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Best Buy Co., Inc. Fiscal 2000 Annual Report
Innovate Accelerate

Table of contents

  • Page 1
    Innovate Accelerate Best Buy Co., Inc. Fiscal 2000 Annual Report

  • Page 2
    ...For/Where We're Going Who We Are/How We Did 10-Year Financial Highlights Management's Discussion and Analysis of Results of Operations and Financial Condition Consolidated Financial Statements and Notes Company Information Board of Directors and Officers Why We're Successful 20 30 46 47 48 2 6 16 18...

  • Page 3
    ...of S&P 500 companies Opened 47 new stores and introduced the small-market concept Digital products emerged to drive the industry Announced several strategic alliances and investments Recognized by Fortune magazine as one of the top 10 stock performers of the decade Our founder is named 1999's Master...

  • Page 4
    ... of our performance in this past year. Our net earnings improved 60%, to $347 million. The digital revolution delivered exciting new products, enabling us to capitalize on our position as the fun and informative place to buy technology products and services. We announced several strategic alliances...

  • Page 5
    ... on equity, another key financial performance measure, grew to more than 30%. The strength of our earnings and efficiency with which we deployed capital enabled us to repurchase approximately $400 million of our common stock during the past year. We have built a world-class inventory management...

  • Page 6
    ... achieve double-digit comparable store sales growth for eight of the past nine quarters. In fiscal 2000, we opened 47 stores, including our entry into Sacramento, San Diego and San Francisco, Calif.; as well as Richmond, Va. This autumn, we will enter the densely populated metropolitan New York area...

  • Page 7
    ...pickup. Customers can make returns and exchanges, and receive additional products and services at our retail stores, something pure e-tailers cannot offer. The growing importance of strategic alliances demonstrates the increasing link between the offline retail sector and the burgeoning online world...

  • Page 8
    Vi s i o n Direction To be at the What We Stand For Where 6 intersection of technology and life

  • Page 9
    Mission Passion We improve people's lives by making technology and entertainment products affordable and easy to use Going We're 7

  • Page 10
    ... software and appliances. Though the products and services we offer have changed over the years, our goal of providing consumers with quality products and services at affordable prices continues. Technology has changed tremendously in the past decade, and we have continued to evolve our stores...

  • Page 11
    ... Best Buy as the consumers' choice for digital technology. As consumers embrace the transition from analog to digital products, we plan to offer the products currently on the market, including digital television, Internet-ready cellular telephones, MP3 digital downloadable music players, and direct...

  • Page 12
    ... Corp. This alliance provides us with access to new software and technology, and co-marketing opportunities among Best Buy, BestBuy.com and Microsoft properties. From its inception in July, our market-leading Internet service provider (ISP) instant rebate offers generated nearly three-quarters of...

  • Page 13
    ... to our in-store experience. Our Internet business is expected to benefit significantly from Best Buy's established brand equity, and its advertising programs, customer base, supply chain and logistics, retail stores and other assets. Similarly, we are building many new capabilities within BestBuy...

  • Page 14
    ... to helping our customers purchase the technology and entertainment products that will improve their personal time. Best Buy carries a broad selection of products to enhance consumers' time-whether it's leisure or work. Our fun, informative shopping atmosphere respects consumers' knowledge and puts...

  • Page 15
    ... they buy. Web stations in each store will allow customers to surf for information and order products directly from BestBuy.com. We are committed to making the latest technology understandable and easy to purchase. We believe our consumer-centric approach is key to Best Buy becoming the retailer of...

  • Page 16
    ... job and create opportunities for growth and promotion. Our expansion plans, which include approximately 60 stores per year for the next five years, provide additional opportunities for advancement. Employees participate in monthly product, service and operations training to keep them current on new...

  • Page 17
    ... work. Our Company's contribution goal is to donate 1.5% of pre-tax earnings, focusing 50% on youth development organizations and the remaining in Best Buy community initiatives. In fiscal 2000, Best Buy and the Best Buy Children's Foundationâ„¢ (BBCF) awarded grants and employee volunteer support...

  • Page 18
    Va l u e s Principles Unwavering • • Ethics and Honesty integrity Respect for our customers, communities and fellow employees Who Extraordinary • • We Growth For our Company, Are employees and shareholders Encouraging and • discovery learning speed and change Best fun while ...

