Best Buy 1999 Annual Report Download

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Fiscal 1999 Annual Report
E CH N OL OGY

Table of contents

  • Page 1
    „E CH N OL OGY Fisca l 19 9 9 Annua l Repor t

  • Page 2
    ... meet our customers at the intersection of technology and life. TA B L E 1 4 8 18 20 22 40 41 OF Â-ON T E N T S Financial Highlights Letter to Shareholders Company Review Store Locations Map Consolidated Financial Data Management's Discussion & Analysis General Information Board of Directors and...

  • Page 3
    What a Year! The past 10 years have been the Company's most active, with growth from $500 million in annual revenues to more than $10 billion today. • Over $10 billion in revenues • Two 2-for-1 stock splits in the past 10 months • Record earnings of $224 million, a 138% increase over FY '98 ...

  • Page 4

  • Page 5

  • Page 6
    ... - capitalizing upon our Process to Profits program, enhancing our retail operations and refining our inventory management skills. It has been a truly exciting year for everyone at Best Buy. FISCAL 1999 INITIATIVES Our organization's continued focus on turning strategic initiatives into positive...

  • Page 7
    ... with many opportunities. We expect to increase our store growth, introduce new digital products to our customers in a unique and exciting way, invest in development of our e-commerce business and improve our information systems and customer service capabilities. FISCAL 1999 BEST BUY ANNUAL REPORT

  • Page 8
    ...accommodated over the Internet, the potential of our Web site (www.bestbuy.com) is boundless. Having launched an online music store and added a full selection of DVD software, Best Buy is positioning itself to bring more products and services to our customers. THE DIGITAL REVOLUTION The digital age...

  • Page 9
    ... products affordable and easy to use. This mission will help us focus on providing our customers with the best shopping experience available while we continue to develop our employees and to improve shareholder value. 7 FISCAL 1999 BEST BUY ANNUAL REPORT Richard M. Schulze Founder, Chairman & CEO

  • Page 10
    ... store format and product lines to reflect the latest technologies and changing shopping habits. Best Buy has reinvented the way customers shop for consumer electronics. Our non-commissioned product specialists help make shopping easy and fun. "Being the Best" is a value that personifies our Company...

  • Page 11
    .... Our stores are designed to demonstrate this technology through entertaining, interactive displays that customers enjoy. Dedicated service areas , expertly trained staff and clean product merchandising make shopping at Best Buy fun and easy. 9 Music & Movies FISCAL 1999 BEST BUY ANNUAL REPORT

  • Page 12
    Audio & Video PERSONALIZED SYSTEMS Audio and video products are combined within our new Home Theater department. Expert product specialists help customers turn their living rooms into personal home theaters. This department helps customers build a system that meets their needs.

  • Page 13
    ... HANDS-ON EXPERIENCE Best Buy stores offer customers the opportunity to sample entertainment software before they make a purchase. Music, movies, DVD, computer software and video game displays are a focal point at the center of each store. Entertainment Software FISCAL 1999 BEST BUY ANNUAL REPORT

  • Page 14
    ... SUCCESS THROUGH FEEDBACK Every month, the Gallup Organization contacts more than 10,000 customers for feedback about their shopping experiences. In other research, our customers tell us Best Buy is the most customerfriendly retailer in the consumer electronics business. Customer-Friendly Layout

  • Page 15
    ... a personal computer, digital camera or scanner, and printer to show customers the ease of electronic communications. Our customers can learn how to take photos digitally, scan standard photos, then use their computer and printer to send the images online to family and friends. FISCAL 1999 BEST BUY...

  • Page 16
    ...as personal digital assistants - electronic organizers with computer interface capabilities - and digital cellular telephones help Best Buy customers organize their lives. Digital technology is revolutionizing home entertainment, too. Sales of DVD players, which play video and audio discs, and movie...

