Best Buy 10-K 2006
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 25, 2006
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)
Registrants telephone number, including area code 612-291-1000
Securities registered pursuant to Section 12(b) of the Act:
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants 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, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x Accelerated filer o Non-accelerated filer 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
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of August 26, 2005, was approximately $18.976 billion, computed by reference to the price of $46.01 per share, the price at which the common equity was last sold on such date as reported on the New York Stock Exchange-Composite Index. (For purposes of this calculation all of the registrants directors and executive officers are deemed affiliates of the registrant.)
As of April 24, 2006, the registrant had 485,671,000 shares of its Common Stock issued and outstanding.
Portions of the Registrants Definitive Proxy Statement dated May 18, 2006 (to be filed pursuant to Regulation 14A within 120 days after the Registrants fiscal year-end of February 25, 2006), for the regular meeting of shareholders to be held on June 21, 2006 (Proxy Statement), are incorporated by reference into Part III.
STATEMENT PURSUANT TO THE
Section 27A of the Securities Act of 1933, as amended, 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 believe, expect, anticipate, plan, estimate, intend and potential. Such statements reflect our current view with respect to future events and are subject to certain risks, uncertainties and assumptions. A variety of factors could cause our 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 future results to differ materially from those contemplated by the forward-looking statements made in this Annual Report on Form 10-K. In addition, general economic conditions, acquisitions and development of new businesses, product availability, sales volumes, profit margins, weather, foreign currency fluctuation, availability of suitable real estate locations, our ability to react to a disaster recovery situation, and the impact of labor markets and new product introductions on our overall profitability, among other things, could cause our future results to differ materially from those projected in any such forward-looking statements.
BEST BUY FISCAL 2006 FORM 10-K
TABLE OF CONTENTS
Best Buy Co., Inc. (Best Buy, we or us) is a specialty retailer of consumer electronics, home-office products, entertainment software, appliances and related services. We operate retail stores and commercial Web sites under the brand names Best Buy (BestBuy.com and BestBuyCanada.ca), Future Shop (FutureShop.ca), Magnolia Audio Video (MagnoliaAV.com) and Geek Squad (GeekSquad.com and GeekSquad.ca). References to our Web site addresses do not constitute incorporation by reference of the information contained on the Web sites, and such information is not part of this document.
Our vision is to make life fun and easy for consumers. Our business strategy is to treat each customer as a unique individual, meeting their needs with end-to-end solutions, and engaging and energizing our employees to serve them, while maximizing overall profitability. We believe we offer consumers meaningful advantages in store environment, product value, product selection and a variety of in-store and in-home services related to the merchandise we offer, all of which advance our objectives of enhancing our business model, gaining market share and improving profitability. We believe that our strategic initiatives will further enhance our business model. Additional information on our strategic initiatives is included in Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations, of this Annual Report on Form 10-K.
In January 2006, we announced changes to our organizational structure to support our commitment to deliver long-term, profitable growth. Specifically, effective at the beginning of fiscal 2007, Brian J. Dunn was promoted to President and Chief Operating Officer of the company, and Robert A. Willett was promoted to Chief Executive Officer Best Buy International. In addition, Allen U. Lenzmeier has decided to remain in his current role as Vice Chairman, serving on a part-time basis to support our international expansion.
The changes reflect our strategy of driving the performance of the current business while investing in targeted long-term growth opportunities. We believe the new organizational structure increases accountability and collaboration while enabling our leadership team to focus on growth strategies and our ongoing transformation to customer centricity.
During fiscal 2006, we operated two reportable segments: Domestic and International. The Domestic segment is comprised of all U.S. store and online operations, including Best Buy, Magnolia Audio Video and Geek Squad. Best Buy stores offer a wide variety of consumer electronics, home-office products, entertainment software, appliances and related services. Magnolia Audio Video stores offer high-end audio and video products, and services. Geek Squad offers residential and commercial computer support. The International segment is comprised of all Canadian store and online operations, including Future Shop, Best Buy and Geek Squad. The International segment offers products and services similar to those offered by the Domestic segment. However, Canadian Best Buy stores do not carry appliances.
Financial information about our segments is included in Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations, and Note 10, Segments, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.
We were incorporated in the state of Minnesota in 1966 as Sound of Music, Inc., and changed our name to Best Buy Co., Inc. in 1983. We began as an audio components retailer and, with the introduction of the videocassette recorder in the early 1980s, expanded into video products. In 1983, we revised our marketing strategy and began using mass-merchandising techniques, which included offering a wider variety of products and operating stores under a superstore concept. In 1989, we dramatically changed our method of retailing by introducing a self-service, noncommissioned, discount-style store concept designed to give the customer more control over the purchasing process.
The Best Buy store format has evolved to include more interactive displays and, for certain products, a higher level of customer service, with the latest version designed to increase labor efficiency and to improve merchandising. In fiscal 2000, we introduced a small-market Best Buy store concept that offers merchandise in the same product groups as larger stores, with a product assortment tailored to each respective community.
In fiscal 2000, we also established our first online shopping site, BestBuy.com. Our clicks-and-mortar strategy is designed to empower consumers to research and purchase products seamlessly, either online or in our retail stores. The BestBuy.com online shopping site offers expanded assortments in all of our principal product groups.
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. During fiscal 2004, Magnolia Hi-Fi began doing business as Magnolia Audio Video.
In fiscal 2003, we acquired Geek Squad, Inc. (Geek Squad). Geek Squad provides residential and commercial computer support services. We acquired Geek Squad to further our plans of providing technology support services to customers. We have since expanded Geek Squad service to be available in all U.S. Best Buy stores, as well as in 12 stand-alone stores, with more than 12,000 agents. Our goal is to build Geek Squad into North Americas largest consumer provider of computer repair, support and services, and we believe that over time it will become a significant component of our business.