  • Page 19
    Performance Results HowWeDid A $100 investment in Best Buy on February 25, 1995, is worth two-and-a-half times more than an investment in the S&P 500 Index or in a peer group of retailers. Source: Media General Financial Services 17

  • Page 20
    ... a monthly average of inventory balances. (7) During fiscal 2000, to comply with guidance from the staff of the Securities and Exchange Commission, the Company changed its accounting policy with respect to the recognition of net commission revenues from the sale of certain insured extended service...

  • Page 21
    Best Buy Co., Inc. Fiscal 2000 Annual Report 10 -Year Financial Highlights $ in thousands, except per share amounts 1996(6) $ 7,214,828 933,951 813,988 119,963 46,425 46,425 1995 $ 5,079,557 690,...

  • Page 22
    ... of fiscal 2000. Internet service providers (ISPs) offered new subscribers significant rebates on purchases of personal computers, making them more affordable. This stimulated unit sales of personal computers and sales of higher-margin accessories and Performance Service Plans (PSPs) that accompany...

  • Page 23
    Best Buy Co., Inc. Fiscal 2000 Annual Report Management's Discussion and Analysis of Results of Operations and Financial Condition The Company opened 47 new stores in fiscal 2000, including entry into the markets of San Francisco, Sacramento and San Diego, Calif.; Norfolk and Richmond, Va.; Albany ...

  • Page 24
    ... Company believes digital television also represents a significant revenue opportunity in the coming year. Sales of entertainment software, which includes recorded music and movies, computer software and video games, benefited from strong sales of compact disc (CD) and DVD titles. Sales of recorded...

  • Page 25
    ... to hire and train store managers to support the 47 new stores added in fiscal 2000 and in preparation for the approximately 60 additional stores anticipated in fiscal 2001. Furthermore, the Company has increased its corporate staff to drive strategic initiatives, build the Company's e-commerce...

  • Page 26
    ...state income tax rates. Subsequent to year-end, the Company finalized a comprehensive strategic alliance with Microsoft Corp. The agreement encompasses significant co-marketing between the Microsoft Network of Internet Services (MSNâ„¢), BestBuy.com and Best Buy's retail stores, via direct marketing...

  • Page 27
    ...Acquisition of leasehold rights, the purchase of insurance policies in connection with the Company's deferred compensation plan as well as changes in deferred income taxes contributed to the net change in other assets. Accounts payable and accrued liabilities increased compared with fiscal 1999, due...

  • Page 28
    ...or relocate about 10 stores. Also included in fiscal 2001 capital spending is the construction of the Company's seventh distribution center, a 650,000-square-foot facility in Dublin, Ga., and the initial land and construction costs for a new corporate office facility scheduled to open in fiscal 2002...

  • Page 29
    ... the next year. The revolving credit facility and the Company's inventory financing program are also available for additional working capital needs or investment opportunities. Quarterly Results and Seasonality Similar to most retailers, the Company's business is seasonal. Revenues and earnings are...

  • Page 30
    ...67.00 42.00 1st 2nd 3rd 4th Best Buy's common stock is traded on the New York Stock Exchange, under the symbol BBY. As of March 31, 2000, there were 1,940 holders of record of Best Buy common stock. The Company has not historically paid, and has no current plans to pay, cash dividends on its common...

  • Page 31
    ..., among other things, general economic conditions, product availability, sales volumes, profit margins, and the impact of labor markets and new product introductions on the Company's overall profitability. Readers should refer to the Company's Current Report on Form 8-K filed on May 15, 1998, that...

  • Page 32
    ...071,827 Assets Current Assets Cash and cash equivalents Receivables Recoverable costs from developed properties Merchandise inventories Other current assets Total current assets Property and Equipment Land and buildings Leasehold improvements Fixtures and equipment Property under capital leases 76...

  • Page 33
    ... 30,509 Liabilities and Shareholders' Equity Current Liabilities Accounts payable Accrued compensation and related expenses Accrued liabilities Accrued income taxes Current portion of long-term debt Total current liabilities Long-Term Liabilities Long-Term Debt Shareholders' Equity Preferred stock...

  • Page 34
    ...,938 For the Fiscal Years Ended Revenues Cost of goods sold Gross profit Selling, general and administrative expenses Operating income Net interest income (expense) Earnings before income tax expense Income tax expense Net earnings Basic earnings per share Diluted earnings per share Basic weighted...