  • Page 17
    ... market should make us the place to shop for digital entertainment products. We are not content to merely keep up with the changes. We are leading the integration of technology and life by making these new products affordable and easy to use. Home Entertainment FISCAL 1999 BEST BUY ANNUAL REPORT

  • Page 18
    Professional Installation

  • Page 19
    ... dedicated to continuously improving our service levels. In partnership with Andersen Consulting LLP, we have developed a two-year program to reduce our service repair time and better integrate our service areas with our retail operations. 17 Customer Services FISCAL 1999 BEST BUY ANNUAL REPORT

  • Page 20
    ... South Carolina South Dakota Tennessee Texas Virginia Wisconsin 19 3 10 5 1 6 36 7 12 21 Missouri 10 Nebraska 32 Nevada 8 5 5 New Hampshire New Jersey New Mexico In FY '00, Best Buy anticipates opening 45 new locations, including the major markets of San Francisco, CA and Richmond, VA.

  • Page 21
    ...to build shareholder value. This year we are implementing Economic Value Added (EVA) to measure, manage, and motivate value creation. We will integrate EVA into our planning and decision making. Our employee compensation will hinge on EVA performance, and our initiatives and capital investments will...

  • Page 22
    ... AL AND OPE R AT I NG DAT A $ in thousands, except per share amounts p I S CA L ¥ E R I OD (1) 1999 1998 1997 1996 1995 Statement of Earnings Data Revenues Gross profit Selling, general and administrative expenses Operating income Earnings before cumulative effect of accounting change...

  • Page 23
    ...9 4 2 1 9 ,7 1 0 -- 3 1 1 ,4 4 4 $ 1 1 8 ,9 2 1 4 3 9 ,1 4 2 5 3 ,8 7 0 -- 1 8 2 ,2 8 3 $ 1 2 6 ,8 1 7 3 3 7 ,2 1 8 5 2 ,9 8 0 -- 1 5 7 ,5 6 8 $ 6 4 ,6 2 3 1 8 5 ,5 2 8 3 5 ,6 9 5 -- 5 6 ,7 4 1 $ 7 8 ,3 9 8 1 5 6 ,7 8 7 3 5 ,2 8 3 -- 6 6 ,1 5 0 F I S CAL 1999 B E S T B U Y ANNU AL R E POR T

  • Page 24
    ... phones and digital cameras. T he Company gained market share in fiscal 1999 as a result of more effective advertising, better product in-stock positions and a more customer-focused product assortment, as well as the continued consolidation and closing of competing retailers. New stores opened...

  • Page 25
    ... and selling strategies, resulted in higher sales of the additional products and services that complement the sale of computer hardware and generate additional profit from the computer sale transaction. T he Company's new configure-to-order process for personal computers enabled expansion of the...

  • Page 26
    ... during product model transitions. T he increase in sales of higher margin PSPs also contributed to the improvement in gross profit margin. Another factor in the gross profit margin improvement was lower inventory shrink as a result of better execution at the retail stores. T he Company anticipates...

  • Page 27
    ...-end even with the operation of 28 new stores and higher sales volumes, due to improved inventory management. Owned inventory (inventory net of accounts payable) also improved as a result of faster inventory turns. Trade receivables, mainly credit card and vendor-related receivables, increased $37...

  • Page 28
    ... to open in fiscal 2000 include entry into the markets of San Francisco, San Diego and Sacramento, CA; northern Florida; upstate New York; and Richmond and Norfolk, VA. T he Company also plans to remodel or relocate approximately 20 stores to larger facilities. Included in its expansion plans, the...

  • Page 29
    ...T he Company developed specific and detailed plans to correct Y2K issues and management believes, to date, the Company has made significant progress. T he majority of the Company's business processing applications operate on mainframe computer systems. Over five million lines of computer programming...

  • Page 30
    ... low common stock prices for each quarter of fiscal 1999 and 1998.  ($ in thousands, except per share amounts; per share amounts have been adjusted for a two-for-one stock split in March 1999) U ART E R 1S T P ND Q RD R TH Fiscal 1999 Revenues Gross profit Operating income Net earnings...

  • Page 31
    CONS OL I DAT E D B AL ANCE S HE E T S $ in thousands, except per share amounts e SSETS ' ( )0 EB 1999 ' ( )1 EB 1998 Current Assets Cash and cash equivalents Receivables Recoverable costs from developed properties Merchandise inventories Other current assets Total current assets $ 7 8 5 ,7 7...