In fiscal 2005, we opened our first Magnolia Home Theater store-within-a-store experience within a U.S. Best Buy store. We believe Magnolia Home Theater with its high-end brands, home-like displays and specially trained employees offers a unique solution for our customers. The Magnolia Home Theater store-within-a-store experience was offered in 107 and 23 U.S. Best Buy stores, at February 25, 2006, and February 26, 2005, respectively.
In fiscal 2005, we converted 67 U.S. Best Buy stores to our customer centricity operating model (segmented stores). Segmented stores offer variations in product assortments, staffing, promotions and store design, and are tailored toward key customer segments. The segmented stores tailor their store merchandising, staffing, marketing and presentation to address specific customer groups, including affluent professional males, young entertainment enthusiasts who appreciate a digital lifestyle, upscale suburban moms, families who are practical technology adopters and small businesses.
During fiscal 2006, based on the segmented stores operating results, as well as positive customer feedback, we continued to expand the roll-out of the customer centricity operating model. During fiscal 2006, we opened or converted 233 U.S. Best Buy stores to the customer centricity operating model. At the end of fiscal 2006, we operated 300 segmented stores, or 40% of total U.S. Best Buy stores.
During fiscal 2007, we plan to transition all remaining U.S. Best Buy stores to the customer centricity operating model. We plan to add the Magnolia Home Theater store-within-a-store experience to approximately 200 U.S. Best Buy stores and expand the products and services we offer to small businesses in at least 120 U.S. Best Buy stores in fiscal 2007. Further, we plan to refine our store and support functions to an integrated operating model that supports customer centricity.
At February 25, 2006, we operated 742 U.S. Best Buy stores in 49 states and the District of Columbia that averaged approximately 41,300 retail square feet. Collectively, U.S. Best Buy stores totaled approximately 30.6 million retail square feet at the end of fiscal 2006, or about 90% of our total retail square footage. For fiscal 2006, U.S. Best Buy retail stores generated average revenue of approximately $38.9 million per store.
At February 25, 2006, we operated 20 Magnolia Audio Video stores in California, Washington and Oregon that averaged approximately 9,700 retail square feet. Collectively, Magnolia Audio Video stores totaled approximately 194,000 retail square feet at the end of fiscal 2006, less than 1% of our total retail square footage. For fiscal 2006, Magnolia Audio Video retail stores generated average revenue of approximately $8.2 million per store.
Our International segment was established in connection with our acquisition of Canada-based Future Shop Ltd. in fiscal 2002. The Future Shop acquisition provided us with an opportunity to increase revenue, gain market share and
leverage our operational expertise in consumer electronics retailing. Since the acquisition, we have continued to build on Future Shops position as the leading consumer electronics retailer in Canada.
During fiscal 2003, we launched our dual-branding strategy in Canada by introducing the Best Buy brand. The dual-branding strategy allows us to retain Future Shops brand equity and attract more customers by offering a choice of store experiences. As we expand the presence of Best Buy stores in Canada, we expect to gain continued operating efficiencies by leveraging our capital investments, supply chain management, advertising, merchandising and administrative functions. Our goal is to reach differentiated customers with each brand by giving them the unique shopping experiences they desire. The primary differences between our two Canadian brands are:
In-store experience The customers interaction with store employees is different at each of the two brands. Future Shop stores have mostly commissioned sales associates who take a more proactive role in assisting customers. Through their expertise and attentiveness, the sales associate drives the transaction. In contrast, Canadian Best Buy store employees are noncommissioned, and the stores offer more interactive displays and grab-and-go merchandising. This design allows the customer to drive the transaction as they experience the products themselves, with store employees available to demonstrate and explain product features.
Store size At the end of fiscal 2006, the average Future Shop store was approximately 20,700 retail square feet, compared with an average of approximately 25,400 retail square feet for Canadian Best Buy stores. Canadian Best Buy stores generally have wider aisles, as well as more square footage devoted to entertainment software. Further, Canadian Best Buy stores do not carry appliances.
We have expanded Geek Squad service to be available in all Canadian Best Buy stores, as well as in five stand-alone stores.
At February 25, 2006, we operated 118 Future Shop stores throughout all Canadian provinces and 44 Canadian Best Buy stores in Ontario, Quebec, Alberta, British Columbia, Manitoba and Saskatchewan. Collectively, International stores totaled approximately 3.6 million retail square feet at the end of fiscal 2006, or about 10% of our total retail square footage. For fiscal 2006, International retail stores generated average revenue of approximately $22.7 million per store.
As previously announced, we have begun exploring the opportunity of expanding outside of North America. In fiscal 2007 we expect to open our first store in Shanghai, China.
In the third quarter of fiscal 2006, we acquired certain assets of AV Audiovisions, Inc., a California company, for $7 million; in the fourth quarter of fiscal 2006, we acquired Howell & Associates, Inc., an Ontario company, for $1 million. Both companies specialize in the design, sales and installation of high-end home entertainment systems.
In the first quarter of fiscal 2007, we acquired Pacific Sales Kitchen and Bath Centers, Inc. (Pacific Sales). Pacific Sales, based in southern California, operates 14 showrooms that cater to home-remodeling customers. In calendar 2005, Pacific Sales generated revenue of approximately $325 million. The company specializes in the sales of premium kitchen appliances, plumbing fixtures, home entertainment products and home furnishings. We acquired Pacific Sales to enhance our ability to grow with an attractive customer base and sell premium brands using a proven and successful showroom format. We expect to expand the number of Pacific Sales stores in order to capitalize on the rapidly growing high-end segment of the U.S. appliance market. Pacific Sales results of operations will be included in our Domestic segment results starting in fiscal 2007.
