook. Fitch Ratings Ltd. maintained its rating of our corporate and debt securities at
investment grade level but lowered it from BBB+ to BBB-, while raising its outlook to stable. Subsequent to the end of fiscal 2012,
Fitch Ratings Ltd. reaffirmed its corporate and debt rating, but revised its outlook to negative.
Future downgrades to our long-term credit ratings and outlook could negatively impact our access to the capital markets and the
perception of us by lenders and other third parties. Our credit ratings are based upon information furnished by us or obtained by a
rating agency from its own sources and are subject to revision, suspension or withdrawal by one or more rating agencies at any
time. Rating agencies may review the ratings assigned to us due to developments that are beyond our control, including as a result
of new standards requiring the agencies to re-assess rating practices and methodologies.
Any downgrade to our debt securities may result in higher interest costs for certain of our credit facilities and other debt financings,
and could result in higher interest costs on future financings. Further, in the event of such a downgrade, we may not be able to
obtain additional financing, if necessary, on favorable terms, or at all.
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Failure in our pursuit or execution of new business ventures, strategic alliances and acquisitions could have a material
adverse impact on our business.
Our growth strategy also includes expansion via new business ventures, strategic alliances and acquisitions. Assessing a potential
growth opportunity involves extensive due diligence. However, the amount of information we can obtain about a potential growth
opportunity may be limited, and we can give no assurance that new business ventures, strategic alliances and acquisitions will
positively affect our financial performance or will perform as planned. The success of these growth opportunities is also largely
dependent on the current and future participation, working relationship and strategic vision of the business venture or strategic
alliance partners. Integrating new businesses, stores and concepts can be a difficult task. Cultural differences in some markets into
which we may expand or into which we may introduce new retail concepts may result in customers in those markets being less
receptive than originally anticipated. These types of transactions may divert our capital and our management’s attention from other
business issues and opportunities. Further, implementing new strategic alliances or business ventures may also impair our
relationships with our vendors or strategic partners. We may not be able to successfully assimilate or integrate companies that we
acquire, including their personnel, financial systems, distribution, operations and general operating procedures. We may also
encounter challenges in achieving appropriate internal control over financial reporting in connection with the integration of an
acquired company. If we fail to assimilate or integrate acquired companies successfully, our business, reputation and operating
results could suffer materially. Likewise, our failure to integrate and manage acquired companies successfully may lead to
impairment of the associated goodwill and intangible asset balances.
Failure to protect the integrity, security and use of our customers’ information and media could expose us to litigation and
materially damage our standing with our customers.
The use of individually identifiable data by our business, our business associates and third parties is regulated at the state, federal
and international levels. Increasing costs associated with information security – such as increased investment in technology, the
costs of compliance with consumer protection laws and costs resulting from consumer fraud – could cause our business and results
of operations to suffer materially. Additionally, the success of our online operations depends upon the secure transmission of
confidential information over public networks, including the use of cashless payments. While we have taken significant steps to
protect customer and confidential information, the intentional or negligent actions of employees, business associates or third parties
may undermine our security measures. As a result, unauthorized parties may obtain access to our data systems and misappropriate
confidential data. There can be no assurance that advances in computer capabilities, new discoveries in the field of cryptography or
other developments will prevent the compromise of our customer transaction processing capabilities and personal data.
Furthermore, because the methods used to obtain unauthorized access change frequently and may not be immediately detected, we
may be unable to anticipate these methods or promptly implement preventative measures. If any such compromise of our security
or the security of information residing with our business associates or third parties were to occur, it could have a material adverse
effect on our reputation, operating results and financial condition. Any compromise of our data security may materially increase the
costs we incur to protect against such breaches and could subject us to additional legal risk.
Risks associated with the vendors from whom our products are sourced could materially adversely affect our revenue and
gross profit.
The products we sell are sourced from a wide variety of domestic and international vendors. In fiscal 2012, our 20 largest suppliers
accounted for just over 60% of the merchandise we purchased. We generally do not have long-term written contracts with our
major suppliers that would require them to continue supplying us with merchandise. If any of our key vendors fails to supply us
with products or continue to develop new technologies that create consumer demand, we may not be able to meet the demands of
our customers and our revenue could materially decline. Likewise, the formation and/or strengthening of business partnerships
between our vendors and our competitors could directly alter the composition of products and level of customer purchasing within
our stores and online, which could have a material adverse impact on our operating results.