  • Page 35
    Best Buy Co., Inc. Fiscal 2000 Annual Report Consolidated Statements of Cash Flows $ in thousands Feb. 26 2000 $ 347,070 109,541 456,611 Changes in operating assets and liabilities: Receivables Merchandise inventories Other assets Accounts payable Other liabilities Accrued income taxes Total cash ...

  • Page 36
    ... 1999 Stock options exercised Tax benefit from stock options exercised March 1999 two-for-one stock split Repurchase of common stock Net earnings Balances at February 26, 2000 $ 4,329 134 - - - 4,463 199 - 509 5,016 (6) - 10,181 408 - 10,190 (741) - $ 20,038 Retained Earnings $ 183,167 - - - 81,938...

  • Page 37
    ... February 27, 1999, and the related consolidated statements of earnings, changes in shareholders' equity, and cash flows for each of the three years in the period ended February 26, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express...

  • Page 38
    ...Significant Accounting Policies Description of Business The Company currently operates in a single business segment, selling personal computers and other home office products, consumer electronics, entertainment software, major appliances and related accessories principally through its retail stores...

  • Page 39
    ... two to five years. The Company recognizes net commission revenues for extended service contracts sold in states where the Company is not deemed the obligor at the time of sale. Pre-Opening Costs In fiscal 1999, the Company adopted Statement of Position (SOP) 98-5, Reporting on the Cost of Start-Up...

  • Page 40
    ... by the manufacturers. 3. Long-Term Debt Capital Leases and Other Loans As of February 26, 2000, long-term debt consisted of capital leases and other loans bearing interest at rates ranging from 5.25% to 9.41%. These obligations are secured by certain property and equipment with a net book value of...

  • Page 41
    ... of Subsidiary In November 1994, the Company and Best Buy Capital, L.P., a special-purpose limited partnership in which the Company was the sole general partner, completed the public offering of 4.6 million convertible monthly income preferred securities with a liquidation preference of $50 per...

  • Page 42
    ..., no compensation cost has generally been recognized for stock options granted. Had the Company adopted SFAS No. 123, the pro forma effects on net earnings, basic earnings per share and diluted earnings per share would have been as follows: 2000 Net Earnings As reported Pro forma Basic Earnings per...

  • Page 43
    Best Buy Co., Inc. Fiscal 2000 Annual Report Notes to Consolidated Financial Statements $ in thousands, except per share amounts The weighted average fair value of options granted during fiscal 2000, 1999 and 1998 used in computing pro forma compensation expense was $25.59, $8.58 and $1.74 per share...

  • Page 44
    ... to time through open market purchases. This plan has no stated expiration date. As of February 26, 2000, 1.9 million shares were purchased and retired at a cost of $100,000. Other Subsequent to year-end, the Company finalized a comprehensive strategic alliance with Microsoft Corp. In connection...

  • Page 45
    Best Buy Co., Inc. Fiscal 2000 Annual Report Notes to Consolidated Financial Statements $ in thousands, except per share amounts 6. Operating Lease Commitments and Related-Party Transactions The Company currently owns the majority of its corporate headquarters facilities and conducts essentially ...

  • Page 46
    ... certain management employees. The liability for compensation deferred under this plan was $18,900 and $8,400 at February 26, 2000 and February 27, 1999, respectively, and is included in long-term liabilities. The Company has elected to match its liability under the plan through the purchase of life...

  • Page 47
    ... and income tax purposes. Significant deferred tax assets and liabilities consist of the following: Feb. 26 2000 Accrued expenses Deferred revenues Compensation and benefits Other Total deferred tax assets Property and equipment Inventory Other Total deferred tax liabilities Net deferred tax assets...

  • Page 48
    ...Store Count Alabama Arizona Arkansas California Colorado Delaware Florida Georgia Illinois Indiana Iowa Kansas Kentucky Maine Maryland Massachusetts Michigan Minnesota Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Pennsylvania...

  • Page 49
    ... Miller Vice President Brand Management Lynn M. Morris Vice President Procurement Re-Engineering Gerald C. Nanninga Vice President Strategic Planning Mark J. Nettesheim Vice President Retail Operations Mark D. Overgard Vice President Regional Sales Joseph S. Pagano Vice President Music/Movies/Books...

  • Page 50
    ...'re Focusing on core products, selling services to connect them, developing content (entertainment, educational and informational resources) and using our experience to influence manufacturers - that's how Best Buy is delivering innovative entertainment and technology packages, rather than providing...

  • Page 51
    Innovate Accelerate Successful © 2000 Best Buy 49

  • Page 52
    Technology Life