We acquired Musicland Stores Corporation in fiscal 2001. The original strategy behind our Musicland acquisition was to bring Best Buys core competencies in retailing consumer electronics to new customer segments, including segments typically underserved by our Best Buy stores. However, the Musicland acquisition did not meet our financial objectives. In fiscal 2004, we sold our interest in Musicland. The transaction resulted in the transfer of all of Musiclands assets other than a distribution center in Franklin, Indiana, and selected nonoperating assets. The sale of our interest in Musicland has allowed us to focus on our core businesses,
which are our primary growth and profit drivers. Musiclands financial results have been classified separately as discontinued operations in our consolidated financial statements for all periods presented.
U.S. Best Buy store operations are organized into eight territories. Each territory is divided into districts and is under the management of a retail field officer who oversees store performance through district managers. District managers monitor store operations and meet regularly with store managers to discuss merchandising, new product introductions, sales promotions, customer loyalty programs, employee satisfaction surveys and store operating performance. Similar meetings are conducted at the corporate level with divisional and regional management. Each district also has a loss prevention manager, with product security personnel employed at each store to control physical inventory losses. Advertising, merchandise buying and pricing, as well as inventory policies are centrally controlled.
U.S. Best Buy stores are generally open 78 hours per week, seven days a week, with extended holiday hours. An average store is typically staffed by one general manager and five managers. The average staff per store in fiscal 2006 was approximately 132 employees and varied by store depending on sales volumes.
U.S. Best Buy stores follow a standardized and detailed operating procedure called our Standard Operating Platform (SOP). The SOP includes procedures for inventory management, transaction processing, customer relations, store administration, product sales and services, and merchandise display. All stores operate in the same manner under the SOP.
Magnolia Audio Video stores are typically managed by a store manager, an audio/video sales manager and, if the store contains mobile products, a mobile electronics sales manager. Magnolia Audio Video stores are generally open 72 hours per week, seven days a week. Depending on an individual stores volume and product offerings, store staffing includes six to 20 commissioned sales personnel and one to eight hourly personnel. Corporate management for Magnolia Audio Video stores centrally controls advertising, merchandise buying and pricing, as well as inventory policies.
International store operations are organized to support two brands, each headed by a vice president. Each vice president has national management who closely monitors store operations and meets regularly with store managers to review management and staff training programs, customer feedback and requests, store operating performance and other matters. Meetings involving store management, product managers, advertising, financial and administrative staff, as well as senior management, are held quarterly to review operating results and to establish future objectives.
International stores are generally open 60 to 75 hours per week, seven days a week. A typical Future Shop store is staffed by a general manager, an operations manager, several department managers and 48 to 95 sales associates, as well as part-time sales associates. A typical Canadian Best Buy store is staffed with a general manager; assistant managers for operations, merchandising, inventory and sales; and 80 to 110 sales associates, including full-time and part-time sales associates. The number of sales associates is dependent upon store size and sales volume.
International stores use a standardized operating system. The operating system includes procedures for inventory management, transaction processing, customer relations, store administration, staff training and performance appraisals, as well as merchandise display. Advertising, merchandise buying and pricing, and inventory policies are centrally controlled.
U.S. Best Buy stores offer merchandise in four product groups: consumer electronics, home-office, entertainment software and appliances. Consumer electronics, the largest product group for fiscal 2006 based on revenue, consists of video and audio products and services. Video products include televisions, digital cameras, DVD players, digital camcorders and accessories. Audio products include MP3 players, home theater audio systems, mobile electronics including car stereo and satellite radio products, and related accessories. The home-office product group
includes notebook and desktop computers, computer support services, telephones, networking and accessories. Entertainment software products include DVD movies, video game hardware and software, CDs, computer software and subscriptions. The appliances product group includes major appliances as well as vacuums, small electrics, housewares and services.
We also provide a variety of services related to the merchandise offered within the product groups. In-store services include computer set-up, repair and software installation, as well as the installation of mobile electronics. In-home services include computer set-up, repair, software installation and home networking, and the delivery and installation of appliances and home theater systems. Services were not a significant part of our revenue in fiscal 2006. Our services business does generally provide higher gross margins than our merchandise assortment and has been a contributor to year-over-year gross margin gains. However, the infrastructure supporting that business has also increased our selling, general and administrative expenses (SG&A) rate. We expect to grow our services business such that over time service revenue will become a more significant component of our business.
Magnolia Audio Video stores offer merchandise in two product groups: consumer electronics and home-office. Consumer electronics, the largest product group for fiscal 2006 based on revenue, consists of video and audio products. Video products include digital televisions, DVD players, digital broadcast satellite systems, digital imaging, home theater installation, warranties and accessories. Audio products include home audio components, mobile electronics, home theater audio systems, warranties and accessories. The home-office product group consists primarily of home theater furniture.
International stores offer merchandise in four product groups: consumer electronics, home-office, entertainment software and appliances. Consumer electronics, the largest product group for fiscal 2006 based on revenue, consists of video and audio products. Video products include televisions, digital cameras, DVD players, digital camcorders and accessories. Audio products include MP3 players, home audio components, car stereos, speakers and accessories. The home-office product group includes desktop and notebook computers, telephones and accessories.
Entertainment software products include DVDs, video game hardware and software, computer software and CDs. The appliances product group includes major appliances as well as small electrics, vacuums and housewares. Canadian Best Buy stores do not carry appliances.
Although the two store brands of our International segment carry similar product categories, there are differences in product brands and depth of selection within product categories. On average, approximately 42% of the product assortment (excluding entertainment software) overlaps between the two store brands.
