Best Buy 2008 Annual Report Download - page 52

us to maintain a maximum quarterly cash flow leverage interest portion of rent expense) to fixed charges. Our
ratio and a minimum quarterly interest coverage ratio. The interest coverage ratio, calculated as reported in Exhibit
Credit Agreement contains customary default provisions No. 12.1 of this Annual Report on Form 10-K, was 8.9
including, but not limited to, failure to pay interest or and 10.3 in fiscal 2008 and 2007, respectively.
principal when due and failure to comply with covenants. Our credit ratings at April 25, 2008, were as follows:
We also have inventory financing facilities through which Rating Agency Rating Outlook
certain suppliers receive payments from a designated
Fitch BBB+ Stable
finance company on invoices we owe them. At March 1,
Moody’s Baa2 Stable
2008, and March 3, 2007, $26 million and $39 million,
Standard & Poor’s BBB Stable
respectively, were outstanding and included in accrued
liabilities in our consolidated balance sheets; and Factors that can affect our credit ratings include changes
$215 million and $196 million, respectively, were in our operating performance, the economic environment,
available for use under these inventory financing facilities. conditions in the retail and consumer electronics industries,
our financial position and changes in our business
Our International segment has a $25 million revolving
strategy. We do not currently foresee any reasonable
demand facility for our Canada operations, of which
circumstances under which our credit ratings would be
$20 million is available from February through July, and
significantly downgraded. If a downgrade were to occur, it
$25 million is available from August through January of
could adversely impact, among other things, our future
each year. There is no set expiration date for this facility.
borrowing costs, access to capital markets and vendor
All borrowings under this facility are made available at the
financing terms, and ultimately result in higher long-term
sole discretion of the lender and are payable on demand.
lease costs. In addition, the conversion rights of the
Borrowings under this facility are unsecured and bear
holders of our convertible subordinated debentures could
interest at rates specified in the credit agreement. There
be accelerated if our credit ratings were to be significantly
were no borrowings outstanding under this facility for any
downgraded.
period presented. However, amounts outstanding under
letters of credit and letters of guarantee reduced amounts
Capital Expenditures
available under this facility to $19 million and
$16 million, at March 1, 2008, and March 3, 2007, A component of our long-term strategy is our capital
respectively. expenditure program. This program includes, among other
things, investments in new stores, store remodeling, store
Our International segment also has $86 million in
relocations and expansions, new distribution facilities and
revolving demand facilities to finance working capital
information technology enhancements. During fiscal 2008,
requirements for our China operations. The facilities are
we invested $797 million in property and equipment,
renewed annually with the respective banks. An aggregate
including opening 155 new stores; adding Best Buy
of $36 million in borrowings was outstanding under these
Mobile, Apple and Magnolia Home Theater
facilities at March 1, 2008. Certain borrowings are
store-within-a-store experiences inside new and existing
secured by a guarantee of Best Buy Co., Inc. and bear
U.S. Best Buy stores; expanding and remodeling existing
interest at rates specified in the credit agreements.
stores; and upgrading our information technology systems.
Our ability to access our credit facilities is subject to our Capital expenditures are funded through cash provided by
compliance with the terms and conditions of the credit operating activities, as well as available cash and cash
facilities, including financial covenants. The financial equivalents and short-term investments.
covenants require us to maintain certain financial ratios. At
Refer to the Outlook for Fiscal 2009 section of this MD&A
March 1, 2008, we were in compliance with all such
for information on our capital expenditure plans in fiscal
covenants. In the event we were to default on any of our
2009.
other debt, it would constitute a default under our credit
facilities as well.
An interest coverage ratio represents the ratio of pre-tax
earnings before fixed charges (interest expense and the
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