We require all of our vendors to comply with applicable laws, including labor and environmental laws, and otherwise be certified as
meeting our required vendor standards of conduct. Our ability to find qualified vendors who meet our standards and supply
products in a timely and efficient manner is a significant challenge, especially with respect to goods sourced from outside the U.S.
Political or financial instability, merchandise quality issues, product safety concerns, trade restrictions, work stoppages, tariffs,
foreign currency exchange rates, transportation capacity and costs, inflation, civil unrest, natural disasters, outbreaks of pandemics
and other factors relating to foreign trade are beyond our control. These and other issues affecting our vendors could materially
adversely affect our revenue and gross profit.
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Our exclusive brands products are subject to several additional product, supply chain and legal risks, which could have a
material adverse impact on our business.
Sales of our exclusive brands, which primarily include Insignia, Dynex, Init, Geek Squad and Rocketfish branded products,
represent an important component of our revenue. Most of these products are manufactured under contract by vendors based in
southeastern Asia. This arrangement exposes us to the following additional potential risks, which could materially adversely affect
our reputation, financial condition and operating results:
•
We have greater exposure and responsibility to the consumer for warranty replacements and repairs as a result of product
defects, as we generally have less recourse to contracted manufacturers for such warranty liabilities;
•
We may be subject to regulatory compliance and/or product liability claims relating to personal injury, death or property
damage caused by such products, some of which may require us to take significant actions such as product recalls;
•
We may experience disruptions in the manufacturing or the logistics within the manufacturing environment in southeastern
Asia caused by inconsistent and unanticipated order patterns, our inability to develop long-term relationships with key
factories or unforeseen natural disasters;
•
We are subject to developing and often-changing labor and environmental laws for the manufacture of products in foreign
countries, and we may be unable to conform to new rules or interpretations in a timely manner;
•
We may be subject to claims by technology owners if we inadvertently infringe upon their patents or other intellectual
property rights, or if we fail to pay royalties owed on our products; and
•
We may be unable to obtain or adequately protect our patents and other intellectual property rights on our products, the
new features of our products and/or our processes.
Maintaining consistent product quality, availability and competitive pricing of our exclusive brands products for our customers is
critical to building and maintaining customer and brand loyalty. Changes in consumer acceptance or confidence relating to our
exclusive brands products could materially reduce our overall revenues and negatively affect operating results.
We are subject to certain statutory, regulatory and legal developments which could have a material adverse impact on our
business.
Our statutory, regulatory and legal environment exposes us to complex compliance and litigation risks that could materially
adversely affect our operations and financial results. The most significant compliance and litigation risks we face are:
•
The difficulty of complying with sometimes conflicting statutes and regulations in local, national or international
jurisdictions;
•
The impact of new or changing statutes and regulations including, but not limited to, financial reform, environmental
requirements, National Labor Relations Board rule changes, health care reform, corporate governance matters and/or other
as yet unknown legislation, that could affect how we operate and execute our strategies as well as alter our expense
structure;
•
The impact of changes in tax laws (or interpretations thereof by courts and taxing authorities) and accounting standards;
and
•
The impact of litigation trends, including class action lawsuits involving consumers and shareholders, and labor and
employment matters.
Defending against lawsuits and other proceedings may involve significant expense and divert management’s attention and resources
from other matters. Furthermore, pending regulatory rules regarding requirements to disclose efforts to identify the origin of
“conflict minerals” in certain portions of our supply chain could increase the cost of doing business, adversely affecting our results
of operations.
Changes to the National Labor Relations Act or other labor-related statutes or regulations could have a material adverse
impact on our business.
The National Labor Relations Board continually considers changes to labor regulations, many of which could significantly impact
the nature of labor relations in the U.S. and how union elections and contract negotiations are conducted. In 2011, the definition of
a bargaining unit changed, making it possible for smaller groups of employees to organize labor unions. Furthermore, new
representation election rules – which became effective on April 30, 2012 – have streamlined the election
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process, shortening the time between the filing of a petition and an election being held. Additional changes are anticipated in 2012.
As of March 3, 2012, none of our U.S. operations had employees represented by labor unions or working under collective
bargaining agreements. Changes in labor-related statutes or regulations could increase the percentage of elections won by unions,
and employers of newly unionized employees would have a duty to bargain in good faith over matters such as wages, benefits and
labor scheduling, which could increase our costs of doing business and materially adversely affect our results of operations.