Generally, U.S. Best Buy stores merchandise, except for major appliances and large-screen televisions, is shipped directly from manufacturers to our distribution centers located in California, Georgia, Indiana, Minnesota, New York, Ohio, Oklahoma and Virginia. Major appliances and large-screen televisions are shipped to satellite warehouses in each major market. U.S. Best Buy 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 the stores from our suppliers. All inventory is bar-coded and scanned to ensure accurate tracking. In addition, a computerized inventory replenishment program is used to manage inventory levels at each store. On average, U.S. Best Buy stores receive product shipments two or three times a week, depending on sales volume. Contract carriers ship merchandise from the distribution centers to stores. Generally, online merchandise sales are either picked up at U.S. Best Buy stores or fulfilled directly to customers through our distribution centers.
Magnolia Audio Video stores merchandise is received and warehoused at either a distribution center in Washington, a distribution center in California or the U.S. Best Buy distribution center in California. All inventory is bar-coded and scanned to ensure accurate tracking. In addition, a
computerized inventory replenishment program is used to manage inventory levels at each store. Merchandise is delivered to stores an average of three times each week pursuant to an in-house distribution system.
Our International stores merchandise is shipped directly from our suppliers to our distribution centers in British Columbia and Ontario. Our International 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 the stores from manufacturers and distributors. All inventory is bar-coded and scanned to ensure accurate tracking. In addition, a computerized inventory replenishment program is used to manage inventory levels at each store. Our International stores typically receive product shipments twice a week, with accelerated shipments during periods of high sales volume. Contract carriers ship merchandise from the distribution centers to stores.
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. For fiscal 2006, our 20 largest suppliers accounted for approximately three-fifths of the merchandise we purchased, with five suppliers Sony, Hewlett-Packard, Gateway, Toshiba and Apple representing approximately one-third 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 will discontinue selling us merchandise. We have not experienced significant difficulty in maintaining satisfactory sources of supply, and we generally expect that adequate sources of supply will continue to exist for the types of merchandise sold in our stores.
We operate three global sourcing offices in China in order to purchase products directly from Asian manufacturers. These offices have improved our product sourcing efficiency and provide us with the capability to offer private-label products that complement our existing product assortment. In the future, we expect purchases from our global sourcing offices to increase as a percentage of total purchases. We also believe that the expected increase in our global sourcing volumes will help drive gross profit rate improvements by lowering our overall product cost.
The addition of new stores has played, and we believe will continue to play, a significant role in our growth and success. Our store development program has historically focused on entering new markets; adding stores within existing markets; and relocating, remodeling and expanding existing stores. During fiscal 2006, we opened 105 new stores, converted 163 existing U.S. Best Buy stores to our customer centricity operating model, relocated 16 other stores and remodeled three other stores. While a majority of the new stores opened in fiscal 2006 were in existing markets, some were in new markets, including the opening of Canadian Best Buy stores in Quebec. During fiscal 2006 we closed one U.S. Geek Squad store and one Future Shop store.
The following table reconciles U.S. Best Buy stores open at the beginning and end of each of the last five fiscal years (excluding 12, six and one Geek Squad stand-alone stores at the end of fiscal 2006, fiscal 2005 and fiscal 2004, respectively):
The following table reconciles Magnolia Audio Video stores open at the beginning and end of each of the last five fiscal years:
The following table reconciles Future Shop stores open at the beginning and end of each fiscal year since the date of acquisition:
(1) As of the date of acquisition, November 4, 2001
The following table reconciles Canadian Best Buy stores open at the beginning and end of each fiscal year since inception of the International segment (excluding five Geek Squad stores at the end of fiscal 2006):
During fiscal 2007, we expect to open nearly 90 new stores in the United States and Canada (not including the stores acquired in the Pacific Sales acquisition). Most of the new stores will be opened in markets where we already have stores, leveraging our infrastructure and making shopping more convenient for our customers. We anticipate opening 75 to 80 U.S. Best Buy stores, as well as relocating 10 to 15 existing U.S. Best Buy stores. We also expect to open approximately three Best Buy stores in Canada. We anticipate opening four to five Future Shop stores, as well as relocating approximately four existing stores. On a long-term basis, we plan to operate at least 1,200 stores in North America. Additionally, in fiscal 2007 we expect to open our first store in Shanghai, China.
Additional information regarding our Outlook for Fiscal 2007 is included in Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations, of this Annual Report on Form 10-K.
We believe we own valuable intellectual property including trademarks, service marks and tradenames, some of which are of material importance to our business, and include Best Buy, Yellow Tag logo, Geek Squad, Future Shop, Magnolia Audio Video and Pacific Sales. Some of our intellectual property is the subject of numerous United States and foreign trademark and service mark registrations. We believe our intellectual property has significant value and is an important factor in the marketing of our company, our stores and our Web sites. We are not aware of any facts that could negatively impact our continuing use of any of our intellectual property.
In accordance with accounting principles generally accepted in the United States (GAAP), our balance sheets include the cost of acquired intellectual property only. The only material acquired intellectual property presently included in our balance sheets is the Future Shop tradename, which had a carrying value of $44 million at the end of fiscal 2006. The value of the Future Shop tradename is based on the continuation of the Future Shop brand in Canada and currently is considered an indefinite-lived intangible asset. If we ever were to abandon the Future Shop brand, we would incur an impairment charge based on the then-carrying value of the Future Shop tradename.
Our revenue and earnings are typically greater during our fiscal fourth quarter, which includes the majority of the holiday selling season.
We fund the growth of our business 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 or investment opportunities.
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.
Our stores and online shopping sites do not have a material amount of backlog orders.