  • Page 32
    ..., except per share amounts @ OR T H E F I S CA L Y E A R S E N D E D @ A BC EB 1999 @ A BD EB 1998 w A R CH 1997 E Revenues Cost of goods sold $ 1 0 ,0 7 7 ,9 0 6 8 ,2 5 0 ,1 2 3 $ 8 ,3 5 8 ,2 1 2 7 ,0 2 6 ,0 7 4 $ 7 ,7 7 0 ,6 8 3 6 ,7 1 1 ,8 0 2 Gross profit Selling, general...

  • Page 33
    ...$ A R CH 1997 U Operating Activities Net earnings Depreciation, amortization and other non-cash charges 7 8 ,3 6 7 3 0 2 ,8 0 4 Changes in operating assets and liabilities: Receivables Merchandise inventories Other current assets Accounts payable Other liabilities Income taxes payable Total cash...

  • Page 34
    ...ME NT S OF CHANGE S I N S HAR E HOL DE R S ' E QU I T Y AND I NDE PE NDE NT AU DI T OR 'S R E POR T $ in thousands gr Balances at March 2, 1996 Stock options exercised Tax benefit from stock options exercised Net earnings $ OM M ON T OCK c € dh g $ D D I T I ON A L AID N APIT AL Â, s E T AINE...

  • Page 35
    ... AL S T AT E ME NT S $ in thousands, except per share amounts 1. SUMMARY O F SIGN IFICAN T ACCO UN TIN G PO LICIES Description of Business: T he Company operates in a single business segment, selling personal computers and other home office products, consumer electronics, entertainment software...

  • Page 36
    ...form of a 100% stock dividend distributed on March 18, 1999. All share and per share information reflects these stock splits. Stock Options: T he Company applies Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for stock options and presents...

  • Page 37
    ... interest Minimum lease payments $ 42 8 ,1 9 3 In November 1994, the Company and Best Buy Capital, L.P., a special-purpose limited partnership in which the Company is the sole general partner, completed the public offering of 4,600,000 convertible monthly income preferred securities with...

  • Page 38
    .... At February 27, 1999, options to purchase 19,139,000 shares are outstanding under all of these plans. Pursuant to SFAS No. 123, the Company has elected to account for its stock option plans under the provisions of APB Opinion No. 25. Accordingly, no compensation cost has generally been recognized...

  • Page 39
    ...3 .9 8 1999 Numerator: Net earnings Interest on preferred securities, net of tax Net earnings assuming dilution Denominator ( 0 0 0 's) : Weighted average common shares outstanding Effect of dilutive securities: Employee stock options Preferred securities Weighted average common shares outstanding...

  • Page 40
    ...common stock from time to time through open market purchases. As of February 27, 1999, 125,000 shares were purchased and retired at a cost of $2,500. 6. O PERATIN G LEASE CO MMITMEN TS AN D RELATED P ARTY TRAN SACTIO N S The Company conducts essentially all of its retail and distribution operations...

  • Page 41
    ... Compensation and benefits Other Total deferred tax assets Property and equipment Inventory Other Total deferred tax liabilities Net deferred tax assets $ $ $ 1 5 ,7 1 3 $ 9 ,5 5 5 T he Internal Revenue Service has changed its original position regarding the deductibility of interest related...

  • Page 42
    ...of Arts 2 4 0 0 Third Avenue South Minneapolis, MN Transfer Agent Inquiries regarding stock certificates, such as lost certificates, name changes and transfers of ownership, please contact Best Buy's transfer agent. First Chicago Trust Company of New York ( Equiserve) PO Box 2 5 0 0 Jersey City, NJ...

  • Page 43
    ... Walden President E-Commerce Division Kenneth R. Weller Sr. Vice President Sales S U PPOR T GR OU P OF F I CE R S Vince A. Accardi Vice President In-home Repair Services Peter A. Bosse Vice President Digital Communications Services Brian E. Golberg Vice President Store Planning and Construction...

  • Page 44
    ... A CI N G Â...H A N GE Change Creates Opportunity Two stock splits in ten months A new revenue milestone - $10 billion Record earnings of $224 million Fiscal 1999 was the most successful in Best Buy's 33 years. We continue to grow and change - looking for opportunities to embrace our evolving industry...