Additional legislation or rulemaking relating to environmental matters, including but not limited to, energy emissions,
could have a material adverse impact on our business.
Environmental legislation or rulemaking efforts could impose unexpected costs or impact us more directly than other companies
due to our operations as a global consumer electronics retailer with over 4,000 stores and 91 distribution centers worldwide.
Specifically, environmental legislation or international agreements affecting energy, carbon emissions, water or product materials
are continually being explored by governing bodies. Increasing energy and fuel costs, supply chain disruptions and other potential
risks to our business, as well as any significant rulemaking or passage of any such legislation, could materially increase the cost to
transport our goods and materially adversely affect our results of operations.
Regulatory developments in the U.S. could impact the promotional financing offers available to our credit card customers
and have a material adverse impact on our revenue and profitability.
We offer promotional financing in the U.S. through credit cards issued by third party banks that manage and directly extend credit
to our customers. The cardholders can receive low- or no-interest promotional financing on qualifying purchases. Promotional
financing credit card sales accounted for 20%, 18% and 17% of our Domestic segment’s revenue in fiscal 2012, 2011 and 2010,
respectively.
If future legislative or regulatory restrictions or prohibitions arise that significantly alter the operational, economic or contractual
aspects of these programs and we or the issuing banks are unable to adjust in a timely manner, our revenue and profitability may be
materially adversely affected.
Changes to our credit card agreements could adversely impact our ability to facilitate the provision of consumer credit to
our customers and could materially adversely impact our results of operations.
We have agreements with third party banks for the issuance of promotional financing and customer loyalty credit cards. Under the
agreements, the banks manage and directly extend credit to our customers. The banks are the sole owner of the accounts receivable
generated under the credit card programs and absorb losses associated with non-payment by the cardholders and fraudulent usage
of the accounts. We earn revenue from fees the banks pay to us based on the number of credit card accounts activated and card
usage, as well as revenue generated from various enhancement services products such as debt cancellation, credit monitoring and
identity protection services . The banks also reimburse us for certain costs associated with our credit card programs. Financing fees
are paid by us to the banks and are variable based on certain factors such as the London Interbank Offered Rate (“LIBOR”), charge
volume and/or the types of promotional financing offers.
As a result of the continuing changes in the economic and regulatory environment for banks, these institutions continue to
re-evaluate their strategies, practices and terms, including, but not limited to, the levels at which consumer credit is granted and the
strategic focus on various business segments, such as the retail partner card business. If any of our credit card programs ended
prematurely or the terms and provisions, or interpretations thereof, were substantially modified, our results of operations and
financial condition may be materially adversely impacted.
Our International activities subject us to risks associated with the legislative, judicial, accounting, regulatory, political and
economic conditions specific to the countries or regions in which we operate, which could materially adversely affect our
financial performance.
We have a presence in various foreign countries, including Bermuda, Canada, China, France, Germany, Hong Kong, India, Ireland,
Japan, Luxembourg, Mexico, the Republic of Mauritius, the Netherlands, Portugal, Spain, Sweden, Switzerland, Taiwan, Turks and
Caicos, and the U.K. During fiscal 2012, our International segment’s operations generated 26% of our revenue. Our future
operating results in these countries and in other countries or regions throughout the world where we may operate in the future could
be materially adversely affected by a variety of factors, many of which are beyond our control, including political conditions,
economic conditions, legal and regulatory constraints and foreign currency regulations.
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Specifically, significant concerns exist surrounding the ability of certain governments of member states of the European Union to
meet their financial obligations and the indirect impacts this could have on the macroeconomic environment in Europe.
In addition, foreign currency exchange rates and fluctuations may have an impact on our future earnings and cash flows from our
International segment’s operations, and could materially adversely affect our financial performance. Moreover, the economies of
some of the countries in which we have operations have in the past suffered from high rates of inflation and currency devaluations,
which, if they were to occur again, could materially adversely affect our financial performance. Other factors which may materially
adversely impact our International segment’s operations include foreign trade, monetary, tax and fiscal policies both of the U.S. and
of other countries; laws, regulations and other activities of foreign governments, agencies and similar organizations; and
maintaining facilities in countries which have historically been less stable than the U.S.
Additional risks inherent in our International segment’s operations generally include, among others, the costs and difficulties of
managing international operations, adverse tax consequences and greater difficulty in enforcing intellectual property rights in
countries other than the U.S. The various risks inherent in doing business in the U.S. generally also exist when doing business
outside of the U.S., and may be exaggerated by the difficulty of doing business in numerous sovereign jurisdictions due to
differences in culture, laws and regulations.