No material portion of our business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of any government.
The consumer electronics and home-office retail industry is highly competitive. Our stores compete against other consumer electronics retailers, specialty home-office retailers, mass merchants, home-improvement superstores and a growing number of direct-to-consumer alternatives. Our stores also compete against independent dealers, regional chain discount stores, wholesale clubs, video rental stores and other specialty retail stores. Mass merchants continue to increase their assortment of consumer electronics products, primarily those that are less complex to sell, install and operate and have been expanding their product offerings into higher-end categories. Similarly, large home-improvement retailers are expanding their assortment of appliances. In addition, consumers are increasingly downloading entertainment and computer software directly via the Internet.
We compete principally on the basis of customer service; installation and support services; store environment, location and convenience; product assortment and availability; value pricing; and financing alternatives.
We believe our store experience, broad product assortment, store formats and brand marketing strategies differentiate us from most competitors by positioning our stores as the destination for new technology and entertainment products in a fun and informative shopping environment. Our stores compete by aggressively advertising and emphasizing a complete product and service solution, value pricing and financing alternatives. In addition, our trained and knowledgeable sales and service staffs allow us to tailor the offerings to meet the needs of our customers.
We have not engaged in any material research and development activities during the past three fiscal years.
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 will materially affect, our net earnings or competitive position, or have resulted or will result in material capital expenditures. During fiscal 2006, there were no material capital expenditures for environmental control facilities and no such material expenditures are anticipated.
At the end of fiscal 2006, we employed approximately 128,000 full-time, part-time and seasonal employees. We consider our employee relations to be good. There are currently no collective bargaining agreements covering any of our employees, and we have not experienced a strike or work stoppage.
We operate two reportable segments: Domestic and International. Financial information regarding the Domestic and International geographic areas is included in Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations, and Note 10, Segments, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.
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 Securities and Exchange Commission (SEC). Copies of these reports, proxy statements and other information can be read and copied at:
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 SECs home page at http://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.BestBuy.com select the For Our Investors link and then the SEC Filings link.
We also make available, free of charge on our Web site, the charters of the Audit Committee, Compensation and Human Resources Committee, and Nominating, Corporate Governance and Public Policy Committee, as well as 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. These documents are posted on our Web site at www.BestBuy.com select the For Our Investors link and then the Corporate Governance link.
Copies of any of the above-referenced information will also be made available, free of charge, upon written request to:
Best Buy Co., Inc.
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. There are also risks within the economy and the capital markets, both domestically
and internationally, that affect business generally, and our company and industry as well, such as inflation; higher interest rates; higher fuel and other energy costs; higher transportation costs; higher costs of labor, insurance and healthcare; foreign exchange rate fluctuations; and higher levels of unemployment, which have not been described. 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 the capital markets 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. 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 suffer.
Our business depends, in large part, on our ability to introduce successfully 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. Failure to predict accurately constantly changing consumer tastes, preferences, spending patterns and other lifestyle decisions, or to address effectively consumer concerns, could have a material adverse effect on our revenue, results of operations and standing with our customers.
Our growth is dependent on the success of our strategies.
Our growth is dependent on our ability to identify, develop and execute strategies. While we believe customer centricity and the pursuit of international growth opportunities will enable us to grow our business, misjudgments could have a material adverse effect on our business, financial condition and results of operations.
Our results of operations could deteriorate if we fail to attract, develop and retain qualified employees.
Our performance is dependent on attracting and retaining a large and growing number of employees. 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 number needed to fill these positions may be in short supply in some areas. Competition for such qualified individuals could require us to pay higher wages to attract a sufficient number of employees. Our inability to recruit a sufficient number of qualified individuals in the future may delay planned openings of new stores or affect the speed to enter new growth areas such as Best Buy For Business and services. 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 businesses and other forms of retail commerce, which could materially 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. Pressure from our competitors, some of which have a greater market presence than we do, could require us to reduce our prices or increase our costs of doing business. As a result of this competition, we may experience lower revenue and/or higher operating costs, which could materially adversely affect our results of operations.
Our growth strategy includes expanding our business, both in existing markets and by opening stores in new markets.
Our future growth is dependent, in part, on our ability to build 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 constructing and leasing our stores. We also may have difficulty negotiating leases or real estate purchase agreements on acceptable terms. Failure to manage these and other similar factors effectively will affect our ability to build or lease new stores, which may have a material adverse effect on our future profitability.
We seek to expand 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 comparable store sales performance and customer traffic at those existing stores to decline.
We also intend to open stores in new markets. The risks associated with entering a new market include difficulties in attracting customers due to a lack of customer familiarity with our brand, our lack of familiarity with local customer preferences and seasonal differences in the market. In addition, entry into new markets may bring us into competition with new competitors or with existing competitors with a large, established market presence. And while we have a strong track record of profitable new store growth, we cannot ensure that our new stores will be profitably deployed; as a result, our future profitability may be materially adversely affected.
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. Global sourcing is becoming an increasingly important part of our business and positively affects our financial performance. Our 20 largest suppliers account for approximately three-fifths of the merchandise we purchase. If any of our key vendors fails to supply us with products, we may not be able to meet the demands of our customers and revenue could decline. 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 United States. Political or financial instability, merchandise quality issues, trade restrictions, tariffs, currency exchange rates, transportation capacity and costs, inflation, outbreak 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.
We are subject to certain regulatory and legal developments which could have a material adverse impact on our business.
