Best Buy 2005 Annual Report Download - page 55

Our ability to access our credit facilities is subject to our Factors that can impact our credit ratings include changes
compliance with the terms and conditions of the credit in our operating performance, the economic environment,
facilities, including financial covenants. The financial conditions in the retail and consumer electronics
covenants require us to maintain certain financial ratios. industries, our financial position and changes in our
At the end of fiscal 2005, we were in compliance with all business strategy. We do not currently foresee any
such covenants. In the event we were to default on any of reasonable circumstances under which our credit ratings
our other debt, it would constitute a default under our would be significantly downgraded. If a downgrade were
credit facilities as well. to occur, it could adversely impact, among other things,
our future borrowing costs, access to capital markets,
We offer our customers extended financing through a vendor financing terms and future new-store occupancy
third-party financial institution. The third-party institution costs. In addition, the conversion rights of the holders of
assumes the risk of collection from our customers and has our convertible subordinated debentures could be
no recourse against us for any uncollectible amounts. accelerated if our credit ratings were to be downgraded.
Generally, these financing offers allow customers to
purchase products with repayment terms ranging from Capital Expenditures
90 days to 24 months without a finance charge. Our
contract with the third-party financial institution extends A component of our long-term strategy is our capital
through January 2009. If the contract were to be expenditure program. This program includes, among
terminated prior to January 2009, we believe we could other things, investments in new stores, store remodeling,
contract with an alternative third-party financial institution store relocations and expansions, new distribution
or directly provide our customers with extended financing. facilities and information technology enhancements.
During fiscal 2005, we invested $502 million in property
Our credit ratings as of April 29, 2005, were as follows:
and equipment, including opening 78 new stores;
Rating Agency Rating Outlook converting 67 stores to our customer centricity operating
Fitch(1) BBB Positive model; relocating 10 stores; completing construction of
Moody’s(2) Baa3 Positive our new Oklahoma distribution center; completing the
Standard & Poor’s(3) BBB Stable expansion of our Ontario distribution center; and
(1) In February 2005, Fitch Ratings revised its outlook to information technology systems improvements. Capital
positive from stable and affirmed our BBB rating. The
outlook revision is based on our improving operating expenditures are funded through cash provided by
performance and strong balance sheet. operating activities, as well as available cash and cash
(2) In March 2005, Moody’s Investors Service revised its outlook equivalents and short-term investments.
to positive from stable and affirmed our Baa3 rating. The
outlook revision is based on the success of our initiatives to Refer to the ‘‘Outlook for Fiscal 2006’’ section of this
increase market share while boosting profit margins. MD&A for information on our capital expenditure plans
(3) In February 2005, Standard & Poor’s Ratings Services for fiscal 2006.
revised its rating from BBB- with a positive outlook to BBB
with a stable outlook based on our operating performance
and liquidity levels, improved credit metrics and expectations
that we will continue to apply a moderate financial policy in
the management of our strategic growth opportunities.
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