We rely heavily on our management information systems for inventory management, distribution and other functions. If
our systems fail to perform these functions adequately or if we experience an interruption in their operation, our business
and results of operations could be materially adversely affected.
The efficient operation of our business is dependent on our management information systems. We rely heavily on our management
information systems to manage our order entry, order fulfillment, pricing, point-of-sale and inventory replenishment processes. The
failure of our management information systems to perform as we anticipate, or to meet the continuously evolving needs of our
business, could disrupt our business and could result in decreased revenue, increased overhead costs and excess or out-of-stock
inventory levels, causing our business and results of operations to suffer materially.
A disruption in relationships with key third-party business partners could materially adversely affect our business and
results of operations.
We have engaged Accenture LLP (“Accenture”), a global management consulting, technology services and outsourcing company,
to manage significant portions of our information technology and human resources operations. We rely heavily on our management
information systems for inventory management, distribution and other functions. We also rely heavily on human resources support
to attract, develop and retain a sufficient number of qualified employees. Furthermore, we have engaged other key third-party
business partners to manage various functions of our business, including but not limited to, customer loyalty programs, promotional
financing and customer loyalty credit cards, customer warranty and insurance programs, and other outsourced functions. Any
material disruption in our relationship with Accenture or other key third-party business partners could result in decreased revenue
and increased overhead costs, causing our business and results of operations to suffer materially.
We are highly dependent on the cash flows and net earnings we generate during our fourth fiscal quarter, which includes
the majority of the holiday selling season.
Approximately one-third of our revenue and more than one-half of our net earnings are historically generated in our fourth fiscal
quarter, which includes the majority of the holiday shopping season in the U.S., Europe and Canada. Although our results for the
fourth quarter of fiscal 2012 included certain impacts arising from the buy-out of a profit share agreement and from restructuring
activities, we remain highly dependent on cash flows and net earnings generated during our fourth fiscal quarter. Unexpected events
or developments such as natural or man-made disasters, product sourcing issues or adverse economic conditions in our fourth fiscal
quarter could have a material adverse effect on our annual results of operations.
Item 1B. Unresolved Staff Comments.
Not applicable.
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Item 2. Properties.
Stores, Distribution Centers and Corporate Facilities
Domestic Segment
The following table summarizes the location of our Domestic segment stores at the end of fiscal 2012:
U.S.
Best Buy
Stores
U.S. Best Buy
Mobile
Stand-Alone
Stores
Pacific Sales
Stores
Magnolia
Audio
Video Stores
Alabama
15
5
—
—
Alaska
2
—
—
—
Arizona
26
—
2
—
Arkansas
9
4
—
—
California
126
29
31
3
Colorado
23
5
—
—
Connecticut
12
3
—
—
Delaware
4
—
—
—
District of Columbia
2
1
—
—
Florida
67
30
—
—
Georgia
30
6
—
—
Hawaii
2
—
—
—
Idaho
5
—
—
—
Illinois
58
14
—
—
Indiana
23
11
—
—
Iowa
13
—
—
—
Kansas
10
2
—
—
Kentucky
9
5
—
—
Louisiana
16
6
—
—
Maine
6
—
—
—
Maryland
25
11
—
—
Massachusetts
29
11
—
—
Michigan
34
10
—
—
Minnesota
28
9
—
—
Mississippi
9
2
—
—
Missouri
21
7
—
—
Montana
3
—
—
—
Nebraska
6
3
—
—
Nevada
10
4
1
—
New Hampshire
6
3
—
—
New Jersey
27
7
—
—
New Mexico
5
1
—
—
New York
55
13
—
—
North Carolina
34
14
—
—
North Dakota
4
—
—
—
Ohio
39
10
—
—
Oklahoma
13
3
—
—
Oregon
12
3
—
—
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Pennsylvania
38
12
—
—
Puerto Rico
4
—
—
—
Rhode Island
2
—
—
—
South Carolina
15
4
—
—
South Dakota
2
1
—
—
Tennessee
17
6
—
—
Texas
110
25
—
—
Utah
10
—
—
—
Vermont
1
—
—
—
Virginia
37
10
—
—
Washington
20
4
—
2
West Virginia
5
—
—
—
Wisconsin
23
10
—
—
Wyoming
1
1
—
—
1,103
305
34
5
Total
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The following table summarizes the ownership status and total square footage of our Domestic segment store locations at the end of
fiscal 2012:
U.S.