Our regulatory and legal environment exposes us to complex compliance and litigation risks that could materially affect our operations and financial results. In our major global markets, we are subject to increasing regulations, which increase our cost of doing business. The most significant compliance and litigation risks we face are:
· The difficulty in complying with sometimes conflicting regulations in local, national or international jurisdictions and new or changing regulations that affect how we operate;
· The impact of changes in tax laws (or interpretations thereof);
· The impact of litigation trends, including class actions involving consumers and shareholders, and labor and employment matters; and
· The significant uncertainties of operating globally, including the costs and difficulties of managing international operations, foreign currencies, complex laws, contractual obligations and intellectual property rights.
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 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 our relationship with Accenture, who manages our information technology and human resources operations, could materially adversely affect our business and results of operations.
We have engaged Accenture Ltd to manage 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. Any disruption in our relationship with Accenture could result in decreased revenue and increased overhead costs, causing our business and results of operations to suffer materially.
Failure to protect the integrity and security of our customers information could expose us to litigation and materially damage our standing with our customers.
The 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 are taking significant efforts to protect customer and confidential information, 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. If any such compromise of our security were to occur, it could have a material adverse effect on our reputation, business, operating results and financial condition and may increase the costs we incur to protect against such security breaches.
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 includes expansion via new business ventures, strategic alliances and acquisitions. While we employ several different valuation methodologies to assess a potential growth opportunity, we can give no assurance that new business ventures and strategic alliances will positively affect our financial performance. Acquisitions may result in difficulties in assimilating acquired companies, and may result in the diversion of our capital and our managements attention from other business issues and opportunities. We may not be able to integrate companies that we acquire successfully, including their personnel, financial systems, distribution, operations and general operating procedures. If we fail to integrate acquired companies successfully, our business could suffer materially. We may also encounter challenges in achieving appropriate internal control over financial reporting in connection with the integration of an acquired company. In addition, the integration of any acquired company, and its financial results, into ours may have a material adverse effect on our operating results.
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 generated in our fourth fiscal quarter, which includes the majority of the holiday selling season. Unexpected events or developments such as natural disasters, man-made disasters and adverse economic conditions in our fourth quarter could have a material adverse effect on our revenue and earnings.
The foregoing 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.
At February 25, 2006, there were no unresolved comments from the SEC staff regarding our periodic or current reports.
The following table summarizes the geographic location of our stores at the end of fiscal 2006:
Note: At the end of fiscal 2006, we owned 52 of our U.S. Best Buy stores and three of our Canadian Best Buy stores. All other stores at the end of fiscal 2006 were leased.
At the end of fiscal 2006, we operated 742 U.S. Best Buy stores, 20 Magnolia Audio Video stores and 12 Geek Squad stores, totaling approximately 30.8 million retail square feet.
The operations of the Domestic segment are serviced by the following distribution centers:
(1) During fiscal 2005, we opened a new distribution center in Ardmore, Oklahoma. The new and larger distribution center replaced a 566,000-square-foot owned distribution center also located in Ardmore. The 566,000-square-foot owned distribution center is currently being marketed for sale or lease.
We lease space in 13 satellite warehouses in major metropolitan markets for home delivery of major appliances and large-screen televisions. U.S. Best Buy stores utilize approximately 2.7 million square feet in these warehouses.
Our principal corporate office is located in Richfield, Minnesota, and is an owned facility consisting of four interconnected buildings totaling approximately 1.5 million square feet. During fiscal 2006 we sold a 360,000-square-foot facility in Eden Prairie, Minnesota, which previously served as our principal corporate office. At the end of fiscal 2006, we also leased approximately 420,000 square feet of additional office space.
At the end of fiscal 2006, we operated 118 Future Shop stores, 44 Canadian Best Buy stores and five Geek Squad stores, totaling approximately 3.6 million retail square feet.
The operations of our International segment are serviced by two leased distribution centers located in Langley, British Columbia, and Brampton, Ontario. The British Columbia distribution center is 419,000 square feet, and the Ontario distribution center is 1,041,000 square feet. During fiscal 2007, we expect to open another leased distribution center in Brampton, Ontario, having approximately 79,000 square feet.
The principal offices for our International segment are located in a 141,000-square-foot leased facility in Burnaby, British Columbia. At the end of fiscal 2006, we also leased 60,000 square feet of additional office space for various International segment regional offices in Ontario, Quebec, British Columbia and Alberta.
In support of our global sourcing initiative, we lease office space in China totaling approximately 32,000 square feet at the end of fiscal 2006.
Almost all of our stores and a majority of our distribution facilities are leased. Terms of the lease agreements generally range from 10 to 20 years. Most of the leases contain renewal options and escalation clauses.
Additional information regarding our operating leases is available in Note 7, Leases, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.
On December 8, 2005, a purported class action lawsuit captioned, Jasmen Holloway, et. al. v Best Buy Co., Inc., was filed in the U.S. District Court for the Northern District of California alleging we discriminate against women and minority individuals on the basis of gender, race, color and/or national origin with respect to our employment policies and practices. The action seeks an end to discriminatory policies and practices, an award of back and front pay, punitive damages and injunctive relief, including rightful place relief for all class members. We believe the allegations are without merit and intend to defend this action vigorously.
We are involved in various other legal proceedings arising in the normal course of conducting business. We believe the amounts provided in our consolidated financial statements, as prescribed by accounting principles generally accepted in the United States, are adequate in light of the probable and estimable liabilities. The resolution of those other proceedings is not expected to have a material effect on our results of operations or financial condition.
(As of February 25, 2006)
Bradbury H. Anderson has been a director since August 1986 and is currently our Vice Chairman and Chief Executive Officer. He assumed the responsibility of Chief Executive Officer in June 2002, having previously served as President and Chief Operating Officer since April 1991. He has been employed in various capacities with us since 1973. In addition, he serves on the board of the Retail Industry Leaders Association, as well as on the boards of the American Film Institute, Junior Achievement, Minnesota Public Radio and Waldorf College.
Richard M. Schulze is a founder of Best Buy. He has been an officer and director from our inception in 1966 and currently is Chairman of the Board. Effective in June 2002, he relinquished the duties of Chief Executive Officer. He had been our principal executive officer for more than 30 years. He is on the board of trustees of the University of St. Thomas, chairman of its Executive and Institutional Advancement Committee, and a member of its Board Affairs Committee. Mr. Schulze is also chairman of the board of governors of the University of St. Thomas Business School.
Allen U. Lenzmeier has been a director since February 2001 and is currently our Vice Chairman, serving on a part-time basis to support our international expansion. Prior to his promotion to his current position, he served in various capacities since joining us in 1984, including as President and Chief Operating Officer from 2002 to 2004, and as President of Best Buy Retail
Stores from 2001 to 2002. He serves on the board of UTStarcom, Inc. He is also a national trustee for the Boys and Girls Clubs of America and serves on its Twin Cities board of directors, and serves on the board of the Catholic Community Foundation of the Archdiocese of St. Paul and Minneapolis.
Brian J. Dunn was named President and Chief Operating Officer in February 2006. Prior to his promotion to his current position, he served as President Retail, North America since December 2004. Mr. Dunn joined us in 1985 and has held positions as Executive Vice President, Senior Vice President, Regional Vice President, regional manager, district manager and store manager.
Robert A. Willett became our Chief Executive Officer Best Buy International in February 2006. He previously served as Executive Vice President Operations since April 2004. In April 2002, we engaged Mr. Willett as a consultant and special advisor to our Board on matters relating to operational efficiency and excellence. Prior to that, he was the global managing partner for the retail practice at Accenture LLP, a global management consulting, technology services and outsourcing company, and was also a member of its Executive Committee. Mr. Willett began his career in store management at Marks & Spencer P.L.C., a British department store chain, and has held executive positions at F.W. Woolworth & Co., a department store chain, as well as several other retailers in the United Kingdom.
Kevin T. Layden was named President and Chief Operating Officer Best Buy Canada (formerly Future Shop Ltd.) in 1999. Mr. Layden joined us in 1997 as Vice President Merchandising. Prior to joining us, he spent approximately 17 years with Circuit City Stores, Inc., a retailer of consumer electronics, serving in positions of increasing responsibility, including most recently as assistant vice president and general manager for New York.
Shari L. Ballard was named Executive Vice President Human Capital and Leadership in December 2004. Ms. Ballard joined us in 1993 and has held positions as Senior Vice President, Vice President, and general and assistant store manager.
Ronald D. Boire joined us in June 2003 as Executive Vice President General Merchandise Manager. Prior to joining us, he spent 17 years at Sony Electronics Inc., an electronics manufacturer, where he held various executive, sales and marketing positions before becoming president of Sonys Personal Mobile Products Company. Most recently, he was president of the Sony Electronics Consumer Sales Company, and was responsible for managing sales and distribution of Sonys consumer electronics products throughout the United States. Mr. Boire also was a member of Sonys Operations Committee.
Thomas C. Healy was named Executive Vice President Best Buy For Business in December 2004. Mr. Healy joined us in 1990 and has held positions as President Best Buy International, Senior Vice President, Regional Vice President, district manager and store manager.
Darren R. Jackson was named Executive Vice President Finance and Chief Financial Officer in April 2002. Mr. Jackson joined us in 2000 as Senior Vice President Finance and Treasurer and was promoted to Chief Financial Officer in 2001. Prior to that, Mr. Jackson served as chief financial officer of the Full-Line Store Division at Nordstrom, Inc., a department store chain, from 1998 to 2000 and as chief financial officer of Carson Pirie Scott & Co. Inc., a department store chain, from 1996 to 1998. A certified public accountant, Mr. Jackson has 17 years of experience in the retail industry. Mr. Jackson serves as a director of Advanced Auto Parts, Inc. and serves on the Marquette University board of trustees.
Michael A. Linton was promoted to Executive Vice President Consumer and Brand Marketing and Chief Marketing Officer in March 2002. Mr. Linton joined us in 1999 as Senior Vice President Strategic Marketing. Prior to that, Mr. Linton held positions as vice president of marketing at Remington Products Corporation, a maker of personal care and grooming products; vice president and general manager of a product category at James River Corporation, a manufacturer and marketer of consumer products, food and packaging; and a general manager at Progressive Insurance. Mr. Linton began his career at Procter & Gamble Company. Mr. Linton also serves as a director of Peets Coffee & Tea, Inc.
Michael London has served as an Executive Vice President since April 2005 on a part-time basis to support our leadership group. He served as Executive Vice President Sourcing and Alliances from December 2004 to April 2005. He served as Executive Vice President
Global Sourcing from February 2004 to December 2004 and Executive Vice President Customer Centricity from July 2003 to February 2004. Prior to that, he served as Executive Vice President General Merchandise Manager from 2001 to 2003, as Senior Vice President General Merchandise from 1998 to 2001 and as Vice President General Merchandise from 1996 to 1998. Prior to joining us in 1996, Mr. London was a senior vice president for NordicTrack, a fitness equipment manufacturer, and executive vice president for Central Tractor Farm & Country, a specialty farm products retail supplier.
Timothy D. McGeehan was named Executive Vice President Retail Sales in June 2005. Mr. McGeehan joined us in 1988 and has held positions as Senior Vice President, Regional Vice President, regional manager, district manager and store manager.