Best Buy
Stores
U.S. Best Buy
Mobile
Stand-Alone
Stores
Pacific Sales
Stores
Magnolia
Audio
Video Stores
Owned store locations
24
—
—
—
Owned buildings and leased land
37
—
—
—
Leased store locations
1,042
305
34
5
Square footage (in thousands)
42,413
428
876
68
The following table summarizes the location, ownership status and total square footage of space utilized for distribution centers,
service centers and corporate offices by our Domestic segment at the end of fiscal 2012:
Square Footage (in thousands)
Location
Distribution centers
(1)
Geek Squad service centers
(2)
Principal corporate headquarters
Territory field offices
Pacific Sales corporate office space
Other corporate office space
Leased
Owned
24 locations in 18 U.S. states
7,427
3,882
Louisville, Kentucky
237
—
Richfield, Minnesota
—
1,452
28 locations throughout the U.S.
163
—
Torrance, California
15
—
Los Angeles, California
15
—
(1)
The leased space utilized by our Geek Squad operations is used primarily to service notebook and desktop computers.
(2)
Our principal corporate headquarters is an owned facility consisting of four interconnected buildings. Accenture, who manages significant portions of our
information technology and human resources operations, and certain other of our vendors who provide us with a variety of corporate services, occupy a
portion of our principal corporate headquarters. We may also sublease a portion of our our principal corporate headquarters to other businesses.
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International Segment
In order to align our fiscal reporting periods and comply with statutory filing requirements in certain foreign jurisdictions, we
consolidate the financial results of our Europe, China and Mexico operations on a two-month lag.
The following table summarizes the location of our International segment stores at the end of fiscal 2012:
Europe
Canada
China
Mexico
Five Star
Stores
Best Buy
Stores
The
Carphone
Warehouse
Stores
The Phone
House Stores
Future Shop
Stores
Best Buy
Stores
Best Buy
Mobile
Stand-Alone
Stores
France
—
340
—
—
—
—
—
Germany
—
205
—
—
—
—
—
Ireland
83
—
—
—
—
—
—
Netherlands
—
187
—
—
—
—
—
Portugal
—
140
—
—
—
—
—
Spain
—
526
—
—
—
—
—
Sweden
—
110
—
—
—
—
—
United Kingdom
802
—
—
—
—
—
—
Alberta
—
—
18
11
5
—
—
British Columbia
—
—
24
13
5
—
—
Manitoba
—
—
5
2
—
—
—
New Brunswick
—
—
3
—
—
—
—
Newfoundland
—
—
1
1
—
—
—
Nova Scotia
—
—
6
2
—
—
—
Ontario
—
—
59
33
17
—
—
Prince Edward Island
—
—
1
—
—
—
—
Quebec
—
—
29
13
3
—
—
Saskatchewan
—
—
3
2
—
—
—
Anhui
—
—
—
—
—
17
—
Henan
—
—
—
—
—
11
—
Jiangsu
—
—
—
—
—
127
—
Shandong
—
—
—
—
—
12
—
Sichuan
—
—
—
—
—
7
—
Yunnan
—
—
—
—
—
6
—
Zhejiang
—
—
—
—
—
24
—
Estado de Mexico
—
—
—
—
—
—
2
Distrito Federal
—
—
—
—
—
—
2
Guadalajara
—
—
—
—
—
—
3
Monterrey
—
—
—
—
—
—
1
885
1,508
149
77
30
204
8
Europe
Canada
China
Mexico
Total
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The following table summarizes the ownership status and total square footage of our International segment store locations at the
end of fiscal 2012:
Canada
Europe
China
Mexico
Five Star
Stores
Best Buy
Stores
The
Carphone
Warehouse
Stores
The Phone
House
Stores
Future Shop
Stores
Best Buy
Stores
Best Buy
Mobile
Stand-Alone
Stores
Owned store locations
—
2
—
3
—
7
—
Leased store locations
885
1,506
149
74
30
197
8
Square footage (in thousands)
711
788
3,944
2,432
31
7,539
407
The following table summarizes the location, ownership status and total square footage of space utilized for distribution centers and
corporate offices by our International segment at the end of fiscal 2012:
Square Footage
(in thousands)
Square Footage
(in thousands)
Distribution Centers
Leased
Owned
Principal Corporate Offices
Leased
Owned
Europe
Throughout five European countries
270
…
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