Kalendu Patel was named Executive Vice President Strategy and International in April 2005. Mr. Patel joined us in 2003 and has held positions as Senior Vice President and Vice President. Prior to joining us, Mr. Patel was a partner at Strategos, a strategic consulting firm. Prior to that, he held various positions with KPMG Consulting Inc. and Courtaulds PLC in the United Kingdom.
Greg Thorson joined us in June 2005 as Executive Vice President Enterprise Transformation. Prior to joining us, Mr. Thorson was a retail partner at Accenture LLP, a global management consulting, technology services and outsourcing company, where he worked with large retailers on strategic initiatives. Prior to that, he spent more than 15 years in restaurant development and operations.
John C. Walden was named Executive Vice President Customer Business Group in December 2004. Mr. Walden served as Executive Vice President Human Capital and Leadership from 2002 to 2004 and President of BestBuy.com, Inc. from 1999 to 2002. Prior to joining us in 1999, Mr. Walden served as chief operating officer of Peapod, Inc., an Internet retailer of groceries. Mr. Walden has also held executive positions with Ameritech Corporation, a telecommunications company, and Storage Technology Corporation, a maker of data storage products. Earlier he practiced corporate and securities law with Sidley Austin Brown & Wood LLP.
Susan S. Hoff was named Senior Vice President and Chief Communications Officer in April 2004. Previously, she had served as Senior Vice President Public Affairs and Investor Relations Officer since 2000. Since joining us in 1983, Ms. Hoff has served in various capacities including Vice President of Corporate Communications and Public Relations.
Joseph M. Joyce was promoted to Senior Vice President General Counsel and Assistant Secretary in 1997. Mr. Joyce joined us in 1991 as Vice President Human Resources and General Counsel. Prior to joining us, Mr. Joyce was with Tonka Corporation, a toy maker, having most recently served as vice president, secretary and general counsel.
James L. Muehlbauer was named Senior Vice President Finance in June 2003. He joined us in 2002 as Vice President and Chief Financial Officer of Musicland. Prior to joining us, Mr. Muehlbauer spent 10 years with The Pillsbury Company, a food manufacturer, where he held various senior-level finance management positions, including vice president and worldwide controller, vice president of operations, divisional finance director, director of mergers and acquisitions, and director of internal audit. A certified public accountant, Mr. Muehlbauer spent eight years with Coopers & Lybrand LLP and most recently served as a senior manager in the firms audit and consulting practice.
Ryan D. Robinson was named Senior Vice President Finance and Treasurer in September 2005. Mr. Robinson joined us in 2002 as Vice President Finance and Treasurer. Prior to joining us, he spent 15 years at ABN AMRO Holding N.V., a leading international bank, and most recently served as senior vice president and director of that financial institutions North American private equity activities. Mr. Robinson also held management positions in ABN AMRO Holding N.V.s corporate finance, finance advisory, acquisitions and asset securitization divisions.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted during the fourth quarter of the fiscal year ended February 25, 2006, to a vote of security holders, through the solicitation of proxies or otherwise.
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock is traded on the New York Stock Exchange under the ticker symbol BBY. The table below sets forth the high and low sales prices of our common stock as reported on the New York Stock Exchange Composite Index during the periods indicated. The stock prices below have been revised to reflect a three-for-two stock split effected on August 3, 2005.
As of April 24, 2006, there were 2,632 holders of record of Best Buy common stock.
In fiscal 2004, our Board initiated the payment of a regular quarterly cash dividend, then $0.07 per common share per quarter. A quarterly cash dividend has been paid in each subsequent quarter. Effective with the quarterly cash dividend paid in the third quarter of fiscal 2005, we increased our quarterly cash dividend per common share by 10 percent. Effective with the quarterly cash dividend paid in the third quarter of fiscal 2006, we increased our quarterly cash dividend per common share by 9 percent to $0.08 per common share per quarter. The payment of cash dividends is subject to customary legal and contractual restrictions.
Future dividend payments will depend on the Companys earnings, capital requirements, financial condition and other factors considered relevant by our Board.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
In April 2005, our Board authorized a $1.5 billion share repurchase program. The program, which became effective on April 27, 2005, terminated and replaced a $500 million share repurchase program authorized by our Board in June 2004. Effective on June 24, 2004, our Board authorized the $500 million share repurchase program, which terminated and replaced a $400 million share repurchase program authorized by our Board in fiscal 2000.
During the fourth quarter of fiscal 2006, we purchased and retired 7.1 million shares at a cost of $338 million. Since the inception of the $1.5 billion share repurchase program in fiscal 2006, we purchased and retired 16.5 million shares at a cost of $711 million. We consider several factors in determining when to make share repurchases including, among other things, our cash needs and the market price of the stock. At the end of fiscal 2006, $790 million of the $1.5 billion originally authorized by our Board was available for future share repurchases. Cash provided by future operating activities, available cash and cash equivalents, as well as short-term investments, are the expected sources of funding for the share repurchase program.
The following table presents the total number of shares repurchased during the fourth quarter of fiscal 2006 by fiscal month, the average price paid per share, the number of shares that were purchased as part of a publicly announced repurchase plan, and the approximate dollar value of shares that may yet be purchased pursuant to the $1.5 billion share repurchase program as of the end of fiscal 2006:
Additional information regarding our share repurchase program is included in the Liquidity and Capital Resources and Outlook for Fiscal 2007 sections of Managements Discussion and Analysis of Financial Condition and Results of Operations, included as Item 7 of this Annual Report on Form 10-K.
The following table presents our selected financial data. The table should be read in conjunction with Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations, and Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. Certain prior-year amounts have been reclassified to conform to the current-year presentation. In fiscal 2004, we sold our interest in Musicland. All fiscal years presented reflect the classification of Musiclands financial results as discontinued operations.
$ in millions, except per share amounts